Nearly a dozen consumer-facing companies raised R467 crore through IPOs on the SME platform in 2023, up 63% from 2022, ET Retail

Mumbai: About two dozen consumer-facing companies have 467 crore retail space on the BSE SME (Small and Medium Enterprises) platform in the last calendar year. In 2022, nearly 17 of these companies raised Rs 287 million by selling shares to the public.

Historically, these companies have been reluctant to navigate the complexities of capital markets due to concerns such as burdensome compliance requirements, increased scrutiny from public and regulatory authorities, and promoters' reluctance to give up their stake in the company. Additionally, the challenge of raising funds from the public, particularly when these companies are not widely known, was a significant deterrent. According to experts, several factors contribute to this trend.

“The prevailing market sentiment, coupled with a positive short to medium-term equity market outlook, has prompted corporates, promoters and PE players to seize the opportunity to mobilize equity from the public. Importantly, participation of institutional investors, MFs, and FIIs in IPOs have attracted a lot of interest from the public, resulting in overwhelming subscriptions,” said Kresha Gupta, founder, Chanakya Opportunities Fund.

Around 13 companies that decided to make a public offering on the platform were in the FMCG segment, while the rest were from the retail and apparel sectors. Local and regional companies reached up to 31% more households in segments such as biscuits, soap, washing powder and laundry detergent, prompting chief executives of leading consumer goods companies to point to the resurgence of smaller brands and its impact on their sales growth during the September quarter.

According to latest data from market research firm Kantar, local brand penetration increased by 4% for laundry bars and 13% for laundry powder, compared to larger rivals which reported growth of 0% to 3%. Even in the soap category, smaller companies recorded a growth of 31% while national brands saw a slight increase of 2%. Regional players also saw 22% growth in biscuits, the largest packaged food category, compared to 10% growth for larger companies.

“Increased access to funds has changed the perspective of smaller consumer companies and made them more open to public issues. The active participation of investors and the public has given promoters the necessary incentive to consider IPOs as a viable growth avenue,” Gupta said, adding the government's proactive communication to promote SMEs contributed to the favorable terms. “Small businesses will benefit significantly and this is strategically aligned with policy objectives, particularly in an election year. Looking ahead to 2024, the trend of smaller consumer companies accessing capital markets is expected to continue.”

For several years, domestic brands have been stealing market share from leading consumer goods manufacturers, particularly in soaps, detergents, hair oils, tea and biscuits. There are around 2,500 local competitors in the rusk market, while almost 40% of the snacking segment is controlled by over 3,000 smaller or regional players.

Disruptions caused by the pandemic and subsequent inflation in key commodities forced many companies to either close operations or limit operations. But in recent quarters, falling commodity prices have led smaller regional brands to expand operations and reduce product prices. In fact, Unilever announced last year that it would cut product prices in India in some categories such as soaps and laundry to pass on the benefits of lower raw material prices, increase volumes and compete with local players.

• Published on January 15, 2024 at 6:56 PM IST

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