The small and medium enterprise initial public offering, or SME IPO, is ushering in a new era in Indian capital markets. The fact that SMEs form the backbone of the Indian economy is widely known, but they have frequently been treated unfairly in terms of funding and access to financial markets.
This is rapidly changing, with SME IPO platforms gaining pace and swiftly becoming a reliable source of finance for entrepreneurs. SMEs without a long track record of profitability or net worth can now access capital markets and trade on specialised platforms like the BSE SME and the NSE Emerge, thanks to SEBI’s loosening of requirements.
What is SME IPO?
If you’re an investor or otherwise involved in the Indian stock market, you’ve probably heard about the IPO chatter that goes around every week. The Indian stock exchange has given investors who applied to numerous good initial public offerings (IPOs) huge profits. However, if you are new to the investment world and want to get your feet wet, applying to a high-potential IPO can be a wonderful place to start. It’s even better if you can apply for a SME IPO. However, to comprehend what a SME IPO is, you must first comprehend the significance of an IPO.
The Global Importance of SME IPO
Small and medium businesses play an essential role on a worldwide scale because they account for a large portion of the market. They characterise a country’s social and economic progress to some extent.
In India, we have several government-backed initiatives such as Skill India, make in India, Start-up India, Pradhan Mantri MUDRA Yojana, Public Procurement Policy, and SME IPOs, all of which encourage overall growth and development in this sector, and SME IPOs have increased the fundraising opportunity for these businesses.
These programmes have also proven to be game changers for some agricultural and manufacturing businesses.
What differs SME-IPO Apart from Regular IPOs?
- A standard IPO’s minimum investment ranges from Rs.12,000 to Rs.15,000 SME IPOs, on the other hand, range from Rs.1,20,000 to Rs.1,50,000. This is because SME IPOs are only open to long-term and capital-intensive investors.
- The minimum number of allottees for an IPO is 100, whereas the minimum number for a SME IPO is 50.
- The SME IPO application size cannot be less than Rs. 100,000, which is much more than a typical IPO application size of Rs. 10,000 to Rs.15,000.
- A firm that goes public through an IPO must report earnings quarterly, whereas a SME IPO must report bi-annually.
The Steps to Getting Your Company Listed in a SME IPO
You must ensure that your firm meets the conditions to be listed in the SME IPO. The following are some of the basic SME-IPO requirements:
- The paid-up capital after the offering should be less than Rs.25 crore.
- For at least one to two of the previous three years, the company should have been profitable.
- From the date of incorporation, the company shall have been in operation for at least two to three years.
- A website is required for the business.
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How do you become a SME-IPO listed company?
To get your business listed, follow this four-step process.
- Obtain a Feasibility Report detailing the estimated IPO size, valuation, and other details.
- IPO Advisors are appointed.
- Doing your homework
- Restatement of financial accounts, including the auditor’s report, capital structure, and other certificates
- Bankers and Intermediates are appointed.
- Stock Exchanges and SEBI get the draught offer document.
- Review and approval of the Offer Document in response to Stock Exchange and SEBI comments.
- Filing of the Offer Document with the Indian Registrar of Companies
- Investor meetings and road show
- Obtaining Key Investors
- Receiving bids
- Obtain approvals for listing
- Stock Exchange Listings
- Allocation and allotment for the IPO
Start-ups and the whole ecosystem benefit greatly from SME IPOs. Even though they are still in their infancy, the increased traction and benefits should solidify this as a trustworthy way of small business funding.
The market cap and weightage of these listings are now modest, but as India’s start up environment matures, they will only continue to increase.
Apart from the obvious advantages for entrepreneurs, SME IPOs allow investors to have access to early-stage possibilities that were previously only available to venture capitalists and financial institutions. Despite the risks, ordinary investors stand to benefit greatly from the seemingly endless opportunities for growth.