1. From a Giant Idea to a Giant Enterprise Pavan Kumar Vijay Managing Director 28 thMarch 2010

2. Agenda

Facts about MSME Sector

Characteristics of Indian MSMEs

Challenges faced by MSMEs

Needs of MSMEs

Route to IPO

Key Considerations for IPO Success

Capital Market Framework IPO by MSMEs

Sweet Tastes of IPO

3. Facts about MSME sector

Contributions of the Sector:

Contribution to the industrial output - 45%

Contribution to exports - 40%

Contribution to employment

• 5.9 Crore over 2.6Crore enterprises

• one million jobs every year

Contribution in production -more than 6000 quality products for the Indian and international markets.

Source: Annual Report 2009-10 of Ministry of MSME 4. Facts about MSME sector

Growth of MSME via other sectors

Source: Annual Report 2009-10 of Ministry of MSME * (IIP Base 2001-02) 5. Facts about MSME sector

Type of Organization Structure

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. Characteristics of Indian MSMEs

Spread across industry at different stages of maturity

Flexible but resistant

Non corporatize organization structure

Information asymmetry

Lacking in infrastructure support w.r.t.

• Energy needs

• Marketing and branding

• Skilled manpower

• Institutional finance

• No clear policies for exit for ensuring capital efficiency

7. Challenges faced by MSMEs

Lack of information and unawareness.

Absence of Skilled & Professional Manpower.

Follow up with various agencies in solving regular activities and lack of interaction with government agencies on various matters.

Absence of adequate and timely banking finance.

Non-availability of suitable technology.

Low production capacity (Denial of Economies of Scale).

Incompetitiveness.

Ineffective marketing and identification of new markets.

Constraints on modernization and expansions.

8. Needs of MSMEs

Innovation

Marketing & Branding

Organization Structuring

Scalability

Funds

• Timely

• Appropriate

• Cost effectiveness

• Less collateral

Introduction and implementation of ICT

9. Typical Funding lifecycle Revenue Time Valley of Death Angels Founders VC Investors Public Markets Seed Capital A B C Mezzanine EarlyStage 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. Typical Exit Options forPre-IPO Investors

Selling stake to strategic investors

Initial Public Offering (IPO) in India or overseas

Sale to any other private equity fund or venture capital fund

Merger with an existing listed company

Management / Company buy-backs

11. Financing Options An analysis 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. Key Considerations Contd .

Scalability of Business

• Total Market Size vs. Tapped Market Size

• Stage of Development of Market Niche, Developing, Saturated.

• International Application of Business

• Infrastructure Requirements

Business Structure

• Diversified Business in Single Entity

• Distinguished Business Verticals

14. Key Considerations Contd .

Value of Business & Its verticals

• High Profit Margin

• High EBIDTA

• Industry P/E Multiple

• Past Financial Performance

Corporate Governance

• Composition of Board of Directors

• Transparent Policies & Procedures

• Audit and Disclosure of Financials

• Investors Grievance Redressal

15. Key Considerations Contd .

Capital Market Framework

• SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 Chapter XA

• Separate Stock Exchange Platform for MSME

• Equity Listing Agreement for SME Shares.

Branding

• Brand Creation

• Product Branding

• Company Branding

16. Key Considerations Contd .

Reaching the Stage of Development for IPO

• Maximum Value

• Structuring for Future

• Minimum Dilution of Shareholding

• Exit to PE Investor

Development of Financial Projections

• Identification of Stages of Project Development

• Schedule of Revenue

• Schedule of Costs

• Profit Margin

• Development of Balance sheet and P & L Figures

17. Capital Market FrameworkIPO by SMEs

SEBI (ICDR) Regulations, 2009

Capital Market Benefits for SMEs

• No requirement of Minimum Tangible Assets, Distributable Profits, Minimum Net worth etc.

• No requirement of filing DRHP with SEBI and waiting for its observations

• • Less Costs

• • Less Time

• No need of filing Certificates and documents with SEBI before Final Offer Documents

• No requirement of obtaining In-principal approval from stock exchange before IPO

• • Less Time

18. Capital Market Framework IPO by SMEs

Capital Market Benefits for SMEs

• Minimum No. of allottees is 50 as compared to 100 for other companies.

• Separate Stock Exchange Platform for SMEs

• • More visibility

• Easy Compliances under Listing Agreement

• • No need of sending full report to investor Only salient details

• • Submission of Unaudited results on Half yearly basis instead of Quarterly Basis

• • No need to publish financial results in newspapers

19. Capital Market Framework IPO by SMEs

Additional Conditions for SMEs

• Mandatory Underwriting for 100% of Issue Size

• Minimum Application size of Rs. 1 Lac

• Compulsory Market Making for minimum 3 years

• Minimum Trading size of Rs. 1 Lac

• Facility of Fast Track Issue is not available

20. Capital Market Framework IPO by SMEs 21. IPO Process for SMEs In-principal Approval from Stock Exchange Marketing Phase of Issue Preparatory Phase of Issue Final Phase 22. Critical IPO Timeline for MSMEs Time Saved Approx. 2-3 months 23. Sweet Tastes of IPO

Access to public capital

Economical source of finance

Inculcation of professionalism

Transparency of operations

New Ownership opportunities

Flexibility in deals

Market Visibility

Offer premium Market Capitalization

Exit Route for Existing / Future Investors

24. The Right Recipe

While there is no

perfect recipe

for a successful IPO, Companies with

a sound project

and

a convincing and realistic business plan,who have done theirhomeworkright, can have a successful run in the capital markets and

have a sweet taste of IPO!!!

25.

Thank You

Corporate Professionals Capital Pvt. Ltd

SEBI Registered Category I Merchant Banker D-28, South Extension -I, New Delhi-110 049 Ph: 011-46046370 Email:[email_address]