SME IPO #
An SME IPO (Small and Medium Enterprises Initial Public Offering) is a process that enables SMEs to enter the stock market. This is achieved by offering their shares to the public for the first time and subsequently getting listed on specific platforms like the BSE SME or NSE Emerge.
To be eligible for an SME IPO in India, a company’s post-issue capital must fall within the range of Rs 1 crore and Rs 25 crores. Currently, the BSE SME platform has attracted approximately 360 SMEs to list via the SME IPO route, while the NSE platform hosts about 247 such companies.
Listing Criteria for SME IPOs #
The listing prerequisites for SME IPOs are distinct from those of Main Board IPOs. Key requirements include:
- The IPO application size must be no less than Rs 1 lakh
- The post-issue paid-up capital must not surpass Rs 25 crores
- There’s no need for a minimum pre-tax operating profit
- IPO grading isn’t obligatory
- The IPO must be fully underwritten, with a minimum of 15% of the issue size on the merchant banker’s books
- The IPO should have at least 50 allotees
The company must also fulfill several other requirements, including:
- Having a positive net worth
- Net tangible assets of at least Rs 1.5 crores
- Positive cash withdrawal from operations for the preceding 2 years
- A track record of at least three years
- A website and an agreement with both the depositories NSDL and CDSL to facilitate trading in demat securities
- No changes in the promoter holdings in the year leading up to its application for the SME IPO
The BSE SME and NSE EMERGE platforms, offered by the Bombay Stock Exchange and the National Stock Exchange respectively, are designed for this purpose.
| Listing Requirement in BSE and NSE: Comparison between SME Platform and Main Board | ||||
| Attributes | BSE SME Platform | BSE Main Board | NSE SME Platform | NSE Main Board |
| IPO Application Size | Not less than Rs 1 lakh | Rs 10,000 – 15,000 minimum | Not less than Rs 1 lakh | Rs 5000 – Rs 7000 |
| Post issue paid up capital (face value) | Not more than Rs 25 crores | Minimum Rs 10 crores | Less than Rs 25 crore | Not less than Rs 10 crore and the capitalisation of the applicant’s equity shall not be less than Rs.25 crores |
| Minimum pre-tax operating profit | No such requirement | At least Rs 15 crores for preceding three years | At least three years. The company/entity should have positive cash accruals (earnings before depreciation and tax) from operations for at least 2 financial years preceding the application | Three years track record of positive net worth |
| IPO grading | Not mandatory | Mandatory | Not mandatory | Mandatory |
| Market capitalisation/ issue size | No restriction | No restriction | No restriction | No restriction |
| IPO underwriting | 100 per cent (at least 15 per cent of the issue size on the book of the merchant banker) | Mandatory (not required when 75 per cent of the issue is offered for QIBs) | 100 per cent (at least 15 per cent of the issue size on the book of the merchant banker) | Mandatory (not required when 75 per cent of the issue is offered for QIBs) |
| Minimum number of allotees in IPO | At least 50 | At least 1000 | At least 50 | At least 1000 |
| Post issue reporting requirement | Half yearly (abridged) | Quarterly (comprehensive) | Half yearly (abridged) | Quarterly (comprehensive) |
| Market making | Mandatory | Not mandatory | Mandatory | Not mandatory |
| Vetting of DRHP | By the exchange | By SEBI | By the exchange | By SEBI |
| Note: In addition, SMEs need to have positive net worth and net tangible assets of a minimum of Rs 1.5 crore for new listing in BSE SME exchange. Source: BSE and NSE. |
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SME IPO Listing Process #
The SME IPO listing process involves several steps, including appointing an underwriter, conducting due diligence, hiring service providers, preparing and filing the prospectus, and finally, listing the shares on the SME platforms of BSE and NSE.
Steps in SME IPO Listing Process #
- Appointing an Underwriter: The first step involves appointing an underwriter who analyzes the company’s financials to determine key figures like the share price band and the funds required to be raised.
- Conducting Due Diligence: Due diligence is conducted to verify the facts, accounts, and information to be presented by the company. Any discrepancies must be identified and rectified at this stage of IPO preparation.
- Hiring Service Providers: Service providers such as bankers, registrars, and market makers are hired. The efficiency of these service providers is crucial as the success of the SME IPO depends on them.
- Preparing and Filing the Prospectus: Based on the analysis and due diligence, the SME prepares the Draft Red Herring Prospectus (DRHP) which includes information on the company, its financial performance, operations, fund utilization plans, etc. The prospectus is then filed with the stock exchange, which verifies and approves it.
- Making the Issue Available: Once approved, the prospectus is made available to the public, helping investors make their investment decision. After all the necessary approvals are obtained, the SME can open the public issue. The issue remains open for a specific number of days, and a few days after the issue closure, allotment is made to the applicants.
- Listing the Shares: Finally, after the subscription and allotment of shares, the shares are listed on the SME platforms of BSE and NSE.
Companies that have been listed on the SME platform for at least two years can apply for migration to the mainboard of the stock exchange, provided they meet certain criteria.
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