This chapter dives into the eligibility requirements for companies seeking to go public through both Mainboard and SME IPOs. We'll explore the criteria set by governing bodies and stock exchanges to ensure compliance before a company makes its public debut.
Mainboard IPO Requirements
A Mainboard IPO is designed for large and well-established companies with a minimum paid-up capital of Rs 10 crores. These IPOs are listed and traded on the major stock exchange platforms like NSE and BSE. The eligibility criteria for Mainboard IPOs are defined under the SEBI ICDR Regulations 2018.
1.1 SEBI IPO Eligibility Criteria
SEBI outlines two pathways for companies to qualify as issuers of IPOs.
1.1.1 Profitability Route (Entry Norm I)
To be eligible through the Profitability Route, companies need to satisfy the following conditions:
- The company must have net tangible assets of no less than Rs 3 crores for the preceding three years.
- For a fresh issue, not more than 50% of these tangible assets should be in cash or cash equivalents.
- The company must achieve an average operating profit (before tax) of at least Rs 15 crores in any three out of the last five years.
- If the company has undergone a name change, at least 50% of the revenue in the last year should come from activities under the new name.
- The issue size should not exceed five times the company's pre-issue net worth.
1.1.2 QIB Route (Entry Norm II)
The QIB Route is suitable for companies that may not meet the profitability criteria but are still deemed capable by SEBI. The requirements include:
- Conducting the IPO through a book-building process.
- Allocating at least 75% of the net offering to qualified institutional buyers.
- Returning IPO subscription money if the minimum allotment requirement isn’t met.
SEBI Requirements for Directors and Promoters
- There should be no disciplinary action against the company's founders, promoters, or directors.
- The company must not apply for an IPO if any of its members are barred from accessing capital markets.
- Promoters must own at least 20% of the equity post-IPO.
1.2 NSE IPO Eligibility Criteria
Beyond SEBI guidelines, the NSE also requires:
- At least one promoter with three years of industry experience.
- Submission of annual reports for the last three fiscal years.
- A positive net worth for companies with an issue size under Rs 500 crore.
- Post-issue paid-up equity must exceed Rs 10 crore, and market capitalization should be above Rs 25 crore.
1.3 BSE IPO Eligibility
BSE's requirements echo those of NSE:
- A minimum post-issue paid-up capital of Rs 10 crore.
- Minimum issue size and market capitalization should each be Rs 25 crore.
Other IPO Requirements
- Prior consent from BSE is required for mentioning its name in prospectus documents.
- All promoter shares must be in dematerialized form before filing offer documents.
- The issuing company should arrange with a depository for dematerialization before and after the issue.
SME IPO Requirements
An SME IPO caters to small and medium-sized enterprises looking to raise capital. Given their limited track record, SMEs often find it challenging to secure funding through traditional channels. To address this, separate platforms like NSE Emerge and BSE SME have been established.
The post-issue paid-up capital for an SME IPO must not exceed Rs 25 crores, with similar eligibility conditions for directors and promoters as those for standard IPOs.
2.1 BSE SME IPO Eligibility
SMEs must meet these criteria set by BSE:
- A net worth of at least Rs 1 crore over the previous two financial years.
- Net tangible assets of Rs 3 crores in the last financial year.
- A positive operating profit in two of the last three financial years.
Additional Eligibility Criteria for Specific Companies
For broking companies:
- A net worth and profit of at least Rs 5 crores in any two out of three financial years, or a net worth of Rs 25 crores in any three out of five years.
For microfinance companies:
- Assets under management of at least Rs 100 crores and a client base exceeding 10,000.
2.2 NSE SME (Emerge) IPO Eligibility Criteria
To qualify for an NSE SME IPO, companies must:
- Be incorporated in India under the Companies Act.
- Have a post-issue paid-up capital of Rs 25 crore or less.
- Maintain a promoter holding of at least 20% post-issue equity.
- Meet financial requirements, including a positive operating profit of Rs 1 crore in two of the last three years.
These guidelines ensure that SMEs have a fair opportunity to raise funds in the public market, helping them expand and grow.