The ABCs of Listing a SME IPO

For growing Startups and SMEs seeking to raise capital, SME-IPO and listing on India’s premier stock exchanges can be a superior route to growth. Since 2014, India’s premier stock exchange platforms known as NSE and BSE have provided small and mid-size companies a great opportunity to raise equity capital for growth and expansion.

The stock exchange listing will help unleash the valuation of companies and in the process create wealth for all the stakeholders, besides enormous benefits.SME companies have the potential to grow into big companies, provided they get adequate capital support.

Startups and SME companies now have the great opportunity to grow into big public listed companies by getting themselves listed on India’s premier stock exchanges through SME-IPO.

We hope that this concise article on SME-IPO from Bluetick will help companies to be well prepared to transform into a successful and wealthy public listed company that continually delivers maximum value and creates wealth for its shareholders.

What is SME IPO in India?

SEBI is about to extend leniency to startups so that they can enlist on the SME platform and state their requirements of net worth and profitability. The principle that dictated this step was a desire to provide more opportunities to modest startups that are unable to list on the main board.

Numerous startups need capital for growth. While major startups have multiple options like taking the aid of private equity investors to get more funds, the small ones have fewer options available. In this case, a platform created with such companies in mind would help both these companies as well as the investors immensely.

While the companies listed on the SME platform are becoming more influential, they are attracting more investors. Another reason for an increase in the number of investors who invest in SMEs is the rapidly multiplying number of SME stocks and increased returns. With such support from the exchange board and the investors, the Indian market seems to be good for SME-IPOs. In India, such SMEs are important for the growth of the nation, and increased employment opportunities.

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Let us start with the benefits to Startups and SMEs on getting listed on the stock exchange platforms.

Advantages and Benefits of Listing on the Stock Exchange Platforms

Some of the key advantages of getting your company (Startup or SME) listed on the stock exchange platforms are as follows:

1. Easier access to equity capital and better funding opportunities

Going for IPO and public listing provides companies with the equity financing opportunities to grow their business from operations to expansion to inorganic acquisitions. Access to equity financing lowers the debt burden leading to lower financing costs and healthier and wealthier balance sheets.

2. Enhanced value creation

The valuation of a company is determined by many factors, one of which is the class of company-whether a public listed or private limited. Going for a public issue of capital will enhance the company’s visibility. Greater public awareness gained through media coverage, publicly filed documents and coverage of stock by sector investment analysts will also provide the listed companies with greater profile and credibility.

3. Balanced risk management for promoters

The stock exchange listing will help companies to distribute the risk of business efficiently. Listing the company would facilitate the expansion of the investor’s base, which in turn helps the company get a secondary market for equity financing, including private placement.

4. Increased participation from private equity investors

Easier and efficient entry/ exit platforms for strategic investors lead to increased participation from private equity investors. The presence of a market-driven transparent trading platform provides a ready and easy entry/ exit for strategic investors. IPO Listing not only offers the investors flexibility for entry and exit, but also the confidence required for any such transactions. The IPO listing would also result in increased participation by venture capital players as they would have a ready, transparent and tax-efficient exit route.

5. Brand building

Going for an IPO is most likely to enhance the company/ brand’s visibility, corporate image creation and strong national as well as international brand building. Greater public awareness gained through media coverage, and research coverage by sector investment analysts provide the companies with greater visibility and help brand building which otherwise may remain a dream for most companies.

Below, we have mentioned some of the requirements that are needed to make your company get qualified to get listed on SME-IPO.

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Requirements Needed to Get Your Company Listed in SME-IPO

For your company to get listed in SME-IPO you have to make sure that your company adheres to the requirements. Some of the basic SME-IPO requirements are as follows:

• The post-issue paid-up capital should be less than Rs.25 crore.

• The company should be profitable for at least one to two years out of the last three years.

• The company should be in existence for at least two to three years from the date of incorporation.

• The company must have a website.

We have discussed the few basic requirements that are needed. Now let us move on to the procedure of getting your company listed.

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IPO – Eligibility criteria

 

SMEs can issue IPOs and get listed on the exchange if they meet the following requirements:

 

• The SME should be incorporated under the Companies Act, 1956.
  
  

• The SME should have a face value (post issue paid-up capital) of up to ₹25 Crore.
  
  

• The SME's net tangible assets should be worth ₹1.5 Crore.
  
  

• The SME must have a track record of a minimum of three years if it was formed by converting partnership/proprietorship/LLP firms.
  
  

• The SME should have a website.
  
  

• The company's promoters should not change for at least a year after filing the IPO.
  
  

• The SME should agree to trade in Demat securities.
  
  

• The SME should enter into a contract with the depositories.

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Want to get your Company Listed in SME-IPO?

Here is a 4-stage process to get your company listed:

Stage 1

• Get a Feasibility Report on approximate IPO size, Valuation, etc.

• Appointment of IPO Advisors

• Due Diligence

• Preparation of restated financial statements including auditors report, capital structure and other certificates

Stage 2

• Appointing Bankers and Intermediates

• Filing of Draft Offer Document with Stock Exchanges & SEBI

• Respond to Stock Exchange and SEBI Comments

• Review of Offer Document and getting the approval.

• Filing of Offer Document with Registrar of Companies in India

Stage 3

• Road Shows and investors meetings

• Getting Anchor Investors

• Launch of IPO

• Receiving bids/ applications

• Closure of IPO

Stage 4

• Allocation and allotment

• Obtain Listing Approvals

• Listing on Stock Exchanges

We have covered a few of the basic important information about SME-IPO. This article should not be construed as professional advice. However, if you want expert advice and guidance on SME-IPO, then, you can meet the our expert consultants at Bluetick Advisory for more support. Readers are advised to consult an SME-IPO expert at Bluetick before taking any action on the points mentioned in this article.

Bluetick Advisory is a one-stop shop for all your needs as an MSME. We can assist you with varius set of services like Outsourcing solutions, advisory services, debt solutions, record management and listing a SME IPO for your business, with utmost sincerity, transparency and dedication like that of business owners. Ready to explore our suite of MSME solutions? Click here to get started.