Mumbai: About two dozen consumer facing companies raised Rs 467 crore during last calendar year on the BSE SME (Small and medium enterprises) platform, a 63% jump from 2022 indicating increasing aggression from small and regional players especially in the fast moving consumer goods and retail space. In 2022, nearly 17 such companies raised Rs287 crore by selling shares to the public.
Historically, these enterprises have been hesitant to navigate the complexities of capital markets due to concerns such as the burdensome compliance requirements, heightened scrutiny from public and regulatory bodies, and the reluctance of promoters to relinquish their stake in the company. Moreover, the challenge of raising funds from the public, particularly when these companies are not widely known, has been a significant deterrent. Experts said several factors contribute to this trend.
“The prevailing market sentiments, coupled with a positive short to medium-term equity market outlook, have prompted corporates, promoters, and PE players to leverage the opportunity to mobilize equity capital from the public. Importantly, the participation of institutional investors, MFs, and FIIs in IPOs has generated substantial interest from the public, resulting in overwhelming subscription levels,” said Kresha Gupta, founder at Chanakya Opportunities Fund.
About 13 companies opting for public offering on the platform were in the FMCG segment while the rest were from retail and garments. Local and regional firms have reached up to 31% more households in segments such as biscuit, soap, washing powder and detergent, prompting chief executives at top consumer goods companies to call out the resurgence of smaller brands and its impact on their sales growth during the September quarter.
Local brands’ penetration expanded 4% in laundry bars and 13% in washing powder compared to bigger rivals which saw 0-3% growth, according to latest data from market research firm Kantar. Even in the soap category, smaller firms grew 31% while national brands clocked a tepid 2% increase. Biscuits, the biggest packaged food category, also saw regional players growing 22% versus 10% for larger companies.
“Improved access to funds has altered the perspective of smaller consumer companies, making them more open to public issues. The active participation of investors and the public has provided the encouragement needed for promoters to consider IPOs as a viable growth avenue,” said Gupta adding the government’s proactive communication regarding support for the SME sector added to the favorable conditions. “Small companies stand to benefit significantly, and this aligns strategically with political objectives, particularly in an election year. Looking ahead to 2024, the trend of smaller consumer companies accessing capital markets is expected to persist.”
For several years, homegrown brands have been stealing market shares from leading consumer product companies, especially in soaps, detergents, hair oil, tea and biscuits. For instance, there are about 2,500 local competitors in the rusk market, while nearly 40% of the snacking segment is controlled by more than 3,000 smaller or regional players.
Pandemic-led disruptions and subsequent inflation in key raw materials forced many firms to either shut shop or prune operations. But, in the past few quarters, falling commodity prices led smaller regional brands to expand operations and cut product prices. In fact, Unilever last year said it will cut product prices in India in a few categories, such as soaps and laundry, to pass on the benefits of lower commodity prices, boost volumes and compete with local entrants.