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Small and Medium Enterprises (SMEs) are vital to India's economic growth and employment. However, access to capital often remains a barrier to their expansion. SME IPOs (Initial Public Offerings) provide a strategic route for these companies to raise funds from the public and enhance credibility in the financial ecosystem. This guide explains the SME IPO framework in India, including the process, eligibility criteria, benefits, and recent performance trends.
An SME IPO is a public offering in which a small or medium-sized enterprise issues shares to raise capital and list on a recognised SME platform. Unlike mainboard IPOs, SME IPOs are listed on dedicated platforms such as NSE Emerge and BSE SME.
India has two primary SME platforms:
NSE Emerge: A platform by the National Stock Exchange that facilitates capital raising for SMEs.
BSE SME: Introduced by the Bombay Stock Exchange, it offers an IPO route for eligible SMEs.
These platforms are designed to provide relaxed listing norms while maintaining transparency and compliance.
SEBI, along with the exchanges, has laid down clear eligibility guidelines:
The post-issue paid-up capital of the company must not exceed Rs 25 crore.
The company must have a net tangible asset of at least Rs 1.5 crore.
It should have distributable profits in at least two out of the three preceding financial years.
The company must not be referred to the Board for Industrial and Financial Reconstruction (BIFR).
It should not have any winding-up petition accepted by a court.
NSE Emerge:
At least 50 investors need to be part of the IPO.
The company should demonstrate operating profitability.
BSE SME:
Net worth should be at least Rs 1 crore.
Track record of three years of operations.
Underwriting: 100% of the issue must be underwritten.
Market Making: A market maker is appointed for a minimum of three years.
Minimum Number of Shareholders: Minimum 50 allottees in the IPO.
Appoint a SEBI-registered merchant banker.
Conduct due diligence and legal verifications.
Prepare a Draft Red Herring Prospectus (DRHP).
Submit DRHP to NSE Emerge or BSE SME.
Obtain in-principle approval.
Make necessary disclosures as per SEBI ICDR regulations.
Conduct investor roadshows and presentations.
Distribute marketing materials to potential investors.
Engage a market maker for liquidity post-listing.
Open bidding for 3–5 working days.
Use book-building or fixed-price mechanisms.
Finalise allotment and credit shares to demat accounts.
List the shares on the SME platform.
Access to Capital: Enables business expansion, product development, or debt repayment.
Enhanced Credibility: Improves brand image and investor confidence.
Corporate Governance: Encourages better governance and disclosures.
Liquidity for Promoters: Allows partial stake sale and exit route.
Early Investment Opportunity: Entry into growing enterprises at an early stage.
Potential Upside: Participation in high-growth segments.
Portfolio Diversification: Broader exposure to different sectors.
SME IPOs are sensitive to broader market sentiments. Unfavourable conditions can impact subscriptions and listing performance.
Due to a smaller investor base and trading volumes, liquidity in SME stocks is generally lower compared to mainboard listings.
SMEs must maintain ongoing compliance with SEBI and stock exchange requirements, which can increase operational costs and require skilled management.
Data from BSE SME and NSE Emerge shows a sharp increase in SME IPO activity post-2022. As per historical data from BSE SME and NSE Emerge, some SME IPOs have shown strong listing performance. However, past performance is not indicative of future results, and such outcomes may vary significantly.
Example Performance:
Droneacharya Aerial Innovations IPO (2022): Subscribed 262x; listed with a 90% gain.
Sai Silks IPO (2023): Subscribed 1.6x; listed at a modest 2% premium.
SME IPOs are increasingly seen in:
Technology and SaaS
Renewable energy
Specialty manufacturing
FMCG and retail
This diversification reflects the growing maturity and ambition of Indian SMEs.
Investing in SME IPOs involves significant risk, including lower liquidity, higher volatility, and regulatory compliance concerns. These investments may not suit all risk profiles. Investors should perform thorough due diligence and consult financial experts if needed.
SME IPOs are a vital financing avenue for India's smaller enterprises. By meeting eligibility norms and navigating the IPO process effectively, SMEs can access capital markets to drive their next phase of growth. For investors, they offer a window into the country's entrepreneurial ecosystem with the potential for early-stage returns albeit with associated risks.
SME IPOs are a vital financing avenue for India's smaller enterprises. By meeting eligibility norms and navigating the IPO process effectively, SMEs can access capital markets to drive their next phase of growth. For investors, they offer a window into the country's entrepreneurial ecosystem with the potential for early-stage returns albeit with associated risks.
Sources
SEBI SME Platform Guidelines
BSE SME Portal
NSE Emerge Platform
MSME Ministry
Chittorgarh SME IPO Tracker
NSE Performance Reports
SME IPOs are meant for small and medium-sized companies and are listed on SME-specific platforms like NSE Emerge or BSE SME. They involve relaxed compliance norms but also have lower trading volumes.
Costs include merchant banker fees, legal expenses, registrar fees, marketing, exchange fees, and underwriting costs. Total expenses vary based on issue size but can range from Rs 25–50 lakh.
Investors can apply via ASBA (Application Supported by Blocked Amount) through their banks or brokers during the IPO window, just like mainboard IPOs.
Listed SMEs must publish half-yearly financial results, comply with corporate governance norms, and provide periodic disclosures to the exchange and SEBI.
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Posted on 05 Jun
Geetanjali Lachke
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