- What is an IPO Margin Funding: Meaning
- What is Difference Between IPO and FPO in Share Market
- What is IPO Grading Process in India: Meaning
- What is Hot IPO and How Does it Work: Meaning and Examples
- What is an IPO Advisor: Meaning
- Tips for Investing in IPO to Beginners and Investors
- How to Buy IPO Online - Steps, Benefits and Eligibility Criteria
- What is ASBA? Full Form, Benefits and Detailed Application Process
- Syndicate Member: Role in IPO, Types and Syndication Risk
- What is a Shelf Prospectus, Criteria and How Can it Benefit an Investor?
- How to Analysis of IPO and Investment Factors to Consider
- Pre-IPO Stock Investing in India: How Does it Work and Why is it Important?
- What is Red Herring Prospectus (RHP) and How Important is It?
- Draft Red Herring Prospectus (DRHP) : Components, Importance and More
- Deemed Prospectus: Definition, Components and Examples
- IPO For Beginners
- IPO Process
- What Is IPO In Stock Market
- Different Types Of IPO
- Why Do Companies Go Public and Importance
- How To Apply For An IPO In A Minor's Name
- Initial Public Offering: All You Need To Know About IPO
- What Is IPO Prospectus And Why Is It Important
- When To Apply In IPO, NCD, OFS And NFO
- What is NCD (Non Convertible Debentures)?
- What is Grey Market Premium (GMP) in IPO?
- How is IPO Priced or Valued?
- What is the Issue Price in IPO?
- What is the Difference Between Fixed Price Issue & Book Building Issue?
- What is Flipping in IPO?
- What is Difference Between Small Gain & Capital Gain?
- Differences Between IPO & Direct Listing
- Is Investing in IPO Good or Bad?
- IPO Application Methods: Apply Ipo Through UPI
- IPO Application Methods: Apply IPO Through ASBA
- What is IPO Cycle? Explain the Process
- What is Market Lot Size & Minimum Order Quantity in IPO?
- Why is it Necessary to have a Pan Card to Apply IPO?
- What are IPO Requirements in India?
- What is an undersubscribed IPO?
- What is the Lock-in Period in IPO?
- What is Pre-IPO Investing?
- What Is Percentage Gain in IPO?
- How to Apply for an IPO?
- IPO Calendar India Year 2022 -2023
- What is Difference Between OFS & FPO?
- What is Difference Between IPO and OFS?
- Types of Investors In IPO
- What Is Oversubscription In IPO?
- What Is Book building?
- How to Invest in IPO & Benefits of Investing in IPOs?
- What are DRHP and RHP in IPO?
- What is DP name in the IPO application?
- How Is An IPO (Initial Public Offering) Priced?
- What Is Face Value in IPO?
- What is IPO Listing Gain ?
- What is IPO Listing?
- What is IPO Subscription and Process of How to Subscribe for an IPO?
- What is Greenshoe Option in IPO?
- What is Pre-Apply in IPO?
- What is Lot size in an IPO?
- Price Band in IPO
- How to Launch IPO in India?
- Pros & Cons of IPO
- What is OFS in IPO, and How to Apply?
- What is FPO in IPO, and How to Apply?
- What are the Popular Terminologies of IPO?
- What is Cut-Off Price in IPO?
- IPO Allotment Status
- What is SME IPO?
- What is DPO and How is it different from IPO?
- Upcoming IPOs in India 2022
- Things to Check Before Investing in IPOs
- The Basics of IPOs
- IPO basics
- How to invest in an IPO
- IPO guidelines for beginners
- What are the advantages of an IPO?
- IPO investment - Tips and Strategies
- How does an IPO work?
- How to buy an IPO online
- Types of IPOs
- Initial Public Offering process in detail
- IPO allotment basics
- IPO valuation in-depth guide
- Why companies go public
- What is an IPO exit route?
- Show all articles
What is SME IPO?
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-
- The company’s paid-up capital (post issue) shall be less than 25 crores.
- The net tangible assets of the company should be 1.5 crores.
- The company must have its official website.
- The company should promote trading in Demat securities and agree with both depositories.
- The company’s promoters must remain unchanged post applying for stock offering for at least 1 year.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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.
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.
For normal stock offerings, the minimum allottees should be 1000. However, there should be at least 50 allottees in SME IPO.
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.
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?
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.