SME IPOs Work!
The Advent of the SME IPO Era
Part 1
SMEs contribute to over 30% of India’s GDP, 45% of industrial production, 40% of export and employ over a 100 million
SMEs face significant challenges on account of their size.
Internally, a low equilibrium trap limits growth and adversely impacts economics.
Externally, competition against larger industry players presents an existential challenge.
As “Scale is an Imperative”; the Government has undertaken several initiatives to drive their growth
SEBI has eased listing requirements for SMEs, making it easier for them to access capital markets. The NSE & BSE have introduced SME platforms to facilitate capital raise
SMEs have collectively raised ~INR 13,500 Cr. through 900 IPOs over 12 years, with ~INR 4,700 Cr. in CY 2023 alone
Part 2
Listed SMEs have outperformed the wider indices (NIFTY 50, BSE 500) in the last few years, leading to significant interest in the asset class
SMEs are emerging as an “acceptable” investment class amongst intuitional investors, given their potential for higher returns & diversification
The growing focus on SME IPOs has led to increased research coverage & media attention, enhancing visibility
The era of significant investor interest in SMEs has only just started – and if their fundamentals hold, this interest will expand
Part 3
While an IPO is a one-time event, businesses will need to access the capital markets continually to fund expansion
For a well-prepared company, an IPO sets the stage for robust long-term growth
IPO; A Gateway to the “Big League”.
Sustained Investor Interest
The Segment continues to attract Capital.
For SMEs, Scale (not Growth) is Key:
A Sub Optimal size threatens longevity; Scaling quickly is critical.
Scaling is a staged process of Transformation that allows an SME to effectively deploy Capital for Expansion.
Know How is Critical.
The Know How Suite:
The right support can establish a Virtuous Funding Spiral.
The Funding Matrix
Scale requires Equity.
Sources
For the Right Candidate an IPO makes eminent sense.
IPO Benefits:
Access to Growth Capital
Liquidity
Attractive multiples
Governance & reporting requirements de-risks business
An option to return to the Capital Market
The ability to use stock as currency for strategic partnerships, JVs & M&As etc. provides Strategic Flexibility
Immediate rewards for improved performance
Market value of Promoters’ shareholding can be significant
Branding & Visibility
Competitive positioning
Reputation
Talent acquisition & retention
An IPO isn’t just a fund rasing exercise; its an opportunity to change trajectory.
Illustration:
Dilution balanced with High Valuation; ability to repeatedly raise Capital.
Select SME IPOs| Top 10 Performers in 2021, 2022 & 2023:
2023
2021
2022
A word of caution
These are early days in an evolving landscape.
The IPO Ecosystem has pushed many underprepared businesses to IPO resulting in non performance. Further, unsound practices have compounded this problem resulting in serious hurdles to further fund raising – and has even threatened business continuity.
Regulation has begun to address these issues.
Mint:
Business Insider:
Business Today:
Under-prepared Companies can get into a jam. An Ideal Candidate however will enjoy enormous support.
An Ideal IPO Candidate:
Promoters & Management
A Promoter determines the trajectory of a business. A promoter willing to invest resources on building a sound plan and efficient operations will be able attract quality capital and register robust growth over the long term. A willingness to adopt best practices and technology is also critical.
Growth Potential
The business should have room to grow over the long term. Only a buoyant sector will permit a business to expand and gain market share efficiently.
Capital Efficiency
Long-term profitability depends on a company’s cost structure. Good Planning, technology, efficient operations and effective management lowers costs - and increase Capital Efficiency.
Compliance
Compliance Culture sets a company apart from its peers. Its central to protecting the company from business and regulatory risks. Quality investors insist on best practices. Good Governance positively impacts the value of a business.
Preparation is Key.
IPO Implementation:
Exercise Wisdom.
IPO Wisdom:
Solid Groundwork makes for a Great IPO; the ability to return to the Market is the Bonus.
Case Studies:
Vinyas Innovative Technologies Ltd.
About the Company
Incorporated in 2001, Vinyas Innovative Technologies Limited provides design, engineering, and electronics manufacturing services catering to global OEM and ODM Manufacturers in Electronic Industry
Business Overview
The Company is an integrated electronic manufacturing services provider offering Build to Print (B2P) and Build to Specification (B2S) services to clients.
Product Portfolio: (i) Printed circuit board (PCB) assembly (PCBA), and (ii) Box builds which are used in safety-critical systems such as cockpits, inflight systems, landing systems, and medical diagnostic equipment.
Service Portfolio: The Company is the preferred partner for Global OEMs and ODMs by offering end-to-end solutions ranging from Design for Manufacturability, Supply Chain Management, PCB assembly, advanced test solutions, Product Integration, and after-market support.
Manufacturing Facilities
Electronic System, Design and Manufacturing, and Manufacturing facility with a Design Centre is located in Mysuru, Karnataka
IPO
On Sep 6, 2023, the company listed on the NSE SME platform through an IPO of 33.13 Lac Equity Shares
Company estimated utilization of Rs. 54.66 Cr towards Working Capital. Meeting Issue Expenses and General Corporate Purposes
IPO Details & Valuation:
Supreme Power Ltd.
About the Company
Incorporated in 1994, the company is engaged in manufacturing, upgrading, and renovating various types of transformers such as power transformers, generator transformers, windmill transformers, etc.
Product Portfolio: Power transformers, Distribution transformers, Windmill transformers, Insulation transformers, Solar transformers, Energy-efficient transformers, Converter and rectifier transformers & Insulators Generator transformers with a voltage range of 16KVA to 25MVA/110KV and a power range of 1250KVA/22KV to 6000 KVA/33KV.
Manufacturing Facilities:
Spread across 17,876 square meters in Thirumazhisai, Thiruvallur Chennai, the facility is ISO 9001:2015 certified for design, manufacture, service, and supply of transformers.
Revenue Bifurcation by Customer
Government - 59% in FY23 vs 80% in FY22
Private - 41% in FY23 vs 20% in FY22
IPO
On Dec 20, 2023, company listed on the NSE SME platform through an IPO of 71.8 Lac Equity Shares
Company estimated utilization of Rs. 46.67 Cr towards Funding capital expenditure, Working Capital Requirement, General Corporate Purpose and meeting Public Issue Expenses.
IPO Details & Valuation:
E Factor Experiences Ltd.
About the Company
Incorporated in 2003, E Factor Experiences Limited is an Indian event management company
Business Overview
Event experiences, event services, technology-based permanent & semi-permanent multimedia light & sound installations, and specialized turnkey event assignments, wedding management, and private and social event solutions
Service Portfolio
Turnkey assignments like Government Tourism Events and Festivals, techno-cultural light & sound shows, Sporting Events and Contests, Conferences, Mega Ground Concerts, Televised Events, private and social events like wedding and anniversary celebrations, etc.
Tourism Business
E Factor Experiences entered into a permanent and sustained business with its experiential tourism brand, "Sky Waltz" owned by the Subsidiary E-Factor Adventure Tourism Private Limited.
Skywaltz manages and operates hot air ballooning and yachting activities in multiple locations in India and 2 Yachts and 11 Hot Air Balloons
IPO
On Oct 9th 2023, company listed on the SME platform through an IPO of 9.84 Lac Equity Shares
Company estimated utilization of Rs. 25.92 Cr towards Investment in Subsidiary, Working Capital, Repayment of Borrowings and General Corporate Purposes
IPO Details & Valuation:
Sunita Tools Ltd.
About the Company
Incorporated in 1988, Sunita Tools Limited manufactures mould base and machining parts for Automotive, Pharmaceutical, Electronics, Consumer Goods, and Manufacturing Sectors
Product Portfolio:
Customized Mould Bases, Precision Finish CNC Machining, Plastic Mould Bases, Pocket Machining, Injection Mould Bases, Precision Component Machining, Mould Bases For Caps and closures, Blow Mould Bases, Standard Mould Bases, Compression Mould bases, Die Casting Mould Bases, Insert Mould Bases, Over mould Bases, and Prototype Mould Bases.
The company's products are used as Capital Assets as inputs in the industries it supplies to
Manufacturing Facilities:
Located in Vasai, Mumbai, with a capacity to produce large dimensional products ranging from 200200 mm to 40002000 mm up to 30 tones in weight.
Clientele:
TVS, Hero Mahindra, Larsen & Toubro, Supreme Industries, RICO, LG, Motherson, etc.
IPO
On Oct 3th 2023, company listed on the SME platform through an IPO of 15.2 Lac Equity Shares
Company estimated utilization of Rs. 22.04 Cr towards Working Capital and General Corporate Purposes.
IPO Details & Valuation:
Connect with us if you wish to SCALE your business
Phone: +91 98209 97129
Related Reading:
SMEs contribute to over 30% of India’s GDP, 45% of industrial production, 40% of export and employ over a 100 million. SMEs face significant challenges on account of their size.