Understanding the SME IPO Process: Steps to Scheduling, Listing and Trading

In recent years, there has been an increasing trend of small and medium enterprises that are opting to publicly trade by for Initial Public Offerings. Multiple reasons are there in significant increase, such as the necessity of financial backing for expansion, the aspiration to enhance market presence, and the growing assistance from the government for small businesses. The SME IPO market allows small businesses to reach a wider pool of investors, thus improving their ability to generate funds.

Small businesses are defined as companies with annual revenues ranging from ₹5 crore to ₹150 crore and investments in capital between ₹1 crore and ₹10 crore. Similarly, a medium-sized firm produces more than ₹250 crore in yearly income and has a limit of ₹50 crore for investments. The annual revenue or total earnings is simply the annual turnover.

Therefore, an SME IPO is the process by which small and medium-sized companies in India raise capital through a public offering, as suggested by its name.

These smaller companies’ IPOs differ from traditional mainline IPOs designed for larger companies as they may not be suitable investments for all investors. Consequently, an SME IPO is listed on a platform separate from the mainline IPO platform. In other words, a Small and Medium Enterprise IPO is not listed on the NSE and BSE. These stocks are listed on two distinct platforms: the BSE SME on the Bombay Stock Exchange and the NSE EMERGE on the National Stock Exchange instead.

Features of SME IPOs

SME IPOs are increasingly appealing as an investment choice for numerous individuals, due to their distinct characteristics that meet the needs of both businesses and investors.

1. Retail Investor oriented: Small and medium enterprises IPOs set aside a specific portion for retail investors in their IPOs, enabling individuals with restricted funding to take part. This enables average investors to participate in the possible expansion of small and medium-sized companies, making investment options more reachable to a broader spectrum of individuals.
   
2. Potential for High Returns: Small and medium-sized enterprises are frequently in the beginning phases of their expansion process. If the company manages to expand its operations and market presence, investing at this point can result in significant rewards. Greater risk can lead to greater reward. Although there is a risk because these companies are new and small, there is high potential for significant returns if the business model is successful.
   
3. Rising in Economic Growth: Investing in SME IPOs can contribute to the development of local and regional economies, as these businesses are the foundation of economic growth. Investors supporting these companies are aiding in the growth of a dynamic and competitive market, promoting innovation and opportunities for new ideas and products.
   
4. Enhance Market Visibility: Small and medium-sized enterprises gain more visibility by being included on a stock exchange. This enhanced visibility could attract attention from analysts, institutional investors, and possible business collaborators, all of whom can assist in the company’s expansion prospects. In addition, being listed increases the credibility and trust of your company with stakeholders. This may lead to increased customer confidence and potentially better relationships with suppliers and partners.

SME IPO Listing Criteria

SME IPO: Performance and Trends in 2024

The SME IPOs in 2024 have shown impressive performance, as many companies have exhibited strong market presence and generated significant returns. Industries like energy, technology, and consumer goods have led the way in this development.

The Surge in SME IPOs: Opportunities & Trends

Since the start of January 2012, nearly 947 companies from over 60 sectors have collectively raised about INR 16,000 crore through SME IPOs on the BSE SME and NSE Emerge platforms. The total market value of these companies had reached approximately INR 2.5 lakh crore by March 2024. This expansion shows the growing significance and achievements of SME IPOs in offering crucial funding and market exposure for small and medium-sized businesses in India.

There has been a notable increase in the average subscription rate for SME IPOs, with numbers rising from approximately 101 in 2023 to about 232 in 2024 across various categories. This increase shows a rising investor enthusiasm and belief in the SME industry, demonstrating the opportunity for significant returns and the growing achievement of these IPOs.

Conclusion

In 2024, the SME IPO market showed steady consistent growth. There are several factors contributing to this rise, including the need to secure funding for growth, the entry of certain marquee investors, a desire for greater market visibility, and increasing support from regulations for small businesses.

The SME IPO market enables these businesses to attract a broader pool of investors, leading to an increased capacity for raising funds. It will be interesting to see how these companies perform and adapt to changing trends. Investors and stakeholders must carefully track this industry, as the growth of small and medium enterprises is anticipated to significantly influence India’s economic future.