Advantages of Listing SME IPO

Startups need capital to grow their business but due to lack of funds they are unable to scale their business, hence IPO is a great opportunity for SMEs to fund their growth. The concept of SME IPO in India emerged with the launch of BSE and NSE SME platforms in 2012. Since its launch, SME IPO has continued to gain momentum in India and is attracting growing interest from investors.

SME companies that qualify for an IPO can tap the public market directly by issuing their shares to the public. The Indian stock exchanges BSE and NSE have dedicated SME IPO listing platforms known as BSE SME and NSE Emerge (NSE SME). A start-up company in India can bring its IPO to the capital market through either of these platforms and benefit from numerous listing advantages.

Once listed, the SME's shares will be publicly traded on the relevant stock exchange. In this article, the main reasons or advantages why SMEs should go public and list securities on a stock exchange are mentioned. Listing the shares of an SME company on the stock exchanges BSE SME or NSE Emerge has tremendous advantages, such as;

1. Easy Access to Capital

The public issuance of shares by small and medium-sized enterprises provides them with easy access to capital. It facilitates SMEs to raise funds for various objectives such as growth, expansion, new product development, acquisitions, etc. After listing, share purchases and sales are made on the stock exchange, which increases liquidity for shareholders.

2. Increases Investor Participation

SME Listing Exchange is a transparent trading platform for SME stocks that encourages private equity participation. In India, BSE SME and NSE Emerge are the two dedicated platforms for listing SME stocks. The platform offers investors easy entry and exit options and enables SMEs to expand their investor base.

3. Encourage SMEs Growth

SME IPO is one of the most important platforms for raising equity capital. SMEs that want to raise capital can use the funds raised for various growth prospects such as mergers and acquisitions, expansion, etc., as equity funds are not a liability as companies are not forced to service the equity funds, which makes them cost-effective.

4. Value Creation and Strong Visibility

The value of a company is determined by several factors, and the listing is one of the most important parameters. SMEs are little-known companies, and when their shares are publicly traded, it strengthens visibility and public awareness.

Listing on the stock exchange also gives small and medium-sized enterprises the opportunity to gain a strong business outlook through media coverage. In addition, listed SMEs must adhere to listing and compliance standards and submit their financial information on a semi-annual basis, which greatly enhances credibility.

5. Journey toward Main Board IPO

Direct listing on the BSE and NSE is a costly affair and requires extensive preparation and documentation. So, if you have been a listed SME company for the last two years, you can take a step forward by moving to the main stock exchange, provided you meet the exchange migration criteria.

In contrast to direct listing on the Main Board, this is a comparatively easier and quicker route, as the period of listing on the SME segment gives management the opportunity to transition the company into a process-oriented organization in preparation for migration to the Main Board.

Check How SMEs can be migrated to main board

6. Healthy Balance Sheet

Going public via IPO brings equity capital to the firm without cash outflows or servicing costs. However, debt capital brings a financial burden in terms of interest obligations. Thus, a firm can utilize its equity capital to repay loan obligations, pursue diversification, and expansion, and improve its balance sheet.

7. Employee Stock Option

A listed SME can get the advantages of Employee Stock Options (ESOPs) to attract and retain a talented workforce, compensate workers, and boost employee commitment. ESOP is a grant to provide the right to a company’s employees to buy a certain quantity of the company’s shares at a set discounted price.

8. Easy Reporting Structure

A company listed on the SME platform has to submit half-yearly results to exchange, whereas a mainboard company needs to declare and publish results every quarter. Easy reporting makes less regulatory reporting requirements for listed SMEs.