Why SME IPOs are Facing the Music

Recently some hurried actions were seen from BSE that has raised eyebrows for market participants. On 21st June 2018, BSE issued a circular for “New Platform to list ‘Startup’ at BSE SME Segment” and mulled SME Startup platform launch on 09th July 2018 (its 143rd foundation day). While this news was carried by media till the month’s end, on 30th June 2018 it issued a circular about “Postponement of launch of BSE Startup Platform” and thus it took market by surprise.

But with this, there are murmurs in the market about hurried action by the oldest exchange which invited few questions that needs to be answered. As we all know, in 1994 OTCEI (Over the Counter Exchange of India) started with the similar purpose for listing of small ventures, could not take off and finally witnessed premature death in 1997. Scrip listed on this exchange is still trying way out to list on other exchanges. Recently we have seen the case of OTCEI listed company Zim Laboratories Ltd. that marked Main Board listing at BSE in last month. On the other hand, we have seen the case of one ITP (Institutional Trading Platform) company i.e. Richway International Ltd. that failed to mark desire level of action on BSE. ITP finally got delisted and entered on NSE SME Emerge for relisting with new name Suumaya Lifestyle Ltd.

Amidst all these happenings, few episodes like permission for SME listing to companies like Garv Industries Ltd., U H Zaveri Ltd. with no financial track records of at least two years surprised one and all. While BSE officers have clarified that these companies were cleared for listing on the basis of their networths, it raises question on minimum financial track record aspect. Recent uproar is seen in the matter of Ganesh Film India Ltd., a company belonging to a group in the business for more than three decades, but this IPO aspirant has no track record of two years and has just minuscule performance and is looking at a price of Rs. 80 per share for its float. With the recent IPO of Salebhai Internet, it is facing more criticism on its SME IPO processing methods.

According to market participants, not only exchanges, but also the Lead Managers have opted for quantity game instead of quality aspect of SME listing aspirants and have played a spoil sport for the recent subdued sentiment for SME IPOs. As per SME market participants, SME IPO pricing too has taken its toll and has raised a query about upper caps for pricing of SME IPOs. In their opinion, SME IPO pricing should be capped at a P/E of around 12 to 15 only in general and quality offers should have a cap of 20 P/E. As felt by the observers, BSE has some relaxed norms for SME listings compared to NSE. We have seen the case of Deccan Healthcare that originally mulled NSE SME Emerge listing, finally opted for BSE SME listing and tried to enter the market in the month of March 2018 withdrew the IPO even before opening. According to market sources, some declarations were not covered in the offer documents and hence, at last minute it stood withdrawn and has refilled DRHP (for third time).

On one hand we had witnessed in the past suspension of four companies (in 2015) of SME platform on BSE, on the other hand, we have the case of first NSE SME Emerge IPO of Thejo Engineering Ltd. (2012) still remains on SME platform. In a bid to increase listing of SME platform, NSE has recently approved IPO of Bright Solar for listing. This company was blacklisted by state government authorities from their vendors list.

If SME platform is to be revived, let the exchanges give major thrust for quality IPOs and leave aside quantity game. Also let them stick to the rule frame for SME listings and rework the platform itself instead of adding a chapter for start up.