SME Listing A Primer Primer.pdf · 6 Pantomath Capital Advisors Pvt. Ltd. (SEBI Registered Category I Merchant Bankers) – A Pantomath group entity SME Listing Background… BSE

Merchant Banking Division

Privileged & Confidential

SME Listing – A Primer

TM

2 Pantomath Capital Advisors Pvt. Ltd. (SEBI Registered Category I Merchant Bankers) – A Pantomath group entity

Outline

• SME Listing - Background

• SME Listing - An Overview of Key Requirements & Eligibility Norms

• Core advantages of SME Listing

• SME Listing – Shaping up in a BIG way

• Pantomath – Companion in Process

• About Pantomath and Key Initiatives for Capital Markets

• Our Select Clientele – Wide Array of Services

• Annexures


SME Listing – Background


SMEs – The backbone of Indian economy

Contribution to GDP

17 %

Share of Industrial output

45 %

Share of Exports 40 %

Total Employment

69 million

Job creation every year

1.3 million

Source : Ministry of Micro, Small and Medium Enterprises, GOI

Nation’s 1.3 million SMEs account for 40% of India's total exports

At 48 million, India is second to China in number of SMEs

SMEs employ close to 40% of India's workforce & contributes 45% to India's manufacturing output

SMEs are expected to drive the next-level growth of Indian economy provided they have enabling platform and avenues

SMEs face major problem of capital inadequacy

This problem can be tackled through Capital Market


Valley of Death

Pre seed Expansion Early growth Seed/Start up

Very risky

Less risky

Angel Investors

Govt. Grants

Bank Credits

Personal Finances

Angel Investors

Govt. Grants

Bank Credits

Venture Cap

Venture Cap

PE

IPO

IPO

Debt

PE

Partnership

Funding Options

Lifecycle of SME


SME Listing Background…

BSE and NSE launched

their respective

platform for SMEs

The move aims at

providing an opportunity

to SME entrepreneu

rs to raise growth

capital and reap

benefits of listed space

Both BSE & NSE

leverage their

existing ‘equity

platform’ for SME

exchange platform

As per estimate of

SME Chamber of India, over 5000 SMEs

have the potential for listing

A facilitative framework

for SME listing


SME Listing – Evolution…

SEBI lays down broad framework

for SME listing

platform

5-Nov-08

PM Task Force

recomm-ends SME

listing exchange

Jan-10

SEBI circular on

Guidelines for market

making

26-Apr-10

SEBI Circular rolling out

model listing

agreement for SMEs

17-May-10

Amend-ments in

SEBI Regulations

(ICDR, Merchant

Bankers etc.

18-May-10

SEBI Master Circular on

SME exchange &

Market Making

31-Dec-10

BSE

Eligibility Norms for SME listing

19-Apr-12

BSE SME Exchange

launch

13-Mar-12

SEBI circular standardizing lot size for

SME exchange

21-Feb-12

SEBI

approval to NSE SME Exchange

14-Oct-11

SEBI approval to

BSE SME Exchange

27-Sep-11

BSE

Eligibility Norms for SME listing REVAMPED

05-Feb-15


SME Listing - An Overview of Key Requirements & Eligibility Norms


SME Listing - Key Requirements & Eligibility Norms

Capital threshold for Listing

SEBI

BSE

NSE SME Exchange

SME/Main Board

Main board

10 Crores

25 Crores

Po

st I

ssu

e F

ace

Val

ue

Cap

ital

Particulars Requirement

Minimum application amount / trading lot

INR 1 Lac

Underwriting 100% Mandatory (of which 15% to be done by MB in his own account)

Market making (to be undertaken by MB)

Through Exchange-registered market makers for min 3 years

Public Shareholding Min. 25% Min. 50 investors No post-listing continuous requirement

Provisions for migration to / from Main Board from / to SME Exchange

Offer doc not subject to SEBI

vetting

Refer Annexure

for key norms of

SEBI ICDR


• Mandatory facilitation of trading in Demat securities

• Certificate that no winding petition or reference to BIFR

• Mandatory corporate website • Promoters to attend to interview with

Listing Advisory Committee • No change in promoter in preceding 1 year

• Net Tangible Assets : INR 3 crore (as per latest audited results)*

• Net Worth (excl. Rev. Reserve) : INR 3 crore as per latest audited financial results

• Track record of distributable profits for at least 2 years out of preceding 3 completed Fys or NetWorth shall be at least Rs 5 crore

Max : INR 25 crore Min : INR 3 crore

Post Issue Capital (FV)

Other Requirement

Track Record


SEBI

BSE

NSE

Refer Annexure

for key norms of

LA


• Same as BSE plus additional certification / disclosures on litigation etc.

• Track record of at least 3 years • Positive cash accruals (EBDT) from

operations and positive net worth for at least 2 FYs preceding the application

• In case the above conditions are not fulfilled, Exchange Authority to decide

Max : INR 25 Cr Post Issue Capital (FV)

Other Requirement

Track Record


SEBI

BSE

NSE


BSE SME vs. Main Board

Parameters Main Board SME Exchange

Post – issue paid up capital

Min INR 10 crore Min INR 3 crore on BSE SME; Max INR 25 crore

Minimum Allotees in IPO 1000 50

IPO underwriting Non Mandatory (Under 50% compulsory subscription to QIB’s)

Mandatory (100% underwritten with MB underwriting 15%)

Track record Stringent track record norms like Operating Profit of 15 Cr

Relaxed track record norms

Offer Document vetting By SEBI By Exchange

IPO Application Size INR 10000 – INR 15000 Min. INR 1 lac

IPO Time frame 6 months – 1 year 2 – 3 Months

Reporting Requirements Quarterly Half yearly

Reporting Requirements Quarterly Half yearly

“SME Exchange

has a winning

edge over Main

Board”


Core Advantages of SME Listing


Core Advantages of SME Listing (1 of 7)

Implications of Listing Resulting Benefits

Collateral Value Listed securities can serve as collateral for raising additional loans

Improved Credit Rating

Cost of finance (Rate of Interest) likely to come down

Increased Visibility • Brand building • Stock Exchange quotations • Analyst coverage

Lender’s / Supplier’s increased comfort

• Increased acceptability and prestige among suppliers

• Lesser negative covenants

Transferability of shares at market price

• ESOPs – Higher compensation for senior executives without cash outgo

• Overseas listing possible

Governance

Operational Wealth

Creation

Tax


Operational Benefits of listing – Illustrative Case Study

Particulars Unlisted Listed Remarks

Sales 4000 4400 Branding & visibility will likely to result in increased sales / orders

Total Expenses

3000 3100

Expenses increase in a lower proportion due to economies of scale such as higher bargaining power, bulk discounts etc.

EBITDA 1000 1300 Increase in sales at reduced expenses results in increased EBIDTA & EBIDTA Margin

EBITDA % 25 29.55

Interest 84 66

Listing likely to result in cheaper cost of funding (assumed debt of INR 600 lakhs @ int rate of 14% pre-listing and 11% post-listing)

Dep. 10 10

PBT 906 1224

PAT 634 857 Increase in PAT and PAT margins due to increased EBITDA and reduced borrowing cost

PAT % 15.85 19.47

Amounts in INR Lakhs.

Governance

Operational Wealth

Creation

Tax



Unlisted companies subject to 20% tax on buy back of shares

Tax on Buy Back of Shares

Unlisted Companies subject to 30% tax on issue of new shares at a premium exceeding fair value

Tax on Infusion

LTCG @20%

Capital Gains tax on transfer of shares

Purchase of distressed asset below NAV is subject to tax @ MMR

Purchase of Distressed Asset

Governance

Operational Wealth

Creation

Tax No Tax on

Entry and exit (through buy

back, transfer, fund infusion)

No Tax on

Purchase of distressed

assets

Lower Tax on

Share transfers (eg. Family Succession, Intra-Group

Transfers, Third-party Transfers

etc.)



In Transfer: Shares are purchased for INR 400 Cr and sold at INR 1000 Cr and assumed shares are purchased in 2008-09 and sold in 2012-13. In Infusion: Fair Value of Shares is assumed at INR 600 Cr.

Tax Benefits of listing – Illustrative Case Study

Particulars Transfer Buyback + Infusion

SME Listing

Initial Investment 400.00 400.00 400.00

Sale Consideration 1,000.00 1,000.00 1,000.00

Indexed Cost of acquisition

585.56 NA NA

Tax on Sale/Buyback/Infusion (CG/STT)

82.89 240.00 2.00

Net Proceeds 917.11 760.00 998

ROI (Before Taxes) 250% 250% 250%

ROI (After Taxes) 222% 190% 249.50%

Governance

Operational Wealth

Creation

Tax INR Crore



Valuation benchmarking

Wealth creation through

market cap of shares upon listing (Refer Next

Slide)

Promoter Profile Building

Adds to social

reputation and status

Listed shares as currency

Use of shares for takeovers / M&A

transactions, leading to inorganic growth

Governance

Operational Wealth

Creation

Tax

Core Advantages of SME Listing (5of 7)


Governance

Operational Wealth

Creation

Tax


Wealth Creation – Select Examples

Si. Vi. Shipping

AIFL Ultracab Momai

Apparels

A. Market Cap INR Crores

Pre Issue Net Worth

3.10 10.98 6.25 17.12

Issue Size 6.86 21.00 7.97 43.33

Market Capitalization*

14.38 310.31 39.47 121.93

B. Price Pattern INR Per Share

Issue Price 25.00 40.00 36.00 78.00

CMP (Face Value INR 10)*

25.00 159.40 49.25 84.50

* Closing Price as on March 31, 2015


Improved Systems

Better Information

Flow

Data manageme

nt

Internal Controls

Good corporate governance helps companies immensely and

also increases the confidence among its stakeholders

Governance

Operational Wealth

Creation

Tax



SME Listing – Shaping up in a BIG way…


* Closing Price as on March 31, 2015

So far, 89 Companies have been listed on BSE SME Exchange (of which 3 have migrated to main board) and 6 on NSE Emerge Exchange

AIFL Ultra Cab Si. Vi. Momai

Apparels Women’s Next

A. Market Cap INR Crores

Pre Issue Net Worth 10.98 6.25 3.10 17.12 2.02

Issue Size 21.00 7.97 6.86 43.33 6.50

Market Capitalization* 310.31 39.47 14.38 121.93 14.98

B. Price Pattern INR Per Share

Issue Price 40.00 36.00 25.00 78.00 65.00

CMP (Face Value INR 10)* 159.40 49.25

25.00

84.50 59.90

BSE SME Index

SME LISTING – Shaping up in a BIG Way…


Pantomath – Companion in Process

End-to-end assistance

and hand-holding

by expert &

dedicated Team – TEAM

PANTOMATH 1.

2.

3.

4.


Appointment of Merchant Banker

Due Diligence & Pre-IPO preparation

Valuation and Preparation of Offer Document

Marketing Strategy

Appointment of other intermediaries

Filing of Offer Document with BSE & Others

Issue Management & Share Allocation

Listing & Market Making

1

3

5

7

9 8

6

4

Restructuring of capital 2

SME Listing – Way Forward…


About Pantomath and Key Initiatives for Capital Markets


About Pantomath Group

Pantomath Advisory Services Group

• Consists of a team of professionals led by the Group Founder, Mr. Mahavir Lunawat, who is a CFA, FCS, PGDSL and LL.B. and who has had stints with top notch corporates viz. ITC Ltd., RIL, and PwC

• Corporate finance vertical is led by Mr. B. Chandrasekaran, a veteran in finance, who is ex-head of Treasury, RIL

• Merchant banking team is anchored by CA Madhu Lunawat who has also had stints with leading organisations, viz., Infosys, ASREC and Edelweiss. Ms Madhu served as CFO of Edelweiss ARC immediately before joining the Board of Pantomath Capital

• Diversified team comprises professionals being MBA, CFA, CA, CS, Lawyer and others

• Activities include – merchant banking, debt syndication, angel funding, M&A and corporate advisory

• Progress with values, Group’s tag-line, signifies its progressive approach driven by essential values any eco-system thrives on.

Key credentials of Pantomath Group

TM

27 Pantomath Advisory Services Group.

TM

Pantomath SMEX - 30

Multifarious Initiatives in

Capital Markets space

Angel Funding Network

Corporate film on Listing

Online SME Market Watch

Wide-spread

awareness on Listing

Capital Market Surveys

Active engagement

with regulators

Website on IPOs

Pantomath’s Initiatives for Capital Markets

Doing business in

India website

Business Seminars & Workshops

Media Coverage

Companies Act

Convergence Program

Re-CAP: A weekly mailer encapsulating capital market

news

28 Pantomath Advisory Services Group.

TM

Pantomath SMEX-30

• Pantomath SMEX–30 was launched on March 6, 2014

• First of its kind of index launched in India measuring day to day price movement in SME scrips on NSE Emerge and BSE SME Exchange

• Stringent qualitative index methodologies used where companies with 3 years of existence, positive operating profits / EBIDTA levels have been considered

Base Date December 13, 2013

Base Value 100

Date of Launch March 6, 2014

Method of calculation Free Float Market

Capitalisation

Number of Scrips 30

Calculation Frequency VWAP at the end of the day

Rebalancing Interval 6 Months (March and

September)

Pantomath SMEX-30 Specification

174%

SMEX-30


Online Initiatives

Launch in the hands of Shri Rajeev Kumar Agarwal, Whole Time Member, SEBI on the occasion of listing of 50th Company on BSE SME Exchange, in presence

of Shri S. V. Murali Dhar Rao, ED, SEBI and Shri Ashish Chauhan, MD & CEO, BSE Ltd

Salient features • Capsuled executive brief on critical areas

concerning FDI into India • Simple and easy navigation in a user friendly

manner • Current news on real time basis • Our thought leadership through researched

publications and presentations

www.dobusinessinindia.in www.smeipo.net

http://www.dobusinessinindia.in/

http://www.smeipo.net/


Corporate Film on SME Listing jointly with BSE*

https://www.youtube.com/watch?v=UakpG3LgNLM

Mr. Ashish Chauhan, MD

& CEO, BSE

Sunderlal Bothra, MD & CEO Bothra Metals and

Alloys Ltd

Ajay Thakur, Head, BSE - SME

“SMEs are growth engines and would aid to job creation in India,

one of the topmost economic priority of us as a nation….. SME listing aids to value creation not

only for SMEs but also to our economy and society as a whole”

“SME Listing is a Wealth Creation Model and not

Taxation Model”

“Compliance rather helps companies and management;

makes employees more responsible. SME Listing also

helps to improve credit rating”

*Also available on BSE SME website www.bsesme.com




SME Listing Experience


Business Seminars & Workshops

Group photo of Participants along with Mr. Chauhan and other dignitaries at BSE

Speaking at a seminar organised by ICSI Vadodara

Speaking at a seminar organised by ICAI & ICSI Nagpur From L-R : Mr. Lunawat, Pantomath Group MD, Mr. Ashish Chauhan, BSE MD & CEO, Mr. Ajay Thakur, BSE SME Head


Active Engagement With Regulators

• Participation in ADB Study on – Potency of Capital markets for SMEs in India.

• Member of BSE Working Committee for Development of SMEs

• Member of Association of Investment Bankers of India (AIBI)

• Representation to NSE for Dual Listing on SME Platform

• Representation to AIBI on Impact of reduced frequency of clearing of Non CTS Cheque on IPO timelines

• Presentation to SEBI on impact of New Companies Act on SEBI regulations


Select Media Coverage (1 of 2)


Select Media Coverage (2 of 2)


Awards and Achievements


Our Select Clientele – Wide Array of Services


SME IPO on BSE SME Exchange

Largest SME IPO of INR 43 Crores on NSE Emerge

Our Select Clientele

SME IPOs

SME IPO BSE SME Exchange

SI. VI. Shipping Corp Ltd

Women’s Next Loungeries Ltd Momai Apparels Ltd

SME IPO BSE SME Exchange

Majestic Research Services and Solution Limited

Ultracab (India) Limited


Jet Infraventure Ltd

SME IPO

BSE SME Exchange

SME IPOs

SME IPOs



Delisting through reverse book building

(WIP)

Takeover under SEBI Regulations (WIP)

Listed Co (Mumbai) Stovec Industries Ltd

Takeover Advisory Delisting

{

NCD issue of INR 200 Crores

Hinduja Finance Limited

NDC Issue


Biggest Manufacturing Company on SME

exchange IPO on NSE Emerge

Jiya Eco Products Ltd Supreme (India) Impex Ltd

Filtra Consultants and Engineers Limited


SME IPOs


{

Valuation for Private Equity Investment

Tag Offshore Limited

{

Valuation of overseas target company under

ODI Regulations

PwC India Pvt Ltd

Valuation


Buy-side advisor for acquiring Pharma Co

Internal group restructuring

Internal group restructuring

Mergers & Acquisitions

Soham Organics (P) Ltd Garware Wall Ropes Ltd Crompton Greaves Ltd

{

Listing without IPO on ITP Platform of BSE

3rd Rock Multimedia Ltd.

ITP Listing



{

Convergence with Companies Act, 2013

Motilal Oswal Fin Ser Ltd {

Internal Restructuring

Forever Living Imports Pvt. Ltd {

Concurrent Audit of R&T Operations

Hindustan Unilever Ltd

Corporate Advisory

{


Elegant Marbles & Granite Ltd

SBI General Insurance Co Ltd


{

JMC Projects (INDIA) Ltd


Corporate Advisory

Let’s Take It Forward….

Capital Advisors (P) Ltd Progress with Values

Disclaimer All data and information is provided for informational purposes only and is not intended for any factual use. It should not be considered as binding / statutory provisions. Neither Pantomath Capital Advisors nor any of its group company, directors, or employs shall be liable for any of the data or content provided for any actions taken in reliance thereon.

Corporate Office Mumbai 108, Madhava Premises, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051 Landline: (022) 2659 8687/91, Fax: (022) 2659 8690 Website: www.pantomathgroup.com E-mail : [email protected]

Associate Offices at Bhopal - Madhya Pradesh Borivali - Mumbai Kolkata - West Bengal Pune - Maharashtra Rajkot - Gujarat Surat - Gujarat Vapi - Gujarat

TM

Branch Office Gandhinagar- Gujarat 312, Pratik Mall Near City Plus Cinema, Kudasan Gandhinagar-382421 Email: [email protected] [email protected]

Online Initiatives : www.smeipo.net | www.dobusinessinindia.in | www.pantomathangels.com

http://www.pantomathgroup.com/

mailto:[email protected]




http://www.smeipo.net/

http://www.dobusinessinindia.in/

http://www.pantomathangels.com/


Annexures Pantomath’s End-to-end Services


Phase- I: Pre-IPO Capital Restructuring & Preparation

Under the phase, we shall assist you in preparing for IPO and listing on SME Exchange. The services under this phase shall include the following :

Assistance in devising appropriate capital restructuring plan;

Assistance in statutory compliance management and setting up minimum corporate governance practices expected by a listed company from the perspective of the following rules / regulations :

Companies Act, 2013

Listing Agreement applicable for SMEs

BSE listing norms

SEBI ICDR Regulations;

Assistance in appointment of market intermediaries and other parties including the following;

Underwriters

Market Makers

Registrars to Issue

Bankers to Issue

PR Agency, Printer etc.;

Assistance in devising a complete IPO plan and strategy including the likely post-issue shareholding

distribution pattern.


Phase- II: Documentation Preparation

We shall assist you in drafting of IPO Offer Document and other important agreements, documents and resolutions necessary for an SME IPO process. An indicative list of important documents is as under for easy understanding :

IPO Offer Document,

Tripartite Agreement with NSDL, CDSL and Registrar to Issue,

Underwriting Agreement,

Market Making Agreement,

Agreement with Bankers to Issue,

Agreement with Registrar to Issue,

Board / Shareholders’ Resolutions,

Certificates, Letters of Representations etc,

Draft of public advertisements, notices etc,

Forms / Applications to be filed with BSE, ROC and other regulatory office.


Phase- III: Offer Management

Once all pre-IPO preparations would be over including meeting the eligibility criteria, appointment of other market intermediaries, and drafting of offer document, we shall initiate the actual process of IPO. Our services under the phase shall include end-to-end IPO activities :

Filing of IPO Offer Document with BSE and other regulatory offices like SEBI and ROC;

Follow-up with BSE and ROC for their approvals;

Coordinating and assistance in interview with SE Listing Advisory Committee,

Assistance in execution of agreements with other market intermediaries;

Assistance in launch of IPO and coordinate with other parties including PR Agency, Printers for adequate public advertisement, distribution of application forms as required statutorily;

Monitoring the flow of applications and keeping a real-time discussion with the management of the Company;

Coordinating with bankers and registrars for deposit of application moneys and finalization of allotment list in consultation with the stock exchange .


Phase- IV: Listing Assistance

Finally, post IPO closure and finalization of allotment, we shall initiate the activities for listing of equity shares of the Company on SME Exchange. Our scope of services under this phase shall include the following:

Assistance in completing allotment of shares to the successful allotees,

Preparing listing application ,

Filing of listing application with Stock Exchange(SE),

Follow-up with SE and obtain listing approval,

Assist in trading formalities and obtain SE’s trading approval,

Assist in making required public disclosures as required statutorily,

Coordinating for continuous market making for 3 years.


Annexures Some Key Norms of Listing Agreement & SEBI ICDR


SEBI ICDR As Applicable to SMEs

SEBI ICDR applies to SME listing with specific relaxations

Offer document requirements and eligibility norms relaxed

Appointment of Merchant Banker, and other intermediaries required

Lead Merchant Banker to the issue,

Rights , obligations and responsibilities relating to disclosures, allotment, refund, and underwriting obligations

Book building or fixed priced issue permitted

Lock-in conditions apply

20% of post-issue capital to be locked in for 3 years; balance promoter shareholding to be locked in for 1 year

Non-promoter pre-IPO shareholding to be locked in for 1 year with exception to ESOP shares and shares held by VCF or FVCIs for more than 1 year pre IPO

Locked-in shares permitted to be transferred inter se promoters incl. new promoter(s)


SME Listing Agreement

All SMEs getting listed need to enter into Listing Agreement (LA) with the relevant stock exchange.

BSE and NSE has adopted model LA released by SEBI.

Key Requirements include the following :

Half-yearly results (Audit / limited review)

Half-yearly shareholding pattern

Advance notice of Board meetings with specified agenda (e.g. dividend, bonus, buy back etc.)

In-principle approval for any further issuance of shares

Disclosure of price sensitive information

Annual report containing inter alia full financials, consolidated financials, related party disclosures etc. to be uploaded on corporate website

Full annual report to be emailed; Abridged annual report to shareholders not on email ids

Compulsory migration to main board after the cut- off ceiling

Documents

SME Listing A Primer Primer.pdf · 6 Pantomath Capital Advisors Pvt. Ltd. (SEBI Registered Category I Merchant Bankers) – A Pantomath group entity SME Listing Background… BSE