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Home >Market >Stock-market-news >SME platforms on BSE, NSE see success

Mumbai: A two-year-old experiment by BSE and National Stock Exchange (NSE) to help smaller companies raise capital on separate platforms has met with some success, in contrast to the global experience where progress with such initiatives has been more limited.

A total of 70 companies with a collective market capitalization of 8,200 crore now trade on these platforms.

Similar success has eluded countries like South Africa and Brazil, except at the London Stock Exchange’s Alternative Investment Market (AIM), where over 3,000 smaller companies have listed since its launch in 1995.

In March 2012, both BSE and NSE launched platforms for small enterprises aimed at entities looking to raise equity capital through venture funds, private equity and wealthy individuals.

While NSE has only five SMEs listed on its platform called Emerge, BSE has raced ahead with 65 companies, with some seeing their valuation increase manifold since listing.

“The SME (small and medium enterprise) platform addresses the legitimate need for capital raising for a small company," says Ashishkumar Chauhan, chief executive officer of BSE. “There are companies from various sectors like trading, manufacturing, steel, textile and finance spread across the geography of India. We provide a good investment environment with assured entry and exit options."

The 65 companies on BSE’s SME platform, which raised approximately 550 crore through initial public offerings (IPOs), now have an aggregate market capitalization of 7,890 crore.

Companies like Polymac Thermoformers, Newever Trade Wings, Satkar Finlease, Sunstar Realty Development and Max Alert Systems are some firms that have seen their share price jump more than four times since listing.

The issue price of Max Alert was fixed at 20 and it is currently trading at 187.25. Similarly, HPC Biosciences and Polymac Thermoformers that priced their shares at 35 each are now trading at 541.45 and 165.45, respectively.

The surge comes on the back of modest profitability. Most companies have reported a net profit of just a few lakhs, with only a handful reporting profits over 1 crore.

Max Alert Systems reported a net of 1.32 crore in the financial year ended 31 March. Polymac Thermoformers reported a loss.

Meanwhile, NSE, which has a clear advantage over BSE in the cash and derivatives segment, has been a slow starter in the SME arena.

“We are particular that the right kind of companies should come on the SME platform, and we put a lot of emphasis on the credibility of the platform," said Ravi Varanasi, chief of business development at NSE.

The total market capitalization of the five companies listed on NSE’s SME platform is nearly 307 crore. Thejo Engineering, and Veto Switch Gears and Cables listed on these platforms had issued bonus shares in September.

Not all companies, however, see trading on a daily basis on BSE either. On an average, around 25 to 30 companies see a handful of trades every day. On Tuesday, 29 companies saw a total of 307 trades with the turnover pegged at 8.25 crore.

Considering the fact that these companies could be high-risk bets, market regulator Securities and Exchange Board of India (Sebi) has kept small investors out of this segment by setting a minimum trade value of 1 lakh.

The regulator has also made merchant bankers more accountable by making them underwrite 100% of public offers, apart from compulsory market making for a period of three years after listing.

Underwriting refers to bankers buying unsold shares while market making makes it mandatory for bankers to offer buy and sell quotes to any entity looking to either invest in or exit from the company.

“Smaller merchant bankers manage these issues and they do not price the shares on the higher side as there is compulsory underwriting. So, there is reasonable upside available post-listing," said Chauhan. “Also, bankers are very cautious due to the three years’ market making requirement."

Speaking at a recent capital market seminar organized by the Institute of Company Secretaries of India, Sebi’s whole-time member Rajeev Agarwal said there has been “significant capital appreciation" due to the SME platform.

Traders and bankers say the SME segment provides an excellent opportunity for small companies to raise capital and get accustomed to listing requirements related to corporate governance and disclosures before graduating to the main segment.

“The SME platform is an excellent initiative of the regulators and exchanges to pave the way for a large pool of SMEs in India to raise equity capital and attain listing status," said Uday Patil, director, investment banking at Keynote Corporate Services Ltd, an investment banking firm, which has helped three companies list on the SME platform.

“There is a need, now that the platform is in existence, that banks and financial institutions take a pragmatic view and start considering the equity proposals of SMEs proposing to list on this platform. Passing on suitable adviceto them by finance ministry and the Reserve Bank of India (RBI) would be of immense help to make this initiative a real success as envisaged," he said.

The market has been seeking some regulatory changes, for which we are in touch with the regulator, said NSE’s Varanasi.

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