Question 1

Why should SMEs consider going public?

Accepted Answer

One of the biggest hurdles for SMEs is securing capital. Going public through an IPO offers a powerful solution, allowing them to expand operations and boost public interest in their offerings.

When an SME goes public, it often leads to an increase in shareholder value and provides new investment opportunities for both investors and the company.

SMEs typically raise funds through an IPO for various reasons, such as:
• Expanding business operations.

• Paying off existing debts.

• Making strategic investments.

• Covering day-to-day expenses.

Beyond fundraising, an IPO also benefits SME companies by:

• Improving their overall valuation.

• Creating wealth for shareholders, promoters, and both current and new investors.

• Providing an exit strategy for existing promoters, shareholders, or investors.

• Enhancing brand value and public awareness.

Question 2

Are SME IPOs beneficial for both companies and investors?

Accepted Answer

**For SME Companies:**
SMEs often choose an IPO to raise capital and list on the stock exchange. Unlike bank loans, which require interest payments and repayments, an IPO allows them to raise funds without incurring debt interest.

The IPO process significantly boosts the company's visibility, product awareness, and overall brand image. The associated IPO roadshows introduce the company to a wider audience.

Key benefits for SMEs going public include:
• Raising capital from the public without interest obligations.

• Increasing the company's net worth.

• Enhancing brand visibility and promotion.

• Offering an easy exit opportunity for existing shareholders.

• Funding business expansion.

• Empowering the company for future growth and prosperity.

• Providing straightforward access to the secondary market for equity financing post-IPO.

• Improving brand awareness, corporate image, and overall brand growth.

**For Investors:**
SME IPOs provide retail investors with a unique chance to invest in smaller companies that are often in their early growth stages, potentially offering substantial returns in the future.

With careful selection, SME IPOs can sometimes yield better returns compared to mainboard IPOs or other investment avenues.

Once listed, SME shares trade similarly to other listed shares. The main distinction is that SME shares are traded in a minimum lot size, typically around ₹1 lakh. For instance, if an SME share is priced at ₹40, you might need to buy a lot of 4000 shares, making the minimum investment ₹160,000 (₹40 * 4000).

Question 3

What are the key reasons for SMEs to raise funds through an IPO?

Accepted Answer

SMEs can leverage IPOs to secure capital for various aspects of business growth, such as:
• Funding operations, expansion plans, and acquisitions.

• Supporting day-to-day business activities.

• Repaying existing debts.

• Purchasing essential machinery.

• Making strategic investments.

• Serving general corporate purposes.

An IPO also allows new investors to participate while offering existing shareholders a potentially tax-efficient way to exit by selling their shares.

Furthermore, an IPO significantly boosts a company's name recognition, public image, and brand reach.

Detailed information about the company's products, management, and financial health is disclosed in the offering documents, which further raises public and investor awareness.

Question 4

When was the SME IPO concept introduced in India?

Accepted Answer

The SME IPO framework was launched in India in 2012.

This initiative coincided with the introduction of dedicated platforms like NSE Emerge and BSE SME, specifically designed to facilitate fundraising for SMEs through IPOs.

Question 5

How do SME IPOs differ from traditional mainboard IPOs?

Accepted Answer

SME IPOs stand apart from conventional mainboard IPOs in several key ways:
• They have lower capital requirements and less stringent disclosure and compliance obligations compared to a mainboard IPO.

• SMEs are listed on separate, dedicated platforms specifically for smaller enterprises.

• They benefit from more relaxed eligibility criteria.

• Valuation and pricing can be more complex for an SME IPO due to the companies' smaller scale and often shorter operational history.

Question 6

Can Micro, Small, and Medium-sized Enterprises (MSMEs) be listed on the stock market?

Accepted Answer

Absolutely, Micro, Small, and Medium-sized Enterprises (MSMEs) are eligible to be listed on the stock market. This typically happens through an SME IPO, which is designed for smaller companies that might not meet the listing criteria of the major stock exchanges.

In India, MSMEs can get listed on dedicated platforms such as BSE SME (the SME platform of the Bombay Stock Exchange) and NSE Emerge (the SME platform of the National Stock Exchange).

Listing Parameters	Mainboard IPO	SME IPO
Post-issue paid-up capital	Min Rs 10 crore	Rs 1 crore to Rs 25 crore
Minimum allottees	1000	50
IPO underwriting	Not mandatory	Mandatory (100% by Merchant Banker)
Offer document vetting	By SEBI	By Exchange
IPO timeframe	6+ months	3-4 months
IPO application size	INR 10,000-15,000	Min INR 1 Lakh
Market making	Not mandatory	Mandatory for 3 years

Introduction to SME IPOs

Understanding SME IPOs

A Brief History of SME IPOs

Objectives Behind SME IPOs

Pros and Cons of SME IPOs

Pros of SME IPOs

Cons of SME IPOs

Comparing SME and Mainline IPOs

Limitations and Restrictions on SME IPOs

Post-Issue Capital Restructuring

Example of Capital Restructuring

Frequently Asked Questions