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Want to list your company on the SME Exchange, but are concerned about the SME IPO process complexities? This article will take you through the step-by-step SME IPO listing process from appointing advisors to filling draft documents, conducting roadshows, and obtaining exchange approval for your SME IPO. By the end, you will know how to file for an SME IPO and successfully get listed on the BSE SME and NSE SME Board.
In 2012, the BSE was the first exchange to introduce the BSE SME platform for listing SME companies, and later the NSE also introduced the NSE Emerge platform. SMEs can opt for listing on any platform if they fulfill the platform's eligibility criteria.
The process for an SME IPO and a successful listing on the BSE or NSE SME Exchange involves many credible requirements at the planning, preparation, listing approval and IPO launch stages.
There are also a host of post-listing compliance norms for listed SMEs.
When small and medium-sized enterprises decide to go public by offering their shares to the public, this is known as an SME IPO. This is a process whereby privately owned companies sell their shares to the general public and are listed on the SME Exchange (BSE SME or NSE Emerge).
The SME IPO provides an opportunity to raise the capital required to fund the growth and expansion of SMEs. It also allows investors to park their capital in growing companies at an early stage.
Indian startups or SMEs with a maximum paid-up capital of not more than Rs 25 crores can conduct SME IPOs and list their shares on the stock exchanges. Check other eligibility criteria for SME IPOs.
In India, the two leading stock exchanges BSE and NSE have a special BSE SME and NSE Emerge segment for listing SMEs shares. In 2012, BCB Finance was the first ever listed company on the BSE SME whereas Thejo Engineering was the first company listed on the Emerge platform of NSE.
SME IPO Issue Eligibility Requirements
With the largest MSME base, MSME is a major contributor to the India's economic growth. With more than 30 million SMEs operating in India, they account for over 45% of industrial production, 40% of total exports and employ over 60 million people.
Although SMEs make an important contribution to India&rsquo's economic development, the lack of access to finance is always a major challenge for them.Over 3 lakh SMEs generate a total turnover of 5 to 250 million rupees, but very few of them are listed companies. The data itself suggests that there is a huge potential for SME IPOs.SME IPO is the best way for emerging startups to raise the required capital for their growth potential.
Navigating the SME IPO listing process can be tricky as it requires extensive paperwork and due diligence. Here is the complete roadmap explained in detail, from engaging merchant bankers, preparing and filing DRHP and prospectus, underwriting agreements, roadshows, marketing and promotional activities, to a successful listing on the SME Exchange.
The first step towards SME IPO preparation is to put together a right IPO team.
SMEs that want to go public should first hire a suitable team or investment bank to handle the entire IPO procedure and guide them through the entire SME IPO journey.
The IPO team, which includes the promoters and managers of the company, will conduct a feasibility check and assess whether or not you meet the eligibility criteria for an SME IPO.
The IPO team takes on a large part of the preparatory work, such as determining the required capital, the current valuation of the company and much more.
Most of the requirements of the SME IPO planning phase are fulfilled in this stage to become an SME IPO-ready company.
For example, the conversion of the company into a corporation, all important documents such as the certificate of incorporation, articles of association, minutes of meetings and obtaining the necessary internal approvals from the board of directors and shareholders should be kept ready. This step prepares an SME to meet the relevant listing criteria and become an IPO-eligible company.
SMEs that do not meet the listing criteria such as post-issue paid-up capital of Rs. 25 million or less, net worth, profitability criteria, 3-years track record etc. are not ready for SME IPO.
Merchant Bankers are SEBI-registered companies that assist SME entrepreneurs throughout the journey of SME IPO.
In the preparatory stage, merchant bankers prepare the IPO offer documents and other important contracts, file the prospectus with the stock exchange regulator, obtain approval and undertake a valuation of the company to determine the issue price for the IPO.
They play a crucial role in the successful listing of SMEs as they conduct all due diligence to ensure that all documents submitted are accurate and without inconsistencies. Proper valuation is key to a successful listing, as too high a price can affect public demand and vice versa. In this way, merchant bankers or lead managers act as demand drivers for the IPO as they bring in their connections to encourage IPO underwriting.
They also help the company in engaging other IPO intermediaries such as legal advisors, financial advisors, auditors, underwriters, etc. Unlike mainboard IPOs, SME IPOs must be 100% underwritten, with 15% of the underwriting shares going into the account of merchant bankers.
Role of Merchant Bankers in SME IPO
This is the important step when merchant bankers prepare and submit the IPO Draft Red Herring Prospectus (DRHP) and file it with the relevant stock exchange (BSE SME or NSE Emerge).
The DRHP is an important IPO document that contains important information about the objective of the IPO issue, the company’s financial performance in recent years, valuation, risks, growth plans, etc.
Potential investors who want to invest their capital use the DRHP to make an informed investment decision on whether or not to apply for an SME IPO.
Once the DRHP is submitted to the Exchange, the Exchange reviews the details of the documents and records and conducts site visits. The Listing Advisory Committee also invites the promoters of the companies for the necessary investigations.
Based on the outcome, the Exchange officials either grant approval in principle or inform the company about the discrepancies.
After DRHP approval, the merchant banker prepares and submits the final prospectus. The RHP contains additional information about the opening and closing dates of the IPO issue, the issue price, updated financials, tentative IPO timetable and more.
The merchant banker determines the IPO issue price after evaluating the company's valuation. Based on the offer price, the lot size is determined as per SEBI's standardization norms for lot sizes.
Once the RHP is approved, the stock exchange is notified with all the documents. Also, the lead manager also publishes the DRHP and RHP on its website.
Later, the merchant bankers organize roadshows and meet with potential investors to increase public demand for the IPO. The higher the demand for the IPO, the more profitable the listing and vice versa.
The SME IPO is finally launched or opened for subscription on the predetermined dates. The IPO remains open for subscription for a few days. Potential investors can apply for the minimum lot size for the IPO before the closing date.
The minimum investment amount for SME IPO is Rs 1,00,000 or more.
Once the IPO is closed for subscription, the Registrar and Transfer Agent (RTA) processes all IPO applications, allocates the shares and transfers the allocated shares to the investors.
After the IPO is completed, the Registrar is responsible for allotting the shares to the different categories of investors, such as retail and non-retail investors.
The Registrar prepares a Basis of Allotment (BoA) as per the applicable SEBI guidelines for the allotment of shares.
This is the historic moment, when SMEs were listed on the designated SME exchange. For this purpose, the exchange publishes a listing circular containing the security code, symbol, ISIN, and date of admission.
Investors who have received a successful allotment of shares can sell SME shares on the day of listing or later. Once the shares are listed on the stock exchange, investors can start trading SMEs shares on the secondary market.
SME shares can only be traded in lots even after listing. Unlike regular IPOs, investors cannot buy and sell a single SME share.
The SME IPO issue and listing process on the SME platform may take nearly 3 to 4 months. An indicative list of activities along with the schedule is provided below;
| SME IPO Issue Process | Timeline |
| BOD Meeting for issue approval | T+1 |
| AGM/EGM | T+10 |
| Appointment of IPO intermediaries | T+15 |
| Audited financial statements | T+25 |
| Due Diligence report and RHP preparation | T+40 |
| Submission to the stock exchange | T+45 |
| Verification and obtain in-principal approval | T+70 |
| ROC Filling and acknowledgement | T+75 |
| Intimate issue opening and closing dates | T+76 |
| Issue opens | T+80 |
| Issue close | T+83 |
| Listing and trading | T+90 |
After listing, SME shares are publicly traded on the designated SME exchange.
Once SMEs get listed on exchange, it comes under the regulatory scrutiny of SME platform and SEBI market regulatory authority.
Listed SMEs have to submit the following reports timely to the exchange;
The SME listing process begins with the engagement of a merchant banker, responsible for due diligence review, preparation and submission of DRHP and RHP, and listing approval from the stock exchange.
The entire SME IPO listing process, from the appointment of intermediaries to the listing of shares on the SME platform, takes almost 3 months. Once SME shares are listed on the stock exchange, liquidity increases, investor participation, valuation, and brand awareness are boosted.
SMEs that cross the milestone of Rs 25 crore in paid-up capital post issue and complete the three-year listing period can move to the BSE and NSE Mainboard Exchange.
Are you an SME company looking for an IPO to raise funds and get listed in the stock market? We can help. Contact us today... SME IPO Enquiry Form
Initial public offering of shares by a small and medium-sized company to tap into the public market is called SME IPO. Instead of pitching individual and/or institutional investors, SME IPO provides a direct way to entrepreneurs to get required funding for growth.
No, SME IPO offer document including Draft Red Herring Prospectus (DRHP) and Red Herring Prospectus (RHP) does not require SEBI’s approval as the regulatory authority has delegated such power to the stock exchanges. Thus, merchant bankers present IPO offer documents to the exchanges for approval.
The share listing process of an SME company on the BSE and NSE SME Index follows the below process;
SME IPO issue price is the price at which the shares will be offered for sell to investors. The issuer company appoints a lead manager to fix the IPO issue price based on the investors’ response and demand of the share.
There are two broad ways to fix shares price for the IPO issue; book-building and fixed pricing method. In the book-building process, merchant bankers decide the price range whereas, in the fixed price method, shares are issued at a specified price. The process of IPO valuation to fix the issue price includes a thorough analysis of market demand for the IPO, the company’s growth potential, and a comparative analysis with industry peers.
Market regulators have relaxed post-listing compliance requirements for securities listed on the SME platform. The key compliance norms for listed SMEs are as follows;
Getting listed on the SME platforms of NSE and BSE is not as difficult as it seems. An issuer company has to necessarily follow the below steps to become a listed SME entity;
The process of SME IPO issue to get the shares listed involves many intermediaries including;
Registrar is a SEBI-registered independent financial institution appointed by the company to keep the ownership of the company’s shares. The registrar is primarily responsible for the allotment of issued shares to different categories of applicants. Once an IPO closes for subscription, the registrar finalizes a list of eligible allottees after rejecting invalid applications. Registrar prepares a basis of allotment and credits shares to applicants' Demat accounts, and refund orders are dispatched to applicants to whom shares are not allotted. The lead manager coordinates with the registrar to receive all the applicants from collection centers to process share allotment.
In an IPO, it is the duty of bankers to the issue to ensure that all the funds are received and transferred to the Escrow accounts. Lead manager appoint bankers to the issue at all the collection centers who are engaged in banking-related activities such as follows;
Role of bankers to the issue
No, you cannot sell a single SME IPO share on the listing date. It doesn’t matter whether you are a retail or non-retail investor; you can buy and sell SME IPO shares in the lots only. One can purchase and sell 1 lot or in multiples of it.
For instance, if a SME company issues IPO in the lot size of 2,000 shares. It means you have to buy atleast 1 lot of 2,000 shares. The lot size is the minimum quantity of shares available for trading hence, you cannot purchase any number of shares less than 2,000 shares. All the buy and sell orders are placed for the lots only.
SEBI has prescribed rules on how to decide SME IPO Lot size at different issue price, >>>> click here.
No, you cannot sell SME IPO shares on the same day when you have purchased it. Pre-open market session starts from 9:00 AM to 9:45 AM during which you can place a buy order to purchase SME shares. If your buy orders gets matched with the IPO listing price, your order will be executed otherwise cancelled.
As day trading is not allowed for SME IPOs thus, it is necessary to have shares in your demat account to sell them. If you have bought stock today, you have to wait for T+1 day to get it into your Demat account then only you can sell shares.
If you have applied for the SME IPO and receive allotment then shares will be credited into your Demat account and you will be allowed to sell it on the listing day.
