Planning to take your company public through an SME IPO requires careful financial planning, especially considering the various costs involved. These expenses can significantly affect your cash flow and return on investment (ROI). This chapter will guide you through the typical costs associated with an SME IPO, how they're structured, and the financial responsibilities at each phase.
Understanding IPO Costs
The expenses associated with SME IPOs can range from ₹50 lakhs to several crores. These costs fluctuate based on factors such as:
- The scale of the IPO
- The number and type of intermediaries involved
- The choice of listing exchange, whether NSE Emerge or BSE SME
- Marketing and public relations needs
- Requirements for underwriting or market making
Breakdown of IPO Charges
From a promoter's perspective, the costs of an SME IPO can be divided into the following categories:
Regulatory and Statutory Charges
These mandatory fees are paid to regulatory bodies and stock exchanges:
- Exchange Initial Processing Fees: Fees for IPO application processing by NSE/BSE.
- NSE: ₹25,000
- BSE: Variable based on issue size
| Issue Size | Fees (INR) |
|---|---|
| Up to 5 crores | 1,00,000 |
| 5 crores – 25 crores | 3,00,000 |
| 25 crores – 50 crores | 5,00,000 |
| Over 50 crores | 5,00,000 + 0.05% of issue size exceeding ₹50 Cr |
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Initial Listing Fees: Paid to BSE/NSE at final listing.
- BSE: ₹50,000
- NSE: ₹50,000 or 0.01% of issue size, whichever is higher.
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Annual Fees: Yearly fees to BSE/NSE post-listing.
- BSE: ₹25,000 or 0.01% of full market capitalization
- NSE: 0.02% of full market capitalization
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ROC Filing Fee: ₹5,000 – ₹25,000 for filing the prospectus and other forms.
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Stamp Duty: Variable by state, generally less than 0.1%.
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Bid Verification Charges: 0.01% of issue size, with a minimum of ₹25,000 and a maximum of ₹50,00,000.
Intermediary and Professional Fees
These are significant costs and vary widely based on the issue's complexity.
| Intermediary | Role | Fees (Indicative Range) |
|---|---|---|
| Merchant Banker(s) | Operational and selling roles | ₹25 – ₹30 lakhs; 6%-12% of IPO size |
| Registrar to Issue | Manages share allotment | ₹5 – ₹10 lakhs |
| Legal Advisor | Drafting and compliance | ₹2 – ₹5 lakhs |
| Auditor | Certifies financials | ₹2 – ₹5 lakhs |
| Peer Review Auditor | Required by SEBI | ₹1 – ₹3 lakhs |
| Company Secretary | Regulatory compliance | ₹1 – ₹3 lakhs |
| Bankers to Issue | Application money handling | Around 0.1% of issue size |
| Sponsor Bank | Routes UPI applications | ~₹10 per retail application |
| Market Maker | Ensures post-listing liquidity | ₹5 – ₹15 lakhs for 3 years |
| Underwriting | Covers undersubscription | 1% - 2% of issue size |
| IPO Advisory/Consultant | IPO navigation help | 0.5% to 1% of issue size |
Marketing and Roadshow Expenses
Generating investor interest is vital for IPO success.
| Component | Description | Estimated Cost |
|---|---|---|
| IPO Branding | Advertisements, press releases | ₹2 – ₹5 lakhs |
| Investor Meetings/Roadshows | Travel and events | ₹2 – ₹5 lakhs |
| PR Agency (optional) | Public visibility | ₹2 – ₹5 lakhs |
Technology and Platform Charges
These can include:
- Website Upgrade: ₹25,000 – ₹1,00,000 (mandatory under SEBI norms)
- Digital IPO Platform Costs: ₹50,000 – ₹2,00,000
Post-Issue Compliance and Hidden Costs
After listing, companies must adhere to ongoing obligations.
| Component | Frequency | Estimated Annual Cost |
|---|---|---|
| Compliance Filings | Quarterly, half-yearly, annually | ₹2 – ₹5 lakhs/year |
| Annual Listing Fee | Yearly | ₹50,000 – ₹2 lakhs |
| Market Maker Renewal | Post 3 years | ₹5 – ₹15 lakhs (negotiable) |
| Investor Grievance Redressal | External helpdesk | ₹25,000 – ₹1 lakh/year |
Strategies for Funding IPO Expenses
- Promoter Contribution: Typically, the company covers costs upfront, borne by promoters.
- IPO Proceeds Reimbursement: Some costs can be reimbursed from IPO proceeds, if noted in the RHP.
- Bridge Financing: Short-term loans may be used to cover IPO costs, repaid after the issue.
Tips for Negotiating Costs
- Bundle Services: Some merchant bankers offer packages, including registrar and legal services.
- Choose Merchant Banker Carefully: Negotiate fees based on issue size and relationships.
- Clarity in Engagement Letters: Ensure a detailed breakdown of professional fees and success-based components.
The SME IPO process involves significant financial outlay, but with strategic planning, the cost can be effectively managed. For promoters, transparency, budgeting, and smart negotiation are key to maximizing the return on investment from the IPO process.