WHY SME IPOs ARE CRUCIAL FOR THE FUTURE OF FAMILY-RUN BUSINESSES

India stands on the brink of a golden era, poised to achieve a $10 trillion economy within the next 12-15 years. A pivotal strategy in this ambitious journey is the transformation of Small and Medium Enterprises (SMEs) into large corporates. However, five major challenges hinder SMEs from reaching their full potential: lack of professionalization, unclear succession planning, absence of high-growth strategies, reluctance towards equity participation, and poor wealth management. Among these, equity participation holds the key to unlocking solutions for the other four issues.

The Journey of SME IPOs

Although SME IPOs were introduced around 2013, significant momentum has been observed post-2023. A remarkable 179 SMEs were listed, followed by 56 SME IPOs in the first quarter of 2024. Out of these, 116 IPOs in 2023 and 41 in the first quarter of 2024 yielded positive returns, reflecting the platform's growing maturity. This upward trend is driven by the extraordinary liquidity in the equity market. India now boasts 16.2 crore registered Demat accounts, with around 4.2 crore active retail investors. This number is expected to surge to 15-18 crore active users in the next decade and 25-30 crore by 2040. As mutual funds and SIPs become increasingly popular, the liquidity in India's stock market is poised to match that of the US, empowering listed firms and leading to the emergence of multibillion-dollar revenue companies across various sectors.

Challenges and Opportunities for SMEs

However, this growth also signifies that SMEs must shed their conservative mindset to avoid being overshadowed by larger, more powerful firms. On the positive side, both BSE SME and NSE Emerge have simplified compliance for smaller firms compared to main board IPOs. While stringent compliance and loss of control are common fears among SME owners, IPOs instill discipline and focus, provide growth capital, and help attract and retain talent. Key advantages include the possibility of listing within 90-120 days, filing balance sheets biannually, and eligibility for listing with single-digit profits and double-digit revenue.

Unlocking Value and Creating Wealth

Many SMEs never realize the full value of their hard work, often over-leveraging debt and risking family wealth. SME IPOs offer a safe path for entrepreneurs to reinvest profits into the business while simultaneously creating personal wealth through public market valuations. If you are an ambitious, honest, and aggressive SME entrepreneur aiming to build an empire, an SME IPO is the gateway to achieving your dreams.

The Future of Indian SMEs

India's equity market is experiencing extraordinary liquidity, which is a significant driver behind the increased momentum in SME IPOs. The country has 16.2 crore registered Demat accounts, with active participation from around 4.2 crore retail investors. This number is projected to grow to 15-18 crore active users in the next decade and reach 25-30 crore by 2040. As mutual funds and SIPs become mainstream investment options, the liquidity in India's stock market is expected to match that of the US. This will empower listed firms and lead to the emergence of multibillion-dollar revenue companies across various sectors.

However, the consolidation of industries by larger, more powerful firms poses a significant threat to SMEs. To avoid being overshadowed, SMEs must shed their conservative mindset and embrace the opportunities presented by equity participation. Both BSE SME and NSE Emerge have simplified compliance for smaller firms compared to main board IPOs, addressing the fears of stringent compliance and loss of control among SME owners. IPOs bring discipline, focus, growth capital, and the ability to attract and retain talent.

Seizing the Moment

SME IPOs offer a clear, safe path for entrepreneurs to unlock the value of their hard work. By reinvesting profits into the business and leveraging public market valuations, SME owners can create personal wealth without risking their family's financial security. The possibility of listing within 90-120 days, biannual balance sheet filings, and eligibility for listing with single-digit profits and double-digit revenue are significant advantages.

Conclusion

India stands on the cusp of a golden era, and transforming SMEs into large corporates is the key to achieving a $10 trillion economy. Overcoming the challenges of professionalization, succession planning, growth strategies, equity participation, and wealth management will unlock the true potential of SMEs. By embracing equity participation, SMEs can address these challenges and position themselves for growth. SME IPOs provide a clear path for entrepreneurs to achieve their dreams while contributing to India's economic powerhouse.

If you are an ambitious, honest, and aggressive SME entrepreneur aiming to build an empire, an SME IPO is the gateway to achieving your dreams. Let's transform India into a powerhouse of SME companies.

Arun Dayanithi, Founder &Managing Partner, of Dhrona Consulting, leads a Family Business Transformation Consulting firm specialising in establishing a family and corporate governance, leadership and family coaching, and pre-and post-IPO business growth strategies. Driven by his Bharat Vision 2045, he is dedicated to transforming over 1,000 conservative family-run businesses in India's Tier 2, 3, and 4 towns. Arun can be contacted via his email at ad@dhronaconsulting.com.