Small and medium enterprises have clambered onto the IPO bandwagon with alacrity: fund-raising activity through junior bourses has gone up by about seven times in the past six years.

For small entrepreneurs, raising funds through the SME IPO platform yields dual benefits of increased capital availability on the one hand, and improved corporate governance on the other.

Morbi-based ceramics player Lexus Granito India came out with an SME IPO at ₹45 a share last month to meet its working capital requirements. The company’s shares were listed at ₹53, a premium of 17.78 per cent; it progressively appreciated further and touched ₹121.65 on Thursday. “An SME IPO is a much better way to raise capital as it gives the company credibility and investors confidence,” said Anilkumar Detroja, Managing Director, Lexus Granito India Limited. “We preferred the SME platform over the VC or PE route as it boosts the company’s image and brings a variety of investors.”

Improved compliance

Similarly, Vapi-based Maheshwari Logistics came out with its SME IPO in December last year and was listed with a moderate premium of 6 per cent. Since then, however, its shares have appreciated nearly 90 per cent. “In the case of PE or VC funding, the financials remain an internal affair. An SME IPO enforces improved compliance at a lower cost,” said company MD Neeraj Maheshwari.

Currently, 267 SMEs are listed on the NSE and the BSE. Some 81 of these companies are from Gujarat, followed by Maharashtra (76) and Delhi (22). In terms of sectors, SMEs from the construction, finance and investment, textile products, trading and computer hardware segments are among the top ones to hit the primary markets through this platform.

₹2,458-crore mop-up

Data compiled by Pantomath Research shows that the number of SME IPOs had gone up from 13 in 2012 (which collectively raised ₹120 crore) to 72 in 2017 (raising ₹873 crore). A total of ₹2,458 crore has been raised so far by 267 SMEs.

So far this year, 46 companies have listed on the SME platform, raising a total of ₹523.21 crore. Over 70 companies are in line to list during the rest of the year, with the total fund-raising expected to cross ₹1,000 crore this fiscal.

“SME exchanges enable emerging businesses to unlock value and raise growth capital at early stage, without interest burden,” noted Mahavir Lunawat, MD, Pantomath Capital, SEBI Registered Category I Merchant Banker. “They can now receive enhanced funds from banks at significantly reduced rates of interest, based on improved credit ratings. Stakeholders, too, have more confidence in the listed entity, motivating them to adhere to better governance,” he said.

Some of the listed firms on the SME platform have migrated to the main board while some firms have taken themselves to the next level of growth through diversification, mergers and acquisition.