Key Benefits of SME IPO for Small Businesses

An SME Initial Public Offering (IPO) is a powerful tool for small and medium enterprises aiming to grow and secure long-term success. Going public offers SMEs access to a wealth of resources, from increased funding to enhanced credibility. In this blog, we will explore the significant benefits of SME IPOs and how they can transform small businesses.

1. Access to Capital for Growth

2. Enhanced Credibility and Market Visibility

3. Liquidity for Founders and Early Investors

4. Improved Valuation and Financial Standing

5. Strengthened Corporate Governance

6. Opportunities for Business Expansion

7. Increased Investor Confidence

1. Access to Capital for Growth

The primary benefit of an SME IPO is the ability to raise substantial capital. Unlike traditional loans or private funding, IPOs allow businesses to access funds from public investors, which can be used for:

  • Expanding operations into new markets.
  • Upgrading technology and infrastructure.
  • Hiring skilled personnel.
  • Launching new products or services.
By eliminating reliance on high-interest loans, SME IPOs provide a cost-effective funding alternative that aligns with long-term growth strategies.

Case Study:
In August 2024, Brainbees Solutions, operating as FirstCry, India's largest baby products retailer, raised $501 million through its IPO. The capital infusion enabled FirstCry to expand its product offerings and enhance its supply chain, contributing to a 17% increase in revenue from operations.


Source: Reuters

2. Enhanced Credibility and Market Visibility

Listing on a recognized stock exchange, such as NSE Emerge or BSE SME, boosts a company's credibility among stakeholders, including customers, suppliers, and potential investors. This heightened visibility can lead to:

  • Improved trust from clients and partners.
  • Greater media coverage and public recognition.
  • Enhanced competitive positioning within the industry.
A listed company often becomes the preferred choice for business partnerships, fostering growth opportunities.

Example:
Ola Electric Mobility, an Indian e-scooter manufacturer, experienced a 20% surge in stock prices during its market debut in August 2024. This positive market reception enhanced its brand visibility and credibility, leading to increased consumer trust and partnerships.

Source: Financial Times
3. Liquidity for Founders and Early Investors

An SME IPO provides an exit opportunity for early-stage investors and founders who wish to unlock the value of their investments. By offering shares to the public, stakeholders can:

  • Realize returns on their initial investment.
  • Diversify their personal financial portfolios.
  • Retain partial ownership while leveraging the raised capital for business growth.
This liquidity option makes IPOs an attractive proposition for angel investors and venture capitalists.

Insight:
In 2024, India's IPO market witnessed a record ₹1.66 trillion raised, providing substantial liquidity to early investors and founders across various SMEs.

Source: Business News India
4. Improved Valuation and Financial Standing
An IPO can significantly enhance a company's market valuation. Publicly listed companies are generally valued higher than private counterparts due to increased transparency and market confidence. Benefits include:
  • Higher valuation multiples compared to private businesses.
  • Greater ability to attract institutional investors.
  • Improved financial ratios as a result of capital infusion.
Why This Matters:
Investors prefer companies with robust valuations, as it reflects growth potential and operational efficiency. 

For instance, MobiKwik, an Indian fintech firm, saw an 86% surge in its market debut in December 2024, resulting in a valuation of approximately $474 million.

Source: Reuters
5. Strengthened Corporate Governance
Going public necessitates adherence to stringent corporate governance practices. This fosters a culture of accountability and transparency within the organization. Advantages include:
  • Improved decision-making processes.
  • Enhanced investor confidence due to regulatory compliance.
  • Attraction of top-tier talent who prefer working with reputable companies.
Stronger governance mechanisms build trust and ensure the long-term sustainability of the business.

Industry Insight:
Adopting governance frameworks post-IPO often results in improved operational efficiencies and employee satisfaction. Companies like FirstCry and Ola Electric have strengthened their corporate governance post-IPO, leading to better stakeholder relationships.
6. Opportunities for Business Expansion
With increased capital and market visibility, businesses can pursue ambitious expansion plans. An SME IPO enables:
  • Entry into international markets.
  • Acquisitions of competitors or complementary businesses.
  • Investment in research and development (R&D) to foster innovation.
Example:
Shree Ganesh Remedies Ltd (SGRL), an Ankleshwar-based pharmaceutical intermediates manufacturer, raised ₹8.55 crore through an SME IPO in 2017. The funds facilitated the expansion of their manufacturing capabilities and product portfolio.

7. Increased Investor Confidence
Institutional investors often prefer companies that adhere to strict reporting standards, as it reduces risk and assures transparency. Regular updates and compliance with corporate governance norms enhance trust and ensure consistent support from stakeholders.

Example:
Heranba Industries, a Gujarat-based agrochemical manufacturer, saw increased investor confidence after its SME IPO. The transparency in operations and regular reporting practices helped attract significant interest from institutional investors, which contributed to its 32% post-listing growth. (Economic Times)
8. Long-Term Wealth Creation
For founders, employees, and early-stage investors, an SME IPO is a gateway to long-term wealth creation. The growth trajectory of the company post-IPO can lead to increased shareholder value. Many SMEs also implement employee stock ownership plans (ESOPs) post-IPO to align employee interests with organizational success.

Real-Life Example:
EaseMyTrip, a travel booking platform, utilized its IPO to expand its business and create value for its employees and stakeholders. Post-IPO, the company's shares performed strongly in the secondary market, creating significant wealth for its shareholders. 

Source: Mint
Are you ready to take your SME to the next level? Learn how to unlock these benefits and more by exploring the SME IPO process. 

Join Our SME IPO Masterclass and prepare your business for a successful public offering.


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FAQs
1. How does an SME IPO improve credibility?
  • Listing on a stock exchange enhances public trust and positions the company as a reliable entity.
2. What are the financial benefits of an SME IPO?
  • Companies can raise substantial capital without incurring debt, improve valuation, and attract institutional investors.
3. How does an IPO provide liquidity to early investors?
  • By allowing early-stage investors to sell their shares to the public, IPOs enable them to realize returns on their investment.
4. What governance changes are required for an SME IPO?
  • Companies must comply with regulatory requirements, including regular disclosures, audits, and board restructuring.
5. Can SMEs use IPO funds for international expansion?
  • Yes, IPO funds can be utilized to explore new markets, acquire businesses, and strengthen global presence.

Nischal Mittal

Nischal Mittal, a Chartered Accountant and Investment Banker, brings over a decade of expertise in IPO and Fund Raising advisory and Financial consulting.