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Tag: Small and Medium Enterprises

  • Initial public choices: Why retail buyers needs to be cautious of SMEs

    To make certain, ASM includes implementation of enhanced pre-emptive surveillance strategies once in a while to regulate worth volatility. T2T is a regulatory framework that’s used to watch and management the buying and selling of shares thought of to be extremely speculative or illiquid. The new measures, that are efficient Tuesday, shines the highlight on SME preliminary public choices (IPOs).

    The SME phase has seen a powerful 135 listings up to now this yr, in comparison with simply 33 within the major markets. The capital raised by SME IPOs has been the most important this yr since their introduction in 2012.

    Industry consultants say a number of SME shares are seeing outstanding development, however pinpointing the driving issue may be difficult—be it genuine market optimism or potential market manipulation. SMEs typically thrive in specialised markets, showcasing modern enterprise fashions or providing distinctive services, which might create alternatives for substantial returns on investments.

    Incorporating SME IPOs right into a portfolio can introduce diversification, spreading threat throughout varied sectors and industries. Notably, the standout performers of 2023 have been Krishca Strapping Solutions and Exhicon Events Media Solutions, each having fun with a powerful surge of practically 350%, greater than quadrupling their preliminary problem costs. Sungarner Energies’ IPO witnessed a outstanding triple-digit enhance on its itemizing day.

    Mainboard vs SME IPOs

    The mainboard usually calls for a minimal of 1,000 subscribers or allottees for an IPO, with software quantities starting from ₹13,000 to ₹15,000. These choices bear rigorous scrutiny as their Draft Red Herring Prospectuses (DRHP) are completely vetted by Sebi. Moreover, corporations aiming for the mainboard itemizing will need to have a post-issue paid-up capital exceeding ₹10 crore. While it gives a prestigious platform, the mainboard pathway is slower and sometimes costlier, with corporations obligated to report their financials on a quarterly foundation.

    On the opposite hand, the SME phase caters to smaller enterprises, requiring a minimal of fifty subscribers or allottees, with an IPO software quantity better than ₹1 lakh. Notably, DRHP filings for SMEs are vetted by inventory exchanges somewhat than Sebi. These enterprises are required to have post-issue paid-up capital starting from over ₹1 crore to underneath ₹25 crore. The SME IPO route is thought for its swifter and less expensive processes, with corporations having to report their financials on a half-yearly foundation. This differentiation in necessities and rules offers a tailor-made strategy to companies of various sizes and capital wants within the Indian IPO panorama.

    Frenzy for SMEs

    Over the previous decade, the BSE SME IPO Index has demonstrated outstanding development, surging a staggering 100 instances. The index has delivered spectacular annualized returns, with positive factors of 132% during the last yr, 195% over the previous three years, 82% over the previous 5 years, and a strong 60% since its inception. These statistics spotlight the sturdy efficiency of SME IPOs in India, making them a sexy funding avenue.

    As per present knowledge out there from BSE, 454 corporations have been listed on the SME phase, whereas 179 have migrated from SME to the primary board. Presently, 275 corporations are actively listed within the SME phase, whereas 24 have been suspended.

    In the previous few months, a number of corporations have garnered important consideration and investor curiosity. Basilic Fly Studio Ltd, with a IPO measurement of ₹66.35 crore, acquired subscriptions totalling 359 instances its preliminary providing, garnering a powerful ₹23,793 crore in subscriptions. Similarly, Madhusudan Masala Ltd, working in a unique area of interest with a measurement of ₹23.8 crore, witnessed substantial enthusiasm from buyers, leading to subscriptions 444 instances its providing, translating to ₹10,574 crore. Oriana Power Ltd, with a measurement of ₹59.66 crore, attracted 177 instances its providing, amounting to ₹10,535 crore. These spectacular subscription figures underscore the passion and confidence that buyers have proven in these corporations, reflecting the vibrancy and buoyancy within the phase.

    “There is all the time a frenzied response for IPOs throughout bull markets. Lots of buyers nonetheless go by the idea of bygone period the place the buyers would spend money on the IPO and promote it instantly after itemizing. On common, the investor used to make a 10-20 % acquire in 3 to 4 months. The IPOs of the present period are priced by the ebook constructing course of and embody premium on face worth. This premium can also be influenced by present market valuations. There is a time lag between subscribing to an IPO and itemizing of the providing. Lots of instances, these valuations appropriate closely throughout this time lag as a consequence of market corrections or different causes. This ends in heavy losses to retail clients. Remember Paytm? The present valuations of small caps is a fertile floor for SME IPOs. Retail buyers are finest suggested to avoid the first market or take restricted publicity to forestall any heartburn later. Retail buyers are higher off shopping for from secondary market after worth discovery,” said Renu Maheshwari, co-founder of Finscholarz Wealth Managers.

    The warning

    Industry experts have a word of caution for retail investors. They warn that a combination of financial strategies, market manipulation, and information dissemination can impact stock valuations.

    In the first scenario, let’s imagine a promoter aiming for a valuation of ₹100 crore but decides to launch the issue at a lower value of ₹50 crore. The promoter then strikes deals with offline brokers to orchestrate an artificial surge in demand. This manoeuvre inflates the share price in the grey market, and the promoter compensates the brokers for their role in stimulating and controlling the market until the issue is open for subscription. As the grey market premium (GMP) rises, unsuspecting retail investors join the fray. The brokers continue purchasing applications from the grey market, ultimately leading to the stock listing at the valuation desired by the promoter. Once this happens, the promoter and brokers liquidate their positions, capitalizing on the inflated valuation.

    A second approach involves a cartel of brokers and businessmen who diligently research and identify a promising company. They then recruit social media accounts with substantial followings to generate hype around the impending stock issue. These social media accounts synchronize their posts, creating a buzz that attracts retail interest. When the stock finally goes public, it typically commands a modest premium. At this point, retail investors often begin selling their holdings. Simultaneously, the cartel seizes the opportunity to accumulate shares, leveraging their informational advantage and benefiting from the price differential.

    Fraud & market manipulation

    In March 2022, PMC Fincorp Ltd issued 70 million warrants, 50 million of which were allotted to non-promoters at ₹9.90 each. Non-promoter investors paid 25% upfront (around ₹2.50 per warrant) but later declined to convert them into equity as the share price dropped to under ₹2. The company retained the warrant application funds, collecting over ₹2.5 crore from non-promoter investors. Intriguingly, even the promoter participated in the warrant issue but chose not to convert.

    The lesson here highlights the potential for fraud by promoters, underscoring the need for enhanced investor protection and regulatory vigilance.

    “The simple method is to show paper profit, create receivables (such receivables & inventory frauds are age-old methods) while taking huge salary hikes, consultancy fees, royalties given to group companies or even commissions. SME promoters will typically be hungry for capital and take utmost care, given how difficult it is for them to raise funds.”, stated Mohammad Nasirul Amin Choudhury, who runs a well-known twitter web page on SME IPOs.

    STL (previously generally known as 8k Miles Software Services Ltd) discovered itself embroiled in an issue final yr. Initially, the corporate’s promoter alleged that sure sharebrokers and monetary service supplier corporations had duped him by promoting shares that he had pledged to safe loans.

    However, because the investigation unfolded, it turned obvious that the promoter himself performed a major position within the fraud. He was implicated in a extra in depth conspiracy involving the manipulation of STL’s monetary books and the diversion of funds into unrelated enterprise ventures of the corporate’s senior executives. The promoter had additionally offered shares value ₹110 crore within the open market and obtained a considerable ₹40 crore mortgage from share brokers.

    This case serves as a stark reminder of the potential dangers and penalties related to company malfeasance, underscoring the significance of investor safety and transparency in monetary markets.

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    Updated: 26 Sep 2023, 08:35 PM IST

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  • Construction, meals MSMEs gas post-Covid credit score rise

    Among micro, small and medium enterprises (MSMEs), these concerned in meals merchandise and building supplies, in addition to those concerned in investments in know-how are driving the post-Covid credit score progress within the sector.

    Lenders to MSMEs say e-commerce was robust even through the pandemic, and retail and meals companies picked up a couple of 12 months again.

    “Companies that have seen an increase in borrowing in terms of percentage of total disbursal include food products, which has seen an uptick in borrowing from around 14 per cent in FY19 and FY20 to nearly 20 per cent in FY21 and FY22. During the same period, the construction materials industry has shown increased credit demand, going from around 4 per cent of the pie to over 7 per cent,” stated Hardika Shah, founder & CEO, Kinara Capital, in an e-mail.

    The MSME sector was one of many worst hit through the pandemic and the resultant lockdowns led to lack of enterprise.

    “We have seen a strong pickup in demand for credit over the past 12 months across these categories. In terms of gradation, while e-commerce continued to be strong through the course of pandemic, retail and food services sectors picked up about 12 months back, and travel has seen a strong revival over the past 6-9 months,” Alok Mittal, managing director, Indifi Technologies Pvt Ltd, stated.

    The State Bank of India’s (SBI) Ecowrap report launched in July additionally echoed the development, stating that incremental credit score to the MSME sector has been on an upswing. “Around 74 per cent of such is purely because of the credit guarantee scheme, and the remaining 26 per cent is because of other schemes including the definitional change in the MSME sector. In terms of overall credit growth, the ECLG scheme has contributed 15 per cent of the expansion,” learn the report.

    The Emergency Credit Line Guarantee Scheme (ECLGS) was unveiled as a part of the excellent package deal introduced by the federal government in March 2020 to assist the MSME sector in view of the financial misery brought on by the Covid-19 pandemic.

    According to the Ecowrap report, round Rs 2.36 lakh crore has been disbursed to MSMEs underneath the ECLGS. However, it’s not simply the pandemic; the sector can also be affected by delayed funds. Data from Bengaluru-based non-profit Global Alliance for Mass Entrepreneurship (GAME), information analytics firm Dun & Bradstreet, and Omidyar Network present that delayed funds to the MSME sector have elevated to Rs 10.7 lakh crore until the tip of 2021.

    About 81 per cent of the full quantity is owed to small and micro enterprises (SMEs) — Rs 4.29 lakh crore to small enterprises and Rs 4.44 lakh crore to micro enterprises. Mittal, nonetheless, says that the demand for credit score, past March 2021, is to fund progress. “The demand for credit has not been driven by desperation of funds, but by the growth opportunities available to these businesses. Also, given the sharp uptick in digitisation during the pandemic period, more of that demand is getting channeled to digital lenders,” Mittal stated.

  • ‘FY22 MSME loan growth 36% above pre-Covid level’

    The mortgage portfolio excellent of micro, small and medium enterprises (MSMEs) rose to Rs 22.7 lakh crore, a rise of 36 per cent over the pre-pandemic degree in March 2020 and 18 per cent over March 2021.

    According to CRIF High Mark, a credit score data bureau, as of March 2022, there have been 137.4 lakh lively loans for the MSME sector, a rise of seven per cent from March 2021 and a 43 per cent enhance from March 2020. Portfolio in danger (PAR) for 91-180 days late (DPD) improved from 1.6 per cent as of March 2021 to 1.3 per cent as of March 2022.

    It stated PAR for 181-360 days held regular at 0.3 per cent. As of March 2022, PAR for 360 days late was at 2.2 per cent, bettering from 2.5 % as of March 2021, it stated.

    Navin Chandani, MD & CEO, CRIF High Mark, stated, “The fact that total loans disbursed to MSMEs has increased by nearly 50 per cent compared to pre-pandemic levels is a clear indication that the lending community is actively supporting the resilience and regrowth of this sector. We will continue to publish rich data & insights to benefit the lending ecosystem for small businesses.”

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    At 51.5 lakh accounts, complete loans disbursed in FY22 represented a 47 per cent enhance over FY20. From Rs 37.7 lakh in FY20 to Rs 72.4 lakh in FY 21–22, the typical ticket dimension of MSME loans elevated by 92 per cent, it stated.

    Crif High Mark stated the small borrower phase had the very best market share by originations worth in FY22 at 28.5 per cent, adopted by Mudra phase at 26.2 per cent. By originations quantity, Mudra borrower phase had the largest market share in FY22 at 57.7 per cent, adopted by micro phase at 21.2 per cent.

    The market share by originations worth of personal banks considerably elevated from 33.6 per cent in FY20 to 69.8 per cent in FY22, the bureau stated. Their share climbed from 26.9 per cent in FY20 to 33.5 per cent in FY22 by originations quantity. This is attributable to the rise in common ticket dimension of personal banks from Rs 47.1 lakh to Rs 150.5 lakh from FY20 to FY22. Public sector banks and NBFCs confirmed a decline in market share throughout this era.

    The common ticket dimension for PSU banks in FY22 was Rs 28.6 lakh, NBFCs Rs 32.1 lakh, overseas banks Rs 502.6 lakh and different lenders Rs 26.1 lakh, it stated.

    Geographically, the highest 10 States account for 90 per cent of originations worth in FY22. The prime 3 states Maharashtra, Tamil Nadu, and Delhi, make up 64 per cent of the whole originations worth in FY22.

    According to originations quantity, Maharashtra, Tamil Nadu, and Uttar Pradesh are the highest 3 states and with a mean ticket dimension of Rs 256.5 lakh in FY22. Maharashtra has the most important MSME mortgage portfolio.

  • FISME plans collateral-free MSME lending platform

    Aimed at fulfilling the necessity for pressing funds, a digital lending platform is being created to supply entry to collateral-free capital as much as Rs  25 lakh to micro, small and medium enterprises (MSMEs).

    The platform is being arrange by the Federation of Indian Micro and Small & Medium Enterprises (FISME) and Eqaro Surety Pvt Ltd, a supplier of monetary ensures.

    A memorandum of understanding on this regard was signed by Prashant Patel, president of FISME, and Vikash Khandelwal, CEO of Eqaro, in Delhi not too long ago.

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    “Lending has traditionally been collateral based. This unique, first time in India initiative will help MSMEs get easier access to credit backed by a surety guarantee without the need to put up collaterals,” Khandelwal stated.

    According to Patel, it’s like an overdraft facility, initially pegged at Rs 25 lakh, which could possibly be tapped anytime from wherever ought to an MSME want funds.

    Former Secretary, Department of Financial Services, DK Mittal termed the initiative “path-breaking”, including, “Lack of collateral is the single biggest bottleneck that small entrepreneurs face in accessing institutional funds and obviating the need for asset-based collateral by sureties can revolutionise MSME lending.”

  • Covid, lockdown hit MSMEs hardest, their unhealthy loans spiked Rs 20,000 crore in 2020-21

    THE SLOWDOWN within the financial system within the wake of the Covid pandemic within the final two years appears to have hit the micro, small and medium enterprises (MSMEs) probably the most regardless of a number of mortgage restructuring schemes and packages introduced by the Reserve Bank of India (RBI) and the federal government.

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    Gross non-performing property (NPAs) of MSMEs, or loans defaulted by these enterprises, rose by Rs 20,000 crore to Rs 1,65,732 crore as of September 2021 from Rs 1,45,673 crore in September 2020, the RBI stated in response to a Right to Information (RTI) utility by The Indian Express.

    According to the RBI, unhealthy loans of MSMEs now account for 9.6 per cent of gross advances of Rs 17.33 lakh crore as in opposition to 8.2 per cent in September 2020. In truth, MSME unhealthy loans had declined from Rs 1,47,260 crore (8.8 per cent of advances) in September 2019, solely to choose up once more in 2021.

    ExplainedNo reprieve for small items

    Public sector banks accounted for the majority of MSME NPAs at Rs 1,37,087 crore, the RBI says. Among state-owned banks, PNB had MSME NPAs of Rs 25,893 crore as of September 2021, adopted by State Bank of India Rs 24,394 crore, Union Bank Rs 22,297 crore and Canara Bank Rs 15,299 crore, the RBI says.

    A mortgage turns right into a non-performing asset when principal or curiosity turns into overdue after 90 days.

    The rise in unhealthy loans occurred even after the RBI introduced 4 mortgage restructuring schemes for MSMEs in January 2019, February 2020, August 2020 and May 2021. Loans of as many as 24.51 lakh MSME accounts price Rs 1,16,332 crore had been restructured below these schemes. Under the May 2021 round issued by the RBI, loans for Rs 51,467 crore had been restructured, in line with the RBI’s ‘Trend and progress of banking’ report.

    According to the RBI definition, a micro unit’s funding shouldn’t exceed Rs one crore and turnover Rs 5 crore, small items’ funding shouldn’t exceed Rs 10 crore and turnover Rs 50 crore and a medium enterprise’s funding shouldn’t be greater than Rs 50 crore and turnover Rs 250 crore.

    The MSME sector was among the many most pandemic stricken sectors. Thousands of MSMEs both shut down or grew to become sick after the federal government introduced a nationwide strict lockdown in March 2020 within the wake of the Covid pandemic. To revive exercise, the RBI and the federal government launched a number of measures together with the Emergency Credit Line Guarantee Scheme (ECLGS) which offered Rs 3 lakh crore of unsecured loans to MSMEs and enterprise. The RBI additionally prolonged the scheme of one-time restructuring of loans to MSMEs with out an asset classification downgrade and permitted financial institution lending to NBFCs (apart from MFIs) for on-lending to agriculture, MSMEs and housing to be labeled as precedence sector lending (PSL).

    Banking sources stated the restructuring schemes and packages didn’t profit 1000’s of items which had been already in default. This is as a result of to be eligible below the ECLGS scheme, borrower accounts had been to be lower than or equal to 60 days due as on February 29, 2020.

    According to the RBI’s Financial Stability Report, credit score to the MSME phase slowed down (y-o-y) by the tip of September 2021 vis-a-vis March 2021. The decline was notably noticeable within the sub Rs 25 crore ticket measurement throughout main financial institution teams.

    Under the ECLGS, loans amounting to Rs 2.82 lakh crore had been sanctioned until November 12, 2021, of which Rs 2.28 lakh crore was disbursed (Rs 1.94 lakh crore by business banks, forming 20.6 per cent of the incremental credit score throughout the interval), it stated.

  • Report in Parliament: Over half of surveyed MSMEs noticed a 25% income dip in 2021

    Two-thirds of Micro, Small and Medium Enterprises (MSMEs) in India have been shut for a interval of three months or extra in FY2021 and over half of all MSMEs noticed a decline of over 25 per cent in revenues, in line with a survey of 1,029 such industries by Small Industries Development Bank of India (SIDBI).
    The survey report was tabled in Parliament by MSME minister Narayan Rane. The MSME ministry had assigned the survey to SIDBI in September 2021 as a part of efforts to evaluate the financial impression of Covid-19 on MSMEs and to evaluate the impression of the change in MSME classification.

    The Centre had in June 2020 as a part of its Covid reduction bundle revised thresholds for the classification of MSMEs. Under the brand new classification, manufacturing and companies items with funding of as much as Rs 1 Crore and turnover of as much as Rs 5 crore are labeled as micro companies, companies with funding of as much as Rs 10 crore and turnover of as much as Rs 50 crore are labeled as small enterprises whereas items with funding of as much as Rs 50 crore and turnover of as much as Rs 250 crore are labeled as medium enterprises.
    About 66 per cent of respondents within the survey reported a decline in profitability on account of steady fastened prices and decline in income throughout FY2021 fiscal, in line with the reply tabled in parliament by Rane. About 65 per cent of the MSMEs surveyed availed credit score below the federal government’s Emergency Credit Line Guarantee Scheme (ECLGS), which offered banks and monetary establishments a 100 per cent assure in opposition to any losses suffered by them as a result of non-repayment of the ECLGS loans by debtors.

    The examine additionally discovered that about 36 per cent of MSMEs surveyed had additionally availed loans below the Credit Guarantee Fund belief for Micro and Small Enterprises scheme throughout FY2021.