From zero to Rs 60k crore in a decade: Through SME IPOs, small businesses are raising big money – The Economic Times

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SynopsisThough the world is seeing multiple turmoil, some of India’s small businesses remain undeterred about taking the plunge into the listing pool.

October 10, 2022, was a great day for Mayank Bindal. His telecom company, Steelman Telecom, went for an initial public offering (IPO) that day and saw phenomenal success. Bindal says they wanted to raise Rs 26 crore, but the issue was subscribed over 25 times.

Steelman Telecom had offered a share at Rs 96 but opened in the market at Rs 161. “Since then, the price has not dipped below 161. In fact, during the past two weeks, it has gone up to Rs 270,” says the 36-year-old founder and CEO of the Kolkata-based company. On December 7, the stock closed at Rs 194.50.

This is one of the many SMEs in India that went in for an IPO this year and saw its market capitalisation soar. According to the BSE SME platform, 87 SMEs went for IPO between January and September and raised Rs 1,460 crore during the period. Last year, there were 56 IPOs, raising Rs 783 crore. The growth is almost double. On October 10, eight more companies were listed on the platform, bringing the number of listed SMEs on it to 409, with a market capitalisation of Rs 65,334 crore as on December 7.

To put this in perspective, the market capitalisation of small businesses has grown from zero to Rs 60,000 crore in a decade. The BSE platform was the first exchange for small businesses. It was launched in March 2012. The only other SME stock platform is NSE EMERGE, also founded in 2012. It has some 200 companies.

This growth has happened during a tumultuous period. India saw demonetisation and the introduction of the goods and services tax. Though the government promised these steps would strengthen the economy eventually, the twin blows had given small businesses a severe beating. Then came Covid disruption, which paralysed economies and killed business. Then came the Ukraine conflict, which exacerbated the trade and supply chain disruptions. The latest worries have been from the high inflation and economic slowdown being seen across the world. India is not immune to these problems and so felt the pain. Despite all these problems, the country’s SMEs have been able to find space to enter and grow in the primary market. It indicates that there is a lot of confidence in the future of these small businesses — though these enterprises usually feel disproportionately high pain during an economic crisis.

‘Decoupled’ & growing
Ajay Thakur, Head of BSE SME, acknowledges that the global troubles have weakened the macroeconomic environment. “But we have also seen a government push in the infrastructure sector, which is creating demand for labour-intensive sectors such as cement and steel. So, I think India is on a good trajectory. After Covid, we have seen a lot of expansion going on in the large corporations as well as in the small and medium enterprises,” he says, adding that the growth in the SME sector and the responses to the IPOs have motivated aspiring SMEs and investors.


India has been able to weather the storm in a better way because of various domestic factors.

The country’s strength has been that it is “decoupled”, says Kranthi Baithni, Director-Equity Strategy, WealthMills Securities. Europe and the US are facing inflationary pressures as their energy prices have gone up because of geopolitical issues. This has resulted in a low interest rate and tightening of liquidity. “That is compelling companies to cut down on expenses. The past fortnight alone saw a lot of pink slips being handed out at tech companies. Whereas in India, the private sector has been expanding. Their assets are going up. The Indian economy has not been hampered that much,” he says.

The country is also emerging as a manufacturing hub and many corporations and investors are looking at India more favourably now. This fans positive investor sentiment. “In such cases, people look for good opportunities and don’t mind taking risks because they’re very confident about the overall economic growth curve,” says Mahavir Lunawat, Founder, Pantomath Financial Services Group. “Therefore, when some of these small IPOs offer a reward, investors are willing to take the risk. So, it is a high-risk, high-return kind of equity investment.”

Help from government
It also helps that India is a huge market in itself. Almost everyone agrees that a global recession is coming. But the size of the market in India gives it a buffer like no other, says Gaurav Raj, MD of Lucknow-based Concorde Control Systems.

Founded in 2011, the Rs 150-crore Concorde Control designs and manufactures railway components. It entered the market on October 10 this year to raise about Rs 7.6 crore at Rs 55 a share. On December 7, the stock closed at Rs 227.25.

Concorde Control was fortunate as the railways received constant attention from the Prime Minister’s Office this year, says Raj. It was the right time for them to enter the market. “India is going to work really hard on transforming the railways and this is the best time to ride the wave and contribute to the transformation journey. Getting listed always gives a company financial stability as well as confidence to do much better than before,” says the 36-year-old Raj.

Other promoters also listed similar reasons for going public. Bindal of the Rs 130-crore Steelman Telecom says the company — which provides network implementation and maintenance services for the telecom sector — has experienced tailwinds that would help it grow exponentially.

Mayank Bindal- Steelman Telecom IPO event

Mayank Bindal, CEO, Steelman Telecom during the listing event.

One of the key drivers was the deployment of 5G in India. Since the news arrived, Steelman has seen a surge in work related to project planning and execution of 5G networks. “Other than that, in the past four to five years, a lot of telecom players have shut down and there is a vacuum. Therefore, we realised that this is the right opportunity for us to capture some space in this industry. We need more funds to ensure that we can hire, train and deploy more people to the required service areas,” he says, adding that going for an IPO gives them the financial muscle to expand swiftly.

The company has also opened a subsidiary in the electric mobility space. It has deployed 150 vehicles in Kolkata and wants to bet big on the electric vehicle space.

Stockbrokers say investors looking at SME IPOs should realise that they are getting into a long-term investing game. People who want to make a quick buck should not look at this segment as these companies take time to grow.

Most of the investors in such stocks have been high net worth individuals (HNIs), says Ajay Kejriwal, President of Choice Broking. “HNIs want to enter these stocks at an early stage to maximise their gains when these become multibaggers. They see that kind of potential and are in for the long haul. For retail investors, the appetite is different. They will enter for a few months or a year, maximum two years,” he says.

Startups vs SMEs
Of course, not all IPOs have done well. At Rs 18,300 crore, Paytm’s was touted as India’s biggest initial public offering last year. But the market value of the digital payment company plummeted by over $6 billion after its market debut. A year after listing, the stock has decreased by 79%. Some are calling it the worst IPO performance in a decade. Then there is logistics firm Delhivery, which debuted in the stock market on May 24, 2022, at Rs 495.2. A month later, it fell below its issue price of Rs 487. Though the stock recovered, it hit a 52-week low of Rs 306.25 on December 7.

Industry observers point out that these companies were seen as entities with a lot of growth potential. However, they also use these examples to draw a distinction between startups and SMEs.

Startups focus more on revenue than profits in order to capture the market. In the process, they don’t have healthy profit margins and have to face pressure from venture capital. “Entrepreneurs want to make their SMEs profitable. That is the main focus. Further, the valuations of these startups are quite high,” says Baithni of Wealthmills.

Playing the valuation game can be a losing proposition in the market. The valuations of these startups are determined by private equity and VC funds. However, the valuations of SME are derived using more conservative and proven methods. Some of these SMEs have been in existence for more than 10 years and have already proven their results.

“Except for the Covid era, most of these SMEs posted good profits,” says Thakur of BSE SME. “At the same time, SME valuations are conservative. They are not overvalued. This is why these companies are attracting investors.”

More than anything, the potential for growth and management expertise should determine the valuations.

Potential of SME listing
However, getting listed on an exchange is not easy. A company has to fulfil a lot of requirements, be more transparent and open to scrutiny to even get Sebi approval to start the process. No matter how the listing fares, the company still has to meet certain standards and becomes answerable to many.



SME IPOs have done far better than public listings of some prominent Indian startups.

Steelman’s Bindal is learning to live with such compliances and regular quarterly, half-yearly and annual reports. “There is a lot of responsibility when you go public. You have to keep the depositories and regulators updated constantly.”

But that should not stop an SME from listing, say these stakeholders. It gives the companies a financial leg-up like no other, and can strengthen the economy in the long run.

Most promoters are unaware of the advantages of the capital market and the options to use debt and equity to expand their business, says the head of BSE SME, Thakur. Also, the compliance requirements scare them. “They think that they will always be under scrutiny of outside agencies and investors.”

That is why the platform is going across the country to spread awareness. “We are meeting promoters one-on-one. We have signed MOUs with almost seven to eight state governments. Some of them have started giving subsidies of Rs 5 lakh for SMEs getting listed. We are also taking the help of professional associations, chartered accountants and company secretaries to reach out to these promoters so that they can get listed. There is huge potential here. I think 5,000 to 7,000 SMEs can very easily get listed,” he says.

Concorde’s Raj points out that there are only 407 SMEs listed on the platform, which is a miniscule number. The MSME Ministry had, in 2022, estimated that the country has 7.9 million SMEs. Thakur expects the platform to add 100-150 SMEs next year.

Stock market advisors say many entrepreneurs are enthusiastically looking at the momentum and the optimism around SMEs in the market. Many are getting ready to start the IPO process, as they see it as an opportunity to grow faster.

Ashish Kukreja considers himself to be a part of this group. The founder and CEO of Homesfy had recently said he was taking the real estate advisory firm public. Kukreja, who is looking to raise Rs 15-20 crore around January, says they are looking to set a benchmark in the broking sector and going public will help them in that endeavour. “We want to build an institution. SME IPO enables us to fast-forward that journey.”

(Edited By Ram Mohan. Illustrations by Sadhana Saxena)
(Originally published on Dec 08, 2022, 10:08 AM IST)

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