Everything You Need To Know About SME IPO's

Post By - Laxmi Mahera
Review By : Rohan Sharma
Updated on : October 28, 2021

What exactly are SMEs?

Small and Medium Enterprises (SMEs), including micro-enterprises, are industries that contribute significantly to the Indian economy by producing a diverse range of goods and services. From FY12 to FY15, SMEs, both registered and unregistered, contributed significantly to India’s GDP. They are regarded as the backbone of overall economic growth and a major contributor to job creation in the country. Initiatives such as ‘Make in India,’ ‘Startup India,’ MUDRA Yojana, and ‘Skill India’ see SMEs as the catalyst for India’s socioeconomic transformation.

Many finance issues arise as a result of SMEs’ low scale production and non-adoption of new technology. Financing is the most difficult challenge for these businesses. As we know, SMEs contribute significantly to job creation and play an important role in the country’s economic growth, so it is critical that their financial needs are met.

Stock exchanges have created a separate platform for SMEs to raise funds from stock market investors in order to provide finance to them. For SME stocks to be listed and traded on an exchange, the company must launch an Initial Public Offering (IPO) on the exchange’s SME platform.

The Bombay Stock Exchange (BSE), the country’s oldest stock exchange, provides a platform for SMEs called “BSE SME.”

The National Stock Exchange (NSE), India’s largest stock exchange, provides a platform for SMEs called “SME EMERGE.”

Criteria for SMEs to be listed on the exchange

According to the most recent audited financial statements, the net tangible asset is worth at least Rs. 3 crore.
According to the most recent audited financial statements, the company has a net worth of at least Rs. 3 crore (excluding revaluation reserves).
The company’s post-issue paid-up capital will be Rs 3 crore.
Companies are required to have a website.
The company must facilitate the trading of demat securities and enter into an agreement with both depositories.
Companies must have distributable profits in at least two of the previous three fiscal years, according to Section 124 of the Companies Act 2013. (excluding extraordinary income).
According to SEBI guidelines, the minimum trading lot for SME IPOs ranges from 100 to 10,000, depending on the issue’s price band. Such lots are reviewed on a regular basis and adjusted based on price movements and post-listings.

BSE SME - What is it?

Market share for BSE SME is currently 89 percent, making it the market leader in the SME segment of the market.
163 companies have been listed so far, and others are in the process of listing.
100 percent since its launch and is already the world’s top SME index in terms of year-to-date performance.

NIFTY SME EMERGE Index

The NIFTY SME EMERGE Index is designed to reflect the performance of a portfolio of NSE EMERGE-listed eligible small and medium enterprises.

The index has a base value of 1000 and a base date of December 1, 2016.
To be included in the NIFTY SME EMERGE Index, equities must meet the following criteria:
The NSE EMERGE platform should be used to list stocks.
Stocks should have traded for a minimum of 25% of trading days, subject to a minimum of 10 trading days, during the previous three months at the time of the quarterly review.
On a quarterly basis, the index is recreated.
The weighting of the constituents is determined by the free float market capitalization.

SME IPOs are becoming increasingly popular among Indian investors. Some IPOs for small businesses have been oversubscribed by up to 85 times. This shows that investors are becoming more confident in small businesses.

SME trading: how do you do it?

Trading on the SME exchanges is very similar to normal buy and sell transactions.
It does not necessitate any additional procedures. However, some trading rules differ.

The lot size on the SME exchange is larger than usual – the minimum number of shares you can buy or sell in each transaction. You are not permitted to trade amounts less than Rs 1 lakh. Furthermore, the lot size varies with the stock price. On the NSE Emerge, for example, if the stock price is less than Rs 14, the lot size is 10,000. If the stock price is between Rs 120 and Rs 150, the lot size is reduced to 1,000.
When investing in small and medium-sized businesses, the risk is quite high; however, these businesses have a high return generation capacity.
When compared to traditional stock exchanges, liquidity on SME exchanges is low.

How do I apply for a SME IPO?

In the same way as a normal IPO, SMEs can file for an initial public offering (IPO). Through the ASBA facility, one can apply in either of two ways:

Offline Procedure: Investment consultants, brokers, banks, and other sources must provide the investor with the ASBA application form for the IPO. Completed forms and money must be deposited at a designated bank.

If the stocks are not assigned to you, a refund check will be mailed to your home address.

Online Procedure: The online method is the quickest and most convenient way to apply for an IPO. All you need is a net banking account from any bank or a demat account with access to online trading.The investor must then select the IPO in which he wishes to invest.

If the stocks are not assigned to him/her, the money will be returned to his/her account via online fund transfer.

CURRENT TRENDS IN SME IPO

The year 2017 was a record-breaking year for SME initial public offerings (IP0s). In 2017, 123 companies raised approximately Rs1640 crore. In terms of funds raised, it was a threefold increase over 2016. Despite the fact that the number of issues was nearly double that of the previous year. According to industry data, the total amount raised by SMEs in 2017 alone was greater than the total amount raised in the previous five years. Despite the fact that in comparative terms—about Rs 65,000 crate raised through IP0s by large companies—market participants said the trend is definitely positive for SMEs seeking funds from the stock market.In the current fiscal year, two SME IPOS were subscribed to more than 100 times, with the highest being a 261-time subscription for Ice Make Refrigeration, which generated a book size of Rs. 6200 crore for an issue size of Rs 23.7 crore. In addition, AM Integrated Solutions’ initial public offering (IPO) was oversubscribed 200 times in early November. The SME boost resulted from strong growth prospects, attractive valuations, and increased institutional interest in small and medium-sized enterprise shares (SMEs). “At an early stage of their business cycle, SMEs offer attractive valuations.”

For the first time since the launch of dedicated stock trading platforms for SME shares in 2012, two anchor investors purchased stakes in a SME, One Point One Solutions, just a day before the IPO opened. The IPO closed with an 85-times oversubscription on Friday, with a total book size of about Rs 2700 crore for its Rs 32 crore non-anchor part. As a result, it was India’s third most subscribed SME IPO. According to data on the NSE website, the HNI portion was subscribed 336 times, for a total demand of 31.7 crore shares, while the retail portion was subscribed 15 times. This was the highest ever HNI subscription figure for any SME IPO, according to the merchant banker, at 336 times.

Share this Content

Everything You Need To Know About SME IPO's