Why Listing Your SME Could Be a Disaster Without This Guide

Unlock the path to SME IPO success with a complete guide to SEBI norms, eligibility, and listing steps.

Tue Dec 10, 2024

Planning to List Your Company through SME IPO? Don’t Forget to Read the SEBI Listing Norms

Small and Medium Enterprises (SMEs) play a crucial role in driving economic growth, and listing on the stock exchange via an SME Initial Public Offering (IPO) can open doors to fresh capital, improved credibility, and enhanced visibility. However, this process comes with stringent compliance requirements set by SEBI and stock exchanges like BSE and NSE. Here’s everything you need to know about eligibility criteria and the listing steps.

Eligibility Criteria for SME IPO

1. SEBI Norms

SEBI, the regulatory body for the Indian securities market, has laid down the following eligibility norms for SMEs:

Paid-Up Capital: Minimum paid-up capital of the company should be ₹1 crore.
Post-Issue Capital: Must not exceed ₹25 crore.
Profitability: Positive cash flow from operations for at least 2 out of the last 3 years.
Net Tangible Assets: Minimum of ₹3 crore.
Corporate Governance: The company must adhere to SEBI’s corporate governance practices, including appointing independent directors.

2. Exchange-Specific Criteria

BSE SME Platform:

Track Record: The company must have been in operation for at least 3 years.
Net Worth: Minimum net worth of ₹3 crore.
Market Making: Must enter into an agreement with a registered market maker for at least 3 years post-listing.

NSE Emerge Platform:

Track Record: Must demonstrate operational continuity for at least 3 years or be venture capital-funded.
Net Worth: Minimum net worth of ₹1 crore.
Profitability/Revenue Generation: Must have generated operating profit in at least 2 of the last 3 financial years.

Steps to List Your Company Through SME IPO

1. Prepare for Compliance:

Ensure adherence to SEBI regulations and specific exchange norms.
Finalize statutory audits and corporate governance structures.

2. Appoint Key Advisors:

Hire a SEBI-registered merchant banker to act as the lead manager.
Appoint auditors, legal advisors, and market makers.

3. Draft Offer Document:

Create a draft offer document (DRHP) detailing financials, business models, and risk factors.
Submit it to SEBI and the chosen exchange for review and approval.

4. Obtain Approvals:

Get SEBI approval for the DRHP.
Seek in-principle approval from the chosen exchange (BSE or NSE).

5. Due Diligence:

Ensure all company operations and documents undergo due diligence by the merchant banker.

6. IPO Pricing and Marketing:

Determine the IPO price based on market demand and valuation.
Conduct investor roadshows to generate interest.

7. Filing of Prospectus:

File the final prospectus with SEBI and the exchange.

8. Launch and Allot Shares:

Open the IPO for subscription.
Post-closure, allot shares and list them on the SME platform.

Benefits of Listing on BSE and NSE SME Platforms

Access to a larger pool of investors.
Improved financial credibility and market visibility.
Enhanced business valuation.
Opportunity for easy fund raising in the future.

Conclusion

Listing your company via an SME IPO is a significant step toward growth and expansion. By complying with SEBI, BSE, and NSE norms, you not only unlock funding opportunities but also establish a robust market presence. Ensure thorough preparation and meticulous adherence to guidelines for a seamless listing journey.

For more insights, check out our NISM Series - IX Merchant Banking course.

Explore more insightful content on Daanik Blogs.

Daanik
Daanik is a leading platform dedicated to empowering individuals with financial literacy, offering courses that help traders and investors build the skills needed to navigate the complexities of the market successfully.