SME….! A New Opportunity for Private Company..!!!

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SME ExchangeIn the Present era, the market is booming up so every company wants to take the opportunity to capitalize the same more from market and want to get maximum benefits out of that.

Listing will help them enter capital markets (SME Exchange) and finally to graduate on to mainboard. The SME platform provides opportunity to entrepreneurs to raise equity capital for growth and expansion. It also provides immense opportunity for investors to identify and invest in good SMEs at an early stage.

Let’s see what are the ways available for companies to avail such benefits.

What is SME?

SME means Small and medium-sized enterprises or small and medium-sized businesses (SMBs) are businesses whose personnel numbers fall below certain limits.

What is SME Exchange?

“SME exchange” means a trading platform of a recognized stock exchange having nationwide trading terminals permitted by the Board to list the specified securities issued in accordance with this Chapter and includes a stock exchange granted recognition for this purpose but does not include the Main Board”.

So now question that arises is how those benefits can be obtained…. the simplest answer is by listing in SME Platform.

What are the Criteria for Listing?

  • Incorporation

The Company shall be incorporated under the Companies Act, 1956 or 2013.

  • Financials

Post Issue Paid up Capital

The post-issue paid up capital of the company shall be at least Rs. 3 crores.

  • Net-worth

Net worth (excluding revaluation reserves) of at least Rs. 3 crores, as per the latest audited financial results.

  • Net Tangible Assets

At least Rs. 3 crores as per the latest audited financial results.

  • Track Record

Distributable profits in terms of Section 123 of the Companies Act 2013 for at least two years out of immediately preceding three financial years (each financial year has to be a period of at least 12 months). Extraordinary income will not be considered for the purpose of calculating distributable profits. Or

The net worth shall be at least Rs. 5 crores.

  • Other Requirements

It is mandatory for a company to have a website.

It is mandatory for the company to facilitate trading in demat securities and enter into an agreement with both the depositories.

There should not be any change in the promoters of the company in preceding one year from date of filing the application to Different Exchange for listing under SME segment.

  • Disclosures

A certificate from the applicant company / promoting companies stating the following

  1. a) ” The Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR).”

Note: Cases where company is out of BIFR is allowed.

  1. b) There is no winding up petition against the company, which has been admitted by the court or a liquidator has not been appointed.
  • Migration from Different Exchange SME Platform to the Main Board

The companies seeking migration to Main Board of Different Exchange should satisfy the eligibility criteria It is mandatory for the company to be listed and traded on the Different Exchange SME Platform for a minimum period of two years and then they can migrate to the Main Board as per the guidelines specified by SEBI vide their circular dated 18th May 2010 and as per the procedures laid down in the ICDR guidelines Chapter X B.

What are the Benefits of Listing in SME

1. Easy access to Capital

Different Exchange SME provides an avenue to raise capital through equity infusion for growth oriented SME’s.

2. Enhanced Visibility and Prestige

The SME’s benefit by greater credibility and enhanced financial status leading to demand in the company’s shares and higher valuation of the company.

3. Encourages Growth of SMEs

Equity financing provides growth opportunities like expansion, mergers and acquisitions thus being a cost effective and tax efficient mode.

4. Ensures Tax Benefits

In case of listed securities Short Term Gains Tax is 15% and there is absolutely no Long Term Capital Gains Tax.

5. Enables Liquidity for Shareholders

Equity financing enables liquidity for shareholders, provides growth opportunities like expansion, mergers and acquisitions, thus being a cost effective and tax efficient mode.

6. Equity financing through Venture Capital

Provides an incentive for Venture Capital Funds by creating an Exit Route and thus reducing their lock in period.

7. Efficient Risk Distribution

Capital Markets ensure that the capital flows to its best uses and that riskier activities with higher payoffs are funded.

8. Employee Incentives

Employee Stock Options ensures stronger employee commitment, participation and recruitment incentive.

How are the Listing Procedures done?

This is as simple as we understand & execute the following steps!!!

Planning

The Issuer Company consults and appoints the Merchant Banker/s in an advisory capacity.

Preparation

The Merchant Banker prepares the documentation for filing after, conducting due diligence regarding the Company i.e checking the documentation including all the financial documents, material contracts, government approvals, Promoter details, planning the IPO structure, share issuances, and financial requirements

Process

Application procedure:

Submission of DRHP/Draft Prospectus – These documents are prepared by the Merchant Banker and filed with the Exchange as well as with SEBI as per requirements.

Verification & Site Visit – Different Exchange verifies the documents and processes the same. A visit to the company’s site shall be undertaken by the Exchange official .The Promoters are called for an interview with the Listing Advisory Committee.

Approval – Different Exchange issues an In-Principle approval on the recommendation of the Committee, provided all the requirements are compiled by the Issuer Company.

Filing of RHP/Prospectus – Merchant Banker files these documents with the ROC indicating the opening and closing date of the issue.

Once approval is received from the ROC/MCA, they intimate the Exchange regarding the opening dates of the issue along with the required documents.

Public Offering

The Initial Public Offer opens and closes as per schedule. After the closure of IPO, the Company submits the documents as per the checklist to the Exchange for finalization of the basis of allotment.

Post Listing

Different Exchange finalizes the basis of allotment and issues the notice regarding Listing and Trading.

Any Guidelines for Listing?

Yes the Company has to follow the below guidelines.

Capital
The post issue face value capital should not exceed Rs. Twenty-five crores.

Trading lot size

The minimum application and trading lot size shall not be less than Rs. 1,00,000/- .

The minimum depth shall be Rs. 1,00,000/- and at any point of time it shall not be less than Rs. 1,00,000/-.

The investors holding with less than Rs. 1,00,000/- shall be allowed to offer their holding to the Market Maker in one lot.

However in functionality, the market lot will be subject to revival after a stipulated time.

Participants
The existing Members of the Exchange shall be eligible to participate in SME Platform.

Underwriting
The issues shall be 100% underwritten and Merchant Bankers shall underwrite 15% in their own account.

So at last we can say that, if you want to increase the reputation of your company in the developing Countries like India, then you should have to register your Company in SME Platform because ultimately your company gets reputation as it is traded in Exchange Platform so Goodwill of the company  also increases and ultimately you achieve your profit.

This is best platform provided to the company for those companies who have not much of Paid Up Capital and also are less reputed but by registering in SME Platform, the company not only gets reputation all over India at large but also the company gets Profit by availing Tax benefits up to some extent. Thus,Small companies can now think big.

So considering the above fact, companies should have to opt for this option and after few years, the company would also be transferred from SME Platform to Main Board, hence your company is considered as the same as other reputed companies.

So by considering the Current Market Scenario every Private Company as well as Unlisted Public Company has to think on this matter and work accordingly. Though this facility has been available since long but few of them were able to grab this opportunity. Now it’s time to rethink about this opportunity.

SME Capital Markets so far

The SME Capital market in India has seen a flurry of activities in past 3 years. SME Platform has opened up immense opportunities not only for the small and medium enterprises to maximize wealth and gain visibility but also provides new investment opportunity to investors.Increasing number of companies are participating on SME Exchanges of BSE and NSE.
So far, 119 companies have got listed on BSE SME Exchange and 11on NSE Emerge. Further, several companies have filed their draft offer documents with these Exchanges. The total market capitalization of SME Exchanges has peaked over INR 10,000 Crores. These facts are remarkable, given the initial phase of SME capital markets that too in challenging times when even Main Board primary markets have witnessed little activity.

 

Growth Opportunities for SMEs

These recent initiatives of capital markets aim at bridging the gap between SMEs and capital markets by providing an opportunity to SME entrepreneurs to raise growth capital and reap benefits of listed space. SME entrepreneurs spot a ray of fresh light and hope for raising growth capital in economical and tax efficient manner and move up the ladder towards next-level growth. In the process, this opens up as a immense opportunity for capital markets, market intermediaries and professionals.

SEBI registered AIF count hits 200-mark

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Markets regulator Sebi has allowed as many as 209 entities to set AIFs, pooled-in investment vehicles for real estate, private equity and hedge funds, over a period of 42 months.

The 209 Alternative Investment Funds (AIFs) have been registered with Sebi since August 12.

Among the newly registered AIFs are Kotak India Real Estate Fund, Ideaspring Capital Fund, IDFC Private Equity Fund and Canara Bank Venture Development Trust.

AIFs are funds established or incorporated in India for the purpose of pooling in capital from Indian and foreign investors for investing as per a pre-decided policy. Under Sebi guidelines, AIFs can operate broadly in three categories.

The Securities and Exchange Board of India (Sebi) rules apply to all AIFs, including those operating as private equity funds, real estate funds and hedge funds among others.

The regulator had notified in May 2012, the guidelines or this class of market intermediaries.

The Category-I AIFs are those funds that get incentives from the government, Sebi or other regulators and include social venture funds, infrastructure funds, venture capital funds and SME funds.

The Category-III AIFs are those trading with a view to making short-term returns and includes hedge funds among others. The Category-II AIFs can invest anywhere in any combination but are prohibited from raising debt, except for meeting their day-to-day operational requirements.

These AIFs include private equity funds, debt funds or fund of funds, as also all others falling outside the ambit of above two other categories.

 

Source: http://www.business-standard.com/article/pti-stories/sebi-registered-aif-count-hits-200-mark-116042000467_1.html

Startup funding: Money will not dry up, will look for quality

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According to Indian Angel Network president Padmaja Ruparel, there has been an increase of 20% in the number of deals but the overall amount has gone up by 12%

While there are concerns about money drying up for start-ups in the country this year, venture capitalists say there is more money coming into the country but it will find its way only into quality ventures.

As a result, venture capitalists are going into a lot more details than before. So no more raising of funds and picking up cheques in coffee shops. And this is not bad, they reckon, as many people were starting up ventures just because capital was easily available.

Indian Angel Network president Padmaja Ruparel said that he has seen an increase of  20% in the number of deals but the overall amount has gone up by 12%.

“There is a huge interest among the investor groups in a variety of sectors. But there is much more diligence on how much money is required,” said Ruparel. There will be much deeper, sharper diligence and unit economics would be in focus, she said at a panel discussion on Raising and Deploying Funds in a Changed World at TieCon Pune, 2016.

Amid this talk of gloom and doom, people have raised huge funds but then they will be deployed carefully, said Sanjay Nath, co-founder Blume Ventures. “There is no rush to deploy funds and more time will be taken on deals,” he said adding, “good companies and quality founders are raising larger rounds of money.”

SAIF Partners MD & Advisor Alok Goel said around $2.5 billion would be deployed in two to three years and all this talk of money not being there was not true. “The most risk averse guys were becoming entrepreneurs just because capital was available and this was a risk. The craziness of the last 15 months of funding was worrying,” Goel said.

Remaining bullish about 2016, he said the consumer pain points were still there and those who could cut through the clutter would get funding.

Goel said the VC industry had seen three distinct phases in the country – prior to 2013 it was all about replicating successfully models of the West here; between 2013 an 2015 ideas were being copied here before even being tested and tried in the US, which doubled the risk in the business and was not going to work. The new phase is about looking at India specific problems and solving them instead, he said.

Qualcom Ventures VP Karthee Madasamy said such ups and downs were part of the cycle and they remain unfazed. “We have done six plus follow-on and new deals last year. We will do the same this year and have no plans to change that,” said Madasamy.

He expects India to do well in the area of hardware in the next few years with lot of start-ups coming up in India in this sector.

Source: http://www.financialexpress.com/article/industry/companies/deeper-due-diligence-precedes-start-up-funding/239822/

Lending for small companies is a $300 million business

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While bigger SME lending players like Lending Kart and Capital Float aim to close their next funding rounds, a slew of smaller players have emerged in the last year viewing the space as a segment where at least 10 strong players can coexist.

Amongst the new players, Puneet Dalmia-backed CoinTribe, which was launched in February, uses a proprietary algorithm to link up multiple data sources ranging from the credit bureau to social media determining the credit worthiness of an SME within minutes. The startup has tied up with private sector banks that use their platforms to process SME loans.

“Our ticket size for loans range between Rs 30,000 to Rs 20 lakh. We offer an interest rate of 13-18% and receive upto 30 applications on a daily basis,” said Amit Sachdev, cofounder at CoinTribe. The fintech player has an acceptance rate ranging between 25 and 30% for all of its applicants.

Tracxn Labs-backed LoanZen has not tied up with any banking partners yet and focuses on disbursing its loans from the capital raised in its first round. The startup, which claims that it receives up to 20 applications daily, offers loans up to Rs 10 lakh at an interest rate, ranging between 18 to 24%.

“We aim to complete the credit risk evaluation in a matter of minutes and disburse loans within 3 days. Since sectors like kirana stores and budget hotels cannot avail of loans from traditional banks, there is a lot of room for several players to emerge in this space,” said Madhu Sudhan, cofounder of LoanZen. The startup uses an artificial intelligence-based system to carry out the credit risk evaluation and looks at parameters like bank, taxation and accounting data. LoanZen claims to have disseminated loans up to Rs 50 lakh in the month of March.

According to Gaurav Hinduja, the co-founder of Capital Float, SME lending is a very deep vertical in India, despite banks and NBFC’s lending approximately $150 billion to this sector.

The unmet need is still over $300 billion and at least 20% of this can be tapped by new age tech lenders.

“It’s definitely not a winner take all market and we will see several startups attacking different niches in the market. We are likely to see at least 10x growth in fintech alternate lenders. There will also be a growing number of interesting partnerships between institutions and new fin tech lenders,” added Hinduja. Abhishek Goyal, the founder of Tracxn, believes that despite several players entering the SME lending sector, few will survive the current funding climate.

Source: http://economictimes.indiatimes.com/articleshow/51818398.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

How FIIs outsmart domestic investors

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Domestic investors have a lot to learn from their foreign institutional counterparts, who seem to have mastered the art of timing, raking in the moolah in the midst of market volatility.

On the other hand, domestic investors mostly buy when foreign institutional investors (FIIs) are booking profits at higher valuations, limiting their own upside.

For example, in the current rally, most of the FII purchases were in 2012 and the first half of 2013, when the price-to-earnings (PE) multiple of BSE 500 companies had hit a multi-year low.

In contrast, most of the accumulation by domestic investors, through mutual funds and insurance companies, occurred in 2015 when BSE 500 companies were trading at a multi-year PE high. FIIs accumulated India’s top-listed companies at an average valuation of around 16 times and offloaded it to domestic investors at around 24 times their value (see chart).


In all, FIIs’ stake in BSE 500 companies was up 550 basis points between March 2012 and March 2015, at an average PE of around 16 times the companies’ combined trailing 12-month net profits. FIIs stake peaked in the March 2015 quarter, coinciding with the peak in valuations of BSE 500 companies. One basis point is one-hundredth of a per cent.

The analysis is based on the end-of-quarter shareholding pattern, market capitalisation and quarterly net profit of BSE 500 companies, beginning the March 2006 quarter. The sample is based on the data for 358 companies where the data is comparable across the period.

Analysts attribute this to the steady nature of fund flows FIIs receive, while domestic institutional investors are at the mercy of inflows from retail investors, which tend to take place late in the cycle.

“When FIIs were buying in 2012-13, insurance companies and mutual funds were still facing redemption, forcing fund managers to sell their holdings even when the valuations were low. Inflows turned positive only in late 2014 and 2015, when domestic retail investors were convinced about the rally,” said Dhananjay Sinha, head, institutional equities, Emkay Global Financial Services.

In comparison, FIIs receive a significant portion of their funds from large institutional investors in Europe and the US, whose investment sentiment remains steady over a long period.

Others also point to differences in the investing styles of FIIs and their domestic counterparts.

“FII investments are largely fundamental and research-driven compared to domestic investors, most of whom tend to get swayed by market sentiment and herd mentality,” said G Chokkalingam, the founder and chief executive officer of Equinomics Research & Advisory.

This explains why a majority of domestic investors fail to make money in the market, he added.

A similar trend was visible in the rally before the global financial crisis, when FIIs were net sellers for nearly two years in the run-up to the September 2008 crash while domestic investors were buyers.

Despite the trends, some analysts differ.

Nitin Jain, the president and chief executive officer of global asset and wealth management firm Edelweiss Capital, said there is no evidence of domestic investors being less smart than their foreign counterparts.

“We should not paint all FIIs with the same brush. Investment flows from exchange-traded funds, which is retail money – as volatile and sentiment-driven as domestic retail and mutual funds flows. FIIs, on the other end of the spectrum, also get pension money and sovereign wealth funds, which are long-term and their investment style is similar to that of domestic insurance companies,” said Jain.

Source: http://www.business-standard.com/article/markets/how-fiis-outsmart-domestic-investors-116032800052_1.html

E-commerce sees major money inflow

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It is not only Uber, the American taxi-hailing app, that is going all guns blazing in India with massive investment plans. Its biggest competitor, Bengaluru-based Ola, as well as e-commerce entities Flipkart and Amazon, are all planning to pump in big money to stay ahead, even in a scenario when investors are not as ready as earlier in opening their purse-strings.

Uber India has readied itself for another $500 million (Rs 3,300 crore) investment in the next three months, reports suggest. The app service had only nine months earlier committed $1 billion (Rs 6,600 crore) in India. Uber could not be reached for a comment.

For foreign giants such as Amazon, Uber and Alibaba, this country is a big market they all want to capture. Experts believe this is a trend which will continue, as a global economic slowdown will push a chunk of new investments towards India.

“We can clearly see a slowdown in overseas markets, while India is still managing annual growth of seven to eight per cent. So, companies such as Uber, Amazon and Alibaba want to bet big on India. While Amazon was not able to make a dent in China and Alibaba in Europe, they do not want to lose out on India. We will see this trend through the year,” says Amarjeet Singh, partner – tax, KPMG in India.

Ola, rival of Uber in the same segment, is on track to invest a chunk of its $1.3 billion (Rs 8,650 crore) capital raised so far. The firm recently announced it would invest Rs 200 crore in the Delhi-National Capital Region area over the next six months, “towards innovative green fuel technology, leasing of CNG cars and strengthening the system to catalyse greater CNG adoption in the region”, Rahul Maroli, its vice-president for strategic supply initiatives had said.

According to sources, Ola will further make strategic investments in all metro cities, as well as in Tier-II and Tier-III towns. “The company plans to add at least another 550,000 vehicles by the end of this year,” said one. Ola has at least 350,000 cabs and 80,000 auto rickshaws on its platform across 102 cities in the country.

American e-commerce major Amazon had said in October 2014 it was investing $2 billion (Rs 13,200 crore) in India. Later, its executives said the group had an open chequebook for the market. In February, it bought Noida-based payments services provider Emvantage, its first acquisition. This is aimed to help Amazon accelerate the development of payment solutions for customers.

As for Alibaba, the Chinese e-commerce giant, it already has a foothold in Indian e-commerce through its investments. The group is majority stakeholder in One97Communications, owner of mobile payments giant Paytm. Also, online marketplace major Snapdeal raised $500 million (Rs 3,300 crore) from a group of entities last year which included Alibaba.

The Chinese company now plans to directly enter India.

“We plan to enter the e-commerce business in India in 2016,” recently said J Michael Evans, group president. “We have been exploring very carefully the opportunity in this country, which we think is very exciting against the backdrop of (the) Digital India (programme of the government).”

Indian e-commerce giant Flipkart had, in March, infused Rs 338 crore into its online fashion store, Myntra, documents filed with the registrar of companies stated. Flipkart has so far raised $3 billion (nearly Rs 20,000 crore).

Source: http://www.business-standard.com/article/companies/e-commerce-sees-major-money-inflow-116032800986_1.html

Indian start-ups get back to basics

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India’s start-ups have a new catchphrase – back to basics. Traditionally, these businesses have focused on fundamentals -invest to grow while ensuring one doesn’t burn money in chasing eyeballs that do not translate into revenue and profit.

The year 2015 was an aberration, with soaring valuations and nearly Rs 36,000 crore or $5 billion in venture capital and private equity money pumped into start-ups. Now, with a global reset by investors to tighten their belts and relook at how businesses are run, India has also been hit.

TREADING CAUTIOUSLY
  • Investors pumped $5 bn in start-ups in 2015
  • As global investors tighten belts, Indian start-ups are impacted
  • Investors seek to look at business value than valuation of business
  • Morgan Stanley writes down investment value in Flipkart by 27 per cent
  • Now, investors are focusing on business fundamentals
  • Start-ups shed jobs, cut down on high spends and focus on building sustainable business

Several entities that followed the burn-cash model have been forced to shed jobs and improve their business models. Among the more known names, Zomato, Housing and TinyOwl have shed jobs. Flipkart, the largest e-commerce company and the most highly valued start-up, saw investor Morgan Stanley mark down the value of its (minority) stake by 27 per cent. While factors such as growing competition and not meeting the growth targets could have influenced this, the message for the rest of the start-up system was clear – pull up your socks.

“One thing which certainly happened was that the valuations of B2C (business to consumer) companies weren’t justified. What you’re seeing is more in terms of right-sizing or to be fairly valued,” said Sanjay Nath, managing partner at Blume Ventures. “I wouldn’t use the term ‘bubble’, as that would signify India’s fundamentals are not strong. That’s definitely not the case.”

The fundamentals of India as a market are very strong, he adds. There’s a huge growth in smartphone sales, the uptake of third-generation (3G) technology data connectivity is growing and 4G services are coming in. Growth in tier-II and tier-III cities is very high, and as these are highly underpenetrated, the opportunities are immense.

“Recession is when good companies are built. I’m not saying there’s one, so these are good times,” says Shashank N D, co-founder and chief executive officer of Practo, a health care technology entity.

To grow fast and outdo the competition, several start-ups in the B2C space, especially the segments of foodtech and hyperlocal, began to offer discounts and cash-backs, despite making a loss on each such transaction. This unsustainable model of business is on the way out. Investors now are pressurizing companies in their portfolio to focus on operational efficiency, improve productivity, keep costs low and move to profitability.

“Suddenly, a view to profitability is coming in and the view of discounting and cash-backs is being rolled away slowly. It’s being done very subtly, which is why nobody is noticing it, but it’s happening,” said Ash Lilani, managing partner and co-founder at Saama Capital. “A lot of good investors are making sure their good companies are financed for the next 18-24 months. But, it’s rationalisation, it’s (about) coming back to earth.”

Start-ups have begun looking at ways to conserve cash, with the slump in funding the market is currently going through. Despite this, there’s a lot of optimism that the market will recover and investors will open their purse strings, though it is presumed the pace of investments would substantially reduce.

“The overall investment in the latter part of 2016 should catch up, as you can’t just not make investments and sit because the money is there. Unnecessary funding or crazy funding which was happening will slow down a bit but good companies will raise much more money this year,” said Shekhar Kirani, managing partner at Accel Partners India.

Rajan Anandan, managing director of Google India and prolific backer of start-ups as an angel investor, says the best is yet to come out of India. “If you think of this evolution as a series of (cricket) test matches, let’s say it’s a five-test series and we’re at the first test in the third day. We have to finish the first test, go to the second, then the third. It’s very early. There are going to be periods of ups and downs; it’s a bump in the road,” was the way he put it.

Source: http://www.business-standard.com/article/companies/indian-start-ups-get-back-to-basics-116030700027_1.htm