Small and Medium-Sized Businesses (SMEs) are the heroes of any economy, as they drive growth, create jobs, and substantially contribute. In recent times, these dynamic businesses have had a new opportunity to shine even brighter in the world of SME IPOs. These lesser Initial Public Offerings have a significant impact, providing a variety of advantages to both investors and organizations. By listing on exchanges such as BSE & NSE SME to main board, firms can enhance their credibility, gain access to equity funds, and increase their visibility. It is time to focus on the rising stars of the investment landscape: small and medium-sized enterprises and their captivating IPO success stories. Let us read about it here.
A Brief Introduction to SMEs & SME Initial Public Offerings
Small and Medium-Sized Enterprises (SMEs) are enterprises whose workforce, revenues, and expenditures fall below a specified threshold. Specifically, businesses with a revenue range of 5 crores to 50 crores are categorized as minor businesses. In contrast, companies with 250 crores or less revenue are referred to as medium enterprises.
Small and medium-sized enterprises are crucial to the Indian economy. In addition, they provide employment for a substantial portion of the general population while contributing significantly to the country’s industrial exports. Multiple variables contribute to the expansion of these SMBs. Several of these variables are listed below.
- Technological advancement
- Investments and funding from foreign and local investors
- Elimination of trade barriers
- Government assistance and ease of doing business
As the term implies, when a small or medium-sized business declares an Initial Public Offering (IPO) for the purpose of raising capital, it is referred to as an SME IPO. They are conceptually and procedurally comparable to standard IPOs but on a lesser scale. These IPOs are, therefore, not listed on stock exchanges such as the National Stock Exchange and Bombay Stock Exchange. Additionally, they have distinct listing requirements.
BSE and NSE launched the Bombay Stock Exchange NSE and SME EMERGE in 2012 to facilitate the SME IPOs listing. These SME IPO channels are a landmark effort by SEBI to help startups, and small brands raise capital. Once a company attains market dominance and popularity, it can increase its capital by trading its IPO shares. In addition, a few investors view SME IPO securities as lucrative because they can generate high returns on a low initially invested amount.
Advantages of BSE & NSE SME to Main Board Listing via SME IPO
Small- and medium-sized enterprises (SMEs) are essential to the development of a country and serve an important part in the economic progress of any nation. They are rapidly gaining traction as an alternative kind of asset and the finest way to invest. However, due to increased globalization, there is intense competition in almost all significant industries. Especially for small businesses, it is essential to list your company on the NSE or BSE in an SME IPO in order to maintain a competitive edge and promote development. They provide a new source of capital and permit businesses to be listed with less regulation. Therefore, this section will focus on the principal advantages of listings.
Enhancement of credibility & visibility
Listing on the NSE and BSE increases the visibility of non-recognized corporations. These businesses can utilize the SME listing to promote themselves and better compete with their rivals. They also have the opportunity to expand their business prospects. This enhances the company’s credibility by increasing public awareness via publicly accessible information and media coverage.
Listing entities may take over the business solely through equity swaps, and you can purchase the business with equity. The acquiring entity shall generate no cash flow.
NSE SME to Main Board Triumph: SME IPOs Skyrocket, Mainboard IPOs Plummet
Due to high demand, the number of mainboard IPOs on the stock exchange decreased by half in 2022, while the number of SME IPOs doubled. The number of mainboard IPOs decreased to 36 from 64, while the number of SME IPOs increased from 60 to 108. The surge in demand for SME IPOs was fueled by retail investors and individuals with high net worth seeking substantial listing gains. However, institutional investors largely avoided SME IPOs.
Significant examples illustrated the success of SME IPOs. The IPO of Pune-based DroneAcharya Aerial Innovations was 262 times oversubscribed, resulting in 88% listing gains. Annapurna Swadisht, a sweets manufacturer based in Kolkata, had its IPO subscribed nearly 190.49 times and was listed for an 80% premium. Olatech Solutions, a provider of software solutions, had the greatest subscription rate in 2022, at 598 times the number of shares offered and listing gains of 99 percent.
Investors were attracted to SME IPOs due to the potential for substantial listing day returns. Investors were wary of mainstream IPOs, particularly amid difficulties with IPOs for new-age technologies. With regards to listing performance, SME IPOs outperform traditional IPOs. Twelve out of thirty-six firms on the mainboard experienced weak debuts, while eleven of fifty-two SME equities fell into the red across the listing. Due to a large application amount as well as a limited float of stock and market capitalization, SME IPOs are successful.
With the smaller scale of SME IPOs, institutional investors demonstrated limited interest, while HNIs and retail investors dominated this market. Although short-term gains were prevalent, few SME IPOs offered long-term value. Within 1 to 2 months, the sustained gain after listing began to diminish, bringing stock prices in line with their real worth. Small and medium-sized enterprises were listed on specialized exchanges such as NSE SME and BSE SME, using the option of migrating to the mainboard if they met the requirements specified in SEBI regulations. These platforms enabled SMEs to capitalize on investor demand and expand their businesses.
The importance of small and medium-sized businesses cannot be emphasized. Emerging as a game-changer, SME IPOs offer unique benefits and opportunities. Listing on platforms such as BSE SME and NSE SME can improve a company’s credibility, provide equity capital without requiring financial outlays, and pave the way for its expansion. As SME IPOs gain prominence, small businesses are demonstrating that they possess what it needs to flourish in the IPO industry.
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