route to ipo success
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- 1. From a Giant Idea to a Giant Enterprise Pavan Kumar Vijay Managing Director 28 thMarch 2010
2. Agenda
- Facts about MSME Sector
- Characteristics of Indian MSMEs
- Challenges faced by MSMEs
- Needs of MSMEs
- Route to IPO
- Key Considerations for IPO Success
- Capital Market Framework IPO by MSMEs
- Sweet Tastes of IPO
3. Facts about MSME sector
- Contributions of the Sector:
- Contribution to the industrial output - 45%
- Contribution to exports - 40%
- Contribution to employment
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- 5.9 Crore over 2.6Crore enterprises
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- one million jobs every year
- Contribution in production -more than 6000 quality products for the Indian and international markets.
Source: Annual Report 2009-10 of Ministry of MSME 4. Facts about MSME sector
- Growth of MSME via other sectors
Source: Annual Report 2009-10 of Ministry of MSME * (IIP Base 2001-02) 5. Facts about MSME sector
- Type of Organization Structure
Source: Annual Report 2009-10 of Ministry of MSME Type of Organization Structure Number % Proprietary 1402816 90.36 Partnership 59,817 3.85 Pvt. Company 41,703 2.69 Pub. Ltd. Company 8,217 0.53 Cooperatives 4,644 0.3 Others 35,294 2.27 6. Characteristics of Indian MSMEs
- Spread across industry at different stages of maturity
- Flexible but resistant
- Non corporatize organization structure
- Information asymmetry
- Lacking in infrastructure support w.r.t.
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- Energy needs
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- Marketing and branding
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- Skilled manpower
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- Institutional finance
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- No clear policies for exit for ensuring capital efficiency
7. Challenges faced by MSMEs
- Lack of information and unawareness.
- Absence of Skilled & Professional Manpower.
- Follow up with various agencies in solving regular activities and lack of interaction with government agencies on various matters.
- Absence of adequate and timely banking finance.
- Non-availability of suitable technology.
- Low production capacity (Denial of Economies of Scale).
- Incompetitiveness.
- Ineffective marketing and identification of new markets.
- Constraints on modernization and expansions.
8. Needs of MSMEs
- Innovation
- Marketing & Branding
- Organization Structuring
- Scalability
- Funds
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- Timely
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- Appropriate
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- Cost effectiveness
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- Less collateral
- Introduction and implementation of ICT
9. Typical Funding lifecycle Revenue Time Valley of Death Angels Founders VC Investors Public Markets Seed Capital A B C Mezzanine EarlyStage Later Stage IPO Secondary Offerings The Chasm The Wall Seed or Start-up : Market research and product development. Early Stage :Funding full-scale operations and selling products/services.Not yet profitable. Later Stage :Funding expansion and new products.Near break-even. PE Investors 10. Typical Exit Options forPre-IPO Investors
- Selling stake to strategic investors
- Initial Public Offering (IPO) in India or overseas
- Sale to any other private equity fund or venture capital fund
- Merger with an existing listed company
- Management / Company buy-backs
11. Financing Options An analysis 12. Key Considerations for IPO Success Scalability of Business Valuation of Business & Its verticals Corporate Governance Marketing & Branding Reaching the Stage of Development for IPO Capital Market Framework Business Structure Development of Financial Projects MSME 13. Key Considerations Contd .
- Scalability of Business
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- Total Market Size vs. Tapped Market Size
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- Stage of Development of Market Niche, Developing, Saturated.
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- International Application of Business
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- Infrastructure Requirements
- Business Structure
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- Diversified Business in Single Entity
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- Distinguished Business Verticals
14. Key Considerations Contd .
- Value of Business & Its verticals
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- High Profit Margin
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- High EBIDTA
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- Industry P/E Multiple
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- Past Financial Performance
- Corporate Governance
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- Composition of Board of Directors
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- Transparent Policies & Procedures
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- Audit and Disclosure of Financials
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- Investors Grievance Redressal
15. Key Considerations Contd .
- Capital Market Framework
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- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 Chapter XA
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- Separate Stock Exchange Platform for MSME
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- Equity Listing Agreement for SME Shares.
- Branding
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- Brand Creation
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- Product Branding
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- Company Branding
16. Key Considerations Contd .
- Reaching the Stage of Development for IPO
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- Maximum Value
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- Structuring for Future
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- Minimum Dilution of Shareholding
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- Exit to PE Investor
- Development of Financial Projections
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- Identification of Stages of Project Development
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- Schedule of Revenue
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- Schedule of Costs
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- Profit Margin
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- Development of Balance sheet and P & L Figures
17. Capital Market FrameworkIPO by SMEs
- SEBI (ICDR) Regulations, 2009
- Capital Market Benefits for SMEs
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- No requirement of Minimum Tangible Assets, Distributable Profits, Minimum Net worth etc.
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- No requirement of filing DRHP with SEBI and waiting for its observations
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- Less Costs
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- Less Time
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- No need of filing Certificates and documents with SEBI before Final Offer Documents
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- No requirement of obtaining In-principal approval from stock exchange before IPO
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- Less Time
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18. Capital Market Framework IPO by SMEs
- Capital Market Benefits for SMEs
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- Minimum No. of allottees is 50 as compared to 100 for other companies.
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- Separate Stock Exchange Platform for SMEs
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- More visibility
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- Easy Compliances under Listing Agreement
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- No need of sending full report to investor Only salient details
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- Submission of Unaudited results on Half yearly basis instead of Quarterly Basis
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- No need to publish financial results in newspapers
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19. Capital Market Framework IPO by SMEs
- Additional Conditions for SMEs
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- Mandatory Underwriting for 100% of Issue Size
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- Minimum Application size of Rs. 1 Lac
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- Compulsory Market Making for minimum 3 years
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- Minimum Trading size of Rs. 1 Lac
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- Facility of Fast Track Issue is not available
20. Capital Market Framework IPO by SMEs 21. IPO Process for SMEs In-principal Approval from Stock Exchange Marketing Phase of Issue Preparatory Phase of Issue Final Phase 22. Critical IPO Timeline for MSMEs Time Saved Approx. 2-3 months 23. Sweet Tastes of IPO
- Access to public capital
- Economical source of finance
- Inculcation of professionalism
- Transparency of operations
- New Ownership opportunities
- Flexibility in deals
- Market Visibility
- Offer premium Market Capitalization
- Exit Route for Existing / Future Investors
24. The Right Recipe
- While there is no
- perfect recipe
- for a successful IPO, Companies with
- a sound project
- and
- a convincing and realistic business plan,who have done theirhomeworkright, can have a successful run in the capital markets and
- have a sweet taste of IPO!!!
25.
- Thank You
- Corporate Professionals Capital Pvt. Ltd
- SEBI Registered Category I Merchant Banker D-28, South Extension -I, New Delhi-110 049 Ph: 011-46046370 Email:[email_address]