Multibagger Opportunities in SMEs · 399.7 605 1450 0 500 1000 1500 2000 2016 2017 2018 Valiant...
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Multibagger Opportunities in SMEs Privileged and Confidential February 2019
Transcript of Multibagger Opportunities in SMEs · 399.7 605 1450 0 500 1000 1500 2000 2016 2017 2018 Valiant...
Multibagger Opportunities in SMEs
Privileged and ConfidentialFebruary 2019
Unless born to illustrious parents, all great companies start life as SMEs !!
Hence, SME Exchanges were started with the intention of allowing common man to participate in early stage investing
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INDIAN SME SECTOR: SHINING BRIGHT!Small and Medium Enterprises (SME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. SMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas, thereby, reducing regional imbalances, assuring more equitable distribution of national income and wealth. SMEs are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of the country.
SMEs also play a significant role in Nation’s development through its high contribution in domestic production, significant export earnings, low investment requirements, operational flexibility, location wise mobility, low intensive imports, capacities to develop appropriate indigenous technology, import substitution, contribution towards defence production, technology–oriented industries, competitiveness in domestic and export markets thereby generating new entrepreneurs by providing knowledge, training and skill development .
Government of India was notified by its MSMED Act in 2006 to address policy issues affecting SMEs as well as the coverage and investment ceiling of the sector. The Act seeks to facilitate the development of these enterprises as also enhancing their competitiveness. It provides the first-ever legal framework for recognition of the concept of "enterprise" which comprises both manufacturing and service entities. It defines medium enterprises for the first time and seeks to integrate the three tiers of these enterprises, namely, micro, small and medium. The Act also provides for a statutory consultative mechanism at the national level with balanced representation of all sections of stakeholders, particularly the three classes of enterprises; and with a wide range of advisory functions.
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Manufacturing Enterprises - Investment in Plant & MachineryDescription INR USD($)
Micro Enterprises upto Rs. 25 Lakh upto $ 62,500
Small Enterprises above Rs. 25 Lakh & upto Rs. 5 Crore above $ 62,500 & upto $ 1.25 million
Medium Enterprises above Rs. 5 Crore & upto Rs. 10 Crore above $ 1.25 million & upto $ 2.5 million
Service Enterprises – Investment in EquipmentsDescription INR USD($)
Micro Enterprises upto Rs. 10 Lakh upto $ 25,000
Small Enterprises above Rs. 10 Lakh & upto Rs. 2 Crore above $ 25,000 & upto $ 0.5 million
Medium Enterprises above Rs. 2 Crore & upto Rs. 5 Crore above $ 0.5 million & upto $ 1.5 million
Definition of MSMEs in India(As Per Micro, Small & Medium Enterprises Development (MSMED) Act, 2006)
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IMPORTANCE OF SME SECTOR
Number of SMEs in India The number is estimated to be at 42.50 million, registered & unregistered together. A staggering 95% of the total industrial units in the country.
SME & Employment opportunity Employs about 106 million, 40% of India’s workforce. Next only to the agricultural sector
Products produces more than 6000 products
GDP Contribution Currently around 6.11% of the manufacturing GDP and 24.63% of Service sector GDP
SME Output 45% of the total Indian manufacturing output
SME Exports 40% of the total exports
Bank Lending Accounts for 16% of bank lending
Fixed Assets Current fixed assets at INR 1,471,912.94 crore
SME Growth Rate Has maintained an average growth rate of over 10%
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PARTICULARS REQUIREMENTS
Post issue paid up capital Not more than Rs. 25 crore
Filling of draft offer documents to SEBI Not required
Observation of SEBI on Offer Documents Not required
Final Offer Documents filled to SEBI Yes
Underwriting of Issue 100% Underwritten
Merchant Banker obligation for underwriting At least 15%
Minimum number of allottees At least 50
Minimum application value At least of Rs. 1,00,000
Market Making Compulsory for 3 years
Migration to SME platform Special Resolution by postal ballot
Migration to main board (Optional) If Rs. 25 Crore>Capital > Rs. 10 Crore & SR of shareholders
Migration to main board (Compulsory) Capital is more than Rs. 25 Crore
Following guidelines are provided under Chapter XB of SEBI (ICDR) Regulations 2009:
SEBI GUIDELINES FOR SME IPO
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Post issue paid up capital is less than Rs. 25 Crore
Positive Cash accruals or PBDT for 2 out of 3 preceding years
Track record of at least 3 Years.
Net worth should be positive
Net Tangible assets of at least 1 Cr
Net-worth (excluding revaluation reserves) of at least INR 1 crore
Positive Cash accruals or PBDT for 2 out of 3 preceding years, or Net worth shall be at least 3 Cr
The post-issue paid up capital of the company shall be at least INR 1 crore
NSE EMERGE BSE SME
*The above are only financial eligibilities the companies should comply with if desires to get listed on SME exchange
ELIGIBILITY CRITERIA FOR LISTING
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1434 40 43
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133144
2012 2013 2014 2015 2016 2017 2018
Number of Companies listed year wise
BSE & NSE
95.78361.92 278.74 260.21
536.68
1752.88
2396.82
2012 2013 2014 2015 2016 2017 2018
Amount Raised year wise
(in Rs. Cr)
The SME flow has touched over 17 states so farOut of the total listed companies, Gujarat & Maharashtra contributes approx 70% of the companiesAs every industry starts with a small cap, today, listed SME companies has a company from almost every industry
Market Cap:NSE Emerge: 12,639 Crore (Approx.)BSE SME: 18,226 Crore (Approx.)
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No. of Companies listedBSE SME: 281NSE Emerge: 195Total: 476
5,683+ Croreraised so far
11
2140
24 15
54
26 30
74
3660
86.25
155.25
79.5
42.3
149.8
70.0580.5
196
85.1
130.7
Mittal Life Style Ltd
Innovative Ideals and
services
Mac hotels Ltd
Advitiya Trade India
Ltd
Inflame Appliances
Ltd
Dolfin Rubbers Ltd
Diksha Greens Ltd
Dangee Dums Ltd
Gautam Gems Ltd
Bombay Super Hybrid
Seeds
Top 10 SME IPO by performance in 2018 at BSE SME & NSE Emerge
Issue Price Current Market Price
*Companies have achieved this growth in one financial year only
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311% 288% 231% 182% 177% 169% 168% 165% 136% 118%CAGR
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Company Name Issue Size (Rs. Cr)
QIB (x) NII (x) Retail (x) Employee (x) Total (x)
Jhandewalas Foods Ltd 16 466.69 88.58 278.82
Vasa Retail and Overseas Ltd
4 175.44 259.96 218
Tasty Dairy Specialties Ltd 24 155.32 40.6 97.96
E2E Networks Ltd 21 130.82 13.39 73.81
Ranjeet Mechatronics Ltd 4 77.48 62.03 69.75
Dangee Dums Ltd 20 104.01 23.85 63.98
Sintercom India ltd 42 5.8 203.72 16.41 3.92 38.92
Softech Engineers Ltd 22 31.21 28.94 30.82
South West Pinnacle Exploration Ltd
35 18.04 144.16 11.7 2.82 29.42
Mahickra Chemicals Ltd 5 22.42 9.88 27.85
Top 10 SME IPO by subscription in 2018
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Growth of SME IPO Index in comparison to other Indices
BSE SME IPO
BSE Sense
x
BSE 100
BSE 200
BSE 500
BSE IPO
BSE Smallcap
2012 137 19427 5976 2424 7582 1878 73802018 1790 36068 11161 4654 14540 4345 14707
05000
10000150002000025000300003500040000
Valu
e
53%
11% 11% 11% 11% 15% 12%
CAGR
CAGR
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Parameters BSE SME(India)
NSE Emerge (India) AIM (UK) GEM
(Hong Kong)
MOTHERS (Japan) CATLIST
(Singapore)
Shenzhen Stock Exchange
(China)
Foundation Year 2012 2013 1995 1999 1999 2007 1987
Companies Listed 236 133 956 338 243 197 911
MarketCapitalisation* INR 22k cr INR 11k cr INR 9.9 lakh cr INR 2.2 lakh cr INR 3.3 lakh cr INR 57k cr INR 100 lakh cr
*Market Cap of BSE SME & NSE Emerge as on 31/03/2018 and Others as on 07/03/2018
Global SME Space
Did you know?
China’s SME Mcap is ~317 times that of India, while its GDP is ~4.5 times that of India
More surprisingly, UK’s SME Mcap is ~39 times that of India, while its GDP is ~0.96 times that of India
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Opportunities available in SME
Industry Event Management Tech Consulting Logistics Pharma
Revenue 18.16 42.42 213.9 50.81
Revenue Growth 35% 28.54% .20% 21.90%
EBITDA 2.66 5.57 11.10 9.70
PAT 2.10 5.05 7.90 6.78
PAT growth 30% 15% 36.20% 58.68%
ROCE 22.75% 11.42% 20.89% 18.98%
M. cap 13.45 72 44 70
P/E Multiple 6.4 14.25 5.56 10.32
USP
Well known Event management
Company, rated amongst top 5 in
India
Only Home Grown End to end
Consulting solution provider
Logistic Company getting all set to
pick niece segment
Dedicated in Oncology
Innovations
All fig in Cr for FY18
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Company Fund House/ Investor
Synergy green Industries Massachusetts Institute Of Technology
MMP Industries Kenneth Andrade - Old BridgeMassachusetts Institute of Technology
South West Pinnacle Exploration HSBC MF / DSP Blackrock MF
Macpower CNC Machines Old Bridge Vantage Fund, HSBC Midcap Equity Fund
One Point One Solutions Yes Bank/ Jaspal Bindra/ Chandir Gidwani/ HSBC
Sintercom India Resonance Opportunities/ India Max
Sirca Paints Reliance Equity Opportunities AIFAmar Ambani (IIFL)Sunil Singhania
Ahlada Engineers Kenneth Andrade - Old Bridge, Jagdish Master
Five Core Electronics Kenneth Andrade - Old Bridge, SUBHKAM PROPERTIES LLP(Rakesh Kathotia)
Accuracy Shipping Kenneth Andrade - Old Bridge
SME stocks have given an average 47 per cent return in FY 2017-18, compared with 107 per cent in the previous financial year. About 15 stocks that listed in FY18 have rallied between 100 per cent and 2,000 per cent.
Interestingly, it is not only retail investors who are keen on these offerings. The following mentioned ace investors are also bullish on SME companies:
GROWING INTEREST OF TOP INVESTORS IN SME STOCKS!
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“Investing is about the company and not about the platform”
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Company Fund House/ Investor
Valiant Organics Reliance Small Cap Fund
Affordable Robotics Thermax family, Vijay Kedia, Kenneth Andrade - Old Bridge
Innovators Façade Systems Madhusudan Kela, Vijay Kedia, Kenneth Andrade - Old Bridge
ANI Integrated Services, Rajshree Polypack
Sunil Singhania
IRIS Business Services Madhusudan Kela
Jash Engineering Sundaram Mutual Fund
Mohini Health & Hygine Mukul Agarwal
RM Drip & Sprinks Sys Porinju Veliyath
Vadivarhe SpecialityChemicals
Ramesh Damani
Mohini Health & Hygiene Mukul Agarwal
AVG Logistics Nikhil Vora
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Notable Outperformers
399.7605
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0
500
1000
1500
2000
2016 2017 2018
Valiant Organics Ltd
40
989.8
0
500
1000
1500
Aug, 2017 Dec, 2018
Shrenik Ltd
171
415
0
200
400
600
June, 2016 Dec, 2018
Bajaj Healthcare Ltd
52
119
0
50
100
150
Nov, 2017 Dec, 2018
Vanta Bioscience
and many more..
40
2750
0
1000
2000
3000
2013 2016
Kushal Limited
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Company Name Market Cap (in Cr.)
Industry Size (Approx in Cr.)
USP Future CAGR
Touchwood Entertainment Ltd
21.08 6,610 Only listed company in the Industry
30%
Inflame Appliances Ltd 56.40 41,000 Leader in its Chimney product market
15%
Rudrabhishek Enterprises Ltd 73.69 6,91,650 Only listed Company in its business segment.
20%
Beta Drugs Ltd 67.03 2,47,500 Internationally accredited and delivering high end
innovations
22%
Sirca Paints India Ltd 455.83 51,208 Leader in wood coating market
12%
Total Transport Systems Ltd 38.63 12,00,000 Unique Logistic Model as compared to other listed
peers on SME
8-10%
Brand Concepts Ltd 46.35 11,25,000 Exclusive retailer of famous apparel brand in
India
10%
COMPANIES TO WATCH OUT FOR
and many more..
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RISKS INVOLVED
Little or no media exposure
No analyst coverage
Fraud and fudging activities by promoters
Road to institutional ownership is long
Mortality rate of companies is higher, just as in humans
Unable to make the jump to Small cap
Leap of faith in investing, each company has some flaw or the other
THINGS TO KNOW BEFORE INVESTING
Liquidity risk / high impact cost
Time horizon of investments should be at-least 3 years
Asymmetric information
Patience & discipline are key for superior returns
Entry point is important to ensure margin of safety
Allocate a certain percentage of your equity portfolio for higher returns
Promoters Capabilities are must to grow any business, should be checked out before investing
RISKS INVOLVED AND THINGS TO KNOW
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IPO HISTORY IN INDIA
Year Average number of IPOs listed on BSE
1991-2 96
1992-3 180
1993-4 600
1994-5 972
1995-6 1032
1996-7 504
1997-8 36
1998-9 24
1999-0 48
2000-1 72
Approx.
3108Companies got listed in 4 years only
This was the Boom period of Indian IPO history.After the Formation of SEBI and certain new guidelines, many companies opted out for listing
However, majority of these Companies were getting listed because of the flow and to receive facilities which were available for listed companies only
And as of today, only about 2% of the Companies are multi-baggers, about 23% are still surviving somehow and the rest 75% are long gone
What the lost companies missed is looking for a long term growth instead of short run benefits
which will always remain a risk for aninvestor to find out a fundamentally strong company looking for growth and not for benefits of listing, so just listing doesn’t mean growth.
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Getting an idea from the previous slide and watching closely the quality of companies listed on SME exchange today,
It won’t be a wrong presumption to say 10% of these listed SMEs, will become multi-baggers tomorrow, its just a matter of time and
patience and picking up the quality only.
Also, almost 50% will vanish.
Hence, like a wise investor said, SME companies are a Double Edged Sword.
CAUTION, OR CALL IT A RISK INVOLVED
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EXISTING FUNDS focused only on SMEs
Even though a huge risk involved, investors know that one good gem will outperform 10bad picks, and so, in the finding of the gems, the funds are also here to join the party.
The following funds, in the search of tomorrow’s multi-bagger, are SME exclusive fundsinvesting in existing or upcoming SME companies:
1. Pantomath Sabrimala SME Growth Fund: Pantomath Sabrimala SME Growth Fund is aSEBI registered Category-I AIF, a SME focused fund that primarily invests in SMEs listed orproposed to be listed in India.
2. Emerging Star Fund (AIF): A SEBI Category-I AIF is a privately pooled investment vehiclewhich collects funds from investors, whether Indian or Foreign, for investing it inaccordance with a defined investment policy for the benefit of its investors.
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With a view in mind that there will always be outperformers in theMarket, if someone starts investing, what better place could be than theSME exchange?
The before mentioned track record of SME evolution and theoutperformers are clearly implying the today’s SME’s as tomorrow's LargeCap.
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CONCLUSION
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o Corporate CapitalVentures Private Limited is a SEBI Registered Category I Merchant Banker havingsharp focus on SME Space. We provide multidisciplinary solutions for complex business challenges forsustained business growth of our clients.
o This Presentation is for guidance about what is happening in SME Space and should not be construed asInvestment Advise.
o The presentation may and may not include client companies served by CCv.
Corporate CapitalVentures Private Limited 160, Vinoba Puri, Lajpat Nagar, New Delhi 110024
P: 011 4170 4066 www.ccvindia.com
THANK YOU
