What is SME IPO
SME IPO means initial public offerings for small and medium-sized businesses. Companies with minimum post-issue capital of Rs 1 crore and a maximum of Rs 25 crores are eligible for SME IPO in India.
- The SME must have a paid-up capital of INR 3 crores or more, with the same reflecting across tangible assets and overall net worth.
- The company’s financial statements should show distributable profits for at least two out of three preceding financial years, excluding any extraordinary incomes.
- The minimum trading lots for SME IPOs should range from 100 to 10,000 shares depending on the price, volumes, and more, which is constantly subject to revision.
- There should be no winding-up petition against the company in any court across the country.
- The company’s promoters should remain constant for at least one year preceding the application of the SME IPO
SME IPO Listing – How It Works?
The compliance requirements for SME IPOs are significantly lower than what is expected of mainstream offerings. However, maintaining public trust still involves substantial paperwork and a long, drawn-out process to ensure the verification of facts and data.
Here are some key steps involved in the SME IPO listing process:
1) Appointment of Merchant Banker – Despite being relatively easier, SMEs require an experienced merchant banker or SME IPO consultant to help guide them while underwriting the issue.
2) Compliance & Due Diligence – The next step involves ensuring the facts, accounts, and data presented by the company reflect the truth. There are no discrepancies that can have a material impact on the SME’s story.
3) Red Herring Draft Prospectus – Similar to a regular IPO, the prospectus should contain comprehensive information on the operations and prospects of the company. This should serve as the mission statement for prospective investors.
4) Verification & Feedback – All the steps and documentation thus far undergo thorough verification, with necessary revisions and feedback following suit. There will also be a site visit at this stage to further verify the accuracy of claims.
5) In-Principle Approval – Once all facts and data are verified successfully, the SME will receive an in-principle approval, with a few conditions pending complete approval before the issue can be opened.
6) Issue Open & Close – After all necessary approvals are taken, the issue is opened on a specific date. After marketing and advertising, it will stay open for a few days, following which it is closed, and shares are allotted.
7) Listing & Trading – Once the issue is fully subscribed and shares are allotted, it will start trading on the BSE SME or the NSE Emerge platforms for investors to buy and sell securities in the company.
The lots and sizes are set based on the price and volumes of the shares and are subject to constant monitoring for changes to facilitate easy trading and transfer. Over time, as the price and volumes improve, the stock can graduate to the main indices, cementing its position as a publicly-traded company.