SME Listing Procedure and Norms in India | Remarkable SME IPO Benefits | IPO India 2024

Hello, my fellow investors, in today’s article we will learn about “SME Listing Procedure and Norms”. Along with We will also know many other information like detailed SME information, their importance in the Indian economy the benefits of SME IPO, and many more.

Introduction to SME Listing Procedure and Norms

The full form of SMS is “Small & Medium Enterprise”. Here are some classifications of SMEs in India which are listed below.

Classifications of SMEs in India

Small Enterprise:- A small-scale industry with an annual turnover between INR 5 crore and INR 50 crore. The investment threshold for small enterprises is between INR 1-10 crores.

Medium Enterprise:- A medium enterprise is defined as one whose annual turnover does not exceed INR 250 crores. The investment threshold for medium enterprises is INR 50 crores.

Apart from small and medium enterprises, there are also micro-enterprises. Their annual turnover is less than INR 5 crores. Together, they are called MSMEs (Micro, Small and Medium Enterprises) in India.

Market Size of SME

As already mentioned, the SME sector is very important to the Indian economy. And when you include micro-enterprises, the numbers are huge. There are approximately 6.3 crore MSMEs in India. According to MSME Ministry data, the Enterprise Registration Platform has registered 5,767,734 MSMEs as of November 26, 2021. Micro enterprises accounted for 5,441,220 (94.34 percent), small enterprises accounted for 293,555 (5.09 percent) and medium-sized enterprises accounted for 32,959 (0.57 percent).

• Maharashtra (12.18 lakhs)
• Tamil Nadu (6.23 lakhs)
• Gujarat (4.86 lakhs)
• Rajasthan (4.68 lakhs)
• Uttar Pradesh (4.45 lakhs)

Roles of SMEs in India’s Economy

SMEs play a very important role in the Indian economy. Some of its key roles are mentioned below.

1. SMEs account for a good share of India’s workforce. This amounts to about 40%, which makes up about 80 million workers.
2. They constitute about 40% of India’s export business and a significant share (45%) of the country’s manufacturing output.
3. India has the second largest number of SMEs in the world, eclipsed only by China.

Key problem of SMEs:-

Here are several problems for SMEs which are highlighted below. With the help of which you can find its solutions and you can give success to your business.

• Less Capital
• Production Line
• Time Management
• Lack of mangerial Skills
• Marketing Issues
• Cash Flow Management

Eligibility Criteria for SME Listing

There are two types of SME IPO listing platforms in India namely BSE and NSE. Any company can choose any of these platforms. For which the SME company has to meet certain eligibility criteria as determined by SEBI. The eligibility criteria for BSE and NSE exchanges are almost the same. Which is as mentioned below.

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NSE Eligibility Criteria

• The company should be registered in India under the Companies Act 1956/2013.
• Post issue paid up capital of Rs. Should not exceed 25 crores.
• The company should have a track record of at least three years.
• The company must have a positive net worth in at least two out of three financial years.
• The National Company Law Tribunal (NCLT) or a court should not entertain a winding-up petition in respect of a company.
• The issuer should provide a certificate that the company has not been referred to the Board of Industrial and Financial Reconstruction (BIFR).
• Issuers and promoting companies are not subject to any proceedings under the Insolvency and Bankruptcy Code.
• Issuer/promoter/director/promoter group/selling shareholder should not be excluded from access to capital market by the board.
• Promoters/Directors/Founders/Investors should not be classified as fugitives or offenders under the Fugitive Business Offenders Act 2018.
• Directors must provide documents if they are under investigation or criminal proceedings.
• Articles of incorporation should not contain restrictive clauses.

Ref:- NSE India

BSE Eligibility Criteria

• The issuer should be registered under the Companies Act, 1956.
• The post-issue paid-up capital should not exceed Rs. 25 crores.
• A minimum net worth of Rs. 1 crore for the previous 2 full financial years. If the applicant company is a result of conversion of partnership firm, proprietorship or LLP, the former firm has paid Rs. Should have a requisite net worth of 1 crore.
• Net tangible assets in the previous financial year were Rs. 3 crore should be.
• The company should be in operation for at least three years. If the company has been operating for less than three years, the project for which the IPO is being proposed should be evaluated and funded by NABARD, SIDBI, banks (except co-operative banks) and financial institutions.
• If a company converts to a corporation, it must have a positive cash balance (profit before depreciation and taxes). This should be the case for at least one year (last three years).
• The company should also have positive net assets.
• A company should have a functional website.
• The company should support demat securities trading. He must have agreement with NSDL and CDSL Custodian.
• The company should ensure that the promoters have not changed in the last year after submitting the BSE application for listing in the SME sector.
• The issuer should provide a certificate that the company has not been referred to the Board of Industrial and Financial Reconstruction (BIFR).
• Winding-up petition should not be filed against the company.
• Minimum size for application and trading lot is Rs 1,00,000. The minimum number of shareholders should be 50.
• Underwriting is mandatory. 15% of it should be underwritten by a merchant banker.
• The company should have an operating profit (ie earnings before interest, depreciation and tax) in 2 out of 3 last financial years, of which the latest financial year must be compulsorily profitable. If the IPO project is funded by NABARD, SIDBI and banks (except co-operative banks), the company should have a positive operating profit in the last financial year.
• The leverage ratio of the company should not exceed 3:1 except for finance companies which may have some relaxation.
• No regulatory action shall be taken to suspend trading against any promoters or companies promoted by the promoters.
• Directors and promoters of the company must not be promoters or directors (other than independent directors) of compulsorily delisted companies or be suspended from trading for non-compliance.
• A director of a company should not be restricted or disqualified by any regulatory authority.
• There should be no outstanding defaults in respect of payment of interest and/or principal to debenture/bond/fixed deposit holders by the applicant company, promoters/promoting company(ies), or subsidiaries.
• In case of change of company name in the last 1 year, 50% of the income of the previous full financial year should be derived from the activity indicated by the new name. The income computed should be based on restated and consolidated basis.

Ref:- BSE India

SME Listing Procedure

If you also want to list your company in BSE or NSE then you want to know the listing process. So below is the complete listing process for you.

• Pre-IPO Capital Restructuring
• Selective allocation
• Pre-IPO Organization
• Conversion to electronic shares
• Peer-reviewed financial statements
• Valuation and share price
• Draft Prospectus Preparation
• Engagement of intermediaries
• Submission of Draft Prospectus to the Exchange
• Exchange authorization
• Filing of Prospectus with Registrar of Companies
• Registrar of Companies Endorsement
• Introduction to IPO
• Handling of IPO applications
• IPO closing
• Establishment of allocation criteria
• Approval of allotment criteria by securities exchanges
• Refund/Allocation
• Stock exchange listing and trading facility

You can also list your company in BSE/NSE using the process mentioned above.

Key SME Listing Norms and Regulations

Here is a list of key norms for SME listing provided by SEBI for you

• Public shareholding of at least 25%
• Minimum application amount/ trading lot of INR 1 lakh
• The minimum number of subscribers in an IPO should be at least 50 investors
• Market Making – Through an exchange registered market for at least three years
• Underwriting – 100% is mandatory, out of which 15% should be done by MB in his own account
• Offer Document – It is not subject to inspection by SEBI

Costs and Fees

If you want to raise funds from the public for your company, you should keep in mind that you will have to pay some cost/fee for that too. Which costs/fees can be easily understood by breaking down some sections. And it is detailed below.

• Roc, governing bodies and stock exchange fees
• Payments to service providers (such as registrars and merchant banking)
• Payments of underwriting and market making
• And lastly the costs for marketing and PR

Cost of SME Listing Procedure

If you want to list an SME IPO, you will need around 50 lakhs to few crore rupees. That may depend on your merchant banking and the services you want to provide. For example, if your company’s IPO is 25 crores or below, merchant banking may charge you as much as 25 lakhs. And 10 to 11 lakhs have been spent for some other services. Along with this, the company may incur certain expenses like marketing expenses, advertisement expenses and PR team fees etc.

SME IPO Expenses by Category

The expenses of SME IPO can be divided into three broad categories which are given below.

1). Service Fees

Intermediaries to whom the company pays a fee for services rendered. It includes merchant bankers, registrar, legal counsel, auditor, advertising and printing fees, market maker fees, underwriting fees, bank fees, sponsor bank fees and other professional fees. At a high level, some of these fees are as follows:

2). Exchange Fees

For listing of shares, the company pays a fee to the stock exchange for basic admission, processing, listing and annual fee. Below is the fee structure for stock exchanges NSE SME Emerge and BSE SME.

3). Miscellaneous Expenses

Other expenses include optional, necessary expenses for raising funds through an IPO. This includes, but is not limited to:

• Underwriting costs.
• Marketing and PR expenses.
• Out-of-pocket expenses for mediators (travel, transportation, communication, duplication, receipt and delivery of documents and related matters).
• Expenses for road shows, site visits for journalists, bloggers and influencers.

Benefits and Challenges While SME Listing Procedure

There are many benefits to SME listing but also many challenges. All of which are given in the list below.

Benefits of SME Listing

• The main benefit of listing is that the company gets an opportunity to raise sustainable capital. By going public, a company can attract investors from a wide range of investors, including institutional and retail investors.
• From the listing of the SME IPO and going public, the company’s visibility in the market has increased, and credibility has also increased. Listing in any reputed stock exchange (like BSE/NSE) also enhances the reputation and brand value of the company. Which attracts customers, suppliers and other business partners to the company.
• Another crucial benefit is that it provides exit liquidity to shareholders, including promoters and early-stage investors.
• Going public can provide many growth opportunities for SMEs. Increased capital and increased financial visibility can enable companies to expand their operations, undertake mergers and acquisitions, invest in new technologies, and explore international markets. Additionally, publicly listed entities can also attract strategic investors and partnerships, facilitating further growth.

Challenges of SME Listing

• Publicly listed companies face increased regulatory requirements and compliance obligations. Therefore, SMEs should ensure that they have the necessary resources and systems in place to meet the obligations.
• The stock market is very volatile, and share prices of SMEs have fluctuated a lot. For which SMEs should be prepared for the ups and downs of the market and have a clear strategy to attract investors.
• SMEs entering the public market should establish effective investor relations practices. This includes maintaining open communication, providing regular updates and promptly addressing investor concerns to build trust and confidence in the company.

Conclusion

Finally, in conclusion, it is very important for investors and entrepreneurs to understand SME listing types and standards, which paves the way for sustainable growth and investor opportunities. Through this article we have studied the classification, market size, role, eligibility criteria, process, rules, costs, benefits and challenges associated with SME listing.

SMEs play an important role in driving economic growth, and contribute significantly to employment, output and production. With millions of MSMEs in India, this sector forms the backbone of the economy. In addition, SMEs face various challenges, including capital constraints, operational issues and management skill gaps.

Eligibility criteria for SME listing on exchanges such as BSE and NSE are strict, emphasizing financial stability, operational track record and regulatory compliance. The listing process includes pre-IPO preparations, drafting the prospectus, engaging intermediaries and obtaining approvals from regulatory bodies.

While an SME listing offers numerous benefits for shareholders such as access to capital, enhanced visibility and liquidity, it also entails challenges such as regulatory compliance and market volatility. SMEs must navigate these challenges with strategic planning, effective investor relations and a clear growth path.

In essence, SME listing presents a significant opportunity for businesses to expand, attract investment and increase their market presence. By understanding the process and following regulatory norms, SMEs can leverage capital markets to accelerate their growth and contribute to India’s economic growth.

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