Best SME IPO Consultants | SME IPO Advisory

Small and Medium Enterprises (SMEs) are vital to the economic fabric but often need help accessing sufficient capital to fuel their growth ambitions. SME Initial Public Offerings (IPOs) provide a structured path for these enterprises to access public capital markets, enhancing their visibility, credibility, and capacity for expansion.

What is an SME IPO?

An SME IPO is the first time a small and medium-sized company sells shares to the public. SME IPOs help companies raise capital and get listed.

SME IPO is the acronym for Small and Medium Enterprise Initial Public Offering. Raising funds through IPOs helps SMEs do the following:

• It creates wealth for promoters, shareholders, and the public.
• It creates demand for the company’s stock.
• It also increases the credibility of the company.
• It helps in business expansion.

In 2012, the NSE Emerge and BSE SME platforms were launched in India. This enabled small and medium enterprises to raise equity through public offerings. The process for SME IPO takes 3 to 4 months in most cases.

The issuing company must choose one of the two SME platforms. Unlike the mainboard IPO shares, SME shares are listed on only one exchange.

Timelines for SME IPOs

The SME IPO process typically spans about three months from start to finish. Below is a detailed timeline that outlines each phase of the process, helping you understand the key steps involved and the time required for each.

SME IPO Listing Process

The SME IPO process is an opportunity for small and medium-sized companies to raise capital by offering shares to the general public and listing on a stock exchange. Here’s how the SME IPO process works, from planning to post-issuance compliance.

1. Planning

The SME IPO journey begins with a thorough internal review by the issuing company. This phase involves:

• Internal Review: The company evaluates the need for funds, considers the advantages and disadvantages of going public, assesses current market conditions, and determines the company’s valuation.
• Board Meeting: The board of directors convenes to discuss the listing standards, listing requirements, company valuation, and reasons for raising capital through an IPO.
• Board Approval: The board grants in-principle approval for the IPO.
• Appointment of Merchant Banker: The company appoints a SEBI-registered merchant banker to lead the IPO process.
• Engagement of Other Intermediaries: In consultation with the merchant banker, the company appoints essential intermediaries such as underwriters, bankers, market makers, registrars, transfer agents, auditors, and PR agencies.

2. Preparation

In the preparation phase, the groundwork for the IPO is laid:

• Due Diligence: The merchant banker conducts a comprehensive review of all necessary documents, including financial records, material contracts, government approvals, and promoter information.
• IPO Structure and Financial Planning: The merchant banker prepares the IPO structure, including share issuance details and financial requirements.
• Draft Red Herring Prospectus (DRHP): The merchant banker prepares the DRHP, which contains detailed information about the company and the proposed public offering.

3. Approval Process

The approval process is a critical phase where the IPO application is officially submitted:

• Submission to Exchange: The merchant banker submits the IPO application and the DRHP to the chosen stock exchange (BSE or NSE) for approval.
• Exchange Review: The exchange conducts a thorough review of the submitted documents.
• Site Visit and Promoter Interview: Exchange officials visit the company’s site and conduct interviews with the promoters as part of the due diligence process.
• In-Principle Approval: Based on the recommendation of the Listing Advisory Committee, the exchange issues an in-principle approval.
• Red Herring Prospectus (RHP): The merchant banker submits the RHP, which includes additional details such as the opening and closing dates of the issue, to both the exchange and the Registrar of Companies (ROC).

4. Public Offering

Once approvals are in place, the IPO is opened to the public:

• IPO Launch: The IPO is opened and closed as per the scheduled dates.
• Underwriting Completion: After the subscription period, the company files the necessary documents with the exchange to determine the basis of allotment.
• Allotment and Trading: The BSE/NSE finalizes the basis of allotment, issues the notice of listing and trading, and transfers shares to investors’ accounts. Trading of the shares begins on the listing day.

5. Post-Issuance Compliance

After the IPO, ongoing compliance is essential:

• Regulatory Reporting: The company collaborates with a commercial bank to submit required reports to the stock exchanges as per regulatory guidelines.
• Continued Compliance: The company ensures it meets all post-listing obligations, including timely submission of financial reports and other required disclosures.

SME IPO Process

When considering launching an SME IPO, companies must adhere to stringent conditions to ensure they are ready and suitable for public investment. Here’s a detailed look at these prerequisites and how our advisors at MSMESTORY can assist your business in meeting them:

Critical Conditions for Launching an SME IPO

• Operating History Requirement: Typically, a company looking to launch an SME IPO must have a minimum operating history of three years. This gives potential investors enough historical data to assess the business’s viability and stability.
• Profitability Metrics: Companies must demonstrate profitability over a specified period, generally for at least two of the last three fiscal years. This requirement is crucial as it indicates the company’s ability to generate earnings, a key factor for investors.
• Shareholder Equity Requirements: The company must have a minimum amount of shareholder equity, typically around ₹3 crores. This ensures the company has a solid financial base and can sustain operations post-IPO.
• Regulatory and Legal Compliance: Compliance with all applicable legal and regulatory requirements is mandatory. This includes corporate governance norms, financial reporting standards, and specific exchange-related compliance.
• Corporate Governance: Robust corporate governance practices must be in place. This includes forming a board of directors, setting up appropriate committees, and ensuring transparency in operations.

There are two key SME IPO platforms in India: BSE SME and NSE Emerge. SME companies looking to go public can choose either of these platforms to launch their IPO.

To proceed with an SME IPO, companies must meet the specific eligibility criteria set by the stock exchanges and SEBI. Both the BSE and NSE exchanges have relatively similar requirements for companies aiming to list on their SME platforms.

Important Note: Unlike mainboard IPOs, SME IPOs can only be listed on a single exchange, not both.

NSE SME IPO Eligibility

Below is the list of eligibility criteria for SMEs wishing to conduct their IPOs on the NSE Emerge platform.

BSE SME IPO Eligibility

The criteria below are a brief checklist for SMEs considering an IPO on the BSE SME platform.

Listing on an exchange requires a meticulous compilation of documents to ensure compliance and transparency. At MSMESTORY, our advisors are adept at guiding businesses through the necessary steps and preparing all the required documentation for a successful SME IPO listing. Here’s an outline of the essential documents needed and how we manage this critical aspect for you:

Key Documents Required for SME IPO Listing

• Financial Statements: Audited financial statements for the last three financial years, including balance sheets, income statements, cash flow statements, and equity and changes in financial positions.
• Business Plan: A detailed business plan includes market analysis, business model, operational strategy, and financial projections. This plan is crucial for investors to understand the company’s future growth potential.
• Compliance Certificates: Certificates that confirm the company’s compliance with various statutory and regulatory requirements.
• Draft Prospectus: A draft prospectus includes detailed information about the company, the offer, the objectives, the risks involved, and other statutory information as required by the SEBI and the stock exchanges.
• Board Resolutions: Copies of the board resolutions about the IPO and other relevant corporate governance matters.
• MOU with Underwriters and Other Intermediaries: Agreements with underwriters, brokers, registrars, and other intermediaries who will facilitate the IPO.

Listing a small or medium-sized enterprise (SME) on a public stock exchange can provide many benefits. These advantages bolster the company’s financial footing and enhance its corporate profile among stakeholders. Here’s a detailed look at the benefits of SME listing:

Access to Capital

The most direct benefit of an SME listing is access to capital markets. By going public, an SME can raise funds from a broad base of investors. This capital can be used for various purposes, such as expanding operations, reducing debt, or funding research and development, which are crucial for scaling business activities.

Increased Visibility and Credibility

Listing on an exchange significantly boosts a company’s visibility among potential customers, partners, and investors. It also enhances credibility, as publicly listed companies are perceived as more stable and reliable due to the stringent regulatory requirements they must adhere to.

Liquidity for Shareholders

A public listing provides liquidity for company shareholders, allowing them to sell their shares in an open market. This liquidity is particularly attractive to venture capitalists and other early investors looking to exit or reduce their holdings.

Market Valuation

A public listing provides a company with a market-determined valuation. This can benefit SMEs by indicating the company’s worth, which can be leveraged in negotiations and business deals, such as mergers and acquisitions.

Attracting Talent

Companies listed on a stock exchange often find it easier to attract top talent. The possibility of owning stock options can be an attractive component of employee compensation packages, making recruiting and retaining skilled personnel easier.

Improved Corporate Governance

The listing process enforces a structured corporate governance framework that an SME must follow. This typically includes better management practices, detailed financial reporting, and increased transparency, which can improve operational efficiency and reduce business risks.

Tax Benefits

In some jurisdictions, SMEs may receive tax benefits upon listing. These incentives can include tax credits or exemptions to encourage small and medium-sized businesses to access public markets.

Expansion Opportunities

With increased capital and enhanced credibility, listed companies often find it easier to expand organically or through acquisitions. The visibility of a stock market listing also opens doors to new business opportunities, partnerships, and markets.

Public Profile

A listed entity helps build a solid public profile, supporting the company’s branding and marketing efforts. This heightened profile can increase business opportunities and enhance overall business growth and market share.

Shareholder Base Diversification

A public listing diversifies the company’s shareholder base. This diversification can stabilize the stock’s performance, reduce volatility, and provide a more balanced approach to management and business strategy influenced by a broader range of investor perspectives.

SMEs with a post-issue capital ranging between Rs 1 crore and Rs 25 crore are eligible to apply for an IPO through the SME platform. On the other hand, mainboard companies are larger entities that must have a paid-up capital of at least Rs 10 crore after the IPO.

While both SME and mainboard companies have their shares listed on the respective stock exchanges, there are notable differences in the listing criteria and procedures for SME IPOs and mainboard IPOs. These distinctions shape how companies approach their IPO process, with different requirements based on their size and growth stage. Below, we outline the key differences between mainboard IPOs and SME IPOs.

Compliance is crucial to the IPO process, especially for SMEs seeking to list on designated platforms like the NSE Emerge or BSE SME. Ensuring adherence to all regulatory requirements is vital not only for the success of the IPO but also for maintaining the integrity and transparency necessary for a public company. Here’s a detailed overview of the compliance requirements for an SME Listing IPO:

Pre-IPO Compliance

• Drafting of Offer Document– The offer document or prospectus is the most critical compliance document. It must be drafted according to the guidelines set by SEBI (Securities and Exchange Board of India) and include all required disclosures, such as company details, financials, risk factors, and management information.

• Due Diligence-Thorough legal, financial, and operational due diligence is mandatory. This process ensures that the information in the prospectus is accurate and that the company complies with all relevant laws and regulations.

• Approval from the Exchange– The draft prospectus must be filed with the respective stock exchange for approval. The exchange reviews the document to ensure it meets all regulatory standards before the IPO can proceed.

Post-IPO Compliance

• Regular Disclosures-Post-listing, the company must adhere to continuous disclosure requirements. This includes periodic submission of financial results, disclosure of material events that could affect the company’s operations or financial position, and compliance with corporate governance norms.

• Corporate Governance-SMEs must establish certain corporate governance practices post-listing, including forming a board of directors with the required number of independent directors, setting up various committees (like audit, nomination, and remuneration committees), and ensuring proper checks and balances are in place.

• Shareholding Patterns-Listed companies must regularly disclose their shareholding patterns to ensure transparency about who owns the company’s shares and how these holdings change over time.

• Trading Disclosures– Companies must report any trades by insiders or substantial shareholders and adhere to windows and other guidelines to prevent insider trading.

• Financial Reporting-Companies must prepare and publish their financial statements quarterly and annually. These reports must be audited by an independent auditor and filed with the stock exchange.
• Compliance Officer-Listed SMEs must appoint a compliance officer. This person is responsible for ensuring compliance with the regulatory requirements and interfacing with regulators and exchanges on compliance matters.

After a successful Initial Public Offering, the journey has just begun. Navigating the complexities of life as a publicly traded company requires a steady hand, particularly in managing compliance, investor relations, and leveraging the new opportunities your public status affords. MSMESTORY offers specialized post-IPO Support Services to ensure your company meets all regulatory obligations and thrives in the dynamic market environment.

Comprehensive Regulatory Compliance and Reporting

Staying Compliant: Our post-IPO services include ongoing regulatory compliance support to help you adhere to the complex framework of rules set by stock exchanges and financial authorities. We ensure that your financial reporting, periodic disclosures, and regulatory filings are timely, accurate, and fully compliant with the law.

Financial Expertise: From preparing and auditing quarterly and annual financial statements to detailed financial analysis and forecasting, our financial experts provide the backbone for your reporting needs, ensuring transparency and reliability in all financial communications.

Strategic Corporate Governance Advisory

Governance Structure Optimization: We assist in refining your governance structures post-IPO, ensuring they meet the highest standards of corporate governance, which is essential for maintaining investor confidence and regulatory compliance.

Board and Executive Training: We offer training programs for board members and executives tailored to the nuances of managing a publicly listed company. These programs focus on responsibilities, investor expectations, and best practices in corporate governance.

Dynamic Investor Relations Management

Building Relationships: Our investor relations services help you communicate effectively with shareholders and the broader financial community. We manage everything from earnings calls and annual meetings to routine updates and newsletters, ensuring a consistent and transparent dialogue with your stakeholders.

Crisis Management: We support managing critical communications during unexpected events, helping maintain investor confidence and mitigate any potential negative impacts on your stock’s value.

Market Analytics and Insightful Reporting

Performance Tracking: We monitor your stock performance, providing insights into market trends, investor behavior, and comparative analytics with peers. This data is crucial for strategic decision-making and for understanding market perceptions of your company.

Feedback Analysis: We gather and analyze feedback from investors and analysts, turning this data into actionable insights for your management team. This helps refine strategies and improve performance.

Legal Advisory and Strategic Initiative Support

Legal and Regulatory Guidance: Continue to receive expert legal advice tailored to the needs of a public entity, covering everything from compliance issues to new regulatory developments.

M&A and Strategic Expansion Support: As your company seeks to grow, whether through mergers, acquisitions, or partnerships, our team provides strategic advice and support, ensuring these initiatives are executed smoothly and add maximum value to your business.

Training and Development for Sustained Success

Executive and Staff Training: We provide ongoing training for your team to stay abreast of changes in the regulatory landscape, best practices in financial reporting, and effective investor relations management.

Future Financing and Investor Exit Strategies

Secondary Offerings and Private Placements: When it’s time to raise more capital or alter the capital structure, we guide you through the process of secondary offerings or private placements, aligning with your long-term financial goals.

Planning Investor Exits: We assist in strategizing and facilitating exit routes for initial investors or stakeholders, ensuring these transitions benefit the existing parties and the company’s ongoing strategy.

Navigating the post-IPO landscape can be complex and demanding, but you can do it with others. Partner with MSMESTORY.COM and let our expert team provide you with the guidance, tools, and support necessary to thrive in the public market. Whether it’s maintaining compliance, managing investor relations, or strategizing for future growth, we are here to ensure your success. Contact us today to discover how our Post-IPO Support Services can transform your public entity into a market leader. Let’s achieve excellence together — your next chapter starts now.