One-third SME stocks listed in FY18 in red
Nearly one-third of the 148 small and medium enterprise (SME) stocks that got listed last financial year are trading in the red despite the euphoria surrounding their public floats.
Seven stocks have lost more than half of their value, with share prices of Nouritrans Exim and Ashoka Metcast sliding the most by 75 per cent and 62 per cent, respectively.
Of the 49 stocks whose prices have slipped into the negative territory, 10 had seen an overall subscription of more than 10 times during their maiden offerings. Accord Synergy, Jhandewalas Foods and Hindcon Chemicals were subscribed over 100 times. These stocks are down 21 per cent, 18 per cent and 5.4 per cent over their issue prices, respectively, according to data from BSResearch Bureau. Eighteen stocks have turned out to be multibaggers in the past year, with returns ranging from 106-1,693 per cent.
Despite the possibility of high returns, experts said there was a high probability of losing one’s entire capital in SME stocks. Analysing these firms can be a challenge as they are not tracked by analysts and there is not much information in the public domain. This means investors are left to themselves when it comes to assessing the fundamentals and gauging the credibility of promoters.
The past financial year was the best for public share sales of SMEs as individual investors, lured by past returns, flocked to pick up these offerings. The SME platform witnessed 148 offerings, mopping up ~21.55 billion, higher than the combined amount raised in the previous six years. Total number of SME issues since 2012 now stand at 370.
East India Securities and Zota Healthcare were the biggest offers in FY18, with an issue size of ~920 million and ~585 million, respectively. Geographically, the highest number of SMEs listed are from Gujarat (51), followed by Maharashtra (43), Madhya Pradesh (13), Delhi (10) and Telangana (5).
State governments are doing their bit to encourage SMEs to list. In 2016, the Gujarat and the Rajasthan governments announced subsidies to pay for the expenses of SMEs going for initial public offerings (IPO). The Gujarat government, for instance, began reimbursing 10 per cent of IPO expenses of SMEs in the state, subject to a maximum benefit of ~5,00,000 each.
The SME segment has been grappling with issues such as lack of liquidity and lacklustre institutional participation. According to experts, the need is to bring in priority investing from big institutional players and tweak the lot size to improve liquidity. The minimum lot size varies between ~0.1 million and ~0.15 million.
In FY18, there was a slight improvement in institutional participation. For instance, HSBC MF invested in Macpower CNC Machines, South West Pinnacle Exploration, One Point One Solutions and Worth Peripherals. Sundaram MF invested in Jash Engineering and DSP BlackRock MF in South West Pinnacle Exploration.
“It is good to see increased participation from institutional investors, especially mutual funds, both at the pre- and post-IPO stage,” said Mahavir Lunawat, group managing director, Pantomath Advisory Services Group.
Both the BSE and the National Stock Exchange had launched separate SME platforms in March 2012, after the Securities and Exchange Board of India came out with easier listing and disclosure guidelines to help small companies tap the capital market. Besides improved transparency, an IPO route for SMEs reduces their dependence on debt financing and helps them maintain their debt-equity ratio efficiently, said experts. Listed SMEs with good ratings are able to get loans at lower interest rates than the market.