On Monday 16^th September Bombay Stock Exchange (BSE) issued a circular advising Trafiksol to retain its entire issue of IPO, in the third-party account of the sponsor bank until it “satisfactorily explains issues raised in a complaint and in a post on social media” Following day BSE issued another circular stating that “in view of certain queries that have been raised, the listing for trading of the scrip is postponed till queries are resolved by the issuer”.

Trafiksol is an organization that specializes in Intelligent Transportation Systems and automation solutions spanning from initial requirements assessment and solution identification to seamless implementation, business integration and system fine-tuning.

The company had a fresh issuance of 64.1 lakh equity shares worth Rs. 44.87 crores with a price band of Rs. 66-70 per share. During the three-day bidding from 10^th September to 12^th September, the IPOs were subscribed 345.65 times. After the declaration of postponement, the grey market premium for its share fell to zero.

What is wrong with the IPO of Trafiksol?

The company has recorded approximately 79 percent revenue growth in the financial year 2024 compared to the previous year as mentioned in Red Herring Prospectus and approximately 155 percent increase in profit after tax.

In their Red Herring Prospectus, they mentioned the purchase of software and meeting working capital requirements as the main reason behind the issuance of the IPO. However, OASIS CORPCARE from which the software was supposed to be purchased, has paid up capital and authorized share capital of Rs. 1lakh and has not filed or made any filings since 2021. These irregularities were pointed out by several investors on social media platform X.

However, the company mentioned in the prospectus that these quotations are for budgetary purposes and the company may or may not pursue the same dealer to purchase the software.

On 12^th September a Bloomberg report mentioned that SEBI considers tighter oversees on SMEs selling shares to the public, including monitoring the use of their funds and imposing stricter due diligence guidelines for merchant bankers. SEBI does not play any role in the SME IPOs, it is under the purview of NSE and BSE. SEBI has warned investors in an advisory capacity to exercise extreme caution before engaging with the SME market.

In an advisory issued on 28 August SEBI has warned that SMEs are using shady tactics to sell shares at premium prices. After listing the shares certain companies and their promoters make announcements to paint an overly positive picture of the company and inflate the value of shares.

“Such companies/promoters have been seen making public announcements that create a positive picture of their operations. These announcements are typically followed up with various corporate actions such as bonus issues, stock splits, preferential allotments, etc.,” stated the advisory.