SME IPO - Subscription Status, Details, Meaning, & How to Apply

Thanks to the government promoting the startup culture, India has witnessed the opening and growth of various startups. When these startups start witnessing growth and reach a certain stage, they go public and sell their shares to the public. This has led investors to gain interest in these startups and apply for Initial Public Offering.

Companies that have recently gone public, like Delhivery, and LIC Ltd, are mostly the big ones that are pretty popular and have a considerable share in the market. But did this make you think that only big companies with huge market shares are eligible to raise funds through an initial public offering? Well, that’s not true. Here, SME’s initial offering comes in. 

In this guide, we’ll cover what SME IPO is, how it works and what makes it different from traditional IPO.

What is SME IPO?

An SME IPO means the process through which small and medium-sized companies go public and raise capital from the general public. The mainline IPO is generally for bigger companies to sell their shares in the market. 

In this, the shares of an enterprise are listed on a different platform and not where mainline IPO is listed. Just like the mainline Initial Public Offering, retail and institutional investors are allowed to invest in these, but there are specific differences that we’ll discuss later. 

Requirements for initial offering for small enterprises 

While normal IPOs may have strict rules and regulations, IPOs of these smaller companies have relatively fewer regulations. As per bse rules-

1. The company’s paid-up capital (post issue) shall be less than 25 crores.
2. The net tangible assets of the company should be 1.5 crores. 
3. The company must have its official website.
4. The company should promote trading in Demat securities and agree with both depositories.
5. The company’s promoters must remain unchanged post applying for stock offering for at least 1 year. 
6. The company shall be incorporated under the Companies Act, 1956.

What is the purpose of going public?

We all know small businesses are the backbone of the economy. If supported well, these can have a tremendous positive impact on the GDP of an economy. But it is often realised that these small companies usually face difficulties raising funds and accessing capital markets. 

Hence, SEBI brought the concept of SME IPO, wherein various relaxations are given to small and medium-sized companies to raise funds smoothly. The focus is given to firms that do not have high profitability or net worth but wish to enter the capital markets and trade on platforms like NSE EMERGE and BSE SME. 

What is the procedure for the initial offering?

Let’s see the process of listing in detail. 

1. The process of listing shares of small and medium-sized enterprises starts with the selection of a merchant banker. Now, the banker will go through the financials of the enterprise in detail. The banker will also assist in deciding the number of funds the company needs to raise, the price of stocks etc. Merchant bankers may also be known as an underwriter. 

2. The next step includes defining a capital structure with the help of a banker. The data, facts, and accounts are thoroughly checked, and when the company turns public, it will have to present all the information to the public. It needs to be ensured that all the information is true and correct.

3. Now, it’s time to hire different people to assist in the process. This includes bankers, market makers, registrars, etc. The hiring of the right and experienced people is necessary as the main success of the company and listing shares for the first time depends on them. 

4. This step is similar to a normal stock offering. The firm will begin to prepare DRHP. Red Herring Draft Prospectus is the mission statement of the company. It helps investors decide whether to buy the company’s IPO as it has detailed information about the company’s performance in the last quarter and its expectations for the future. 

5. Once the DRHP is ready, it needs to get reviewed by the stock exchange. The stock exchange will go through it in detail and give feedback. If there are any revisions, the company has to make the changes and get final approval before the issue begins. In the case of a normal IPO, the review is done by SEBI and not by the stock exchange.

6. After the approval of the stock exchange, the DRHP will be available to the public. The company will start deciding the price of stocks with the help of bankers’ underwriters.

7. It is finally time to open the issue of the decided date. All the marketing and advertising will take place to attract investors to it. Stocks will be sold as a lot to investors, and the issue will be closed after a certain date. 

8. The shares will be allocated to the investors who applied, and once it is done, they will be traded on BSE SME and NSE EMERGE. After that, the buying and selling of the stocks will happen freely. 

Normal IPO Vs SME IPO

Here are some differences between the two types of initial public offering. 

• Company size

For a normal initial public offering, the companies must have post-issue paid capital of Rs 10 crores. For the other one, the minimum post-issue paid-up capital is Rs. 1 crore, and the maximum is Rs. 25 crores.

• Validation 

SEBI validates DRHP and other essential documents in a typical IPO. However, in the second case, the stock exchange is responsible for the validation and other things.

• Minimum allottees

For normal stock offerings, the minimum allottees should be 1000. However, there should be at least 50 allottees in SME IPO. 

• Application size

The application size is between Rs.10,000 to Rs.15,000 in a normal IPO. While for small companies’ public offering, the size is bigger, i.e. Rs. 1 lakh. 

 Final words:

SME IPO is an excellent way for small and medium-sized enterprises to raise capital from the public with the least requirements. This helps them meet their growing needs. But make sure to read all the rules and regulations for the same and research well if you wish to grab the opportunity.

Frequently Asked Questions (FAQS)

What is SME IPO in Stock Market?

It is a way for small and medium-sized enterprises that are privately owned to raise funds from the public by selling their shares.

What is SME IPO Subscription Status?

The number of times a SME Public Issue was subscribed through the BSE SME or NSE Emerge platform is known as the SME IPO Subscription. Exchanges post the status of the subscriptions received by them in real time on their websites.

Can you sell these shares?

Yes. The shares of these enterprises can be traded easily via a stock broker. But make sure that these can only be traded on platforms where the shares are listed, i.e. BSE or NSE. 

Is it worth investing in an SME’s IPO?

These are not usually recommended to risk-averse investors, but they can sometimes be extremely rewarding.

How do companies benefit from going public?

Companies can benefit from listing their shares in a way that helps them raise funds which can be used for growth and expansion purposes. It can also help in reducing debt.