Today MSME businesses are running at a full fledge in all parts of the
country. They are responsible primarily for the majority of exports that
are undertaken in India. The operating cost of the MSMEs are slowly
but steadily rising as they are starting to scale up to serve a wide range
of audiences. This commitment requires huge sums of capital to run the
business smoothly. SME IPO and the listing of the companies on the
premier Indian stock exchanges like the NSE and the BSE can prove to
be very lucrative to raise equity capital and further help in business
expansion. The Indian stock exchanges have a huge history of providing
small and mid-size companies to avail financial exposure from the
equity markets.
Once the MSME business is listed in the stock market, it starts to
eventually help unleash the absolute mean valuation of the businesses
with time and in a way create wealth for all the stakeholders and
promoters thereby enabling enormous benefits. Small enterprises have
the potential to grow in big companies provided they get ample of
capital flowing into their system at the early stages. If an MSME has a
robust business model and the collective support of the exposure to
the financial markets, there will be no stones left unturned on its way
to progress.
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SME IPO Eligibility
There are few factors to be considered before an SME is planning to go
public via the IPO route. Some of the basic SME IPO eligibility
requirements to get listed in the stock exchange are as follows :
1.) The post-issue paid-up capital should be less than Rs.25 crore.
2.) The company must have a website.
3.) The company should be in existence for at least two to three years
from the date of incorporation.
4.) The company should be profitable for at least one to two years out
of the last three years.
5.) Min No. of members for Issue – 50.
6.) Underwriting – 100% (Merchant Bankers to underwrite 15% in own
account).
SEBI guidelines for SME IPO
The Securities Exchange Board of India (SEBI) was founded by the
government in 1988. It is the sole authority that looks after the Indian
corporate securities market- primary & secondary market. Private firms
and commercial companies (driven by the central government) can
enter the primary market to procure funds from the public to meet
their financial requirements. The Securities and Exchange Board of
India (SEBI) has laid down the SEBI guidelines for the SME IPO along
with the (BSE) guidelines which are discussed in detail below :
1.) Net Tangible assets of at least Rs.3 crores as per the latest audited
financial results.
2.) The post-issue paid up capital of the company shall be at least Rs.3
crores.(For BSE).
3.) Net worth (excluding revaluation reserves) of at least Rs.3 crores as
per the latest audited financial results.
4.) Track record of distributable profits in terms of sec. 123 of
Companies Act, 2013 for at least two years out of immediately
preceding three financial years and each financial year has to be a
period of at least 12 months. Extraordinary income will not be
considered for the purpose of calculating distributable profits.
5.) Visit to the registered office of the Company by BSE officials to verify
general documents and processes followed in the Company.
6.) Promoters to attend an interview with the Listing Advisory
Committee.
7.) The minimum trading lots for SME IPOs should range from 100 to
10,000 shares depending on the price, volumes, and more, which is
constantly subject to revision.
8.) There should be no winding-up petition against the company in any
court across the country.
9.) The company's promoters should remain constant for at least one
year preceding the application of the SME IPO.
SME IPO Process
The compliance requirements for SME IPO in India 2022 are relatively
lower in contrast to mainstream IPO launches. In order to maintain the
integrity and trust among promoters and shareholders, it is essential to
do necessary paperwork and a long, drawn-out process to ensure that
the facts and data are duly verified. Following are some of the major
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SME IPO Process steps discussed in detail :
1.) Selection of Merchant Banker – SMEs requires an experienced
merchant banker or SME IPO consultant to help guide them while
underwriting the issue.
2.) Filing of Draft Offer Document with Stock Exchanges & SEBI – Once
the filing is done, it is followed by responding to the comments made
by the stock exchange and SEBI. The offer document must be reviewed
and approved. The offer document must next be filed with the
Registrar of Companies in India.
3.) Issue Open & Close – After all necessary approvals are taken, the
issue is opened on a specific date. After marketing and advertising, it
will stay open for a few days, following which it is closed, and shares
are allotted.
4.) Listing on Stock Exchanges – Once the issue is fully subscribed and
the shares are allotted, it will start trading on the BSE SME or the NSE
Emerge platforms for investors to buy and sell securities in the
company. 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.
The SME IPO in India 2022 is one of the most anticipated events in the
Indian stock market. This is primarily due to sheer number of high
quality small businesses that are planning to go public and eventually
scale up with time. Empyrean Cashews Limited, Jayant Infratech
Limited, Cool Caps Industries Limited, Globe secure Technologies
Limited, Sailani Tours n Travels Limited, Agni Green Power Limited,
Maruti Interior Products Limited, Krishna Defense and Allied Industries
Limited are some of the best in terms of SME IPO performance.