How SMEs have struck a gold mine through their IPOs

When it comes to fund-raising to meet working capital requirement or expansion investments, small and medium enterprises (SMEs) have hit upon a gold mine of sorts. These come in the form of initial public offerings (IPO) for SMEs, which are then listed on junior bourses of the country's leading stock exchanges.

Gujarat, which is known for its enterprising spirit and high proportion of small businesses in manufacturing, services and technology, has been on the forefront when it comes to companies applying for SME IPOs.

According to available statistics, Gujarat-based companies dominate the SME IPOs scene, with 33 companies having their IPOs on the junior bourses of Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Maharashtra is next in line, with about 15 companies; Rajasthan has had 10 SME IPOs; West Bengal accounted for four SME IPOs; and Delhi for three companies.

With fund-raising becoming easy, quick and transparent, investors are pouting more funds into these SMEs.

As against the previous two years’ average issue size of ₹7 crore, the issue size has increased to ₹10 crore this year.

For the financial year 2016-17, some 80 companies were listed from across the country on the SME exchanges of the NSE and the BSE; their combined market capitalisation was worth ₹811 crore.

In 2015-16, the number was almost half, with 46 firms raising about ₹304 crore through the IPO route.

In 2014-15, some 37 SMEs opted for IPOs, raising ₹271 crore.

Among the top-performing SME IPOs are those in the manufacturing, IT and services serctors from Gujarat.

Ahmedabad-based IT solutions provider Dev Information Technology Limited’s SME IPO on the NSE Emerge platform attracted record bids worth ₹463.5 crore against the offer of ₹6.25 crore.

The issue, which opened on March 31, was subscribed 74.17 times the issue size.

Interestingly, the retail portion of the IPO was oversubscribed 89.14 times, while in the HNI portion, it received 69.29 times more bids, making it an exceptional IPO.

Another Ahmedabad-based company, Airan Ltd, whose IPO opened for subscription in March 2017, was oversubscribed 28 times.

The retail portion was oversubscribed 37 times and other categories oversubscribed 22 times. In April, Surat-based packaging material maker Sysco Industries Limited saw its ₹2.17 crore IPO oversubscribed 10 times.

The industry body FICCI’s Gujarat State Council recently organised a conference in association with The Indus Entrepreneurs (TiE)-Ahmedabad and Tridha Advisory to discuss the growing trend of SME IPOs as an alternative funding option for SMEs.

This could increase their share in GDP from 40 per cent to 60 per cent. Fund-raising remains a major challenge for SMEs as they look to scale up.

Experts believe that of the existing funding options available, including debt, private equity, venture capital (PE/VC) investments, the SME IPO route is probably the one that works best for them.

IPOs have less stringent regulations as compared to PE/VC investments and they add value through transparency and corporate governance.

Also, an SME listing opens the gates for small companies to move to the main board of the BSE and the NSE depending on their track record, by attracting serious investors from across the globe.

SMEs look at this as an efficient way to unlock value for the next level of growth.

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