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What Is an SME IPO The Meaning the Full Form and the Difference
12 Sep 2023

What is an SME IPO? Since the Indian government has encouraged Indian startups to take flight, India now has a startup “culture” with new companies sprouting up. These may turn into promising business prospects in the future and are worth a look if you want to invest in their stock. Once such startups have the potential for further growth and development, they tend to offer their stock (previously held privately) to the public. Their stock then gets listed on the stock exchange for public trading. When companies do this, and offer stock to the public, they launch IPOs or Initial Public Offerings. Usually, large companies, ones which have achieved a substantial degree of growth, offer IPOs. However, small and medium-sized businesses, or SMEs, could also offer an SME IPO.  Stay updated on the latest Upcoming IPO 2023!

What is an SME IPO? 

You know that you have to open a demat account if you wish to invest in the stock market in India. This lets you hold your stocks electronically and facilitates trading. Subscribing to an IPO, however, is different from just buying stock off the stock market. In terms of an SME IPO, the process by which small and medium-sized companies offer their stock to the public is known as an SME IPO. So, an SME IPO means that a small or medium-sized company provides the public with an opportunity to buy its shares, primarily because it wishes to raise some capital for further growth or expansion. 

If you are wondering whether there is any difference between “IPO” and “SME IPO”, then the main distinction is in terms of the size of the company which launches an IPO. A conventional IPO is typically launched by large companies that have already established themselves to an extent and want to grow bigger. This is the first difference you may experience when comparing a regular IPO with an SME IPO. Other differences, usually,  relate to the purpose and listing/exchanges of such companies and processes/rules for listing.

Small and Medium Enterprises - Requirements for IPOs

You should also know that the SME IPO full form simply stands for “Small and Medium Enterprise IPO. Any upcoming IPO that you come across may be the regular kind, generated by a relatively established firm. These IPOs have stringent regulations that they must abide by. On the other hand, small and medium-sized firms have few rules and experience a relatively easier listing process. 

The Process - How an SME IPO Works

The process of how an SME IPO gets listed is given below: 

  • To start with, a merchant banker is appointed by an SME for the process of an IPO to occur. The banker is also known as an underwriter, and their role is to verify the financial status of the SME and decide how much capital is to be raised by the forthcoming IPO. A structure of capital is then established as relevant financial information pertaining to the SME must be presented to the public in future. 
  • Next, the hiring of staff, such as registrars, and others, takes place in order to see the IPO to its fruition. 
  • Then, the Draft Red Herring Prospectus (DRHP)is created. This is essentially a similar thing that is done with a regular IPO, and includes the mission statement of the SME, as well as information regarding future prospects. An assessment of this is done by the relevant exchange.
  • If all goes well, the DRHP is approved and gets dispersed to the public. 
  • The company decides the price of the stock, and the date of the IPO is decided. 

Small and Medium Enterprises (SMEs) - Why They Go Public

Small and medium enterprises (SMEs) give India a prop in terms of the economy and the overall Indian GDP. The government, in acknowledging that small and medium businesses must be supported to strengthen India’s overall economy, have given these firms a boost to grow. Consequently, the Securities and Exchange Board of India (SEBI) has created the term “SME IPO”, whereby these firms are accorded many relaxations and conveniences to raise capital in a smooth manner. The idea is to focus on companies that may not have a great degree of net worth or profitability, yet wish to make a foray into the capital markets and have opportunities for trading their stock on the BSE SME and NSE EMERGE platforms. These are both sub-exchanges of the NSE (National Stock Exchange) and the BSE (Bombay Stock Exchange), respectively, geared towards the listing of shares of SMEs. 

A Regular IPO vs an SME IPO

Now that you know the answer to the question, “What is an SME IPO?”, you have probably gauged the differences between a regular IPO and an SME IPO as well. Still, here are some distinctions listed below: 

  • The Validation - Where validation of the IPO is concerned, this is done by SEBI in the case of a regular IPO, but by the exchanges in the case of an SME IPO. This makes it easy for SMEs to gain approvals faster, and launches are quicker. 
  • The Size of the Company - For an SME IPO to take place, the company must have the minimum post paid up capital of Rs. 1 crore. For a regular IPO, this is Rs. 10 Crores at the minimum. This encourages small and medium-sized companies to expand operations within India, and gives a platform for further growth. 
  • The Allottees - The minimum amount of allottees in a regular IPO must be 1,000. For an SME IPO, the number is 500. 
  • The Size of the Application - In an SME IPO, the size of the application is Rs. 1 Lakh, whereas, in a regular IPO, it is between Rs. 10, 000 - Rs. 15,000. 

Grow With an SME

Any upcoming IPO is worth your while if you know that a company is on a definite growth path. You should remember this when you open a Demat account to invest in direct equity. While direct equity is great, and will offer you good rewards for the long term, IPOs give you a chance to grow your wealth with a company’s overall growth. Large companies of today were once SMEs of yesterday, so you should invest now. 


Related articles: 5 Tips for Investing In IPOs | What's the big deal about IPOs | Clearing the confusion from IPOs | IPO in India- The future looks bright | Upcoming IPO


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