Small company IPOs hit a century in 2017

For the first time, more than 100 companies launch IPOs, raise a total of ~1,267 crore; 30 more IPOs lined up

The buoyancy in initial public offerings (IPOs) doesn’t seem to be confined to the big issues, as the small and medium enterprises , too, have a seen a record run in 2017. According to the data from the stock exchanges, 2017 saw 105 companies launch their IPOs on the SME platform to raise a total of ~1,267 crore. The amount raised so far this year is roughly equal to the combined amount raised on the platform since its inception four years ago, writes PAVAN BURUGULA

The buoyancy in initial public offerings (IPOs) doesn’t seem to be confined to big issues. Small and medium enterprises (SMEs), too, have seen a record run in 2017.

According to data compiled from the stock exchanges, 2017 has seen 105 companies launch IPOs on the SME platform, to raise a total of ~1,267 crore. The amount raised so far this year is roughly equal to the combined amount raised on the platform since its inception four years ago.

Improving investor confidence on the SME segment, along with overall buoyancy in the primary markets, has led to this sharp increase.

Investment bankers expect this upbeat mood in the SME space to continue. Close to three dozen companies will launch IPOs over the next foursix months. The new issuances will be from diverse sectors ranging from pharma, media and retail.

“The SME platform offers a unique opportunity for the smaller companies to list. Easier regulations have made the framework flexible and reduced the compliance burden. The confidence of investors in the platform is also increasing thanks to some high-quality issues we saw in the segment. The pipeline also looks solid as we are expecting issues worth ~500 crore in the next six months,” said B Madhuprasad, chairman, Keynote Corporate Services.

Stock exchanges had launched the SME platform in 2012 to cater to smaller business houses which cannot fulfil the requirements for floating a regular IPO. While 173 companies are listed on the BSE SME platform, on the NSE Emerge platform, 95 companies are listed.

Market regulator Securities and Exchange Board of India (Sebi) had come up with special relaxations for SMEs to encourage their listing. SME companies file earning results once in six months as against once in three months by the main-board companies. To float an IPO, they needn’t meet the three-year profitability clause. Unlike a company listing on the main-board, stock exchanges approve the offer documents filed by SMEs. After listing on the SME platform, the companies also have an opportunity to shift to the main-board. Till date, 34 companies in the BSE SME platform have migrated to the main-board. Comparable data in the NSE was not available to be quoted. In order to migrate to the main-board, a company needs to have paid-up capital between ~10 crore and ~25 crore. If the market capitalisation exceeds ~25 crore, the company needs to mandatorily shift to the main-board.

The platform does have its own challenges. Retail investors are discouraged from participating on the platform given the high risk involved. Sebi had fixed a minimum trading size of ~1 lakh. Due to this, there is not enough liquidity in a majority of the stocks listed on these platforms.