How can SMEs qualify for an IPO?

3 MinsMar 16, 2023

An SME IPO stands for Initial Public Offerings for Small and Medium-sized enterprises where privately owned enterprises can offer their shares to the public through BSE, SME and NSE Emerge platforms. These platforms offer an opportunity for SMEs to access the capital market despite needing an extensive track record.

How can SMEs qualify for an IPO?

Benefits of getting listed on the Stock Exchange

While the growth potential of SMEs is unquestionable, the persistent capital requirements and the growing competition makes business challenging. SMEs can derive the following benefits by being listed:

  • Access to funds at the right time as a business does not thrive on ideas alone.
  • Better visibility and better branding as it is listed on a recognised stock exchange.
  • Better financials as there is possibility to reduce debt, which in turn may lower finance costs.
  • With an IPO, the business widens its investor base, thus leading to a more distributed risk.
  • Increased confidence of private investors - The exchange provides an easy entry/exit route for private investors, increasing their confidence and increasing participation. This also helps Venture Capitalists as there is an easy, transparent, tax-efficient exit route.

[Also Read: Complete guide to opening a Current Account]

What is the eligibility criteria to get your company listed in SME-IPO

Given all the benefits of getting listed on recognised stock exchanges, you might think that the eligibility criteria would be rather tough. But the requirements are fairly simple as detailed below:

Listing RequirementsBSE SMENSE Emerge
Paid-up capital post issueNot exceeding 25 CroreNot exceeding 25 Crore
FormThree years regardless of the form. It Can be a partnership firm, proprietorship converted to a company, or private limited companyThe SME should have been incorporated under the Companies Act 1956/2013 in India
NetworthMust be positiveMust be positive
Net tangible assetMust be 1.5 Crore-
Track recordAt least 3 years as a company or any formAt least 3 years of either the applicant, promoters, proprietary/partnership firm converted into the company subsequently
ProfitsThe company/ firm should have combined positive cash accruals (earnings before depreciation and tax) in any of the years out of the last three yearsThe company/entity should have operating profit (earnings before interest, depreciation and tax) from operations for at least any 2 out of 3 financial years

How to get your company listed in SME-IPO?

To get your SME listed the following steps must be followed:

  • Assess your readiness and strengthen internal processes and systems.
  • Plan for the IPO by consulting a merchant banker.
  • The merchant banker checks all internal documents like financials, promoter details, government approvals, material contracts etc. and strategies for the IPO structure.
  • Next, the DRHP/Draft prospectus is filed by the merchant banker with the exchange as well as SEBI.
  • The exchange verifies documents, visits the company site and arranges promoter interviews with the Listing Advisory Committee.
  • Approval is given by the exchange in principle, provided, all conditions are met.
  • Merchant banker files the RHP/ Prospectus with the ROC and notifies the opening and closing dates.
  • Once approved, the dates are intimated to the exchange. Post the IPO, the SME submits the document as per the checklist to the exchange for finalisation of the basis of allotment.
  • The exchange finalises the basis of allotment and issues a notice regarding listing and trading.

While you prepare for listing on the stock exchange, capital requirements, if any, can be met by availing loan from the bank without any hesitation. Axis Bank offers a current account called 'Current Account for New Economy Group' for startups exclusively. There is no monthly average balance requirement and benefits like unlimited transactions and unlimited cash withdrawals make it ideal for startups.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.