SMEs may leverage IPO boom to meet funding gap, says expert

Mumbai, December 14, 2023: At a time when interest rate on bank loans have risen considerably, small and medium enterprises (SMEs) can leverage the current boom in the primary IPO market to meet capital requirement, said CA Sumeet Mehta, CEO of Paradigm Advisors at a Knowledge Session on Raising Equity through SME IPO. The session was organised by World Trade Center Mumbai and All India Association of Industries (AIAI).

CA Mehta advised SMEs to grow their net worth, improve debt-equity ratio, strengthen balance sheet and enhance their credit rating by raising equity capital on the dedicated SME platforms of Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). “So far, 464 SMEs have raised Rs. 5727 crore equity capital on the BSE platform, while their overall market capitalization has grown to Rs. 97,488 crore. Similarly, around 234 SMEs have raised Rs. 3,100 crore on the NSE platform and their market capitalization has exceeded Rs. 8,000 crore because of strong investor interest in SMEs with promising business prospects. SMEs generating profit at least in the last two years can go for IPO to dilute the shares of promoters, reduce debt, invest in new projects or build a war chest for mergers and acquisition,” CA Mehta said.

Speaking about the benefits of listing shares on stock exchange, CA Mehta mentioned, “By listing their shares on stock exchanges, SMEs can improve their credit rating, corporate governance, financial discipline, branding, market perception, which reduces their risk perception and thus helps them raise debt at reasonable interest cost. IPO also prepares the ground for future capital raising to grow the business through follow-on public offer (FPOs). Apart from this, SMEs can pledge their listed shares to raise fresh loans, offer stock options to employees and create shareholder wealth. The minimum IPO size for SMEs to list on stock exchange is Rs. 10 crore; But companies can ideally raise at least Rs. 25 crore to justify the high cost of merchant bankers and other expenses involved in going public.”

CA Mehta highlighted the essential procedures to be followed before listing and after listing the shares on stock exchange. He said, “SMEs need to streamline their financial statements, balance sheets, receivables and key financial ratios to attract investors. They should also maintain consistency of numbers across different financial statements, engage professional team to manage business operations, create a professional Board of Directors and decide on whether to include all its business segments under the listed entity at the IPO stage or keep some of them separate for inclusion at a future date. They should also decide on the appropriate valuation in consultation with merchant bankers, investment analysts and peer-review of competitors.”

Earlier in his welcome remarks, Dr. Vijay Kalantri, President- All India Association of Industries (AIAI), Chairman - MVIRDC World Trade Center Mumbai pointed out, “SMEs are the key drivers of economic growth and they will play a major role in attaining the USD 30 trillion economy by 2030. But our SMEs face funding gap of up to Rs. 25 lakh crore, as per UK Sinha Committee Report of the RBI. SMEs face challenge in raising collateral-free bank credit even though their contribution to the non-performing assets (NPAs) of banks is low. SMEs can raise equity capital to meet their funding requirement as this is the boom time for IPOs. We need simpler compliance norms for SMEs to list their shares on the stock exchanges.”

Dr. Kalantri emphasized that SMEs need capacity building and capital at reasonable cost to grow their business. “India has a huge consumer market and MSMEs need capital to grow their manufacturing capacity to meet the growing domestic consumption. WTC Mumbai and AIAI will organize more such sessions to create awareness about the benefits of raising equity capital through IPO.”

Ms. Rupa Naik, Executive Director, MVIRDC WTC Mumbai proposed vote of thanks for the event. She remarked, “Exports and entrepreneurship are key drivers of economic growth. In recent years, we have seen growth in the share of women owned enterprises in the MSME sector from 15% (under the erst-while UAM portal) to 30% (under the new Udyami registration portal). There are around 600 schemes at the level of central and state governments, including the schemes of NABARD and SIDBI to promote entrepreneurship, especially for women entrepreneurs. We need to create awareness about these plethora of schemes to support small scale entrepreneurs. NSE and BSE have dedicated platforms for SMEs to raise equity capital and the objective of this session is to create awareness about these platforms for the benefit of small scale enterprises.”

The event was attended by entrepreneurs, professionals from banks, investment analysts and consultants.

CA Sumeet Mehta, CEO of Paradigm Advisors (right) being felicitated by Dr. Vijay Kalantri, President- All India Association of Industries (AIAI) and  Chairman- MVIRDC World Trade Center Mumbai at a Knowledge Session on Raising Equity through SME IPO.