SME IPO | Top 5 things to know before investing | CA Rachana Ranade

CA Rachana Phadke Ranade

22 Feb 202314:31

Summary

TLDRIn this informative video, Rachana Ranade discusses the essentials of investing in SME IPOs, highlighting their increasing popularity among investors in 2022. She explains the definitions of SMEs and IPOs, emphasizing the differences between listings on main board exchanges versus SME platforms. Viewers learn about key factors to consider before investing, such as liquidity challenges, lot size requirements, and financial performance indicators. Rachana also presents market statistics, urging investors to conduct thorough research before making investment decisions. The video is both educational and engaging, providing valuable insights for potential SME investors.

Takeaways

😀 SME IPOs refer to Initial Public Offerings by Small and Medium Enterprises, distinct from larger corporations.
💡 SMEs are categorized based on turnover: Micro (up to ₹5 crore), Small (up to ₹50 crore), and Medium (up to ₹250 crore).
🏦 SME companies can be listed on specialized platforms like the BSE SME Platform and NSE Emerge Platform.
📊 Traditional IPOs require a minimum of 1,000 investors for allotment, while SME IPOs only require 50.
💰 The minimum application size for SME IPOs is often higher than ₹1 lakh, compared to ₹10,000-₹15,000 for traditional IPOs.
📝 Companies listed on traditional exchanges must report quarterly, whereas SME companies report only twice a year.
📈 The Nifty SME Emerge Index, launched in 2016, currently stands at 6,863, indicating substantial growth in the SME sector.
🔍 Investors should research SMEs thoroughly before investing, rather than relying solely on market buzz or popularity.
⚖️ As of March 31, 2022, 247 companies raised ₹3,801 crore through SME IPOs, with a market cap of ₹35,375.15 crore.
🚨 Liquidity can be a concern for SME shares, as they must be sold in predefined lots, potentially making it difficult to find buyers.

Q & A

What is the main focus of the video?
-The video focuses on SME IPOs (Small and Medium Enterprises Initial Public Offerings) and discusses important considerations for investors looking to invest in these stocks.
How does the definition of SMEs relate to MSMEs?
-SMEs are closely related to MSMEs (Micro, Small, and Medium Enterprises). A micro company has a turnover of up to 5 crores, a small company up to 50 crores, and a medium company up to 250 crores.
What is the significance of the NSE Emerge platform?
-The NSE Emerge platform is designed for emerging companies to get listed separately from the main board exchanges, facilitating investment in SMEs.
What are the key differences between main board IPOs and SME IPOs?
-Key differences include the minimum number of allottees required for IPOs (1,000 for main board vs. 50 for SME) and the minimum application size (10,000-15,000 rupees for main board vs. at least 1 lakh rupees for SME). Additionally, financial reporting is quarterly for main board companies and half-yearly for SMEs.
Why is liquidity a concern for SME shares?
-Liquidity is a concern because many SME shares may have lower trading volumes, meaning investors might struggle to find buyers when they want to sell, especially since shares must be sold in lots as defined in the IPO.
What are some potential risks of investing in SME IPOs?
-Investors may face risks such as lower liquidity, potential lack of buyer interest, and the possibility of overvaluation due to hype, as many investors may not fully understand what the companies do.
How has the Nifty SME Emerge index performed since its inception?
-The Nifty SME Emerge index started in 2016 with a base value of 1,000 and has risen to approximately 6,863, indicating substantial growth over the years.
What are the recommended steps before investing in SME IPOs?
-Investors are advised to conduct thorough research on the company, including understanding its business model and financial performance, rather than relying solely on market buzz.
What can be inferred from the example of Dronacharya mentioned in the video?
-The example illustrates the importance of performing due diligence. Despite having impressive sales growth, investors should not solely rely on hype and should investigate the underlying business fundamentals.
What is the potential appeal of SME IPOs for retail investors?
-SME IPOs can be appealing due to the potential for high returns, as indicated by significant market cap growth compared to the capital raised, but this comes with the necessity for careful analysis and understanding of the investments.