Route To IPO Success


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  • Assurance and Advisory Business Services February 22, 2012
  • Route To IPO Success

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