What is SME IPO?
If you are an investor or in any way associated with the Indian stock market, you may have heard about the IPO buzz doing rounds almost every week. The Indian stock exchange has provided substantial returns to investors who have applied to various good IPOs. However, if you are new to the investing segment and want to kick start your investing journey, applying to a high potential IPO can be a great first step. It is further better if you get a chance to apply to an SME IPO. But to understand what an SME IPO is, you need to understand the significance of an IPO.
What is an IPO?
An Initial Public Offering (IPO) is a way for a company to publicly raise funds in exchange for equity shares in the business for the first time. As every company requires funds to expand, they can do it through two options: take bank loans or raise funds from the public. For the latter, a company leverages IPO, where its management sells some part of their ownership to potential investors, making them part-owner of the company.
However, before qualifying for an IPO, the company needs to register with the Securities and Exchange Board of India (SEBI) and appoint underwriters to assist with the process of selling the shares. After SEBI gives the go-ahead, the IPO is opened for Individual investors. Furthermore, after the closure of the IPO issue, the shares are listed on National Stock Exchange and the Bombay Stock Exchange, with the company becoming a publicly listed company.
Within the IPO process there is a separate way of raising funds for the small companies, called SME IPO.
What are SMEs?
SMEs or small or medium enterprises are companies that have small investments and turnover amounts. In financial terms, they are defined through the following table:
| Classification | Investment Amount | Turnover Amount |
|---|---|---|
| Small Enterprise | 1 crore - 10 crore | 5 crore - 50 crore |
| Medium Enterprise | 10 crore - 20 crore | 50 crore - 100 crore |
What is an SME IPO?
Just like any other company issues an IPO to raise funds, SME IPOs are meant to raise capital for a small and medium enterprise company. As SMEs are considerably smaller than other companies, the SME IPO is smaller in issue size than a regular company’s IPO. Due to the size of the enterprise, the SME companies after their IPO are not listed on the Bombay Stock Exchange or the National Stock Exchange.
SME IPO Exchanges: Where are they listed?
In 2012, the NSE and BSE collectively opened two exchanges for the listing of SME IPOs. These are:
- BSE SME platform by the Bombay Stock Exchange
- NSE EMERGE by the National Stock Exchange
Listing Criteria for SME IPO
The listing criteria for SME IPOs are different from traditional IPOs, which is detailed through the following table:
| 1 | Public Shareholding | Minimum 25% |
| 2 | Minimum Subscribers in IPO | 50 investors |
| 3 | Minimum trading lot | Rs 1 Lakhs |
| 4 | Underwriting | 100% compulsory (of which 15% is to be done by MBs in their account) |
| 5 | Market making | Through market makers that are exchange registered for minimum 3 years |
| 6 | Offer Document | Not subject to SEBI observation |
Upcoming SME IPO list
More than 30 SME IPOs opened to the public in the year 2020, and more issues are expected in the year 2021. Some of the upcoming SME IPOs are as follows:
| Company Name | Exchange | Date (2021) | Issue Price (Rs) | Issue Size (Cr.) |
|---|---|---|---|---|
| SBL Infratech Limited IPO | BSE SME | 18th Aug | 210 | 4.49 |
| DU Digital Technologies Limited IPO | NSE EMERGE | 12th Aug | 65 | 4.49 |
| Aashka Hospitals Limited IPO | BSE SME | 10th Aug | 121 | 101.64 |
| Network People Services Technologies Limited IPO | NSE EMERGE | 28th July | 80 | 13.70 |
| Rex Pipes and Cables Industries Ltd IPO | NSE EMERGE | 28th July | 26 | 6.24 |
How to Invest in an SME IPO?
Investing in an SME IPO follows the similar process of applying to any other company’s IPO. You just need a demat account. which you can open for free using IIFL’s website or IIFL Markets app. The process is as follows:
- Visit www.indiainfoline.com or the IIFL markets mobile app. Click on open a trading account» Enter Basic details.
- You will receive a One-Time Password (OTP) on the mobile number.
- You will receive a link on your registered email id. You need to enter the OTP received on your registered email id.
- After verifying the OTP, you need to fill out the online Account Opening Form.
- Your Relationship Manager will then contact you for the necessary documentation.
- Once the documentation process is completed, and the forms are received at HO, the account will be opened within 24 hours.
Once you open your Demat account, you can visit the IPO section on the IIFL’s website or the IIFL Markets app to apply to any SME IPO to multiply your wealth and make profits. It is always wise that you consult the financial experts at IIFL so that you can make informed investment decisions.
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Frequently Asked Questions
Every company, big or small, needs funds to operate and expand. SMEs, too, need such funds, which they can raise through the issuance of an SME IPO. It allows them to fund their operations, reduce debt and expand as per their organisational plans.
There are always risks in applying to IPOs, and you should always research the company prior to applying to their SME IPO. However, SME IPOs can provide good returns if they have high growth potential and are fundamentally strong.