60 SMEs are in the pipeline waiting to get listed: Ajay Thakur, Head, BSE SME & Start-up

The financial years 2020-21 and 2021-22 have seen many IPOs hitting the markets. And investors have also shown appetite for the companies hitting the capital market. In line with the main board, the SME Board is also seeing lots of interest from the SME promoters, says BSE SME Head.

   
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The impressive performance of the stock markets this year has boosted the confidence of businesses, prompting them to go public. Not only this, but along with the start-ups, this momentum has induced a lot of interest among the small businesses as well.

That’s why the BSE SME, India’s first SME exchange, expects 60 small and medium enterprises to be on the SME listing in the upcoming year. The exchange is witnessing a renewed interest in the SME space with a lot of promoters coming forward for deliberations and listing. Currently 356 companies have been listed on the SME exchange and another 60 are in the pipeline, says Ajay Thakur, head of the BSE SME and Start-up.

An SME listing provides avenues for alternate equity finance, which aids small firms to grow their businesses—from expansion to acquisition. However, there are still some hesitations regarding a public foray. But that is due to a lack of financial literacy and a fear of compliances among the SME promoters, Thakur tells us.

Therefore, to encourage the equity culture among SMEs, the exchange is taking proactive measures to organise webinars in collaboration with state governments and other professional associations. In a conversation with SME Futures, Ajay Thakur, Head, BSE SME and Start-up says that these initiatives have been taken to reach the MSMEs and start-ups up to the last mile and bring them on to the SME & Start-up platform to fuel their growth, and they will continue to do so in the foreseeable future.

Edited Excerpts:

Even though the MSME sector is expanding significantly, they remain vulnerable and have gaps. What, in your opinion, are the major challenges that the MSMEs continue to face, despite the numerous initiatives? 

Recently we have seen growth in the MSME sector because of various initiatives taken by the Government of India and the Reserve Bank of India (RBI). During the COVID-19 pandemic crisis, liquidity had been injected and interest rates were cut which had reduced the burden on MSMEs. Besides that, the opening up of the economy has also contributed to the growth of the businesses.

Having said that, the MSMEs are still struggling and facing many challenges. The recent spike in the prices of raw materials has also negatively impacted their businesses. However, the major challenges that the MSMEs face and which make them vulnerable are:

  • Lack of financial literacy– Most of the MSME’s promoters are technocrats and therefore they lack financial acumen and skills. This hinders their ability to use various financial products for their businesses and therefore restricts their growth.
  • Size of the business– Owing to their small sizes, MSMEs are always finding it difficult to achieve economies of scale and are failing to capture the market opportunities which require large production facilities.
  • Absence of suitable technology– Lack of technology, market intelligence, innovation and research are impeding their growth.
  • Lack of transparency– MSMEs are opaque in comparison with the larger firms and therefore there is information asymmetry. This discourages the lending institutions from lending to the MSMEs. And hence, the MSMEs have to depend upon informal sources of funding which come at a very high interest rate.
  • Inadequate Collateral– Due to inadequate collateral MSMEs are unable to get timely and adequate finance.
  • Unskilled Labour– MSMEs are unable to hire skilled labour as they come at a high cost, and this impacts their productivity.

How can small businesses use the SME listing to their advantage in order to mitigate those challenges? 

Over the years, the MSMEs have been totally dependent on debt financing. Over reliance on debt financing has a negative impact on a business and it becomes extremely difficult for it to sustain itself during an economic downturn.

Therefore, it was very necessary for the Exchange to create the SME Platform so that the SMEs can raise equity funds in a very cost-effective manner. Understanding the importance of SMEs to the economy, the BSE has taken the lead and started the first ever SME Platform on 13th March,2012. Today the SME Platform of BSE has become a success where 356 SMEs got listed and raised Rs 3782 crores. The market cap of these 356 companies is Rs 42,500 crores. The SMEs can get various benefits through listing which are as follows:

  • It provides the SMEs with equity financing to grow their businesses—from expansion to acquisition.
  • Equity capital puts finance into the business without committing the company to inflexible repayment schedules or debt covenants.
  • Equity financing lowers the debt burden leading to a lower financing cost and a healthier balance sheet.
  • It expands the investors base, which in turn helps in getting secondary market equity financing, including private placement.
  • It enhances a company’s visibility—Media coverage provides the SMEs with a greater profile and visibility.
  • Listing helps in enhancing the credibility of the SMEs and increases transparency which helps in creating trust among the stakeholders.
  • Listing also helps in unlocking the value of the company and in wealth creation.
  • There is a chance for greater incentives for the employees as they can participate in the ownership of the company and benefit from being its shareholders.
  • It enables investors to enter and exit a company through the Exchange platform.
  • The promoters can also use the listed shares as collateral to raise debt funds.

There are also some guidelines for an SME platform to be able to do an SME listing, which are as follows:

  • The SME should have been in existence for a minimum period of three years
  • In any one of the preceding three years, they should have had operational profit.
  • There net-tangible assets should be a minimum of Rs 1.5 crores.

In India, there is an IPO frenzy, and start-ups are making headlines in this space as well. What are the projections for 2022?

The financial years 2020-21 and 2021-22 have seen many IPOs hitting the markets. And investors have also shown appetite for the companies hitting the capital market. At the same time, we have also seen a large inflow of funds through foreign institutional investors (FII), mutual funds (MFs) and the retail route.

The number of registered investors has also seen a huge jump and almost 85 million investors are registered with BSE as of today. This is unprecedented.

Also, for the first time we have seen start-ups which got converted into unicorns coming out with IPOs and getting a very good response. It seems like the capital market is deepening a lot. I am not in a position to give any projection as of now, but already a good number of companies have filed their prospectuses with the Exchanges and SEBI for approval.

In line with the main board, the SME Board has also seen lots of interest from SME promoters. And a good number of listings has also happened in the SME space. We are also seeing a renewed interest in this segment with SME promoters coming forward for deliberations and listing. We already have 356 companies listed with another 60 in the pipeline.

Your comments on the lack of awareness about listing, as well as about preconceived notions like listing entails increased compliance levels and costs. 

Financial illiteracy and fear of compliances have been a big issue with SME promoters. BSE has already conducted 2,500 offline seminars and 500 webinars to create awareness about the benefits of listing. Also, we have already met 36,000 SME promoters across the country.

The compliances have already been relaxed on the SME Platform as per the SEBI guidelines since its inception. So, there is no reason for the promoters to get worried about these unfounded notions.

The BSE has partnered with multiple organisations to promote the MSME and start-up listing; how is it going and what is the latest update? Also, going ahead, what is the roadmap for the BSE SME and Start-ups?

The BSE has so far partnered with almost six state governments I.e., Maharashtra, Uttar Pradesh, West Bengal, Telangana, Haryana and Chhattisgarh. Besides these partnerships at the state level, we have also signed memorandums of understanding (MOUs) with HDFC Bank and Yes Bank, and with other professional institutions and industrial associations. These initiatives have been taken to reach the MSMEs and start-ups to the last mile and bring them on to the SME & Start-up platform to fuel their growth, and we will continue to do so.

The BSE is committed to the growth of SMEs and Start-up. Going ahead, our plan is to get associated with most of the state governments, industrial associations and institutions to spread awareness about the SME and Start-up platform and the benefits thereof. Also, we will be aggressive on the meetings with the entrepreneurs and their advisors. We also plan to conduct seminars across the country. And during this endeavour, we will also try to reach these entrepreneurs through the print and visual media.

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