IPOs: Landmark Listings
The year gone by turned out to be a great one for the Indian stock markets in general and for Small and Medium Enterprises (SME) IPOs in particular. A record 179 SME IPOs got listed in 2023 and many were hugely oversubscribed. Top-performing SME IPOs included RBM Infracon, Gayatri Rubbers & Chemicals, and many more. Impressive listings were seen in SME IPOs.
Indeed, a large number of SME IPOs in 2023 were substantially oversubscribed, indicating robust investor interest supported by impressive post-listing results. Of the 179 SME IPO listings in 2023, RBM Infracon, Gayatri Rubbers and Chemicals, Remus Pharmaceuticals, Meson Valves India, Exhicon Events Media Solutions, Bondada Engineering, among others, led the table of top performers in terms of gains over their listing price.
Performers in 2023
The most noteworthy aspect of SME IPOs in 2023 was the subscription rates. At least 51 of the 166 SME IPOs witnessed subscription rates of more than 100x, with 12 companies seeing more than 300x. Subscription rates of such magnitude across so many IPOs was unheard of till now, according to experts. "Retail interest in some IPOs has crossed all previously known subscription rates. From the SME IPO basket, 136 out of the 166 companies were listed and closed in positive territory by the end of the listing day. Goyal Salt topped the list with 258 per cent gains, trailed by Sungarner Energies with 216 per cent and Basilic Fly Studio with 193.4 per cent. A whopping 24 companies ended the listing day with more than 99.5 per cent gains," says a senior market expert.
Management Speak
Bondada Engineering, a SME operating in telecom, solar, and green construction products, has done very well post IPO in terms of its stock price performance. Explains Bondada Raghavendra Rao, Chairman and Managing Director of Bondada Engineering, "The performance of our stock is tremendous. As you are aware that the issue price was Rs 75 per share and today within a period of just six months the price hit its all-time high at Rs 638.85 which is more than 8.50 times of the invested amount." What is the reason for this massive growth? Rao attributes it to company's strong order book. "The upward journey of our stock price can be mainly attributed to the company’s performance followed by its strong order book," he adds.
Another example is of Goyal Salts based in Nagaur, Rajasthan. It is one of the largest manufacturers and dealers of all varieties of sodium chloride (salt), a key ingredient in various manufacturing industries including metal, textile, rubber, chemical, pharmaceutical, pigment and dye, soaps and detergents, besides human consumption. Says Pramesh Goyal, Managing Director, Goyal Salt: "October 11, 2023, what a day it was! We made history in SME IPOs. Our price band was Rs 36-Rs 38 against a lot size of 3,000 shares and it got listed at Rs 130, clocking a listing gain of 242 per cent. This was the second highest listing gain for any SME IPO."
Goyal attributes the euphoria to the deep faith shown by investors in the stock. "Again, 11th January 2024 was also a remarkable day! Exactly after three months of listing, on this day, our share price hit an all-time high of Rs 235," says Goyal. On a realistic note, he adds, "The movement in share price is totally dependent on market conditions -- demand and supply factor. It is these market driven trends that impact the stock price performance." Indeed, that is the truth.
Kolkata-based Cool Caps Industries, a manufacturer of a wide range of plastic bottle caps and closures, PET preforms, plastic handles, also went for an IPO in March 2022 at a price band of Rs 36-Rs 38 per share for a lot size of 3,000 shares. Its stock price recently hit an all-time high of Rs 474.90. Rajeev Goenka, CMD, Cool Caps Industries explains the benefits of getting the company listed on the NSE SME platform thus: "Cool Caps visibility and credibility has improved post IPO. It has opened doors for access to capital, that was much needed for expansion. The market awareness about our product and brand has increased considerably. Bankers have also started giving prominence to Cool Caps. And the stock has performed well in tandem with company’s performance and future outlook."
Merchant Bankers’ Take
Merchant bankers play a pivotal role in Initial Public Offerings (IPOs) in India, serving as crucial intermediaries between the issuing company and the investing public. Their role is multifaceted and extends throughout the IPO process. Ashok Holani, Director, Holani Consultants, a merchant banker advising SMEs going for an IPO, explains the role. “In our extensive experience of working with SMEs on IPOs, we recognise and appreciate the unique characteristics and needs that distinguish smaller companies in the public market.” He further states, “Our approach to SME IPOs is characterised by adaptability, hands-on support, and a keen understanding of the challenges specific to smaller companies. By tailoring our advice to align with their unique needs, we aim to facilitate a seamless transition to the public market and position SMEs for sustained success in their new environment.”
Nikhil Shah, Director, Beeline Capital Advisors, another leading merchant banker that advises SMEs going for IPOs, says many of the SME promoters are not aware of how the IPO process and capital markets function. “Our team explains to them the whole process and helps them at all stages of the process including documentation, identification of IPO intermediaries, valuation benchmarks, corporate governance, preparation for investors meeting, crafting a simple and compelling narrative of their business and framing marketing strategies,” says Shah, adding that he also ensures that the management of the company is aware of their responsibilities after getting listed on the stock exchange.
What are the challenges faced by SMEs taking the IPO route? As per Holani, it is the need for enhanced financial reporting and transparency. “We help them navigate these hurdles and achieve a successful listing,” he says. Besides, many SMEs lack the extended financial history preferred by investors. High costs are another challenge. “The IPO process involves significant fees for legal, accounting, and underwriting services. We help SMEs optimise costs through efficient planning, negotiation, and exploring alternative funding options,” Holani adds.
Shah of Beeline Capital Advisors says the biggest challenge during the IPO process is the cultural shift. “The IPO process involves appointment of various intermediaries and restructuring the board of directors, appointing independent directors on the board, appointment of peer review auditors, CFO, company secretary, etc. As a merchant banker, we guide them through the whole process and help them set up systems and processes which ensures smooth transition to a IPO-ready company,” he adds.
Why this boom?
According to the EY Global report on IPOs, equity investments in Indian SMEs provide a major opportunity to help meet the growing credit need. Private equity (PE) firms are well-positioned to capitalise on this opportunity by financing innovation, job creation, and scaling among emerging SMEs and startups. The rise of fintechs and the growing digital lending market, expected to reach $515 billion by 2030, have enabled improved financial access for underserved customers like SMEs. PE firms have invested $17.8 billion in Indian fintechs between 2019 and 2023 to support SME and startup growth through innovative solutions. By aiding SMEs’ digital transformation, PE investors are driving value creation.
SME IPOs Since 2021
The year 2021 was an excellent year during which a lot of SME companies raised funds on SME exchanges. Majority of those IPOs were fresh issue where funds were planned to be used by the company for various purposes, but mostly for working capital and expansion. All in all, 60 SME companies came out with initial public offerings across both the SME exchanges and collectively raised more than Rs 800 crore, informs Shah of Beeline Capital Advisors. Some of the notable SME IPOs from 2021 included Knowledge Marine & Engineering Works, Network People Services Technologies, BEW Engineering and Kotyark Industries, which gave handsome returns to the investors.
In 2022,110 SME IPOs were launched. The size of IPOs in the SME space tends to be smaller than regular IPOs, however the average issue size on SME platform increased by around 50 per cent i.e. from around Rs 13 crore in 2021 to Rs 18 crore in 2022. Shah recalls notable names like Phantom Digital Effects which gave 229 per cent listing gains while Agni Green Power earned 162 per cent returns on debut in 2022. The year 2023 has already turned out to be a grand success for the SME IPOs. By the time you are reading this story, close to 20 SME IPOs would have made their debut on the bourses. More power to SMEs.
ashish.sinha@businessworld.in
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