Can FY 22-23 be watershed year for SME IPOs.
SME IPO – Promoting the balanced economic growth
The MSMEs have played a great role in ensuring the socialistic goals like equality of income and balance regional development as envisaged by the planners soon after the independence. With the meagre investment, the MSMEs are found to be more efficient providing more employment opportunities at relatively lower cost. Currently, around 36 million SMEs are generating 80 million employment opportunities, contributing 8% of the GDP, 45% of total manufacturing output and 40% of the total exports from the country, then how can we state that the Universe of the stock market lies in few thousand large, mid and small companies listed on NSE and BSE Main Board.
Nearly a decade after the BSE and the NSE set up dedicated platforms for the listing of India’s Small and Medium Enterprises (SMEs), the number of SMEs actually listing via IPOs has increased rapidly in the last year or so, propelled no doubt by stock market and mainstream IPO boom after the first wave of Covid. The year 2022 is likely to be a watershed year for SME IPOs. As Stated, India’s stock market need to enter to its mature stage of cycle which can’t be dreamed without the active role of SMEs.
Still, more SMEs are lining up to list because of conflux of reason – the most important of which is a growing dislike for debt, otherwise and historically the mainstay of SME capital financing. The pandemic spurred them in other ways also; it brought home the importance of having abundant liquidity and cash in the business to survive in unexpected or unforeseen situation when business operation are suspended, but expenses were paid. Listed companies can easily unlock the wealth of business assets and generate cash in hand from the liquidity of the market. Promoters also desire the increased respect their business would command once it is listed, providing them with a rare and powerful competitive advantage over their peers.
The road ahead – What Promoter need to do.
Although difficult to predict how many of these businesses will eventually go the whole hog and list via an IPO in 2022 -23, we can still assert with confidence that it will be a good year, going by our analysis of hundreds of SMEs that are ready and willing. Industries that performed exceptionally well during the pandemic, including pharma and healthcare, IT and education, are likely to throw up many contenders for SME IPOs. Also, there are several outperforming SMEs in nearly every industry that managed to swim against the tide and actually grew their business during the pandemic – they are also likely to announce and an IPO sooner or later. The fundamental advice to all business owners is to always raise capital while they are doing well, even if it sounds counterintuitive to their ears – The reasoning is simple: while investors will tolerate higher than normal valuations as long as the business is performing well and has solid fundamentals, they will quickly grow cold feet at the first sign of a business in trouble or in desperate need of liquidity.
The start-up ecosystem is contributing to the Indian economy and a lot is being said about the series of fundraisers, unicorns and IPOs of non-profitablegiants. This is the time when we need to raise the voice of the silently working SMEs, which are building the nation. The Investor confidence and promoters’ awareness together can make 2022 – 23 a promising year for SME Listing.
CA Virendra Dugar