SME IPO Launch Process: Step by Step Details
Launching an SME IPO is not a piece of cake, as it takes time, and certain processes should be followed to successfully list on the stock exchange.
Finance Planning
First and foremost, a company should be at least 3 years old, with Net tangible assets of more than ₹1.5 crore, and a net worth of ₹1 crore.
A company should have proper financial data along with zero cases to launch its shares on the stock exchanges.
A company should have proper EBITDA Margins, Stable growth, a lower debt-equity ratio, and other financial points.
Eligibility Criteria for SME IPO
The SME IPO consists of various eligibility criteria, which are listed below.
- First and foremost, the company should be public because a private firm, proprietary, can not launch an SME IPO.
- The company must have a minimum amount of net tangible assets.
- The company usually needs to have been profit-making from its main business for a few years.
- The company must not have a record of missing loan repayments to banks or financial institutions.
- There are also some of the SEBI set rules, the Companies Act, and other relevant laws that should be followed by the company in order to launch an SME IPO.
- As per the sources, the SME IPO consists of only up to 20% of the OFS because until June 2025, the company had allowed for 100% OFS.
- From now on, the company cannot only use IPO proceeds for offloading promoters, related parties, repayment of loans, though it was allowed until June 2025, but not from now on.
SME IPO Eligibility Criteria
| Criteria | Necessity |
| Establishment | |
| Post-Issue Paid-Up Capital | Not more than ₹25 crores |
| Net Worth | At least ₹1 crore in each of the last 2 full financial years. |
| Board Composition | Complies with Companies Act, 2013 |
| Name Change (if needed) | If the company changed its name within 1 year, at least 50% of its revenue must come from the new business activity. |
Essential Advisors and Managers, and more
When it comes to launching an SME IPO, the first and foremost point to consider is SEBI-registered Merchant Bankers(Lead Managers).
Moreover, the Legal Advisor and underwriters, auditors, and market regulators should also be finalised for the IPO management.
Accountabilities of the Lead Managers or Merchant Bankers for SME IPO
| Key points | Lead managers work for IPO management |
| Price-Band | Lead Managers select the price band according to the company’s financial background and whether the price band should be fixed or the book build method. |
| Time and Emerge | Merchant Bankers play a crucial role in deciding the proper time of IPO launching and the suitable stock exchange, either NSE or BSE. |
| DRHP | Lead managers are the ones who file the DRHP with the SEBI on behalf of the company. |
Filing DRHP for SME IPO
The Draft Red Herring Prospectus (DRHP) is a crucial document, so it should be filled with all the essential information, such as the company’s name, Incorporation Date, history, mission, vision, and strengths and weaknesses. financial backgrounds, business overviews, and all the details of the IPO, along with fund deployment, and many more.
After filling the Draft paper with the SEBI and receiving the approval, the company has to file the RHP (Red Herring Prospectus) with the SEBI, and the IPO will come within a month.
The DRHP also consists of lead managers and IPO registrars for the IPO process, such as allotment status, refund, issue size, fresh issue and OFS, and many things.
New rules for investors in SME IPO
From now on, retailers will be considered in the individual category, and if one needs to apply for 2 lots, they will receive a total of 2 lot sizes, if they receive allotment. In fact, one can either apply at the cut-off price or place a manual bid at the maximum IPO price. So now, applying with or without a cut-off in the individual category means the same thing.
SHNI category one needs to apply for 3 lots, and if allotted, one will receive the entire 3 lot sizes, and one should apply the manual IPO price instead of selecting the cut-off price.
BHNI category, one needs to apply for more than 10 Lakhs. For example, in the recent IPO, cryogenic OGS Limited, for 8 lots, the IPO price is 11, 28,000 should be paid. As a result, one will receive 3 lots, and the rest of the money will be unblocked. In this category, the manual price of the IPO will be more suitable instead of the cut-off price.
On the listing day, the lot will trade in single lot sizes, meaning if you are allotted 2 or 3 lots, you can sell them fully or partially as per your convenience.
The UPI cut-off time for SME IPOs is now 4 PM (only for SME IPOs coming under the new rules). Mainboard IPOs applied through UPI can still be accepted until 5 PM, as there is no change in that timing.
Fees and Expenses to Launch an SME IPO
| Intermediary | Service Charges |
| Merchant Banker | Rs 25 to 30 Lakhs |
| Banker | 0.10% |
| Sponsor Bank | Rs 10 per retail application |
| Market Maker | Paid per annum. Fees are decided by the Market Maker and the Issuer. |
The NSE and BSE platforms are also charged by the company for SME IPO
- The BSE and the NSE both take charge.
- SME IPO launching companies have to take charges of ₹50,000 for processes, and annual listing fees are around ₹25000.
- This stock exchange also consumes a 1% Security Deposit.
- SME IPO, if listing on NSE, so the fees IPO process are ₹25,000 (one time).
- In the NSE stock exchange, if an SME IPO issue has up to ₹5 Crore, so fees will be ₹10,000, the issue size will be between ₹5 to 10 Crore, fees will be ₹15,000.
- If the issue of SME IPO has between ₹10 to 20 Crore, resulting in ₹25,000, and the issue size will be between ₹20 to ₹22 Crore, therefore the company needs to pay ₹45,000.
RHP process for the SME IPO
RHP (Red Herring Prospectus) is the final document for the IPO process. It could be considered as the SEBI approval IPO document.
From companies’ operational revenue to IPO, all the details are written in the RHP documents, so let’s have a look at the entire information of the RHP.
First, RHP consists of opening and closing dates of the IPO along with the complete details of the Issue size, fresh and OFS size details, pre- and post-share capital, Investor allocation, and more information.
Moreover, the record date of shares, promoters, and directors’ complete details.
The latest financial statements and updated offer details and dates are mentioned in the RHP.
IPO bidding process (Subscription)
After completing all preliminary processes, an SME IPO (Small and Medium Enterprises Initial Public Offering) opens for bidding, typically for a period of 3 to 4 days. During this time, various categories of investors, including retail investors, institutional investors, qualified institutional buyers (QIBs), and anchor investors, can submit their bids.
Generally, anchor investors are allocated a separate bidding window, which occurs a day before the IPO subscription opens to the public.
Once the bidding period concludes, the allotment results are usually announced the next day. Investors can check whether they have been allotted shares through the official website of the IPO registrar, such as MUFG, KFin Technologies, or others involved in the IPO process.
If an investor is not allotted any shares, their application money will be unblocked and refunded by the registrar. For those who are allotted shares, the amount will remain blocked until the listing day.
Conclusion
SME IPO’s above information is from the DRHP to the listing day, along with the fees and financial background. Moreover, how many days are needed to be taken and experienced and skilled along with the SEBI registered merchant bankers and legal advisors are significant. The entire information will guide you to know the process of SME IPO launching.
