SME IPO: Unlocking Growth Opportunities for Emerging Businesses!!

Annmary Joshy
Senior Associate, Company Secretarial Department

Muhammed Adnan
CS Trainee

14-Mar-2025

SME IPO: Unlocking Growth Opportunities for Emerging Businesses!!

A small business is an amazing way to serve and leave an impact on the world you live in” – Nicole Snow

In recent years, the SME IPO listing in India has become an important channel for small and medium enterprises (SMEs) to raise capital and expand their market visibility. With an increasing number of platforms available to facilitate these listings, SMEs now have greater access to public funding opportunities.

SME IPO- AN OVERVIEW

An SME IPO (Small and Medium Enterprises Initial Public Offering) is a process through which small and medium-sized enterprises raise capital by offering specified securities to the public for the first time. This allows SMEs to obtain the necessary funds to expand, innovate, and solidify their market presence.

As per Micro, Small and Medium Enterprises Development Act, 2006; Small and Medium enterprises (SMEs) are classified as;

Small enterprise	Investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees
Medium enterprise	Investment in Plant and Machinery or Equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.

ELIGIBILITY CRITERIA:

Post-issue paid-up capital must be ₹10 crore or less. If it is between ₹10 crore and ₹25 crore, the issuer can still make an SME IPO subject to the conditions of the SME Exchange(s) on which the specified securities are proposed to be listed.
Track Record: A minimum track record of distributable profits for at least 2 out of 3 immediately preceding financial years
Must have a positive Networth

LISTING PLATFORMS:

BSE SME Exchange: Operated by the Bombay Stock Exchange (BSE), this platform provides visibility and liquidity to smaller companies.

NSE Emerge: Operated by the National Stock Exchange (NSE), this platform promotes the growth of SMEs by providing them access to capital markets.

CRITERIA FOR LISTING

PARTICULARS	BSE SME	NSE EMERGE
POST ISSUE PAID UP CAPITAL	Not more than ₹ 25 crore	Not more than ₹25 crore
NETWORTH	Net worth of atleast ₹ 1 Crore for 2 preceeding full financial years	No minimum requirement. However, net worth should be positive
NET TANGIBLE ASSET	Net tangible asset of ₹ 3 Crore in last preceding full financial years	Not specified.
LEVERAGE RATIO	Not more than 3:1 (relaxation for finance companies).	Not specified.
TRACK RECORD	Track record of atleast 3 years Provided, the applicant company seeking listing should have a track record of operations for atleast one full financial year If the company does not have any track record of 3 years, then the project for which IPO is proposed should be funded by NABARD, SIDBI or Financial institution (other than cooperative banks)	Track record of at-least three years of either the applicant seeking listing; or the promoters/promoting company, incorporated in or outside India or Proprietary / Partnership firm and subsequently converted into a Company (not in existence as a Company for three years) and approaches the Exchange for listing.
OPERATING PROFIT(EBIT)	Profit from operation for 2 out of 3 latest financial years preceding the application date	Issuer shall have an operating profit (earnings before interest, depreciation and tax) of ₹ 1 crore from operations for any 2 out of 3 previous financial years. The company/entity should have positive Free cash flow to Equity (FCFE) for at least 2 out of 3 financial years preceding the application.

WHY SHOULD SMEs EXPLORE IPO?

Enhanced Credibility: Successfully listing on the stock exchange serves as a public endorsement of the company’s financial health and governance practices. This increased credibility can attract strategic partnerships, potential acquisitions, and a broader customer base.

Capital Infusion: A public offering enables SMEs to tap into a wider pool of investors, providing the necessary funds to support growth initiatives such as expanding operations, investing in research and development, or adopting new technologies.

Improved Liquidity: Listing on an exchange creates a secondary market for the company’s shares, providing liquidity for existing investors and the opportunity for new investors to engage in the company’s future growth. This liquidity not only benefits the company but also enhances shareholder value.

CONCLUSION:

In India, SME IPO listing platforms have emerged as a transformative avenue for small and medium enterprises (SMEs) aiming for significant growth. These platforms serve as key enablers, providing SMEs with the essential capital needed to drive innovation, expand operations, and unlock their full potential. This, in turn, injects fresh dynamism into the Indian economy. Investors also stand to gain, as these platforms offer access to a pool of promising, high-growth companies.

The Indian government’s proactive support for SME IPOs, alongside the ongoing enhancement of these listing platforms, presents an optimistic outlook for the future. However, entering this dynamic space is not without its challenges. SME IPOs typically come with more stringent listing requirements and lower liquidity when compared to established mainboard listings. For investors, conducting thorough due diligence is crucial before investing in these potentially volatile yet rewarding opportunities.

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