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SME IPO – Meaning, Procedure & Benefits of SME IPO Listings

All over the world, the SME sector is playing an important role in the social and economic development of a country. Growth of the SME sector is crucial for the growth of our country to curb the problems of poverty, income inequalities, unemployment, and regional imbalances.

In India the SME sector contributes a high proportion in the national income and is witnessing rapid growth and more and more efforts are being taken in the development and promotion of this segment. Various government initiatives such as Skill India, Make in India, Start-up India, Pradhan Mantri MUDRA Yojana, Public Procurement Policy to encourage growth and innovation in the SME sector has led to favourable  growth in the agricultural, manufacturing and service industry.

Even though the SME sector contributes significantly to the GDP of our country, numerous challenges that impede the growth of the SME sector which include-

  • Inadequate funds and timely access to credit is one of the biggest hurdles in the growth of SMEs.
  • Lack of resources and infrastructure
  • Lack of skilled manpower
  • Inability to market their products/services
  • Technological and digital barriers

All these challenges create a serious problem for the growth and development of the SME sector in India to its full potential. All the above challenges are more or less due to a lack of capital and access to raise money from the public like the bigger companies. To overcome this challenge, SME platforms BSE-SME and NSE Emerge were launched by the BSE and NSE respectively, to allow small and medium enterprises to fulfil their dreams of growth and expansion by raising capital from the public.


Meaning of SME IPO:

BSE SME exchange platform is a trading platform dedicated especially for the trading of shares of small and medium enterprises. In order to get listed on the exchange, the companies have to come out with their IPO.

The eligibility criteria and norms of the SME IPOs are different from that of the main board of BSE and NSE.


The listing requirements for BSE SME IPO

  1. It must be a public limited company. Proprietorships, Partnership Firms, Private Limited Companies need to change to convert to a public limited company.
  2. The company’s net worth in the latest audited financial results should be at least 3 crores.
  3. The company’s net tangible assets in the latest audited financial results should be at least Rs 3 crores.
  4. The companies post paid-up capital should be at least Rs 3 crores and not more than Rs 25 crores. If the paid-up capital is more than Rs 25 crores then it has to be listed on the main board.
  5. Distributable profits for at least two years out of the immediately preceding three years.
  6. The company must have its own website with financial statements of 3 years.
  7. It must enter into an agreement with both depositories and mandatorily facilitate DEMAT trading of securities.
  8. There should be no winding-up petition by the applicant company which has been admitted by the court.
  9. The issue should be a 100% underwritten issue and 15% of the issue must be underwritten by the Merchant Banker in his own account.
  10. A minimum of 50 allottees is needed by the company at the time of listing through IPO.
  11. The minimum lot size for trading and application is Rs. 1,00,000.
  12. The company has not been referred to BIFR( Board for Industrial and Financial Reconstruction).


The listing criteria for EMERGE- NSE SME IPO

  1. The applicant must be registered as a company under the Companies Act 1956 or Companies Act 2013.
  2. The companies post paid-up capital should not be more than Rs 25 crores.
  3. Distributable profits for at least two years out of the immediately preceding three years.
  4. It must have certified copies of the annual report for 3 years.
  5. A business plan of 5 years along with balance sheets and profit and loss statements.
  6. The promoters must have relevant experience of 3 years in the same field.
  7. It must enter into an agreement with both depositories and mandatorily facilitate DEMAT trading of securities.
  8. There should be no winding-up petition by the applicant company which has been admitted by the court.
  9. An auditors certificate stating there is no default in payment of interest by the promoter or by the promoter’s holding companies.
  10.  If there is any litigation case filed against the applicant, promoter or promoter held companies then it must be disclosed along with the nature and status of the litigation.
  11. If there are any criminal cases filed against the director or directors then the nature and status of such investigations which can have a direct impact on the business must be disclosed.
  12. A minimum of 50 allottees is needed by the company at the time of listing through IPO.


Procedure for listing on the SME IPO exchange

  1. Appointment of a Merchant Banker for advisory and consultation.
  2. The Merchant Banker is then required to conduct due diligence and documentation check of the company. It must check all financial documents, details of promoters, requisite government approvals, material contracts, etc. The documentation should also include share issuances, IPO structure and other financial documents.
  3. On completion of due diligence and documentation by the Merchant Banker, a draft prospectus and DHRP have to be submitted by the company in accordance with the SEBI guidelines.
  4. The BSE will verify the documents and on finding those satisfactory will process it. A site visit is also conducted by officials at the company’s site.
  5. The promoters will be called for an interview with the Listing Committee on satisfactory completion of documentation and site visit and issue an in-principal approval.
  6. The Merchant Banker can then file the prospectus with the ROC along with the opening and closing date of the issue.
  7. On approval from ROC, the company will intimate the exchange with the required documents and opening date of the issue.
  8. As per the schedule, the IPO will be opened and closed to the public for allotment.
  9. The company will then submit the documents to the exchange for allotment.
  10. Once the allotment is over, the notice of listing and trading of the shares will be issued

 
Top 5 SME IPO list for 2019 by performance

  1. Jonjua Overseas Limited
  2. Evans Electric Limited
  3. Artemis Electric Limited
  4. Goblin Enterprise Limited
  5. Parshva Enterprise Limited


How can the companies benefit from SME IPO listing?

The SME Capital Markets have helped many companies scale up their business. The SME IPO listings have increased manifold since the introduction in 2012 and at present the BSE SME platform has over 300 companies listed on it and the NSE Emerge has over 180 companies listed on it. With relaxed listing norms and minimal cost for listing when compared to the main board, the SME platforms are ideal for companies who wish to raise capital to meet their growth requirements. Support from exchange boards, increase in the number of SME stocks on exchange and good results is encouraging more and more investors to invest in the SME  segment.






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