Why should SMEs plan an IPO? 5 key learnings from the veterans

2023 could be the year of SME IPOs!

Initial Public Offering (IPO) has been a buzzword for the last two years thanks to startups, as 2021 and 2022 saw listing of around 15 companies on the public exchanges.

Experts believe that in the year ahead, many small and medium enterprises will list on the bourses as well.

Amit Kumar, Founder of MSMEx spoke to SMBStory about the key trends for the year 2023. He expects around 200 SMEs to plan a public foray this year. 

“There are around three lakh businesses in India operating in the revenue range of Rs 5 crore to Rs 250 crore but only around 690 are listed. And out of these, around 97 companies got listed in 2022 itself. So you see, there is a huge potential for listing,” Amit says.

SMEs operate with limited funds, making the availability of working capital a challenge. IPO gives these businesses much-needed capital access, turbocharging their growth.

But it's not just about raising money, IPOs come with their own challenges as well as opportunities. 

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Here are 5 key learnings from the industry veterans who have been there and done that. 

Launch when you are ready

HP Singh, Chairman and Managing Director of Satin Creditcare Network Limited, says that for SMEs the critical asset size (AUM), robust asset quality, scalable business model and a niche in the business segment that has an appeal to the external stakeholders are some of the important mandates one shall think upon while going for IPO listing. 

“Compliance angle even while going for IPO is a learning opportunity,” he adds. Microfinance company Satin Creditcare Network was listed on the stock exchange in 1996. 

Hope for the best but be ready for the worst

HP Singh says that subscription remains a challenge, especially for companies which don’t have backing from a big corporate house or a PE fund.

“This along with the market condition at the time of launch, when the markets suddenly crash due to external conditions led to challenges in subscription of the public issue. It also happens that sometimes some sectors are favourites of the markets but by the time the companies are ready with the IPO, the interest fades,” he adds. 

Be open to be under scanner

Compliance is another challenge that an SME has to go through. Unlike a partnership or private limited company, for an IPO-listed company, corporate governance matters a lot.

Vikas Gupta, Managing Director of PGEL, which provides electronics manufacturing services and is listed on the stock exchange since 2011, says accountability increases for any listed companies and while the listed companies are always under the scanner, the governance gives opportunities for business growth.

Builds trust among the stakeholders

Yash Bhuva, Executive Head of Sheetal Cool Products Limited (SCPL), an Amreli-based FMCG company, says that IPO enables more recognition and trust among the suppliers, distributors, consumers and other stakeholders of the business. Even though accountability increases, listing enhances the worth of the business and respect which every entrepreneur yearns for.

SCPL was listed under the SME platform in 2017 and has recently migrated to the main exchange board of BSE and NSE. 

Creates stronger connections

Other than building trust, Yash highlights that being publicly-listed creates stronger networks and connections amid the business ecosystem. “It becomes easier to expand and get access to funds,” he adds.