SME IPO Crisis: Phytochem Remedies Withdraws ₹38 Crore Issue Due to Undersubscription
Introduction
Phytochem Remedies, a packaging company based in Jammu, has become the latest casualty in the challenging SME IPO landscape. Originally set to list on the BSE SME platform on December 26, the company was forced to withdraw its initial public offering (IPO) after garnering only 62% subscription, resulting in a ₹38 crore issue that received just 797 applications.
Reasons Behind the Withdrawal
– The management cited unfavorable market conditions and volatility in the capital markets as primary reasons for the decision.
– Phytochem’s Chairman and Managing Director, Niranjan Surana, noted that these factors significantly impacted investor sentiment, prompting the company to not proceed with the IPO.
Subscription Details
– The bidding process concluded after three days, with only 797 bids received for approximately 23.1 lakh shares, resulting in subscriptions amounting to around ₹22.63 crore.
– This starkly contrasts with the intended ₹38.22 crore, rendering the IPO undersubscribed.
Market Sentiment Observations
– Before its withdrawal, shares were trading at par with the fixed issue price of ₹98, indicating a expectations of a flat debut.
– Market analysts pointed out that the lack of a premium reflects a cautious sentiment surrounding SME offerings, particularly in light of tighter regulations and a more selective investor appetite.
Company Valuation and Financials
– At the fixed issue price, Phytochem Remedies was valued at a pre-IPO market capitalization of about ₹115 crore.
– The IPO was entirely a fresh issue with no component offered for sale.
Investment Details
– Retail investors faced a relatively high minimum investment requirement of ₹2.35 lakh, as bids needed to be placed for a minimum of 2,400 shares.
– The allocation for non-institutional and retail categories was about 47.5%, with approximately 5% reserved for the market maker, Aftertrade Broking.
Company Overview
– Phytochem Remedies specializes in manufacturing corrugated boxes and boards for various sectors, including FMCG, food and beverages, pharmaceuticals, pesticides, and automobiles.
– The company operates two manufacturing units in Bari Brahmana, Jammu, and employs 51 people.
Financial Performance
– Phytochem has shown a remarkable improvement in profitability over the past two years:
– Revenue increased by 12% year-on-year in FY25.
– Profit After Tax (PAT) nearly doubled to ₹4.48 crore.
– For the first half of FY26, the company reported a PAT of ₹3.75 crore.
Use of IPO Proceeds
– The IPO proceeds were intended for capital expenditures related to machinery and civil construction, in addition to repaying borrowings and covering general corporate purposes.
Conclusion
The withdrawal of Phytochem Remedies’ SME IPO serves as a critical reminder of the current challenges within the SME market. With undersubscription rates reflecting broader investor sentiment, companies seeking public funding must navigate a landscape marked by heightened scrutiny and selective investment approaches. As the market evolves, the focus will remain on trends in SME IPOs and their implications for industry participants.