SME IPO for NBFCs
                     SME IPO for NBFCs
SME IPO for NBFCs
IPO Funding is a short-term loan that banks and other 
financial institutions provide to the investors to fund 
their Initial Public Offer (IPO) application. Investors who 
would like to apply for equity shares in an IPO, but do 
not have required money can borrow the remaining 
amount from the financial institutions as a loan. In 
general, the banks and Non-Banking Financial 
Corporations (NBFCs) fund a part of IPO application 
while remaining fund is provided by the applicant.
Small & Medium Enterprises (SME) looking to raise 
funds easily have now a great opportunity to raise funds 
through investors in Stock Exchange.
Remarkably, 80 companies raised an astounding Rs.811 
crore through IPOs in 2016-17. This is 267% more than 
the preceding fiscal where 46 companies used the IPO 
route and garnered Rs.304 crore in 2015-16.
Funding
The 3 key reasons why funds are being raised:
 Business Expansion Plans
 Working Capital Requirements
 Other General Corporate Purposes
Funding Benefits through SME IPO:
 Ready access to Capital and Financial Opportunities
 Premium Valuation of the company
 Entry & Exit Platforms for PE / Other Investors
 Efficient Risk Distribution for Investors
 Utility as M&A Currency
 Tax Benefits of SME IPO
 Company Profile Building
 Incentive Mechanism for Employee
 Benchmarking Fair Value of SME businesses
NBFCs and SME IPO
With the market for initial public offerings is on a boil, NBFCs 
which fund rich investors to apply for shares, experienced 
2017 as a fantastic year for them. In the present scenario, 
NBFCs laugh their way to the bank while the rich investors 
move forward to cash in on IPO mania.
Irrespective of whether or not the wealthy investors make 
money, NBFCs have been creating wealth hand over fist in 
what now appears to have become a zero-risk game for 
them. With a great majority of the issues listing at a juicy 
premium to the issue price, the big investors have been 
enhancing the size of the bets. And NBFCs seem only too 
willing to finance them!
That appears to have formed a virtuous cycle of sort, where 
big demand for the issue from high net worth investors 
(HNIs) sparks more demand from retail participants; they do 
not want to be left out.
Some market analysts say this is giving a distorted view of 
the actual demand for the issue. At the same time, IPOs in 
which the HNI portion has been heavily subscribed have 
listed at a fat premium to the issue prime.
NBFCs and SME IPO
To the joy of HNIs, the shares have been listing at premia 
good enough to cover interest costs even where the 
subscription has been huge. For example, IPOs of Avenue 
Supermart , CDSL , BSE Ltd and AU Small Finance Bank have 
all made money for HNIs. This trend is encouraging both 
HNIs and the NBFCs that finance them, to take even higher 
bets.
In any IPO funding, NBFCs are not going to lose anything as 
they collect the interest amount upfront from the HNIs. Even 
if the shares happen to open below the issue price, the NBFC 
will still not lose anything as they have the 1 percent margin 
money which the HNIs have put up with them. The NBFC will 
deduct the loss from the margin money and refund the rest 
to the HNIs.
What people at 
MUDS believe
“Theoretically, huge oversubscription tends to reduce the 
return for HNIs, and further, there is a risk of losing money, 
because the listing premium has to surpass the interest 
cost.”
-Divya Gupta (Market Analyst, MUDS Management Pvt Ltd)
“Stock Exchanges in India have introduced separate 
platforms to support SMEs. There are different platforms 
opened by stock exchanges in India to help SMEs raise 
funds in the stock market.”
-Divya Gupta (Market Analyst, MUDS Management Pvt Ltd)
“Presently, it appears that nothing can stop 
the NBFCs. However, it is not as if there is no 
risk at all .If a large number of applicants 
withdraw after the issue has closed, the 
allotment for the other applicants in the fray 
will be greater. In case they refuse to cough 
up more margins, and the shares open below 
the issue price, the NBFC would be in 
trouble.”
-Shweta Gupta, Founder, and CEO, MUDS
Thank You!