The new profitability clause for firms planning to list on the main stock exchanges will help boost the Small and Medium Enterprises (SME) platforms launched by the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
The Securities and Exchange Board of India (Sebi), last week, added the minimum profitability clause for firms wanting to list on the main stock exchanges. Accordingly, only issuers with a minimum average pre-tax operating profit of Rs 15 crore will be allowed to make initial public offerings on the main exchanges.
Investment bankers said this provision would help SME exchanges attract companies.
| SMALL IS BEAUTIFUL Recent listings | ||
| Main exchange | ||
| Name | Net profit (latest) | Issue size |
| MT Educare | 8.25 | 99.00 |
| VKS Projects | 3.16 | 55.00 |
| Olympic Cards | 2.19 | 25.00 |
| BSE SME | ||
| Monarch Health | -0.44 | 12.00 |
| BCB Finance | 0.23 | 8.85 |
| Max Alert Systems | 1.73 | 8.00 |
| Sangam Advisors | 0.22 | 5.07 |
| Jupiter Info | 0.02 | 4.08 |
| Figures in Rs crore Source: BS Research Bureau | ||
Dara Kalyaniwala, vice-president (investment banking), Prabhudas Lilladher, said the move would push more smaller companies to seek listing on the SME exchange. Kalyaniwala cited some recent examples, where several companies barely crossed the new profitability limits. According to BS Research Bureau, at least 25 companies listed in 2011 had net profit figures less than Rs 15 crore. In 2012, at least three IPOs saw issuers with net profits below this number.
“Only issuers with a minimum average pre-tax operating profit of Rs 15 crore will be able to come through this route,” Sebi decided in its board meeting last week. The move will be beneficial to both companies and investors, as the SME Exchange had more safeguards in place to support the smaller IPOs.
The smaller bourse keeps away very small investors, as minimum investment is pegged at Rs 1 lakh. Further, there are market makers and anchor investors for each scrip who ensure liquidity by giving two-way quotes.
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Lakshman Gugulothu, chief executive officer, BSE SME Exchange, said the move would help make a clear demarcation between the main board and the SME exchange. “There was a lot of lot of overlap because even very small companies were going to the main board and raising Rs 30-40 crore. This had to be minimised. The Sebi move is a market development measure which will be positive for both the main exchange and the SME platform.”
This will induce investor appetite in the main exchange also, as only companies with considerable size and profit track record will be present there, say experts. Companies with paid-up capital of up to Rs 25 crore can be listed on the SME Exchange. Considering companies list at a premium, they could look at a market capitalisation of around Rs 250 crore. Usually companies look to divest up to 40 per cent of the equity. Thus, issuers looking to raise up to Rs 100 crore could come to the SME platform, say experts.
Gugulothu said the SME Exchange was picking up well and such moves would help add to the momentum. “Every week, we are seeing one or two companies coming for listing and few others filing prospectuses. In the next two months we will have 10-15 companies listed on the platform,” he added.