SME-IPO stands for Small and Medium Enterprise Initial Public Offering (IPO). It refers to the trading or exchange of shares in small and medium-sized businesses. SMEs are enterprises with sales, assets, or workers less than a certain threshold. The definition of a small business depends on the sector in which the enterprise operates.
In India SMEs comprise a major chunk of the total available workforce, and hence are an important part of our economy. Since the firms engaged here are small or medium-sized, the offering that opens is much smaller than those that are listed on the BSE and NSE's main exchange platforms.
In the year 2012, two SME exchange platforms i.e the BSE SME platform (BSE) and the EMERGE Platform (NSE) were launched. Besides the SEBI Guidelines for the listing of shares, the stock exchanges have their own eligibility requirements for the SME listing. As of now, over 300 businesses are now listed on the BSE, while over 180 companies are listed on the NSE Emerge.
How is SME-IPO different from the Regular IPO?
- A business that goes public through an IPO must disclose earnings quarterly, whereas an SME IPO needs to report bi-annually after the IPO.
- The minimum number of allottees allowed for an IPO is 100, whereas for SME IPO, the same figure is 50.
- A conventional IPO requires a minimum investment of ₹12,000 to Rs15,000. SME IPOs, on the other hand, range from ₹1,20,000 to ₹1,50,000. This is due to the fact that only long-term and capital-intensive investors are permitted to participate in SME IPOs.
- The SME IPO application size cannot be less than ₹100,000, which is much more than a standard IPO application size of ₹10,000 to ₹15,000.
Eligibility criteria to issue offerings under SME-IPO
A firm can issue IPOs under the SME-IPO category only if it fulfils certain criteria laid by the SEBI.
- According to section 124 of Companies Act, 2013, a company must be able to demonstrate that they have dispersed earnings in at least two of the previous three fiscal years.
- The post issue capital should range between ₹3 crore to ₹25 crores and should have tangible assets amounting to a minimum of ₹3 crore as per the recent audited financial results.
- According to SEBI standards, the minimum trading bit for SME IPOs varies from 100 to 10,000, depending on the price band. These are evaluated and changed on a regular basis, based on the price fluctuation post the listing.
How to apply for SME-IPO?
Investors who wish to apply for SME-IPO can do it through an offline ASBA process. The online facility is not yet available for the same.
- Visit the nearest branch of the bank which provides ASBA facility. The investor needs to have an account in any branch of that bank to avail this service.
- Collect the ASBA application form from your broker or it can be downloaded through NSE/BSE websites.
- Fill and submit the application form mentioning all the relevant details including PAN, account number etc.
- Upon submission of the form, the bank will block the amount mentioned by the investor and forward it to the stock exchange for that particular IPO.
SMEs are critical for India's economic development and for creating job opportunities and thanks to the support from a plethora of investors, the Indian market appears to be favourable for SME-IPOs.
Any IPO, whether SME or the conventional one, carries some element of risk. But the SME IPOs are relatively riskier. Before applying, the investors are expected to thoroughly research about the firm, its operations, financials and other key factors.