SMEs or Small and Medium Enterprises are businesses that have their assets, revenues, assets, or number of employees lower than a specific cut-off level. The criteria of what is categorised as an SME depends on the country and the industry. Governments from all over the world have realised the vital role SMEs plan in their economy. It is the same for India too, where SMEs are significant contributors to the economy. In India, SMEs employ almost half the workforce. But due to various factors, SMEs show poor productivity in India. The biggest challenge an SME faces is access to capital, and finance is also the primary reason for it going out of business.
What is SME-IPO?
A company has to announce an Initial Public Offer (IPO) at an SME platform during an exchange before the stocks can get listed and be traded or exchanged. SME-IPO is an extremely popular way for a company to gather funds from various investors and be listed. The SME-IPO investors have earned huge returns.
These are some of the criteria for SME-IPO-
- The company must have a capital of Rs 3 crore that has been paid up. It should be the same for the net worth and the tangible assets too.
- Companies should be able to show that they have distributable profits for at least two of the preceding three financial years (excluding extraordinary income). This is following the terms of the Companies Act 2013, Section 124
- As dictated by the guidelines of SEBI, depending on the price bracket, the minimum trading lot for SEM IPOs ranges from 100 to 10,000. These are reviewed regularly and revised, depending upon the movement of its price after the listing.
What’s in it for startups?
Not that we have understood what is SME-IPO meaning, let us look at the benefits it has. All over the world, the IPO market has been taken by a storm, thanks to the new class of social media, mobile technology and e-commerce companies making their debut. But, the scenario is slightly different in the Indian market. Although companies like Snapdeal, Paytm and Flipkart have been selling their products in India, they choose to list overseas. Seeing this trend, SEBI felt that interested companies would completely ignore Indian investors. So, a platform for startups has been set up, the Institutional Trading Platform. A variety of different start-ups can now list and trade shares through The Institutional Trading Platform, without going through the IPO process.
What is SME IPO in India?
SEBI is about to extend leniency to startups so that they can enlist on the SME platform and state their requirements of net worth and profitability. The principle that dictated this step was a desire to provide more opportunities to modest startups that are unable to list on the main board.
Numerous startups need capital for growth. While major startups have multiple options like taking the aid of private equity investors to get more funds, the small ones have fewer options available. In this case, a platform created with such companies in mind would help both these companies as well as the investors immensely.
While the companies listed on the SME platform are becoming more influential, they are attracting more investors. Another reason for an increase in the number of investors who invest in SMEs is the rapidly multiplying number of SME stocks and increased returns. With such support from the exchange board and the investors, the Indian market seems to be good for SME-IPOs. In India, such SMEs are important for the growth of the nation, and increased employment opportunities.