SMEs are backbone of any country and same is the case with India. There are more than 3 lacs SMEs in India. The government has over the years, taken many steps to provide a boost to this sector and facilitate their ease of doing business as well as ensuring that they get the easy credit or finance from financial institutions. One such step is to allow SMEs to raise money from public in the form of SME IPO Listing.

In this article, we will try to provide replies to some basic frequently asked questions as mentioned below.

Just like main board Initial public offering, now SMEs can also raise money from general public by listing their shares in NSE and BSE Exchange. This is called as SME IPO listing. For the same, they need to fulfill some criteria and convert their companies/firms into Public limited company.

Any company incorporated in India under companies Act 1956 or 2013 can apply for SME listing. Even partnership firm and proprietorship firm can also apply for SME IPO after converting them into private/public limited companies.

1. The company must be incorporated under Companies Act. Any partnership or proprietorship firms are also eligible if it is in existence for more than 3 years, but they have to first convert into company
2. Must be in existence for 3 or more years. Also, there should be operating profit in at least 1 out of 3 years
3. Net tangible assets shall be more than Rs 1.5 crore
4. Post issued paid up capital of the company can be upto Rs 25 crore
5. There should be company’s website
6. Shares of company must be in DEMAT format, otherwise first converted into DEMAT
7. There should not be any litigation against the company or any of the promoters/directors
8. There should not be any change in promoter or director during last 1 year
9. Theoretically, there is no minimum turnover or profit is prescribed, however, Merchant Banker prefers to apply for SME IPO only for companies having very good topline and bottom-line

For main board IPO, minimum Turnover shall be around Rs  25 crore and paid up capital of Rs 10 crore. Also, Last 3 years average profit shall be minimum Rs 15 crore.

The names of stock exchanges for SME IPOs are as under:

1. BSE SME Exchange
2. NSE Emerge Exchange

The cost of SME IPO comprises of merchant bankers fees, underwriter charges, market maker charges, exchange fees, professionals fees and other fees. There is no fixed fee prescribed for SME IPO listing. The fees depends upon case to case basis as well as size of IPOs. Normally, fees may range between Rs 50-60 lac to few crores depending upon size of issue.

Some of the advantages of SME listing IPO are as under:

1. There is an increase visibility across the country as well as globe. The SME get good eyeballs from various stake holders like investors, portfolio managers, general public etc.
2. The credibility of the company before lenders like banks and financial institutions increases. They are able to get good funding at reduced rate of interest.
3. The SMEs can attract good talent at reasonable salary by offering stock options
4. There is huge value creation and brand value and reputation of companies increases many folds leading to very good organic growth and also increases in share price.

Here are some key steps involved in the SME IPO listing process:

1) Appointment of Merchant Banker 

2) Compliance & Due Diligence.

3) Red Herring Draft.

4) Verification & Feedback 

5) In-Principle Approval 

6) Issue Open & Close 

7) Listing & Trading 

The lots and sizes are set based on the price and volumes of the shares and are subject to constant monitoring for changes to facilitate easy trading and transfer. Over time, as the price and volumes improve, the stock can graduate to the main indices, cementing its position as a publicly-traded company.

Again, the time involved depends upon case to case basis and normally, it takes around 3 to 5 months in completion of entire process.

EzyBiz India is a professionally managed firm, founded and managed by  alumni of  Big-4 consulting firm and provides solution to both multinational and Indian clients in areas of India Entry Service, Taxation, Regulatory, Assurance, Corporate Funding and Transaction advisory services.  https://ezybizindia.in/

This article contains information of general nature. The information is only for general guidance and is not meant to be a substitute for professional advice in any manner