SME Platform or SME IPO in India- Explained
The Background of SME Exchanges
Small and Medium Enterprises in India has always been a pillar of economic growth. Keeping the beneficiary role of SMEs in mind the government and the authorities time and again work towards factors that will strengthen them and broaden their base.
In one such move in 1989 Over-The-Counter Exchange of India (OTCEI), the first exchange exclusively for small companies was formed. The concept of floorless exchange, which came to be known as an electronic exchange, did not pick up the pace and witnessed a premature death.
The main reason for its failure could be that it was a technological concept that was innovative but was introduced far ahead of time. It was also not able to garner the support and infrastructure for a smooth going.
After almost a decade, in January 2010 the Prime Minister’s Task Force recommended setting up of an exclusively dedicated exchange to cater to the SMEs. SEBI framed the rules and regulations for the smooth governance of these exchanges.
Gauging the prospects of an SME exchange, Bombay Stock Exchange (BSE) was the first one to respond and hence, BSE SME Exchange was born in 2012. National Stock Exchange (NSE) was not to be left behind and soon established NSE Emerge.
“SME Exchanges have given a marvelous platform to SMEs to not only dream big but also to achieve and attain their full potential.”
– Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.)
Now ‘Small’ can Dream ‘Big’
The biggest advantage of SME IPO new listing at these exchanges was that the companies could dare to think ‘Big’. Before these exchanges came into being, the biggest hurdle in the growth of SMEs was lack of finance as even institutions were skeptical in offering them big loans.
By SME IPO Listing and going public, these small companies and even startups can:
- Raise funds from Capital Market
- Enhance visibility as well as credibility
- Unlock the fair market value
- Grow and expand
- Acquire other businesses
- Improve governance, bring transparency
- Can migrate to main exchange with time
“Small businesses can avail big benefits by going public; it opens the doors for expansion and acquisition.”
– Isha Malik (Company Secretary, MUDS Management Pvt. Ltd.)
Exponential Growth of SMEs
SMEs had witnessed a gradual yet slow growth in the last 5 decades in India but this trend reversed after the SME Exchanges were set up and as a result, in the last 5 years SMEs have grown in leaps and bounds.
Today, with almost 50 million Small and Medium Enterprises in India, there is no denying of the important role that they play in the economic growth of the country.
The SMEs have benefitted India by:
- Providing huge employment opportunities
- Ushering in healthy competition and growth
- Promoting innovation and new ideas
- Extending support to large companies
- Helps in the development of rural and backward areas
“Today the SME sector is the most dynamic and vibrant sector in India, contributing greatly towards the economic progress of the country.”
-Shweta Gupta, Founder and CEO, MUDS
SME IPO India: Things to Know
There are certain norms laid down by the Exchanges and SEBU that needs to be taken care of and fulfilled while applying for SME IPO new listing.
5 Main Eligibility Criteria
- The issuer company should be incorporated under the Companies Act, 1956/2013 in India.
- It should have a corporate website.
- Its net worth must be positive.
- The track record of at least 3 years should be available along with a positive net worth.
Apart from these, there are other conditions that should be met by the issuer company when going for SME IPO new listing.
- a) There should not be any reference to the company before BIFR (Board for Industrial and Financial Reconstruction).
b)There should not be any winding up petition against the company that has been accepted by any court.
- c) There should not be any change in the promoters of the company in the preceding one year from the date of filing the application for SME IPO listing.
“There are so many dos and don’ts to be taken care of when you are going for SME IPO listing; the best step would be to take the assistance of a reputed SME IPO listing consultant.”
– Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.)
The procedure of SME IPO Listing
Step #1. Appointment of Merchant Banker
Step #2. Due Diligence and Document Verification
Step #3. Submission of Draft Red Herring Prospectus
Step #4. Verification & Site Visit
Step #5. In-Principle Approval
Step #6. Filings of RHP/Prospectus
Step #7. Opening & Closure of Issue
Step #8. Listing and Trading of Securities
“From pre-listing to post-listing there is numerous documentation required; seeking guidance from SME IPO consultants will help in ensuring successful listing of your company.”
– Isha Malik (Company Secretary, MUDS Management Pvt. Ltd.)
SME IPO: Best Bet for Small Businesses
After the initial hiccups and teething problems, the SME IPO has now gathered momentum. The latest statistics are very encouraging and more and more companies and startups are gearing up for it.
“Spurred by investor interest, 145 small and medium enterprises (SMEs) raised a record Rs 2,455 crore through initial public offerings (IPOs) in 2018, a surge of 37 per cent from the funds raised in the preceding year.” Economic Times, 2 Jan 2019.
Mahavir Lunawat, group managing director, Pantomath Advisory Services Group throws more light on this, “A total of 145 SMEs got listed with IPOs worth Rs 2,455 crore last year as compared with 133 firms garnering Rs 1,785 crore in 2017 through the route, according to data compiled by Pantomath Research.
“Overall, a total of 474 firms have garnered Rs 5,825 crore since 2012, when leading stock exchanges- the BSE and the National Stock Exchange (NSE)- launched the SME platforms.”
Conclusion
SME IPO India is giving wings to the dreams of capital-starved SMEs, helping them grow and expand by getting access to capital through equity infusion. Enhanced credibility, improved liquidity, better governance and complete transparency: all these work towards benefitting all stakeholders.
“In the long run, SME IPO listing is a win-win situation for all involved, be it employer, employee or investor, and most importantly, the country!”
-Shweta Gupta, Founder and CEO, MUDS