The year 2016 has been proved out to be a spectacular period for SME Capital Market. Indian SME Bourses witnessed remarkable activities in terms of filling of draft offer documents as well as number of listings. The year has witnessed several developments in this format of alternative capital markets.

It would not be out of context to predict that SME Capital Market is catching up with Main Board trends. Whether in terms of oversubscription (Agro Phos IPO received approximately 10,000 applications resulting in 17 times oversubscription) or in terms of further fund raising by listed SMEs (MRSS FPO etc.) or increasing investor base, SME investing is catching attention across.

SME Capital Market has peaked Rs. 15000 Crore of market capitalisation. In terms of number of companies and returns they provided, Indian SME Capital Market has become the fastest growing globally.

A record number of 66 companies got listed in calendar year 2016 as compared to 43 in the previous year. Moreover, the number of companies that filed draft offer document increased from 56 in the calendar year 2015 to 90 in 2016. This bears significance in the sense that the number of companies filed and getting listed on SME platforms increased substantially.

SMEs collectively raised Rs. 539.77 Crores during year 2016 as compared to Rs. 265.28 Crores and 315.37 Crores during years 2015 and 2014 respectively, reflecting a significant rise in the amount raised through SME Bourses. Average SME IPO size also increased during year 2016 to Rs. 8.18 Crores as compared to Rs. 6.32 Crores and Rs. 7.69 Crores during the previous years 2015 and 2014 respectively. Pantomath Capital Advisors Private Limited lead managed highest number of IPOs representing approximately 30% of the total SME IPOs during 2016. Year 2016 witnessed increased participation from companies belonging to manufacturing sector and service sector. The number of companies engaged in trading and financial services declined due to tightening of eligibility norms by SME Bourses.

Geographically, Gujarat has once again proved its dominance in the SME Listing by contributing maximum 25 companies on SME Bourses in the year 2016, followed by Maharashtra and Rajasthan each listing 11 and 7 SMEs on SME Bourses. State-wise contribution of companies with respective funds raised is depicted as above. Notably, 11 companies got migrated on to the Main Board, which addressed industry apprehensions on migration ease and manner. This reposes increasing confidence to the SME Capital Market eco-system. Till date, 165 companies have been listed on SME Exchange of BSE (of which total 22 companies got migrated to Main Board) and 32 listed on NSE Emerge (of which 1 got migrated to Main Board). These companies represent diverse industry base such as manufacturing, agriculture, aquaculture, food & processing, real estate & infrastructure, media & entertainment, IT & IT-ES, service, finance etc. based out of more than 40 cities.

Many of listed SMEs have preponed their growth cycles and ventured into progressive business plans. Governance Structures, improved credit rating, reduced finance cost, easy finances, branding etc. are some of key benefits besides valuation, which have helped listed SMEs to achieve speedy growth in systematic manner at early stage of their respective business life cycle.

SME Investing: High Returns

SME investing is gaining popularity day by day. Pantomath SMEX-30 has clocked returns at the rate of 71 percent of CAGR for last three years. Various SME stocks jumped handsomely including Vidli Restaurants Limited, Majestic Research Services and Solution Limited, Ultracab (India) Limited, Patdium Jewellery Limited, Mangalam Seeds Limited, Vishal Fabrics Limited, Ambition Mica Limited, Lancer Container Lines Limited, Sysco Industries Limited, Commercial Syn Bags Limited, DRA Consultants Limited etc. (On random, based on past price performance. No futuristic interpretation or investment advice is construed).

SME IPOs witness emerging trend of oversubscription level.

Vidli Restaurant Limited, Mumbai based Company, made a mark on February 05, 2016 with the overwhelming response from public with over-subscription of almost 7 times of total shares offered.

On April 05, 2016, Sysco Industries Limited, Surat based company, set a new record with the overwhelming response from public with over-subscription of approx. 10 times of total shares offered.

DRA Consultants Limited, a Nagpur based company, set a new record with over-subscription of more than 12 times of total shares offered on October 04, 2016; making it the highest subscription at that time. Whopping Rs. 36.00 Crores of subscription was garnered by DRA for Initial Public Offering of Rs. 296.00 Lakhs.

The SME IPO of Agro Phos India Limited, an Indore based fertilizer company, has taken the SME markets by storm garnering a whopping subscription of more than Rs. 200 Crores, the largest subscription ever received by an SME IPO i.e. over-subscription 17 times of total shares offered. The IPO not only set record by receiving highest ever subscription amount but also witnessed heavy participation from both retail and non retail sector, i.e. approximately 10,000 applications, resulting into receipt of maximum number of applications by any SME IPO in the history of SME markets so far.

Notably, all the above IPOs were lead managed by Pantomath Capital Advisors Private Limited.

It is heartening to note SME IPOs getting oversubscribed heavily with thousands of applications. It is equally critical witnessing institutional investors, large props, brokers participating in SME stocks at primary and also secondary levels, though institutional investor participation is yet far below desired level.

First ever Further Public Offer (FPO) on Indian SME Bourses

Since its launch, SME Capital Market garnered its first Further Public Offer (FPO) during 2016. MRSS successfully raised Rs. 10 Crores via book-built SME FPO; which was lead managed by Pantomath Capital Advisors Private Limited. Various companies listed on Indian SME bourses has done private placement in the past after their IPO. But this is the first time when a company listed on SME bourses had come up with an FPO. MRSS is a milestone SME company which has recorded a rise of more than 1000 percent in its stock price over its issue price of Rs. 12.75. The Company is engaged in the business of market research.

Growth Story Continues

It is rightly said that – “Small Business isn’t for the faint of heart. It is for the brave, the patient and the persistent. It is for the overcomer.”

SMEs which have been listed in 2016 on SME Bourses have rewarded patient and persistent investors with significant returns, appreciating their wealth and building the investors’ confidence. SME Stocks that many investors might have ignored considering the risk associated with it, have rallied more than 500 to 800 percent in the year 2016.

Besides, increasing number of companies is expected to tap SME platforms. Market is also witnessing participation from wider class of investors, which trend is expected to continue. Even institutional investors have started showing interest in SME investing and the market looks up to them with expectation. SMEs cheerfully celebrate New Year in a big way. Most of the listed SMEs have added value to shareholders. More SMEs are expected to take benefits of SME capital markets and in turn benefit their shareholders and other stakeholders.

After remarkable performance of SME Capital Market in the year 2016, the outlook for the year 2017 appears quite bright and hopeful. Post demonetization, SME Capital Markets should found added favour of growing businesses for raising capital. More than 20 Companies that have already filed their Draft Prospectus with the SME Bourses are expected to get listed in due course in 2017. SMEs await upturn in demand and revival of market sentiments subdued out of demonetisation and SME Capital Market is golden opportunity through which progressive businesses can raise growth capital and make success stories.

(The writer is Mahavir Lunawat, Group Managing Director, Pantomath Advisory Services Group)

Source: Money Control