How to invest in Listed SME Companies

Can somebody please throw lights on below queries?

  1. How to invest in SME listed companies(companies in SME segment listed on NSE or BSE)?
  2. When the company moves from SME to normal listing? (Market cap and other criteriaor depends on the company not to list on NSE or BSE)
  3. Can we add these companies in the screener?

The point to note here is good companies with good track record can be picked at decent valuation which may become Small Cap>>Midcap>>Largecap in future.

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Well, I know that retail investors are not allowed to invest in BSE listed SMEs.

Retail investors are allowed but he need to buy a lot. I also have questions regarding SME analysis.

http://ipocentral.in/ipo-discussion/sme-ipo/ashok-masala-mart-ipo/

After a long time issue at sub par price

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guys,

can anyone explain what’s the underline risk here and how to avoid

regards

I have created a post for this. There you can get some info and example too in the name of Yug Decor. So, you see the post here I posted is from Dec 2015 and the new post I have provided link is from May of 2017. That much time I took to understand and get some idea. It takes time to learn yourself and get some original idea. I have shared some detail in the example. If you want to buy and learn along then start with that info and buy one SME stock of your choice.

@rareks,
Reading info at your link about Ashok Masala is looking good investment. But IPO size is too small. Just Rs 2 Cr. Liquidity will be nill, I think!

Nagesh, I’d strongly recommend you look at the fundamentals of a business (cash flows, return on capital etc.) to form your conviction and judgement about a business, rather than look at price action to double up. Prime Consumer services trades at an absurd valuation yet only has a mediocre ~14% ROCE. A company cannot really grow EPS much faster than RoE, regardless of the market size - contrast this with your implied valuation of 40x+ EV/EBITDA!

Yes, there is a large opportunity for growth, but this doesn’t translate into profits for shareholders of exiting firms in the market. In the early 1900’s, over 150 automobile firms were listed in the market, when few americans owned cars. You could have been right about the importance of automobiles in the modern era, yet if you had invested you would have lost money. Indeed, only 3 of those 150 companies are still alive. You would have lost 100% of your money had you picked 98% of the companies in that universe.

Thank you very much for your response. Your point about, not just the price but business quality to be looked into is well taken. But in this case, the return ratios and the EPS for 2016-17 were impacted as the IPO proceeds were received on the last day of the year. Otherwise businesses like these i.e. asset light businesses in a growing industry should give high return ratios consistently. The other figures like the Inventory and Receivables have reduced in 2016-17 compared to the earlier year. The company had Rs.7 cr cash as on March 2017 which depresses the return ratios. We need to make suitable adjustments to the figures. I am waiting for AR for further analysis. Year 2017-18 may through up good ratios. But if we wait for the ratios to improve we may have to pay the price the better ratios demand. On the operations side I find the company very exciting because it is catering to the growing Retail Sector and it is providing a much needed channel between the farmer and the retail stores. I am not placing much importance to the other verticals like logistics ripening chambers and man power services. With all these possibilities if price also moves up, the conviction goes a notch up. I will keep your point of view in mind while reviewing the half yearly results which will be out in Oct/Nov. Thank you.

I’m curious - what your target RoE/RoCE and what multiple (P/E or EV/EBITDA) do you see yourself paying/getting in the market for this company if as you say “we wait for the ratios to improve”?

I generally don’t go by target in ratios. I am comfortable if business grows and gives a growth rate of 20% + with reasonable ROE/ROCE of above 18%. For the companies in their initial stages the ratios would be little here and there. The results of the company for 2016-17

http://www.bseindia.com/xml-data/corpfiling/AttachHis/0527e226-b247-48ef-983b-11cb5f8c1dc6.pdf

I would be taking year 2017-18 as base year and I am expecting more than 20% EPS growth for a long period of time, I would be disappointed if it is less than that. But my gut feeling is that it will grow much faster.
The link to the company website http://www.primecustomer.co.in.
Personally I am more biased towards small equity companies. The impact of increase in profit on EPS and on share price would be very high. In this case a profit of just about Rs.3.5 crore, which is not inconceivable, would give a EPS of more than Rs.10. Of course it works both ways.
Instead of cluttering this thread, I created a separate thread for Prime Customer services Ltd
Prime Customer services - in right sector at right time
Thank you

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@nagesh_reddy - Sir , through which broker you are buying SME stocks.

Hdfcsec and Destimoney.
Hdfcsec allows online orders for SME stocks also.
In Destimoney if any stock is not enabled for online orders we can place orders over phone for such stocks.

Any rationale behind exiting Valiant Organics and Omfurn ? Both of them looks cheap to me and i hold in my portfolio.

Can we apply through discount brokers such as Zerodha or RKSV also

There are many SME ipo

Vasa retail
Gujrat hyspun
Gautam gems
Medico remedies
Focus suits
A&M jumbo bags
Lorenzini

Have anyone done some work?

It may take a while for the ratios like ROE/ROCE to show-up in the numbers of the start-up companies. I think market started recognising the growth potential of the company. The company is a three bagger in less than a year.
Disclosure: invested

@nagesh_reddy Any recent additions to your SME portfolio? or Any changes?

Thanks.

I’m trading in some of SME stocks with Finvasia. The RM support really helpful.
one must be aware that it’s really risky to invest in SME companies than others, there is not much info or news about SME companies online for your trade decision but it can be a bigger opportunity too.

The risks of investing in SMEs