Features of SME IPOs

Lower Investment and Turnover Thresholds

One of the defining features of SME IPOs is their lower entry barriers compared to traditional IPOs. These include reduced investment and turnover requirements, making it more accessible for smaller, emerging enterprises to qualify for listing on the stock exchange. This inclusive approach ensures that enterprises with lower revenue and profit margins can also tap into public funding.

Listing on Dedicated Platforms

SME IPOs are typically listed on platforms specifically designed for small and medium enterprises. In India, these platforms include NSE Emerge and BSE SME Platform. These platforms cater to the unique needs of smaller companies, providing a supportive environment distinct from the main stock exchange where larger corporations are listed. This separation helps to ensure that SMEs are adequately accommodated in terms of regulatory requirements and market expectations.

Trading Restrictions

While SME IPOs are listed on separate platforms, trading is often restricted to those specific exchanges. This measure is crucial for maintaining a controlled trading environment that suits the smaller scale and liquidity of SME shares, protecting investors by ensuring that trading occurs within a framework designed for the unique characteristics of SME stocks.

Benefits of SME IPOs

1. Access to Capital

The primary advantage of SME IPOs is that they offer an alternative method for SMEs to raise capital without incurring debt. Unlike traditional loans that require repayment with interest, equity funding through IPOs allows businesses to finance expansion, development, and research without the burden of debt.

2. Enhanced Visibility and Credibility

Listing on a stock exchange enhances an SME’s visibility and credibility. This not only attracts potential investors and business partners but also builds customer trust. A successful IPO indicates that the company has fulfilled all regulatory requirements and demonstrates its growth potential.

3. Liquidity for Investors

SME IPOs provide liquidity for existing shareholders, allowing them to sell their shares in the open market. This feature is attractive to early investors and employees holding equity in the company, offering them an opportunity to maximize the value of their investment.

4. Proper Valuation and Growth Opportunities

Going public facilitates the proper valuation of an SME, providing a market-determined price for its shares. This serves as a benchmark for future fundraising efforts and can attract additional investment. The funds raised through an IPO can be strategically utilized to support the enterprise's growth and expansion objectives.

SME IPO Listing Requirements

Minimum Paid-Up Capital and Net Worth

To qualify for an SME IPO, a company must meet specific requirements regarding paid-up capital and net worth. The thresholds set by the stock exchange for SMEs are lower than those for companies seeking to list on the main stock exchange, allowing more businesses to qualify.

Profitability Track Record or Alternative Performance Criteria

SMEs looking to list via an IPO must demonstrate either a track record of profitability or meet alternative performance criteria established by the stock exchange. This requirement ensures that only companies with a reasonable chance of success are listed, providing some degree of protection for investors.

Post-Issue Shareholding Restrictions

To maintain the commitment of promoters to the business, there are restrictions on post-issue shareholding patterns. Typically, promoters are required to retain a significant stake in the company, enhancing investor confidence.

Prerequisites for Applying

Before applying for an SME IPO, ensure you meet the following prerequisites:

1. Demat Account: You need a Demat account to hold shares electronically. If you don’t have one, choose a reliable brokerage and open an account.
2. Bank Account: Ensure your bank account is linked to your Demat account for seamless transactions.
3. UPI ID: Many platforms require a UPI (Unified Payments Interface) ID for payments during the application process. Ensure you have a verified UPI ID linked to your bank account.
4. KYC Compliance: Complete your Know Your Customer (KYC) documentation, including identity proof, address proof, and PAN card.

Step-by-Step Application Process

Step 1: Research the IPO

Before applying, conduct thorough research on the SME IPO:

• Company Profile: Understand the company’s business model, financial performance, and growth prospects.
• Offer Details: Look at the price band, issue size, and other terms of the IPO.
• Market Sentiment: Analyze market conditions and investor sentiment regarding the IPO.

Step 2: Choose Your Investment Platform

Select a reliable platform or brokerage for applying. Popular options include:

• Brokerage Firms: Such as Zerodha, ShareKhan, ICICI Direct, etc.
• Online Trading Apps: Many apps now facilitate direct IPO applications.

Step 3: Log In to Your Account

1. Download and Install: If using an app, download it from the App Store or Google Play.
2. Log In: Enter your credentials to log into your trading or brokerage account.

Step 4: Navigate to the IPO Section

• Locate the IPO section in your trading app or website. This is usually found under the equity or investment menu.
• Click on the IPO or "Apply for IPO" option to view ongoing and upcoming SME IPOs.

Step 5: Select the SME IPO

• Browse the list of available SME IPOs.
• Click on the one you wish to invest in to view detailed information such as the company profile, offer details, and timeline.

Step 6: Fill Out the Application Form

1. Investor Category: Select your investor category (Retail, HNI, etc.).
2. Demat Details: Enter your Demat account number.
3. Bid Details: Specify the number of lots you wish to apply for and the cut-off price.
4. Price Band: Ensure you understand the price band set for the IPO.

Step 7: Enter Payment Details

• UPI ID: Input your verified UPI ID linked to your bank account. Ensure it is correct to avoid transaction issues.
• Read Terms and Conditions: Carefully review the terms and conditions before proceeding.

Step 8: Review and Submit

• Double-check all Entries: Ensure that all the information is accurate.
• Submit the Application: Click the submit button to proceed.

Step 9: Await Confirmation

• Notification: After submission, you’ll receive a notification (IPO mandate request) on your UPI app and via SMS.
• Approval: This notification will request you to approve the mandate for blocking the IPO amount.

Step 10: Authenticate Your Bid

1. Log into Your UPI App: Open your UPI application (e.g., Google Pay, PhonePe).
2. Pending Mandates: Navigate to the pending mandates section.
3. Verify Details: Check all details against your application.
4. Authenticate: Enter your UPI PIN to authorize the payment. Your application amount will be blocked for the IPO.

Step 11: Confirmation of Application

• SMS Confirmation: After successful authentication, you’ll receive an SMS confirming your application.
• Allotment Status: Keep an eye out for notifications regarding allotment status once the IPO closes.

Post-Application Process

Allotment of Shares

• After the IPO closes, shares will be allotted based on the demand and subscription levels.
• You can check your allotment status on the exchange’s website or through your broker.

Refunds for Unallotted Shares

• If you do not receive shares, the blocked amount will be unblocked and credited back to your bank account within a few days.

Share Credit to Demat Account

• If allotted, the shares will be credited to your Demat account before the listing date.
• Monitor your Demat account for the shares to ensure they reflect accurately.

Note: SME IPOs serve as a vital avenue for small and medium enterprises to raise capital and achieve growth. By providing lower barriers to entry and dedicated trading platforms, these offerings not only benefit SMEs but also enhance investor participation in the growing SME sector.