DRHP filings rise on SME Exchanges even as fund raising falls 16%

A fall in average issue size from Rs 7.69 crore in the calendar year 2014 to Rs 6.32 crore in 2015 has resulted in fund raising by small and medium enterprises (SMEs) on equity market decline by 16 per cent for the period.

However, the number of companies filing draft red herring prospectus (DRHP) increased from 49 in 2014 to 58 in 2015, a trend which lead managers expect to continue in 2016. A total of 36 companies, who have already filed their draft prospectus with the SME Exchanges, are expected to get listed during the year 2016.

In 2015, 42 companies got listed, raising Rs 265.26 crore from equity markets. In 2014, Rs 315.37 crore of capital was raised by 41 SMEs in both BSE SME Exchange and Emerge of National Stock Exchange (NSE).

Statistically, the average issue size has reduced in 2015 but smaller companies are increasingly coming forward to tap capital markets. Small scale units which were hesitant earlier are now finding confidence over SME capital markets.

"Overall amount of fund raised by SMEs was down as many micro level companies entered in the market during the time. However, trust on this new concept of SME Exchanges has increased among small companies. This is quite a positive signal from market deepening perspective," said Mahavir Lunawat, group managing director of Pantomath Advisory Services Group.

Geographically, out of 42 companies, Maharashtra and Gujarat contributed 13 and 12 companies, respectively, during the year 2015, whereas in terms of cities, Mumbai, Ahmedabad and Delhi contributed 24 companies collectively. A total of 36 companies have already filed their draft prospectus with the SME Exchanges and are expected to get listed during the year 2016. Last year in the corresponding period about 21 companies had filed draft prospectus.

Lunawat said, "Increasing number of companies coming up on to SME bourses lend a lot of confidence and send positive signals. It's heartening to note small units from various clusters from Tier III and IIII cities coming up and tapping capital markets."

However, even as some companies of BSE SME Exchange migrated to the main board on BSE, market cap of the exchange has decreased from Rs 10,000 crore to Rs 7,000 crore in past few months.

Gaurav Jain, director of Hem Securities Limited said, "Only 16 companies have migrated so far to the main board, resulting in a fall in overall market cap."

As on date, 107 companies are listed on BSE SME Exchange and 17 companies on NSE Emerge.

Talking about fall in value, Jain said, "Now most of the companies’ IPO size is below Rs 5 crore, thereby reducing the average size of the issue. However, interest of SMEs for raising funds is still there and market will surely witness uptrend as numbers of companies considering for an IPO to raise fund continue to increase."