What is an SME IPO?

Small and medium enterprise (SME) IPO is bringing a paradigm shift in Indian capital markets.

Indian SMEs are the backbone of the Indian economy. Still, they have often received a raw deal in funding and access to capital markets.

The SME IPO listings in stock market allows small and medium enterprises to directly raise funds from the public markets.

The listing of companies on the SME exchange opens up a whole new avenue of funding for these companies, who may have struggled to access bank loans or other forms of funding.

By making it easier for these companies to raise money directly from the public markets, SME IPO platform can help them to grow their businesses and expand their operations.

This can make it much easier for these companies to raise equity by tapping into the huge liquidity available in the capital markets.

India's startup revolution has driven innovation and entrepreneurship in the past decade. In 2021 many startups and new age companies launched their IPO on exchanges.

Small and Medium Enterprise (SME) listing Benefits

There are several benefits to going public:

  1. Access to Capital - Listed companies get access to much-needed capital that may not be available from other channels.
  2. Reputation - Going public gives founders the ability to raise funds at a higher valuation, which adds credibility and helps in attracting top talent.
  3. Funding Options - Post-IPO listing, companies have options to raise capital through Further Public Offer (FPOs).
  4. Corporate Governance - Listed companies must adhere to strict corporate governance standards and reporting requirements by SEBI and other regulatory bodies that enhance investor confidence and improve performance.
  5. Branding – listed companies get brand visibility and more clients.
  6. Rapid growth – comparatively listed companies’ revenues & profitability grow faster because of availability of resources and recognition.

Requirements for listing in SME IPO

With the popularity of SME IPOs, which have become a major source of investment for private businesses, maintaining public trust is essential for their success.

Appoint a Merchant Banker for SME IPO

Merchant bankers have rich experience and expertise in handling IPO issues of all sizes and complexities.

They help SMEs better understand the process and manage their expectations from the market.

The appointment of merchant bankers needs to be done early on in the process, at least 4-5 months before filing for an IPO.

This will give them enough time to prepare a draft prospectus, submitted along with the draft offer document with SEBI.

Compliance & Due Diligence

You're almost there!

The next step involves ensuring the company's facts, accounts, and data reflect the truth. There are no discrepancies that can directly impact the SMEs story.

Additionally, we must confirm that all disclosures are appropriately identified and described, including risk factors.

We'll help you with this step and all of the ones that follow until your business is ready for its IPO.

Prospectus for SME IPOs

A prospectus is a legal document that discloses information about an investment offering for sale to the public.

A prospectus should contain comprehensive information on the operations and prospects of the company, including financial statements and risk factors, to help investors make informed decisions.

Verification Process

Merchant banker will be performing an independent verification of the information provided by your company to verify that it is accurate.

This process will include reviewing the documentation you've submitted, with necessary revisions and feedback following suit.

There will also be a site visit at this stage to further verify the accuracy of claims.

Principle Approval for SME IPO

The following information must be verified before issuing an in-principle approval:

  • IDs of all shareholders and directors and their relevant identification numbers (for individuals) or registration numbers (for companies) are needed.
  • Proof of residential address for all shareholders and directors.
  • Proof that the registered address of the company is correct.
  • The shareholding percentages for each shareholder, along with the ownership type (for example, if a company holds shares in another company, the percentage held by that company should be stated).

Opening and Closing Date SME IPO

To open an issue, we need to have all the necessary approvals in place. Once we have those, we can set a date for the issue's opening.

After that, it's marketing and advertising time! We'll be keeping the issue open for a few days following the opening so that people can get their papers in order and make decisions about whether or not to participate.

Once that time has passed, we'll shut down the issue and then allot shares to eligible persons.

Listing and Trading Process

Your company's shares can be traded on the BSE SME or the NSE Emerge platforms once the shares are subscribed, allotted and listed

The lots and sizes are set based on the price and volumes of the shares. They are constantly monitoring for changes to facilitate easy trading and transfer.

Over time, as the price and volumes improve, your stock can graduate to the main indices, cementing your company's position as a publicly-traded entity.

How can a company which is already list on SME platform, migrate to the main board?

Any company on BSE SME Platform having a paid-up capital of more than INR 10 Crore can apply to move to the Main board provided:

  1. Market Capitalisation should be minimum Rs. 25 Crores (The Market capitalization on Weighted Average Price (WAP) of preceding 20 traded days from the date of submission of application to the Exchange for migration from SME platform to the Main board should be equal to or in excess of Rs. 25 crores)
  2. A Special resolution is passed in the AGM with at least two-thirds of the shareholders (apart from promoter shareholders) favoring the migration
  3. On migration to the Main Board the company will have to comply with the applicable regulations of SEBI LODR (Listing Obligations and Disclosure Requirements) Regulations 2015
  4. The company/its directors/promoters have not been debarred by SEBI

Parameters for listing on the BSE SME Exchange through Swastika

Parameters for listing on the BSE SME Exchange through Swastika are as follows:

The company should have net tangible assets should be Rs. 1.5 Crore, said Swastika.

The company or the partnership/proprietorship/LLP Firm or the firm which have been converted into the company should have combined track record of at least 3 years.

In case it has not completed its operation for three years then the company/partnership/proprietorship/LLP should have been funded by Banks or financial institutions or Central or state government or the group company should be listed for at least two years either on the main board or SME board of the Exchange.

The company or the firm which have been converted into the company should have combined positive cash accruals (earnings before depreciation and tax) in any of the year out of last three years and its net worth should be positive.

The post-issue paid-up capital of the company should not exceed Rs. 25 crore.

The company shall agree with both the depositories and mandatorily facilitate trading in Demat securities, as per Swastika.

The minimum application and trading lot size shall not be less than Rs 1,00,000.

The issues shall be 100% underwritten and Merchant Bankers shall underwrite 15% in their own account