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What is SME IPO? How to Apply and its difference from Mainboard IPO
What is SME IPO? How to Apply and its difference from Mainboard IPO

India has become the IPO capital with highest number of IPOs launched in 2024 in the world which is an indication of a flourishing capital market. However, in all this you must have also heard of SME IPOs also being launched quite frequently than before. In this blog, we will understand in detail what is SME IPO and what is the difference between mainboard IPO and SME IPO.
Understanding SMEs
Small and Medium Enterprises, also known as SMEs, are those companies that have a lower than specified number of assets, employees and revenue. India has a diverse business landscape with a mix of large conglomerates and other small and medium level business houses.
These small and medium enterprises also play a crucial role in the growth of the Indian economy and in fixing the employment issue of the country. In terms of numbers of companies with an investment threshold between 10 crore and 50 crore and turnover threshold between 50 crores to 250 crore falls into the category of SMEs.
What are SME IPOs?
SME IPOs are similar to regular IPOs in nature where companies offer shares to the public to raise capital for their businesses. After the allotment of shares is concluded the shares of SMEs get listed and can be traded on the stock exchanges.
Although, the basic nature of both the IPOs are the same there are certain guidelines with respect to the size of the company which is stricter in regular IPOs in comparison to SME IPOs.
SME IPOs are important for both the SMEs as well as the economy as it allows small and medium sized companies access to public money which facilitates their growth that eventually boosts the economy of the country. Also, SME IPOs are listed on different platforms that are dedicated specifically to these types of IPOs.
Where are SME IPOs listed?
Like regular IPOs, SME IPOs are also listed on NSE and BSE, but they have dedicated platform in them for it. These platforms are:
i) BSE SME Exchange: BSE has a dedicated platform for SME IPOs known as BSE SME Exchange which provides visibility and liquidity to the IPOs.
ii) NSE Emerge: When it comes to NSE, the SME IPOs are listed on its platform called NSE Emerge facilitating the growth of these IPOs by giving them access to capital markets.
While both the exchanges facilitate listing of SME IPOs on their platforms, they have different eligibility criteria to some extent which are listed below:
1. BSE SME Exchange: Eligibility criteria
i) SME company launching its IPO must be incorporated under the Companies Act, 1956.
ii) The net worth of the company should be positive.
iii) The net tangible assets of the company should be worth INR 1.5 crore.
iv) The company should have been operation for minimum of 3 years, otherwise it should be funded by banks/financial institutions/government/or group company which is already listed either on the main platform of BSE or BSE SME Exchange and have positive EBITDA in at least one of the last three years.
v) The company has a website of its own.
vi) The company should facilitate trading in demat form and must have agreements with both CDSL and NSDL.
vii) The company's promoters should not have changed for at least a year before the date of applying for listing on BSE SME.
2. NSE Emerge: Eligibility criteria
i) The company coming with the IPO should have been incorporated under the Companies Act, 1956/2013.
ii) The company or its promoters must have a proven performance history of at least three years. In the case of a proprietary/partnership firm converting into the present form of a company then also there should a minimum three years of operations record of the company.
iii) Out of the last 3 fiscal years, the company should have recorded operating profits in two of them.
iv) The company or its promoters should be free from any insolvency or bankruptcy proceedings against them and there should be no board pending for Industrial and Financial Reconstruction.
If any discrepancies are found in the SME's application for IPO regarding the above criteria, then they will be barred from applying again for the same for at least six months. Also, the minimum application and trading lot size of the IPO should be of minimum INR 1 lakh.
How to apply for SME IPO on Zerodha?
The application process for SME IPOs in Zerodha is similar to that of other IPOs as it allows applying for any SME IPO of NSE and BSE through the UPI ASBA process.
How to sell SME IPO shares?
Yes, SME IPO shares can be sold in the same way as mainboard IPO shares but there are couple of things you need to keep in mind:
i) The SME shares you are holding can only be traded on the exchanges on which they are listed. For example, if an SME IPO is listed on BSE Exchange, then it can be sold only on that stock exchange and not on NSE Emerge.
ii) SME shares of a company can only be sold in lots and not individually. For example, if you want to sell 1 lot of a SME company and there are 10,000 shares in that lot then when you sell that lot your 10000 shares will be sold. On the other hand, in mainboard IPOs you can sell even 1 individual share.
Can we sell SME IPO on listing day itself?
Yes, if you have received the allotment of an SME IPO, you can sell it on the listing day itself. However, one thing which you should keep in mind is that selling SME IPO shares on the day of listing itself, i.e. the day on which the shares are available for trading can be risky as the demand on listing day could be unpredictable.
Also, it's also not a given that a share price may always rise post listing and on top of that price volatility could also be high on listing day which could result in further share price fluctuations.
What is difference between IPO and SME IPO?
But the criteria for SME IPO and mainboard IPO are somewhat different. Let’s delve into the differences between IPO and SME IPO:
SME IPO | Mainboard IPO | |
Post-issue paid-up capital | The post-issue paid-up capital of SME companies must be in the range of INR 1-25 crore. | In case of mainboard IPO, it should be at least 10 crores. |
Application size | For an SME IPO, the application size for 1 lot is more than INR 1 lakh. | The application size for a mainboard IPO is usually between INR 10,000-15,000. |
Underwriting mandate | It is compulsory for an SME IPO to be 100% underwritten with 15% from the merchant banker account. | Though IPO underwriting is not mandatory for mainboard IPO but 50% subscription to QIBs is compulsory. |
Regulator | The offer documents for SME IPO are verified by the stock exchanges themselves. | For mainboard IPOs, SEBI vets the offer documents. |
Time frame | The time frame for SME IPOs lasts for 3-4 months. | Mainboard IPOs generally have 6 months' time frame. |
Selling mechanism | Individual selling of shares is not allowed for SME IPOs. Shares can only be sold in lots. | Shares can be sold individually in secondary markets in case of mainboard IPOs |
Reporting structure | SME companies are provided to report on a half-yearly basis. | Companies with mainboard IPOs need to report on a quarterly basis. |
Allottees | There should be at least 50 in case of SME IPOs. | For mainboard IPOs, the number of minimum allottees should be 1000. |
Process of listing an SME IPO?
A SME undergoes several steps in the process of listing their IPO which are as follow:
1. Appointment of an underwriter
The first and foremost step in the listing process of an SME IPO is the appointment of an underwriter. He will assist the company in coming up with the right price for their IPO and will also highlight all the associated risks with the listing of the IPO.
2. Drafting the DRHP
The next important step towards the listing of the IPO is the preparation of the Draft Red Herring Prospectus also known as DRHP. It contains all the relevant information regarding the company and the IPO such as its operations, financial information and details of the IPO.
3. Submission of DRHP to SEBI
Once the DRHP is prepared it is sent to the market regulator SEBI for review. SEBI will review the DRHP and will give their nod to go ahead with the launch if they are satisfied. If not, then they sent it back to the company to make the necessary changes.
4. IPO date announcement and promotional activities
Once SEBI approves the IPO, SME moves onto the next step which includes advertising the IPO via various promotional channels. The company also announces the date of IPO launch during this time period.
5. IPO launch and share allotment
The final step is the launch of the IPO on the due date where the share is opened to shareholders for subscription. Once the subscription period ends, shares are allotted to the shareholders based on the subscription levels and other arranged criteria.
To Wrap Up
Capital is the lifeblood of any business whether big or small, that’s why many companies take the route of IPO to raise money from the public for their businesses. In the last few years more and more SME companies are coming up with their IPOs which is a positive indication of the growing economy of the country. But the application size of SME IPOs is large, therefore it is always advisable to do adequate research about the growth prospects of the company before investing in any SME IPO.

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