Small and Medium Enterprise IPO
Small and Medium Enterprise Initial Public Offering (SME IPO) has evolved as an efficient channel through which small businesses can access capital in the stock markets and use it to finance their expansion. At IPO Ji, we present to you a detailed guide about all that you should know about SME IPO listing in India, its eligibility, advantages, step-by-step procedure, and factors to consider.
SME IPO is a special kind of Initial Public Offering applicable to the Indian Small and Medium Enterprises. As compared to large-cap IPO, SME IPO enables smaller companies to tap into public finance on the stock exchange but under relaxed regulatory standards.
The shares of the SME after a successful listing are then traded on specialised platforms. This enables retail investors, institutional investors and high-net-worth individuals (HNIs) to become shareholders and be part of the growth story of the SME.
NSE Emerge platform specifically designed for small and medium enterprises
BSE SME platform for emerging small and medium businesses
The small businesses might opt to become publicly traded through an SME IPO in India for several strategic reasons:
Fund business growth, working capital needs, and pay down existing debt
Increase brand visibility and credibility in the market
Find new partners and investors to support business growth
Make available liquidity to current stockholders
Not all small businesses are eligible to apply for SME IPO listing. There are certain eligibility standards that SEBI and stock exchanges prescribe to the company. The important SME IPO eligibility criteria are as under:
Should be incorporated under companies act, 1956 or 2013
The paid-up capital after the issue must not be more than 25 Crore
Net tangible assets of not less than 1.5 Crore
3 years minimum operational track record for firms converting from partnership/proprietorship/LLP
The firm should possess a fully operational website
No change in promoters, at least one year prior to filing
Demat form agreement to trade securities
Agreement with Depositories (NSDL/CDSL) on contractual basis
The SME has to adhere to SME IPO guidelines of SEBI
Here's a step-by-step overview of the SME IPO process:
The SME must appoint an SEBI-registered merchant banker, also known as an underwriter, to manage the IPO. The merchant banker conducts due diligence, prepares documents, and guides the company through the entire listing process.
The merchant banker prepares the Draft Red Herring Prospectus (DRHP), containing detailed financials, business model, risk factors, and future plans, allowing potential investors to assess the company.
Unlike mainboard IPOs submitted to SEBI, SME IPO DRHP is submitted directly to the relevant stock exchange (BSE SME or NSE Emerge) for approval.
Upon approval, the IPO opening date, issue price, lot size, and other important details are finalized.
The company, along with the lead manager, markets the IPO to potential investors through roadshows, digital campaigns, and advertisements to generate interest.
Investors can subscribe to the IPO by applying for a minimum lot size, as specified in the issue. Subscriptions are open for a few days.
Once the subscription period closes, shares are allotted to successful applicants. Post-allotment, the company gets listed, and shares begin trading on the SME platform of the stock exchange.
Stay updated with IPO Ji for the latest information on:
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Frequently Asked Questions
Ans. The SME IPOs which are no longer accepting subscriptions from investors after the close date has passed are called closed SME IPOs.
Ans. The SME IPOs that get listed on BSE SME or NSE Emerge platforms are known as Listed SME IPOs. Experienced investors closely monitor Listed IPO data to aid in investment decisions. This data provides insights into the potential of current and upcoming offerings and offers valuable information about public demand, which can be crucial for predicting future IPOs.
Ans. Investing in an SME IPO can be a bit risky due to the substantial funds required to bid. However, based on data from previous financial years, these IPOs have significant potential for gains or losses depending on the company's fundamentals.
Ans. Yes, you can apply for an SME IPO. The issue is open to NII (Non-Institutional Investors), retail investors, and sometimes QIB (Qualified Institutional Buyers). Applications can be made via UPI-based applications, ASBA (Application Supported by Blocked Amount), or through forms provided by your bank or broker.
Ans. You can sell SME IPO shares just like any other IPO shares through your DEMAT/Trading account or by contacting your broker. Trading in SME IPO shares occurs in lots defined by the company and exchanges.
Ans. There are four ways to subscribe to an SME IPO:
