Credit and Finance for MSMEs: BSE SME and NSE Emerge platforms were set up back in 2012 to provide small and medium enterprises (SMEs) an avenue to raise capital as securing credit from banks hasn’t always been smooth while venture capital investors have predominantly remained at bay from backing traditional small businesses. In nearly a decade, 345 SMEs have got listed on the BSE SME platform while 221 SMEs have been on the NSE Emerge platform.
Importantly the share of entities that migrated to mainboards of BSE and NSE stood at 33 per cent and 34.8 per cent respectively. That’s only 114 SMEs migrating from BSE SME to BSE and 77 SMEs moving from NSE Emerge to NSE. So, has that got to do with any challenges SMEs face in migrating to mainboard?
“I haven’t heard of any challenges from SMEs in migrating to the mainboard. Compliances that were half-yearly on Emerge become quarterly on the mainboard. 77 businesses migrating to the mainboard is a great number. There could be typical listing challenges such as giving away some control of the company, its ownership, etc., at the time of coming into the listing space. MSMEs get to tackle them being onto the Emerge platform for two years before they can plan for migration,” Rachana Bhusari, Vice President, Primary Markets – Equity and Debt, NSE told The Outlooker Online.
“The choice to move is totally on promoters and their thought process. Many are happy being large fish in a smaller pond. So, if they feel they have unlocked their value on Emerge, they are happy there. There is nothing wrong or right about it,” she added.
To migrate to the mainboard of NSE, SMEs are also required to have paid-up equity capital not less than Rs 10 crores and the capitalisation of the equity to be less than Rs 25 crore. Also, the company should have been listed on SEBI’s Innovators Growth Platform for at least a year.
Among other requirements included a minimum of 200 shareholders, profitability for three years, or have 75 per cent of its capital held by Qualified Institutional Buyers on the date of application for migration, minimum promoters’ contribution of 20 per cent locked in for three years, and more.
Ajay Thakur who heads BSE SME echoed Bhusari. “Onboarding the platform initially makes them (promoters) wary of more compliances, diluting equity, etc. However, after listing for two to three years on the SME platform, they understand the value of wealth creation, brand building, credibility, etc. Once they get used to it and understand that corporate governance and compliances will further increase their credibility and value, moving to the mainboard becomes a matter of promoter’s perspective and bandwidth and not that he/she is scared of making the move,” Thakur told The Outlooker Online.
According to the latest BSE SME data available, SMEs listed so far have raised Rs 3,630 crore and have a combined market cap of Rs 35,378 crore. There are 231 companies listed currently with a market cap of Rs 13,155 crore.
“114 SMEs migrating to the mainboard is a good enough share out of the total listed so far on BSE SME. Migration to the mainboard is an ongoing process. Around 30 per cent of the listed companies become eligible every year to migrate to the mainboard,” said Thakur.
Earlier this month, Jaipur-based small business Nandani Creation, which is into fashion apparel manufacturing and retailing, had migrated from NSE Emerge to NSE. The company had received approval from NSE for the migration of 1,0033,950 equity shares from the NSE SME platform to the mainboard with effect from September 2, 2021. The company was listed on NSE Emerge in 2016, four years after its launch in 2012.
Its standalone profit after tax (PAT) for FY21 had jumped by 140 per cent to Rs. 1.78 crores in comparison to Rs 74 lakhs in FY20 while the sales turnover stood at Rs 46.09 crores in FY21 vis-a-vis Rs 43.73 crores in FY20. What drove Anuj Mundra who runs Nandani Creation towards the mainboard was investments.
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“We didn’t see any challenge in terms of compliance or regulatory aspects. Those who don’t move to the mainboard doesn’t mean there is a challenge in doing so. Everybody has his/her reason for the decision. My main motto for migrating, since we are into expansion mode, was investments. It is good when more people (investors) come to you and understand your business and how big is your company’s portfolio. Investors’ perspective also changes toward you. We are planning to have 10 stores this year and 60 by 2025 from four currently,” Mundra told The Outlooker Online.
Among those who haven’t made the move yet towards mainboard is Chennai-based engineering services provider to the mining and material handling industry – Thejo Engineering. Thejo was the first company to list on NSE Emerge months after the platform was launched in 2012. The company’s fund requirement then was enough to be on the Emerge platform since it wasn’t looking for large funds and overall, it was a good opportunity for Thejo to enhance its governance processes.
“From the start, we are happy with the services provided by Emerge. However, we had one challenge in terms of the lot size on the SME exchange, which is the minimum amount to be invested. I had requested SEBI and the exchange to progressively reduce the lot size of Rs 1 lakh over a period of 1 to 2 years, by first reducing it to Rs 50,000 and then to Rs 25,000, so that smaller investors can get the benefit of investing in SME listed companies with a demonstrated track record in terms of performance, governance, disclosures, etc.,” VA George, Executive Chairman, Thejo Engineering told The Outlooker Online.
However, George sees no challenge in migrating to the mainboard if he wants to. “We are complying with most of the things required by the mainboard. But we have still not taken a decision to move based on our analysis of the various aspects of this subject. We feel that, for now, it is better to stay on the SME platform as a star performer rather than being one among the many companies on the mainboard. We always have the option to move to the mainboard, at any point in time, by complying with necessary formalities,” he added.
Interestingly, SMEs feel more comfortable among a lesser number of companies in comparison to what they envisage among a large number of companies on the mainboard even if they spend initial few years in the listed environment to understand and get comfortable with compliances before switching to the mainboard that takes around a month’s time.
“It is fine to be on SME platforms instead of getting lost among thousands of companies on the mainboard. That’s why we have some checks such as you need to have a typical market cap of at least Rs 25-30 crore and have to be on Emerge platform for two years so that you get accustom yourself to regulatory compliances and two years is a good time to test stock markets on your performance, financial discipline being in regulatory space,” noted Bhusari.