360-Industry Insight on SME IPO
Are you an SME (Small & Medium Enterprise) who is looking to raise funds conveniently ?
Now you can raise fund through investors in Stock Exchange. Yes, stock exchange are no exclusive engine for Tatas, Birlas or Ambanis to take their business to next level. Stock Exchanges in India have introduced separate platforms to support SME’s.
SME are differentiated platforms opened by stock exchanges in India to help SMEs raise funds in the stock market.
Following are 2 SME platforms of India’s most preferred stock exchanges:-
● BSE (India’s oldest stock exchange) offers a platform called BSE SME for SME’s
● NSE (India’s largest stock exchange) offers a platform called EMERGE for SME’s
Interestingly, 80 companies raised staggering Rs.811 crore through IPO’s in 2016-17. This is more than 2x jump from the preceding fiscal where 46 companies tapped the IPO route and garner Rs.304 crore in 2015-16.
Top 3 reasons why funds are being raised include:-
1. Business Expansion Plans
2. Working Capital Requirements
3. Other General Corporate Purposes
While Delhi contributed 3 SME listings. Gujarat dominates the chart with 33 companies, followed by 15 from Maharashtra, 10 Rajasthan and 4 from West Bengal. SME IPO has slowly gained interest from the industry. Is it really worth it ?
Funding Benefits through SME IPO :-
1. Ready access to Capital and Financial Opportunities
2. Premium Valuation of the company
3. Entry & Exit Platforms for PE / Other Investors
4. Efficient Risk Distribution for Investors
5. Utility as M&A Currency
Tax Benefits of SME IPO:-
1. Zero Long Term Capital Gains Tax
2. Zero Tax on Fresh Equity Infusion in the company
3. Zero Tax on Distressed Business Purchase
Other Benefits:-
1. Company Profile Building
2. Incentive Mechanism for Employees
3. Benchmarking Fair Value of SME businesses
Economic Times reported in June 2017 that SMEs outshine the main companies. While IPO index has risen by 42% in last 12 months, SME platform has risen 52%. Thus, SMEs from the following 8 industries should explore this option which dominated the charts in past 2016-17:-
1. Finance
2. Media & Entertainment
3. Real Estate & Infrastructure
4. Manufacturing
5. Agriculture
6. Aquaculture
7. Food & Processing
8. IT & IT-enables service
With such visible benefits in front of us, annual fees worth minimum Rs. 25,000 or 0.01% of full Market Capitalization (whichever is higher) should not hurt the SMEs who are eligible.
Eligibility Criteria for SME IPO (SEBI Guidelines)
● Maximum post issue capital should be Rs 25 crores.
● Minimum number of members required for issue should be 50.
● Minimum application and trading lot size should be Rs 1,00,000/-
● Post listing, no minimum number of members required to be continued
● Minimum 3 years of period is required for Market Making
● 100% Underwriting with Merchant Bankers to underwrite 15% in their own accounts
Eligibility Criteria for SME IPO (BSE Guidelines)
● Net Tangible assets of minimum INR 3cr in accordance to latest audited financial results
● Net Worth of minimum INR 3cr in accordance to latest audited financial results (excluding revaluation reserves)
● Track record of distributable profits for minimum 2 years out of immediate preceding 3 financial years (excluding extraordinary income) in accordance to Section 123 of Companies Act 2013
It was rightly said by Ralph Waldo Emerson– “Every Wall is a Door”
Thus, take a step forward to open the door for the new FDI norms.
Shweta Gupta from MUDS MANAGEMENT is recognized among the most-respected, knowledgeable and yes, pocket-friendly as well. Why not give them a call right now at +91 9599653306 and start a conversation immediately.