Governments all across the globe have recognised the critical role that MSMEs play in driving economic growth. The most difficult hurdle for Businesses, however, is obtaining money. Should they go to the route of IPO?
A vibrant business ecosystem, encouraging government schemes and incentives, globalization and exposure to vast geographical markets, availability of funds from banks and financial institutions, and the passion and drive of Indian entrepreneurs have all contributed to the growth of SMBs in India over the last few decades. Some events, rules, and COVID-19, on the other hand, have forced certain MSMEs out of business throughout the world, particularly in rising markets like India.
MSMEs struggle to survive and scale due to a lack of access to funding. Debt and equity are two ways for businesses to raise capital. Debt and equity are complimentary components of a company’s financial structure, with equity money accessible through internal accruals, outside sources of funding, or from friends, family, venture capitalists, and private equity firms.
An is the ideal choice for a rising firm to raise equity capital since it allows companies to raise enormous amounts of cash that would otherwise be impossible to raise at a low cost. Going public also offers firms with a lot of publicity and increases their market presence.
The Ministry of Micro, Small, and Medium Businesses (MSME) was established in 2007 to address challenges confronting SMBs, such as finance and other critical concerns. Indian regulators recognised the relevance of equity funding for MSMEs and created a structure that allows for the establishment of a dedicated stock market for them. Prior to creating SME platforms, any firm planning to go public via IPO had to fulfil some fundamental requirements outlined by the SEBI.
The BSE and NSE both established SME platforms in 2012 and 2017, respectively. The SME Exchange is intended for enterprises who want to obtain equity capital and have their shares listed and traded on a recognised stock exchange in India, with listing criteria tailored exclusively to small and medium-sized businesses.
The proportion of MSMEs that have moved from SME platforms to main boards of the BSE/NSE is presently 33% and 34.8%, respectively. This demonstrates an encouraging trend, indicating that many MSMEs have expanded to the point where they may move to the main board. The parameters for such migration will aid in understanding the degree of post-SME IPO enterprises.
Within two years from the date of listing, SME listed businesses with post-issue face value capital of more than Rs 10 crore and up to Rs 25 crore may migrate to the main board. According to the most recent BSE SME statistics, SMEs listed have raised a total of Rs 3,630 crore and have a market capitalization of Rs 36,005 crore. Over the course of nearly a decade, 345 SMEs have been listed on the NSE SME platform, while 221 have been placed on the NSE Emerge platform.
This demonstrates MSMEs’ increased trust in the SME IPO and listing process. When opting to go public, SMBs must assess their best capital structure in terms of the cost of capital, the amount of money necessary, post-IPO valuation, and so on.
