Amid market gloom, SMEs raise capital

Even as major companies desist from raising funds from the market, 6 small companies launch IPOs in a month

Even as big companies find it difficult to raise capital from the market, smaller ones are defying the challenging market conditions. In the past month, the Street has recorded half a dozen initial public offerings (IPOs) worth Rs 70 crore from small companies.

These IPOs, worth between Rs 2 crore and Rs 28 crore each, were launched on the BSE SME (small and medium enterprises) platform. Sources said approvals for another three-four companies were in place and these offerings could be launched in the coming weeks.

Most of these companies were from sectors such as broking and infrastructure, where investors had turned wary and valuations had taken a beating. Broking firms Alacrity Securities and GCM Commodity and Derivatives raised Rs 9 crore and Rs 7 crore, respectively, while infrastructure firms VKJ Infradevelopers and Silverpoint Infratech have launched issues worth about Rs 12 crore each. Money Master Leasing, a non-banking financial company, has launched an IPO to raise Rs 2 crore, while paper products firm Kushal Tradelink is seeking to raise about Rs 28 crore from an IPO, which would be open till August 21.

The last IPO by a major company was that of Just Dial in May, through which the company raised about Rs 900 crore.

Experts said SME IPOs, unlike large issues, were largely agnostic to market conditions, as the amount raised was small and a small group of “informed investors” invested in these. “Most SME issues are subscribed, as these are small-sized. Also, investors only invest after understanding the company from the management or merchant bankers. Such issues are only for large and informed investors,” said a BSE official.

The SME platform is for small companies, with face value capital of less than Rs 250 crore. Also, the investment ticket size for investors is at least Rs 1 lakh, against about Rs 10,000 for other IPOs. SME issues have to be entirely underwritten by merchant bankers, who also have to provide for market making. There are about 30 companies listed on the BSE SME platform.