Bombay Stock Exchange Limited

1. Bombay Stock Exchange Limited BSE SME Exchange - Presentation 22nd November 2011 Ajay Thakur BSE SME Exchange

2. Table of Contents (1 of 2) A Introduction 4 B About SME Industry 7 C Governmental Efforts 10 D MSME Development Act, 2006 13 E Need for SME Exchange 17 F SME Exchange - An Overview 21

3. Table of Contents (2 of 2) G Attributes of SME Exchange 25 H Key Players 29 I Promoting the BSE SME Exchange 31 J Preparations for the IPO 38 K Beneficial Aspects 45 L Thank you 47

4. J. Introduction

5. VISION and MISSION VISION Wealth creation by the SMEs through inclusive economic growth. MISSION Provide the world class platform for the SMEs and Investors to come together and raise the equity capital.

6. MESSAGE TO THE ENTERPRENEURS AND INVESTORS “BSE SME Platform provides a great opportunity to the entrepreneurs to raise the equity capital for the growth and expansion of SMEs. It also provides the immense opportunity to the investors to identify and invest in the good companies at early stage. It will help unleash the valuation of the company and in the process create wealth for all the stakeholders including investors, besides considerable long term capital gains tax benefits and facility to exit at any point of time”

7. Introduction SEBI has issued a final circular on May 18, 2010for setting up a stock exchange/trading platform by a recognized Stock Exchange having nationwide trading terminals for SMEs The necessary amendments have been made in the various SEBI Regulations Model equity listing agreement has been notified BSE is eligible for setting up SME exchange and already got the Final approval from the capital market regulator ‘SEBI’ for launch of SME Exchange 7

8. Continue.. BSE is leveraging the existing ‘Equity platform’ i.e. BOLT System for launching the BSE SME Exchange. Negligible cost in launching the platform. All Merchant Bankers empanelled with SEBI are by default MBs for this segment. Additional responsibility of secondary market for market making. All Members registered with BSE are by default Members for this segment. No additional infrastructure required by Members for secondary market trading.

9. About SME Industry J.

10. About SME Industry Classification of Micro, Small and Medium Enterprises 10

11. About SME Industry Micro, Small and Medium Enterprises (MSMEs) contribute - 8% of the country's GDP - 45% of the manufactured output - 40% of our exports Provide employment to about 6 cr. people through 2.6 cr. enterprises. The Micro Small and Medium Enterprise (MSME) sector forms the largest generator of employment in the Indian economy. The MSME sector forms a major portion of the industrial activity. 11

12. Need for SME Exchange J.

13. Need for SME Exchange Provide the SMEs with equity financing opportunities to grow their business – from expansion to acquisition Equity Financing will lower the Debt burden leading to lower financing cost and healthier balance sheet Expand the investors base, which in turn will help in getting secondary equity financing, including private placement Enhance company’s visibility. Media coverage can provide SME with greater profile and credibility leading to increase in the value of its shares Incentives for greater venture capital participation by providing an exit option thus reducing their lock-in period 13

14. Need for SME Exchange Greater incentive for the employees as they can participate in the ownership of the company and benefit from being its shareholders Encourage innovation and entrepreneurial spirit Capital Market will help distribute risk more efficiently by transfer of risk to those, who are best able to bear it SME sector will grow better on two pillars of Financial system i.e. Banking and Capital Market Initiating a dedicated Stock Exchange for SMEs’ will lead to mobilization of the diversified resources of finance and build a bridge between the SMEs, Private Equity and the Venture Capital by providing an exit route. 14

15. Life Cycle of a Company Expansion Stage Decline due to lack of funds IPO Developing Stage Stable Profit Margins Growth Stage PE Firms hold the hands of SMEs Unlocking the Capital Market Opportunities Nascent Stage Supported by Venture Capital Firms High Risk & Lower Profit Margins Increase in Sales & Rise in Profit Profit Margin tends to rise as the business expands Profitability

16. SME Exchange - Overview J.

17. SME Exchange – SEBI Guidelines Issuer with post issue face value capital up to Rs.10 crores shall be covered under the SME Platform, Issuer with post issue face value capital between Rs.10 – 25 crores may get listed at SME Platform and Issue with post issue face value capital above Rs.25 crores has to necessarily listed at main board of the Exchanges Suitable provisions for migration to/ from main board The minimum application amount as well as minimum trading lot shall not be less than Rs.1,00,000/- All existing Trading Members would be eligible to participate in SME exchange without any further registration 100% underwritten issues and Merchant Banker/s shall underwrite 15% in their own account The Merchant Banker to the issue will undertake market making through a stock broker who is registered as market maker with SME Exchange. The Merchant Banker shall be responsible for market making for a minimum period of 3 years 17

18. SME Exchange – SEBI Guidelines – Market Maker obligation of Merchant Bankers Shall be required to provide two way quote for 75% of time in a day, to be monitored by the Stock exchange The minimum depth of the quote shall be Rs.1 lakh Execution of orders at the quoted price and quantity to be guaranteed by MMs Not more than 5 market makers for a scrip Market Makers may compete with the other Market Makers Market Maker allowed to deregister by giving one month notice to the exchange The exchange shall prescribe the minimum spread between Bid and Ask price During the compulsory market making period, the promoter holding shall not be eligible for the offering to market makers Trading system may be either quote driven or hybrid driven 18

19. Minimum Public Offer As per ICDR Regulations, the company with the IPO has to offer a minimum of 25% to the investors and some exemptions have been given for the finance companies. There is only restriction on the limit of the post issue paid up capital and it is Rs. 25 crores. There is no limit on the size of the IPO. It will depend on the premium of the share and how much dilution is proposed. 19

20. Profit Making Track Record The SMEs have been exempted from the criteria of three years profit making track record (profit making in 3 out of 5 years) for listing onto the BSE SME Exchange. Any company with one or two years of good track record can consider listing on SME Exchange. 20

21. About BSE SME Exchange J.

22. Trading System of SME Exchange The BSE is leveraging the existing equity platform for the BSE SME. The BSE SME Segment will be part of the BSE BOLT System. The SME Exchange will be included as a group in the BSE’s BOLT system – ‘M’ and ‘MT’ Groups. The systems necessary for monitoring the market making and providing the quotes are made ready to comply with SEBI Regulations. The trading time of this platform is from 09:00 am to 03:30 noon. As of now, BSE is fully equipped to launch the BSE SME platform. 22

23. Trading of Odd Lots • Odd lots may get created because of the corporate action taken by the company from time to time, like issuing bonus shares, warrants and rights issues. • The Regulations warrants that the odd lots can be sold only to market makers and the investor has to give the declaration that he is selling all the odd lot shares of the particular scrip. • This is to minimize the odd lots in the system.

24. Penalties for market making violations All the market makers for scrip put together shall do market making for more than 75% of the market timing. In case the market makers for scrip fail to comply with these provisions up to 15 days, BSE has prescribed the monetary penalties. Beyond 15 days, the scrip will be temporarily suspended. 24

25. Migration from SME Platform to Main Board Any SME on BSE SME Platform having a paid up capital more than Rs. 10 crores can move to the main board provided that the special resolution is passed in the AGM in favor with at least two third of the number of votes cast by shareholders other than promoter shareholders and then apply to BSE SME. 25

26. Key Players J.

27. Key Players Venture Capital Funds P/E funds Angel Investors HNIs Banks, Financial Institutions, NBFCs QIBs Registrars Merchant Bankers Members and Market Makers Financial Advisors – CAs,CS, CFOs etc SME Companies 27

28. Preparations for the IPO J.

29. Preparations for the IPO – Contents of Offer document 29

30. Preparations for the IPO – Relevance of Due Diligence Due Diligence on the various approvals required from regulatory bodies Due diligence on the applicability of various regulations Risk factors associated with the company External environment effecting the company Magnitude and listing out of litigations Business activity Past performance and financial results Material contracts and agreements Detailed report on promoters & management 30

31. Preparations for the IPO – Role of Merchant Banker Selection of investment banker Selection of registrar and transfer agent (RTA) Selection of syndicate member /sub- syndicate members Selection of electronic media and advertising agency Selection of Escrow Bankers Understanding of regulations pertaining to Stock Exchange, SEBI and the other regulatory bodies 31

32. Preparations for the IPO – Marketing Strategy Positioning of company through sustained media efforts including visual media Regular interaction with brokers, FII & FIs and HNIs Creating awareness about the issue to the investors Selection of potential bidding centers Effective equity story supplemented by proper research Presentation to the investors and the analysts Creating sustainable valuation and shareholder base Effective communication for better results 32

33. Beneficial Aspects J.

34. How does the SME exchange help SMEs? A dedicated exchange for these SMEs will help them in finding a solution to their financial requirements and crunching expansion plans. Listing of a company gives better valuation to the company. The debt and equity ratios will improve and balance sheet will look much healthier. The listed SMEs will unlock their wealth in the medium to long term and will do the wealth creation for the promoters and the investors. The listed SMEs will get better visibility among the investors. The investor base of the company improves for the listed companies in medium term. 34

35. How does the SME exchange help SMEs? The repose of faith by the investors – domestic and foreigners in the listed SMEs is high. Transparency and corporate governance will improve manifold by listing on SME Platform. Listed company will have easy accessibility to alternate funding options. The banks, P/E funds and other financial institutions provide them the loans very easily. The fund raising through ADRs and GDRs become easier. Also, the company can raise more funds through follow on public offering. The tax benefits are also immense. The long term capital gain tax on listed company is zero. 35

36. Look out on the SME Exchange A large number of merchant bankers are optimistic about the SME Exchange/ Platform. Investors’ outlook is not yet clear. But the investors with medium to long term perspective are optimistic on wealth creation opportunity in this segment. Regarding the SMEs, the response has been extra ordinarily exciting. The SMEs are enthusiastic about the opportunity to raise the equity capital on BSE SME. 36

37. Look out on the SME Exchange The professionals like Chartered Accountants and Company Secretaries have an important role to play in educating the promoters of the SMEs and guiding them in raising equity capital on SME Platform. The member brokers and the sub brokers having branches and franchises spread across the country can play important role in mobilising and educating the SMEs with their market knowledge and experience. 37

38. Promoting the BSE SME Exchange J.

39. Attracting Promising SMEs • Approaching SMEs with high growth potential • Illustrating Advantages of Listing • Co-coordinating with Banks and Angel Investors for bringing the companies on this platform • Target industries at different locations and SME clusters • Attract promising SMEs and the start- ups by professionals • Attracting the SMEs through • Chamber of commerce • Industry department under state government • Industry Associations 39

40. Marketing Activities Road Shows Jointly organizing seminars with the ‘Chamber of Commerce' of different states for illustrating advantages of listing Training Programs Business Development Advisory Committee Segment Awareness Programs Reaching the potential SME companies through web portals and mails 40

41. Thank You