SME IPOs & listing opportunities for both SMEs & startups
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SME IPOs & listing opportunities for both SMEs & startups
SME IPOs Overview
Small and Medium Enterprises (SMEs) can raise capital by offering shares to the public through SME IPOs. These IPOs enable SMEs to list their shares on specific SME platforms of stock exchanges, namely NSE Emerge and BSE SME, designed exclusively for smaller enterprises. Trading SME Shares: After an SME IPO is concluded in case company shares become available for trading on the SME platform of the stock exchange. And Public investors can buy and sell these shares, gaining exposure to high-growth SMEs. Key Features of Small and Medium Enterprises IPOs: we are proving the structured overview highlights the key aspects of SME IPOs and listing opportunities for both SMEs and startups. Let me know if you’d like further elaboration!
- Capital Raising: SME IPOs provide SMEs with an avenue to raise funds for business expansion, working capital, or other strategic purposes.
- Dedicated Platforms: Unlike mainboard IPOs, SME IPOs are listed on either NSE Emerge or BSE SME. Companies can choose only one platform for listing.
- Investment Opportunities: Investors can acquire ownership stakes in SMEs by purchasing shares post-listing, similar to mainboard IPOs.
- Regulatory Framework: SME IPOs are governed by SEBI regulations and the specific requirements of the chosen stock exchange, ensuring transparency and investor protection.
Eligibility criteria for SME IPOs on the NSE Emerge and BSE SME platforms:
NSE SME IPO Eligibility
- Registration: Company must be registered under the Companies Act, 1956/2013.
- Post-Issue Paid-Up Capital: Should not exceed ₹25 crores.
- Track Record: A minimum of 3 years.
- Net Worth: Positive net worth in at least 2 of the last 3 financial years.
- Winding-Up Petitions: No winding-up petitions by NCLT or courts.
- BIFR Certificate: Issuer must certify that the company hasn’t been referred to BIFR.
- Insolvency Proceedings: No ongoing or past proceedings under the Insolvency and Bankruptcy Code.
- Capital Market Access: Issuer/promoters/directors must not be restricted from accessing the capital market by SEBI.
- Fugitive Offenders: Promoters/directors should not be classified as fugitives under the Fugitive Economic Offenders Act, 2018.
- Litigation/Investigations: Directors under investigation or criminal proceedings must provide documentation.
- Articles of Association: No restrictive clauses.
- Promoter/Company Records:
- No disciplinary actions in the past three years.
- No defaults on interest or principal payments on bonds/fixed deposits.
- Must disclose litigation details if applicable.
- IPO-Specific Requirements:
- Minimum application and trading lot size: ₹1,00,000.
- Minimum 50 allottees required.
- IPO underwriting is mandatory (15% by merchant banker).
- A market maker is mandatory.
BSE SME IPO Eligibility
- Registration: Company must be registered under the Companies Act, 1956.
- Post-Issue Paid-Up Capital: Should not exceed INR 25 crores.
- Net Worth: Minimum INR 1 crore for the two preceding financial years.
- For converted firms (e.g., LLPs), prior firm must meet this criterion.
- Net Tangible Assets: Minimum INR 3 crores in the preceding financial year.
- Operational History: At least 3 years, or a project appraisal by NABARD/SIDBI/Banks for companies with less than 3 years of history.
- Positive Cash Flow: Required for at least one year in the last three financial years for converted firms.
- Promoter Stability: No promoter changes within one year of IPO application.
- Website: Company must maintain a functioning website.
- Demat Securities: Mandatory agreements with NSDL and CDSL.
- Defaults: No pending defaults on interest/principal payments.
- Underwriting: Mandatory, with 15% underwritten by a merchant banker.
- Profitability: Operating profit (EBITDA) in 2 of the last 3 financial years, or latest year mandatory profitability if funded by NABARD/SIDBI/Banks.
- Leverage Ratio: Must not exceed 3:1 (relaxation for finance companies).
- Regulatory Action: No suspension of trading or regulatory disqualifications for directors or promoters.
- Name Changes: If changed within the last year, at least 50% of the revenue in the preceding FY must align with the new business name.
- Industry-Specific Criteria:
- Microfinance: INR 100 crore AUM, 10,000 clients, no public deposits.
- Broking: INR 5 crore net worth and profit for 2 of 3 financial years or INR 25 crore net worth in 3 of 5 financial years.
Common Documents for SME IPOs
Both platforms require detailed documentation:
- Listing application forms.
- Issue-related formats (fixed price or book-building).
- Allotment basis documents.
- Refund handling information.
- Final listing and trading approval forms.
Key Takeaways for Companies must choose between NSE Emerge and BSE SME
- Companies must choose between NSE Emerge and BSE SME, as SME IPOs cannot be dual-listed. Merchant bankers play a pivotal role in documentation, compliance, and communication with the exchange. Both platforms have stringent eligibility criteria tailored to ensure quality and minimize risk. Would you like to dive deeper into any specific criteria or processes?
Comparison: SME IPOs vs. Mainboard IPOs
| Aspect | SME IPOs | Mainboard IPOs |
| Target Companies | Small and Medium Enterprises | Large or established companies |
| Listing Platforms | NSE Emerge, BSE SME | NSE, BSE |
| Post-issue Capital | Up to INR 25 crores | Above INR 25 crores |
| Minimum Application Size | INR 1,00,000 | Typically INR 10,000–INR 15,000 |
| Allottees Required | Minimum of 50 | Higher requirements |
| Underwriting | Mandatory (15% by merchant bankers) | Not mandatory |
| Market Maker | Mandatory | Not required |
Cost of an SME IPO, organized into categories:
Service Fees
The service fees involve payments to intermediaries and professionals who assist with the IPO process. Here’s the typical breakdown:
| Intermediary | Service Charges |
|---|---|
| Merchant Banker | INR 25–30 Lakhs |
| Registrar of Companies (RoC) | Based on actions like increasing authorized capital, issuing bonus, etc. |
| Sponsor Bank | ₹10 per retail application |
| Market Maker | Fees depend on agreement (5% of issue volume allocated) |
| Underwriting Fees | Decided per agreement |
| Legal Advisor | As per agreement |
| Auditors | As per agreement |
| Company Secretary | As per agreement |
| Advertising & Printing Costs | Variable, based on campaign size |
- Notes:
- GST and statutory fees apply as per rates.
- Merchant bankers may charge termination fees if the IPO is withdrawn (typically 50% of agreed fees).
Exchange Fees
Fees charged by the stock exchanges for processing and listing shares.
NSE SME IPO Fee Structure
| Transaction | Fees |
|---|---|
| Processing Fees | INR 25,000 (one-time) |
| Exchange Refundable Deposit | 1% of the issue size |
| Initial Listing Fees | INR 25,000 |
| Annual Listing Fees | Based on paid-up capital: |
| Up to INR 5 Crores | INR 10,000 |
| INR 5–INR 10 Crores | INR 15,000 |
| INR 10–INR 20 Crores | INR 25,000 |
| INR 20–INR 22 Crores | INR 45,000 |
BSE SME IPO Fee Structure
| Transaction | Fees |
|---|---|
| Processing Fee | INR 50,000 (one-time) |
| Exchange Refundable Deposit | 1% of the issue size |
| Bid Verification Charges | 0.01% of issue size, min INR 25,000, max INR 50,00,000 |
| Security Deposit | 1% of issue size |
| Annual Listing Fees | INR 25,000 or 0.01% of full market capitalization (post-issue), whichever is higher |
3. Miscellaneous Expenses : These are additional costs that vary based on the company’s specific requirements:
- Underwriting Expenses: To ensure shares are subscribed.
- Marketing & PR Expenses: Roadshows, media campaigns, etc.
- Out-of-Pocket Expenses: Travel, communication, and delivery-related costs.
- Special Events: Hosting roadshows, site visits for stakeholders, and influencer/blogger outreach.
Total Costs
- Minimum Costs for Small IPOs: INR 50 Lakhs.
- Large IPOs: Can go into several crores, depending on issue size and service levels.
The merchant banker typically coordinates payments and oversees the IPO process. The exchange-related refundable deposits and security deposits add to the initial financial burden, but these are partially recoverable.
FAQs on for Small and Medium Enterprises and Startup Listings
Q: Can small and medium enterprises go for an IPO?
Yes, small and medium enterprises can raise funds from the public through an initial Public offering and list their shares on the NSE Emerge or BSE SME platforms, introduced in 2012.
Steps for SMEs to Go Public:
- Eligibility Check: Meet the SME IPO criteria.
- Merchant Banker Selection: Partner with a merchant banker for guidance.
- Company preparation: optimize accounting, sales, and strategy.
- Draft Red Herring Prospectus (DRHP): Collaborate with the merchant banker to prepare the DRHP and get it approved by the preferred stock exchange.
- Roadshows: Promote the IPO to potential investors.
- IPO Process: Manage the opening, closing, and allotment phases.
- Listing: The company’s shares are listed and available for trading.
Q: What Are Small and Medium Enterprises Listed Companies?
Small and Medium Enterprises listed companies are small and medium enterprises that have raised funds through SME IPOs and are listed on either the BSE SME or NSE Emerge platforms. Key Features of SME Stocks:
- Lot Trading: Shares trade in lots (minimum specified quantity).
- Single Exchange Listing: Small and Medium Enterprises shares are listed on either NSE or BSE, not both.
- Transition to Mainboard: Small and Medium Enterprises can migrate to the mainboard after two years of listing.
- Lower Trading Volumes: Trading volumes are typically lower compared to mainboard companies.
Q: Can small and medium enterprises become listed companies?
Yes, Small and Medium Enterprises can become listed companies by meeting the eligibility requirements of NSE Emerge or BSE SME and successfully conducting an IPO. Small and Medium Enterprises Eligibility for IPO:
- Post-Issue Paid-Up Capital: Not more than INR 25 crores.
- Track Record: At least three years.
- Positive Net Worth: Achieved in at least two of the last three years.
Q: Can new businesses Go public with an small and medium enterprise IPO?
Yes, startups or new companies can go public via the BSE Startups or NSE Emerge-ITP platforms. These platforms allow companies to list with or without conducting an IPO. Criteria for Startups:
- Post-Issue Paid-Up Capital: Not more than INR 25 crores.
- Track Record: If operating for less than three years, must have funding from private equity, angel investors, or financial institutions.
- Revenue: Turnover of at least ₹10 crores and an annual growth rate of 20%.
- Profitability: Positive net worth and operating profits (EBITDA) for the last 2-3 years.
Q: What Are Additional Requirements for Small and Medium Enterprises and Startup Listings?
- No Financial Distress: The company must not have been referred to the Industrial and Financial Reconstruction Board or face court dissolution petitions.
- Clean Record: No disciplinary actions from NCLT or the stock exchange in the past year.
- Transparency: Mandatory disclosure of litigation, criminal proceedings, and payment history.
Additional points for Small and Medium Enterprises and Startup Listings: Most SMEs transition to the mainboard within two years of listing. SME trading requires brokers, and all brokers provide access to SME platforms. Startups listing in India has faced limited success, with only a few companies actively trading.