Difference between SME IPO and Mainline IPO?

An IPO represents the very first offering of the company's shares to the public, though with an intent to raise capital for its growth and expansion. Since the IPOs come in two different categories-one is a category of company type and another an issue size category, you may already be a very regular investor in their issues.     

The primary distinction between the two is related to the size of the issue. However, Mainboard IPOs have larger issue sizes compared with SMEs. There are other differences in areas like paid-up capital, minimum allottees, the scrutiny procedure of the IPO prospectus, underwriting requirements, minimum size of application, and market making. 

What are Mainboard IPOs and their eligibility criteria?

A Mainboard IPO is the form of an IPO, listed and traded on both the stock exchanges that is the NSE and BSE. They are meant for the large companies with a minimum of Rs 10 crores paid-up capital. The Eligibility and Listing Procedure of the Mainboard IPOs are as specified in SEBI ICDR Regulations of 2018.

Eligibility Criteria of IPOs by SEBI

SEBI has set two methods for a company to meet the qualifications to issue an IPO.

a) Profitability Route (Entry Norm I)

There exists a route to qualify for an IPO whereby the company should meet the following profit-related requirements:

• The company should have a net tangible asset of not less than Rs 3 crores in each of the three preceding years. In the case of fresh issues and not OFS, such tangible assets should not comprise more than 50% in cash or cash equivalents.

• There must be a pre-tax operating profit of at least Rs 15 crores of the company in any three of the last five years.

• If the company name has been changed, at least 50 per cent of the revenue must come from the previous year and revenue generated under that new name.

• It has a net worth of at least 1 crore rupees in each of the preceding 3 full years calculated on a restated and consolidated basis.

b) QIB Route (Entry Norm II)

The QIB route, introduced by SEBI, offers an alternative for eligible companies that do not meet the stringent profitability criteria. Companies opting for an IPO through the QIB route must meet the following conditions:

• The IPO will be conducted through a book-building process.

• At least 75% of the proceeds of issue/net proceeds should be given to QIB.

• In case the minimum allotment requirement is not met, the IPO subscription monies should be refunded back.

• No action should have been initiated against the founders/promoters/directors/selling shareholders about any malpractices.

• The promoters, directors, founders, or investors cannot be debarred from raising funds from capital markets. The period of debarment from raising funds from the capital market is applicable against a company only after the expiry of any such period of debarment.

• No association with a debarred company:

• The promoters, directors, founders, or investors should neither be associated with any company which has been debarred from raising funds from the capital market, nor a defaulter.

• None of the promoters, directors, founders, and investors shall be declared as fugitive economic offenders under the Fugitive Economic Offenders Act of 2018.

• Promoters must hold at least a 20% equity stake immediately after the IPO.

Eligibility Criteria of IPOs by BSE

• The minimum paid-up capital shall be Rs 10 crores post-issue according to the BSE guidelines.

• The issue size must be at least Rs 10 crores.

• The company's minimum market capitalisation for issuing shares should be Rs 25 crores.

• Companies must follow the BSE Main Board IPO checklists and submit the necessary documents and information at each stage, including the Principal Approval Stage, Issue Opening Stage, Basis of Allotment Stage, and Listing and Trading Approval Stage.

Eligibility Criteria of IPOs by NSE

Besides these, SEBI has also prescribed certain requirements for all issuance companies of the IPOs, envisaged by NSE. Let's discuss that:

• The issuer company's directors should possess at least one promoter with three years' experience in the relevant industry.

• Should provide the annual reports of the three last fiscal years to NSE.

• The company should have a positive net worth (this condition is applicable only to companies having an issue size of less than Rs 500 crores).

• The post-issue paid-up equity of the company must be above Rs 10 crores.

• The market capitalization must surpass Rs 25 crores.

• The company shall provide a certificate to the Exchange stating that:

• There should not be any pendency under the Insolvency and Bankruptcy Law 

• No winding-up petition has been received by the company from the National Company Law Tribunal (NCLT).

What are SME IPOs and their criteria for Listing

An SME IPO is the small and medium-sized enterprise initial public offering. This refers to an offering whereby shares of an enterprise are offered to the public through the stock market. In essence, it is an offering whereby an enterprise offers its shares to the public through the stock exchange. 

The funds raised from such a type of offering are meant to develop the business. Due to their short history of operation, normally, SMEs often face difficulties when trying to raise funds from financial institutions using the traditional way, especially the process of IPO.

Both NSE and BSE have also introduced specific platforms for listing of SMEs, that is, NSE Emerge and BSE SME, respectively. The trading platforms have been provided with features to enable easy fundraising for SMEs and start-ups.

SEBI initiates the SME IPO process by relaxing certain norms compared to mainboard IPOs. This regulatory support, along with the stipulation that the post-issue paid-up capital of the issuing SME must not exceed Rs 25 crores, fosters a supportive environment for these enterprises.

Additionally, SMEs must meet other eligibility criteria established by the exchanges. Familiarising yourself with these requirements will ensure you are well-informed about the SME IPO process.

Eligibility Criteria of SME IPOs as per BSE

To participate in the BSE SME IPO, small and medium enterprises (SMEs) must fulfill the criteria established by the BSE SME Platform.

BSE’s eligibility criteria for Listing SME IPO:

SME IPO Eligibility Criteria by NSE

The NSE Emerge platform has specified certain conditions that a company must meet to issue an SME IPO:

Key differences between Main Board IPOs and SME IPOs

Also Read:

• What is IPO?
• What is IPO GMP?
• Difference between IPO and FPO For Beginners