SME IPO
As the name suggests, SME IPO means intitial public offerings for small and medium-sized businesses. Instead of pitching a litany of individual and institutional investors for funds, SMEs can directly tap public markets and gain substantial liquidity in the process.
Introduction
The SME IPO full form, the small and medium enterprise initial public offering, is bringing a paradigm shift in Indian capital markets. It is well known that SMEs are the backbone of the Indian economy, but they have often received a raw deal in terms of funding and access to capital markets.
This is changing quickly, with SME IPO platforms gaining traction and quickly turning into a robust funding source for startups. Starting with the relaxation of norms by SEBI, SMEs without an extensive track record of profitability or net worth can tap capital markets and trade on dedicated platforms such as the BSE SME and the NSE Emerge.
Ever since the initial launch of this concept in 2012, a total of 474 companies have raised a staggering INR 5,825 crores. SME IPOs continue to gain momentum, with numerous capital-starved SMEs gaining better liquidity, credibility, governance, and transparency without losing large chunks of ownership to foreign risk capital and VCs.
What Is SME IPO?
As the name suggests, SME IPO means initial public offerings for small and medium-sized businesses. Instead of pitching a litany of individual and institutional investors for funds, SMEs can directly tap public markets and gain substantial liquidity in the process.
While normal IPOs have stringent regulatory and compliance requirements, SMEs have relatively relaxed regulations,
- 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?
Appointment of Merchant Banker
Compliance & Due Diligence
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.
Verification & Feedback
In-Principle Approval
Issue Open & Close
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.
Final Verdict
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