Q.1. What is an SME IPO?

ANS. An SME IPO allows a Small or Medium Enterprise to raise capital from the public by listing on a recognized SME platform of stock exchanges like BSE SME or NSE Emerge. It helps SMEs access equity funding, enhance visibility, and unlock valuation.

Q.2. Why should a promoter consider an SME IPO?

ANS.

• Access to growth capital

• Brand credibility and public image

• Improved governance and transparency

• Exit or partial dilution for early investors

• Liquidity for shares (after lock-in)

• Better valuation and market discovery

Q.3. What are the eligibility criteria for an SME IPO?

ANS. As per SEBI and exchange rules (subject to change), key requirements include:

• Net Tangible Assets: Minimum ₹1.5 crore

• Net Worth: Minimum ₹1 crore

• Track Record: At least 3 years of operations

• Profitability: Distributable profits in 2 out of last 3 years (or net worth ≥ ₹3 cr)

• Post-Issue Paid-up Capital: ≤ ₹25 crore

• Promoter Holding: Locked in for 3 years for minimum 20%

Note: Criteria vary slightly between BSE SME and NSE Emerge.

Q.4. What is the process of launching an SME IPO?

ANS. Key steps:

1. Appoint Merchant Banker (SEBI-registered)

2. Conduct Due Diligence & Valuation

3. File Draft Prospectus (DRHP)

4. Exchange & SEBI Review

5. IPO Marketing & Roadshows

6. Pricing, Allotment & Listing

Timeline: ~3–6 months from initiation to listing.

Q.5. Who are the key intermediaries involved?

ANS.

• Merchant Banker

• Registrar to the Issue

• Legal Advisor

• Auditor

• Underwriter (optional)

• Market Maker (mandatory)

Q.6. How much can be raised in an SME IPO?

ANS. There's no fixed cap, but typically:

• Issue size ranges from ₹5 crore to ₹50 crore

• Must maintain public shareholding of at least 25%

• Issue pricing is based on valuation and investor appetite

Q.7. What disclosures are required in the DRHP?

ANS.

• Business overview

• Risk factors

• Financials (3 years)

• Use of proceeds

• Promoter background

• Corporate governance

• Legal matters/litigation

Q.8. What are the post-IPO compliance requirements?

ANS.

• Quarterly and annual financial results

• Shareholding pattern updates

• Corporate governance disclosures

• Timely disclosures under SEBI/LODR

• Investor relations and grievance redressal

Q.9. What are the listing platforms for SME IPOs?

ANS.

• NSE Emerge

• BSE SME

After 2 years of compliance and profitability, companies can migrate to the main board subject to meeting eligibility.

Q.10. What is the lock-in for promoters post-listing?

ANS.

• Promoter’s minimum contribution (20%) is locked in for 3 years

• Remaining pre-IPO capital is locked in for 1 year

Q.11. What is the role of a Market Maker?

ANS. A Market Maker provides continuous buy-sell quotes for 3 years post-listing to ensure liquidity. They are appointed as part of the IPO process and are mandatory on SME platforms.

Q.12. What are the typical costs involved in an SME IPO?

ANS. depends on issue size.

Breakdown includes:

• Merchant Banker fees

• Legal, audit, registrar fees

• Marketing & branding

• SEBI/exchange fees

• Market Maker compensation

Q.13. What factors influence IPO valuation?

ANS.

• Company’s past and projected financials

• Peer comparison and industry growth

• Brand strength, scalability, margins

• Promoter credibility and governance

• Anchor investor or HNI interest

Q.14. Can I sell my stake in the SME IPO?

ANS. Yes, promoters can offer shares in the IPO via an Offer for Sale (OFS), subject to regulatory limits and lock-in conditions post-listing.

Q.15. What are the funding alternatives to SME IPOs?

ANS.

• Bank/NBFC debt

• Private equity

• Venture capital

• Rights issues or private placements

However, an IPO provides capital without debt servicing and improves public visibility.

Q.16. What documents are needed to start the IPO process?

ANS.

• Last 3 years audited financials

• Incorporation & ROC records

• Promoter KYC & shareholding details

• Business plan and valuation report

• Legal and litigation records

• Corporate governance structure