MSMEs bitten by market bug when it comes to raising capital

The known route of banking or sourcing finance from other formal lending institutions are passé. Increasingly, such fund-crunched micro, small and medium enterprises are opting for listing, says a SEBI-certified analyst.

A Suresh Babu, who is an equity analyst offering capital market services, says the trend has been more pronounced in recent times. “Every year, I receive 8-10 proposals for funding below Rs 3 crore from small entities that look to manage their cash flows. Other key purposes that companies typically need fund include working capital, expansion with new brands, buying new machinery, acquisition or shutting down factory at a low price on a OTS or one-time settlement basis,” he says and adds “even a start-up after two years of operations has to look at finance.”

Many evaluate the listing route using the SME platforms available on NSE or BSE. For instance, in Tamil Nadu, small companies from Dindigul, Virudhunagar, Tirupur, Salem and Puducherry that are on an expansion mode have either gone to Category I merchant bankers (for less than Rs 5 crore finance) or gaining confidence in the capital markets, Babu says.

Sectors that look for raising capital Rs 3 crore to Rs 10 crore include textile and food players. From spinning to yarn machinery replacement to acquisition of extra land in the same compound to colouring, dyeing and chemicals are the activities leading MSMEs to go for newer finance options.

Having helped in the raise of about Rs 40 crore in a seven-year span, he says firms had to place their proposals before category I merchant bankers, who generally are available in Mumbai. 

In the last three years on a pan-India basis, 200 to 260 MSMEs have gone to the capital market and some of the notable ones include Tasty Dairy (Kanpur), Vasa Retail (Mumbai), JFL (Rajasthan), One point one (Mumbai) for Rs 20 crore requirement. The public listings have fetched some such entities over Rs 1,000 crore 

From TN, 15 SMEs to have listed availing his services include Rethivik facility, RCL Foods, KVK Power (Karvy consultants Hyderabad), Win Solar and Junction Apparels (Tirupur). Most SMEs raise project funding ranging from Rs 3 crore to Rs 10 crore, he adds.