5 SMEs that made to the big league

The buzz surrounding smaller companies—or SMEs—making their debut on the stock exchanges is impossible to ignore. Once a playground for high net-worth individuals (HNIs), this year alone has so far seen a staggering Rs 5,900 crore pour into the IPOs of these companies. What's more astonishing is that nearly 46 per cent of all SME IPOs in the last year were subscribed over 100 times! Like moths to a flame, investors are attracted to these stocks for their potential for substantial gains once they hit the market.

But let's not be blindsided by the numbers; many of these companies offer minimal financial disclosure. Coupled with low trading volumes and larger lot sizes, liquidity can be a serious concern.

That said, some SMEs have truly made their mark. As of October 2024, 325 companies successfully migrated from the SME exchanges to the mainboard exchanges of the stock market (NSE and BSE). This transition not only eliminates the lot-size requirement but also enhances liquidity and increases financial transparency due to stricter regulatory compliance. In this article, we present a bried overview of five SME companies that have made the leap to the mainboard exchanges in the last two years.

Gensol Engineering

Gensol Engineering is riding the renewable energy wave. This solar EPC (engineering, procurement, construction) player has also plugged into the EV sector, offering leasing and manufacturing services. Its promoters-Anmol Singh Jaggi and Puneet Singh Jaggi-have a significant stake in the EV mobility company BluSmart, opening doors for growth in their EV business.

The company's sales have surged 63 per cent from FY19 to FY24. Yet, investors should remain vigilant. Fluctuating promoter holding, pledging and rising debt levels are potential red flags. Its debt-to-equity ratio has risen from below 0.5 in FY21 to more than 5 times in FY24. However, the stock currently trades at a P/E (price-to-earnings) ratio of 57.3, below its five-year median of 68.8.

Thejo Engineering

Thejo Engineering keeps industries in motion. The company manufactures conveyor belts and offers on-site maintenance services. It also produces corrosion protection chemicals, serving diverse sectors from chemicals to mining. With a global presence, its exports account for 13 per cent of FY24 revenue.

Although the company's debt levels are manageable and its cash flow position is strong, one must be wary of its high (156-day) cash conversion cycle. Moreover, the company trades at a P/E of 55, far higher than its five-year median P/E of 33.3.

Sky Gold

Sky Gold shines as a B2B powerhouse in the glittering world of jewellery. It designs and manufactures gold accessories for retail giants like Kalyan Jewelers, Malabar, and Senco.

Over the last few years, Sky Gold has ventured into retail and built its own brand. As a result, margins have started increasing. With sales growing at an annual rate of 19 per cent during FY19-24, the company also rewards its shareholders with dividends. But watch closely. Promoter holding has been declining over the last few quarters. The P/E currently stands at a lofty 85.

Wonder Electricals

Wonder Electricals aims to keep India cool. The company manufactures ceiling and exhaust fans and has recently diversified into kettles and heaters. With one of India's largest fan manufacturing facilities, it's poised to ride the housing sector boom.

But the company's financials raise eyebrows. FY24 saw a negative cash flow from operations (CFO) of Rs 17 crore against a profit after tax (PAT) of Rs 10 crore. Blame it on the narrow customer base and mounting receivables. Moreover, with a P/E of 176, its valuation doesn't look enticing either.

Sirca Paints

Sirca Paints is making its mark in the paint and wood coating industry. Growth has been robust, with revenue and profit after tax surging 22 per cent and 14 per cent, respectively, during FY19-24. Financial metrics impress, too. ROE (return on equity) stands over 25 per cent, while the PE of 37 looks attractive compared to larger peers.

However, rising competition in the paint industry can't be ignored. The entry of players like Birla, JSW and Pidilite could spark a price war. Sirca's 20 per cent EBIT (earnings before interest and taxes) margin provides some cushion, though, which could prove crucial if a price-slashing battle erupts.

Also read: These 6 SME IPOs made no sense but D-Street loved them anyway