SMEs: Major Contributor to Indian Economy

In the last few years, Small and Medium Enterprises (SMEs) has come out as the most dynamic and dazzling sector of the Indian economy.

In comparison to the large-scale public and private enterprises, SMEs have scanty investment but their employment intensity is four times more than the large scale enterprises, thus, making SMEs a major contributor to the GDP of our country.

It helps in balancing regional development and bringing inequality of income along with equitable economic growth.

SMEs, hence, play a pivotal role in the growth and progress of the country today as they are a major source of generating job opportunities.

Apart from providing jobs, the SMEs ensure overall growth of the country as they thrive in all parts of the country, thus, benefitting the rural and backward areas.

This sector, as ancillary units, contributes high support towards the large industries too.

The best draw from successful SMEs is that they motivate people to start new ventures, think about new and innovative ideas, enhance competitiveness and in all, propels the economy.

Why SME IPO may be a good option for small businesses

“The last decade has proved that SMEs are the backbone of our economy and providing them all support possible will be beneficial for all stakeholders!”

– Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.)

Hurdles for SMEs

Small businesses have big aspirations but are faced with big hurdles on the way too, and the biggest of all is getting financial help.

To convince an investor, of changing dream into reality, is nearly impossible and hence, getting capital loans of substantial amount is next to impossible.

Financial institutions also shy away from Startups, individual ownerships and thus accessing finance is undoubtedly recognized as the biggest hurdle in the desired growth of SMEs.

Finance, that has rightly been termed as ‘lifeblood of business’ is always in short supply for SMEs thus, thwarting their plans of expansion and growth.

“Despite them representing over 99% of the businesses in the Indian ozone, SMEs have a hard time accessing the finance.” — Isha Malik (Company Secretary, MUDS Management Pvt. Ltd.)

Access to Finance: A Major Hurdle for the SMEs

Best Way to Overcome Financial Hurdle

With almost 55 million SMEs operating in the country, providing livelihood to 60 million people, it is no wonder that it accounts for the biggest employment provider.

The government acknowledges the contribution of SMEs and is acutely aware of the problems being faced by them. In the last decade, it has worked towards easing the compliances and financial assistance to them.

Contribution of SME Exchanges

The best way to find easy access to capital for their ventures, SMEs should go for SME IPO Listing.

The immense role of the SMEs was realized in India during the last decade and comprehending the vast scope of growth, dedicated NSE and BSE SME platforms were established.

“These Exchanges give SME IPO new listing opportunity to companies and thus, they can draw immense advantages from going public.”

– Isha Malik (Company Secretary, MUDS Management Pvt. Ltd.)

SME IPO Eligibility

Particulars Requirements for SME IPO
> Company >  Limited Company.
>  Post issue Paid-up capital > Up to Rs. 25 Crores(Entities having more than 25 cr post issue paid-up capital has to mandatorily switch over to Main Board)
> Net Worth > Positive net worth 
> Track Record > Track Record of 3 years
> Website > Corporate Website Mandatory
> Investors > Minimum 50
> Underwritten issue > 100% underwritten issue
> Market Making > Mandatory for 3 years
>Trading size > Minimum Rs. 1 lakh

 There are some other crucial factors that should be considered before applying for SME IPO new listing.

1. There should not be any reference of the company before the Board for Industrial and Financial Reconstruction (BIFR).

2. Neither should be there any winding up petition against the company that has been accepted by a court.

3. There should not be any change in the promoters of the company in the preceding one year from the date of filing the application for SME IPO listing.

“It is advisable to avail the services of SME IPO listing consultants as they will provide complete guidance.”

-Shweta Gupta, Founder and CEO, MUDS

SME IPO Listing Procedure

IPO process for SMEs is comparatively easier to mainline IPO and it takes almost 5-6 months from the day company appoints a lead manager.

Steps for SME IPO New Listing

  • Appointment of Merchant Banker
  • Capital Structuring, Due Diligence, and Pre-IPO preparation
  • Appointment of Bankers, Registrar, Market Makers, RTA etc.
  • Preparation of Offer Document (DRHP)
  • Filing of DRHP with Stock Exchange
  • Approval from Exchange and RoC
  • Issue Pricing
  • The Opening of Public Issue
  • Closure of the Issue & Allocation of Shares
  • Listing & Trading at the Exchange

SME IPO Advantages

Advantage #1. Gives Issuer Company an opportunity to access capital through equity infusion.

Advantage #2. Enhances the prestige and credibility of these companies, improves the company’s net worth.

Advantage #3. Net worth of the company increases and it can expand, diversify and even acquire other companies.

Advantage #4. SMEs can raise capital from other sources like preferential issues, rights issues, qualified institutions placements (QIP) and other international fundraising instruments.

Advantage #5. By going public, the company is able to provide liquidity to the shareholders.

“Looking at the current spurt in SME IPO listings, it is quite clear that SME Exchanges provide a platform of immense growth and expansion!”

– Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.)

Way Ahead

Looking at the rate of growth of SMEs after going public, is a very encouraging sign and therefore, more and more Startups and small businesses are preparing for listing.

SME IPO listing opens up an avenue through which growing companies can raise capital through equity and the fund thus collected also gives the privilege of utilizing it with full freedom, as is the need of the company.

Successful IPO listing brings benefits for all stakeholders: investors, employers and employees.

“It can be confidently summarized that SME IPO Listing is the best bet for small businesses and this can be successfully achieved by the assistance of SME IPO listing consultants.”

-Shweta Gupta, Founder and CEO, MUDS

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January 2021