A sneak peek into the world of SMEs getting listed on bourses

SMEs have started eyeing listing as an opportunity of getting into raising capital and be in the mainstream fold. However, challenges continue due to low volumes on these platforms.

There are no two doubts that SMEs (Small and Medium Enterprises) are the backbone of the Indian economy. A vibrant policy and mechanism to assist them with policy and capital raising tools could take them to the next level. 

In 2012, leading stock bourses Bombay Stock Exchange (BSE SME & Startup) and National Stock Exchange (NSE Emerge) came up with their platforms allowing SMEs and startups to get listed. Further, they can move to the main board of the bourses without launching an IPO. 

An overall, 358 companies have taken advantage of getting listed on the bourses. 

Avenue To Raise Funds

As per industry experts, the platforms have been assisting SMEs in raising equity capital to fuel their growth and expansion. 

Ajay Thakur, Head BSE SME, and Startup platform, in a conversation with TheSMEIndia.com, stated that till date, 358 firms have been listed on the BSE SME and Start-up Platform. They have raised a total of Rs 3,793.57 crores with a market capitalisation of Rs 46,851.21 crores, and the number of companies migrated from this platform to the mainboard increased to 127.

 “With Clara Industries listing on Wednesday, 56 SMEs have got listed during this calendar year, which is equivalent to the numbers listed in 2019 and more than double the number listed in 2020 (28),” he added. 

According to Ajay Thakur, “Based on the listings that have occurred in the SME Sector during the last two months, the SME companies have been doing well, and the sector has seen a huge growth, the capital market is upbeat, the investor base is growing, and they see a lot of SME companies coming out in the open for listing during the next financial year.”

BSE expects over 70 companies to go public in the next fiscal year and predicts roughly 50 to be listed in the current financial year, up from 16 companies in the previous financial year. 

He also touched upon the BSE Start-up platform, which has seen six startups listed this year, bringing the total number of startups listed to 13 since the Platform’s inception in August 2019.

Bankers Upbeat on SME Listing 

Number of merchant bankers are upbeat on SME Listing. Gretex Corporate Services, Hem Securities Ltd, Aryaman Financial Services Ltd, Shreni Shares Pvt Ltd, ISK Advisors Pvt Ltd, Inventure Merchant Banker Services Pvt Ltd, Beeline Shares and Stock Brokers Ltd are some of the bankers assisting them in getting the SME companies getting listed in this platform

Alok Harlalka, Managing Director, Gretex Corporate Services Limited, stated that his company had assisted 24 companies in listing on this BSE SME platform after receiving registration of a merchant banker way back during the year 2014. 

The company helps SME enterprises before and after they go public and currently have signed mandates with over a dozen companies on the verge of going public. He added that they can help companies get listed in less than two months. 

According to bankers, SMEs have only two sources of funding: one is investing their own money, and the other is money borrowed from banks. However, MSMEs must be aware that a third funding source is available, which creates a financial asset to the organisation. As per industry experts, SMEs should use these platforms because it will enable them to understand their firm’s actual value, assist in wealth creation, and propel their organisation to new heights, allowing them to continue their legacy.

Given the latest new high in stock markets following the pandemic and after recognising India’s immense development potential, Alok added, Gretex was listed in The BSESME platform in August this year and was oversubscribed seven times. 

The flipside of SME Listing 

Mangal Analytics’ Managing Director, Ashutosh Kharangate, has a different viewpoint. His own experiences with SME listing has not been pleasant. But, he adds, even though it is a solid foundation for moving to the main board at a significantly reduced cost, companies should not expect much to happen during this period. He reiterated that he hasn’t heard of any company that has reaped tangible benefits from an SME listing, such as cheaper borrowing rates, more debt, or being realistic fundraise later. 

Finally, he stated that, while his study is a little outdated, few companies listed on the SME exchange are trading at a price more significant than the listing price.

Milind Padole, Managing Director of Affordable Robotic and Automation Pvt. ltd., said they tried to raise cash through private equity before going public. But, even though it was an option, they found it difficult to source funds. And immediately after getting listed, they couldn’t expand because of the pandemic. 

According to Padole, once you are in the equity market, you are answerable to the public, and you must continue to show interest to the investors. He adds that when you meet an investor, they ask how you plan to scale up your firm? That’s something they had never thought of before. Today, they have a few products that will propel them to the next level, and his goal is to move to the BSE main board within a year.

How To Go About Listing?

SMEs should seek finance from an open market, with proper intent, as investors back your ideas and vision only if you have exemplary integrity.

According to S. Swaminathan, CEO and Founder of IRIS Business Services Limited, a 2017 BSESME listed company, being a public company has few advantages. 

It allows SMEs to work on succession planning, the most challenging aspect of running a business. In addition, when a firm is publicly traded, it is much easier to attract purchasers. Companies also move from family-run firms to professionally managed organisations, including exit options.

He further states that customers perceive a listed company differently because corporate governance takes over, and the data becomes transparent. Both longevity and continuity are assured, thus ensuring businesses grow. Going public also helps you to recruit and retain the right personnel because equity becomes a kind of incentive for them, enticing internal stakeholders. From a banking standpoint, traded shares can be used as collateral. 

Ten of the 56 firms that were listed during the calendar year returned more than 40% to investors, with EKI Energy Services ltd alone returning more than 8400 times since its debut in April 2021. 

Ajay Thakur believes that SME promoters should consider listing on the BSE SME Platform to meet the needs of equity capital and unlock value, marketability, and transparency in the market.