Pre-IPO exits at manipulated prices: Why Sebi went after Ranbir Kapoor and the Aamir Khan-backed company?

Droneacharya Aerial Innovations hit the market in December 2022 as one of the year’s most high-profile SME listings, helped by a standout roster of early investors, including Bollywood actors Ranbir Kapoor and Aamir Khan, along with market veteran Shankar Sharma. The IPO, which was subscribed a whopping 244 times, benefited from the excitement surrounding the drone boom in India.Two years later, Sebi has delivered a very different story. In a detailed order, the market regulator has banned Dronecharya, its promoters Prateek Srivastava and Nikita Srivastava, and several associated entities from the securities market for two years. The regulator found that the company misappropriated IPO proceeds, misrepresented financial statements and used corporate announcements to artificially inflate stock prices after the listing.

Sebi says this helped pre-IPO investors exit at “manipulated prices” while public investors continued to bear the risk.

Sebi noted that Droneacharya issued optional convertible preference shares (OCPS) in private placements, raising around Rs 32.35 crore from pre-IPO investors. These investors were told that the shares would soon go public, which helped attract high-profile names. But at the time of this fundraising, the company was virtually inactive, had no significant operations and reported negative pre-tax profits through FY21.

The company’s sudden jump in revenue – from Rs 3.58 crore in FY22 to Rs 18.56 crore in FY23 and Rs 35.19 crore in FY24 – has not been accompanied by healthy cash flows.

Sebi found that Droneacharya had negative operating cash flows for three consecutive years due to rising trade receivables and inter-corporate advances. Meanwhile, the only positive cash flow came from private placements and the IPO itself. According to the regulator, the company used the proceeds from the IPO as working capital instead of generating sustainable cash from business activities. The regulator says Droneacharya made misleading announcements, giving investors a favorable impression of its business traction, which helped support its share price and provided an exit window for early investors. These pre-IPO shareholders were able to sell at high valuations that the regulator said were not justified by fundamentals. Retail investors who bought on the secondary market faced the downside once the hype wore off. The order also highlights gaps in governance and transparency within the SME ecosystem, where listings can attract significant retail interest despite limited disclosures and little operating history.

While the fines – Rs 75 lakh for all entities and a two-year ban – are significant, the broader impact could be on investor confidence. The case raises questions among private buyers who often seek SME listings based on branding, media buzz or celebrity associations, rather than a close examination of the company’s ability to generate sustainable profits and cash flows.