SME IPO in India: Complete Guide for Beginners
Indian stock markets enable investors to participate in a wide range of capitalisations, with larger caps drawing significant attention through mainboard IPOs, while smaller companies also offer investment opportunities.
One such example is the SME IPO. By definition, SME IPO meaning refers to the public issue of an eligible small and medium enterprises, which gives investors an opportunity to participate in the expansion of such organisations. At the same time, it is important to understand and evaluate risks involved in such an investment.
Going through the SME IPO list and finding the subscription status is a helpful way to learn about the companies and assess the risk versus reward parameters. In this article, you will be able to evaluate what is SME IPO and understand its intricacies better.
What Is SME IPO?
Small and Medium Enterprises Initial Public Offering (SME IPO) is a type of public offering in which an eligible small or medium-sized company raises funds by listing on the stock exchanges.
Unlike mainstream mainboard IPOs, they are usually listed on SME platforms like NSE Emerge and BSE SME. The primary objective of a company to offer SME IPOs is to raise funds for various purposes, such as capital expenditures, current working capital, repayment of debt, and other general corporate purposes.
For example, a company raising funds via an SME IPO may use the money to purchase new machinery to boost production. Investors who receive share allotments in an SME IPO can trade those shares once they are listed on the relevant exchange.
How Does an SME IPO Work?
Since a company issuing an SME IPO involves a complicated process, let us break down the various steps of the SME IPO, and find out the process involved.
1. Company Preparation
The company hires relevant intermediaries and prepares all required IPO documents. It ensures that all applications reach the relevant authorities for approval.
2. Regulatory and Exchange Review
The company prepares the necessary documents and applications for regulatory and exchange review and approval. SME IPOs should comply with all relevant SEBI and stock exchange regulations and criteria.
3. IPO Announcement
Once the documents are approved by the regulating bodies, the company formally announces the issue, specifying the price band, size, and key dates, such as the opening and closing of subscriptions and the lot size.
4. Investor Applications
Eligible investors apply through their brokers or banks during the IPO subscription period.
5. Allotment and Listing
Finally, after the closure of the issue, the shares are allotted to investors based on relevant rules and principles, and the company is listed on a stock exchange.
SME IPO List: How to Find Upcoming, Ongoing IPOs
Eligible companies for an SME IPO can apply for their listing, which provides investors with a choice of participation. In other words, a list of SME IPOs helps an investor identify investment opportunities and compare public offerings.
An SME IPO list usually contains the following details regarding the company and its offering:
IPO Details Description :
- Company Name Name of the business applying for SME IPO
- Opening Date First day of IPO subscription
- Closing Date Last day of IPO subscription
- Price Band Share price range of the IPO
- Lot Size Minimum application size
- Issue Size Value of the total issue size
- Listing Date Date of IPO listing
In a practical scenario, an investor can refer to the NSE, BSE listings or financial market websites to check an SME IPO list for all upcoming, open, and closed issues. It is important to note that an IPO data may change; therefore one must cross-verify the data before applying.
What Is SME IPO Subscription Status?
SME IPO subscription status refers to the quantum of shares applied for by investors relative to the total number of issued shares. Simply put, it measures investor demand relative to the available shares. Usually, such a multiple indicates a high demand for the shares, although one should not confuse subscription with allotment.
The subscription of an issue usually shows investors’ appetite for a particular company issuing IPO.
For example, if a company has offered 10 lakh shares for an IPO, and 30 lakh shares have been applied for, and if the company decides to allot all 10 lakh shares available for subscription, calculated as:
Subscription Multiple: Shares bid for/Shares offered
Subscription = 30,00,000 ÷ 10,00,000 = 3 times
In this case, the subscription level amounts to three times the quantity of shares on offer.
However, it is important to consider that high subscription does not indicate the demand for shares will translate into high listing price gains or generate any rewards for the holders. Now that we know how to check subscription, let us see how an investor can check it.
How to Check SME IPO Subscription Status?
An investor can check the SME IPO subscription status by following the steps elaborated below:
1. Log on to the official NSE or BSE IPO listing website. You can also refer to other financial market websites that provide IPO updates.
2. The website will provide a list of all ongoing issues. Identify the particular IPO you are looking for.
3. The subscription status will be readily available. Available subscription information is presented separately for each category.
The IPO subscription status is usually updated regularly until the issue closes. Note that while IPO subscription status indicates the demand for the issue, it may not reflect the allotment status for individual investors.
SME IPO vs Mainboard IPO
Although both allow companies to raise funds from public investors, they have different characteristics.
| Features | SME IPO | Mainboard IPO |
| Company Size | Generally smaller companies | Generally larger companies |
| Listing Platform | NSE Emerge or BSE SME | NSE or BSE mainboard |
| Trading | Usually prescribed lots | Generally individual shares |
| Liquidity | May be relatively limited | Often comparatively higher |
| Investment Requirement | Depends on applicable lot and bidding rules | Depends on issue terms |
| Business Risk | May involve greater concentration risks | Varies by company |
Investors should understand these differences before choosing an IPO.
Read SEBI’s SME-segment investor advisory before relying on promotional claims or market tips.
Benefits of Investing in SME IPOs
Small and medium enterprises offering an SME IPO can raise public funds for business expansion, and an early investor may reap the rewards of such expansion, provided the company continues to grow.
A company that undergoes a consistent increase in revenues and profits boosts the value of its shareholders’ equity. In other words, it may potentially make the investor wealthy.
Furthermore, SME IPO also enables diversification: it allows retail investors to get exposure to early-stage companies of emerging sectors without spending directly on expensive research.
Moreover, increased visibility, adherence to standardisation of processes, control, and regulations are possible post-listing.
However, these benefits are not guaranteed, as every business organisation has its own set of risks.
Risks Associated With SME IPO Investment
Some of the critical risks associated with SME IPO investments are discussed below:
Low Liquidity and High Volatility: Due to low trading volumes in such issues, the investors cannot easily offload their shares at a reasonable price. As a result, the share price tends to be more volatile and susceptible to drastic changes owing to changing demand and other factors.
Business Specific Risk: Small and medium-sized businesses tend to have concentrated client bases, and are also particularly susceptible to adverse economic conditions. The impact of such risk could be particularly stressful for smaller enterprises.
LotSize requirements: Because of low liquidity, investors will possibly need to make larger investments with larger lot sizes.
Variance in performance: The performance of the SME IPO will determine the performance of an investor’s portfolio. The SME IPOs typically possess higher risk and reward compared to mainstream listings
Factors to Check Before Applying for SME IPO
As outlined earlier, investors intending to invest in SME IPOs should perform a due-diligence process, considering the company’s revenue, profitability, debt profile, cash flows, business model, and any other information that could affect its stock performance.
Furthermore, investors should analyse the promoters, competitive landscape, and valuations along with understanding how the company intends to utilise the raised capital.
At the same time, you may refer to a list of an SME IPO or its subscription status for gaining knowledge on potential opportunities.
Final Thoughts
SME IPO gives a potential company an opportunity to raise capital, while an investor gets the chance to build wealth by the company’s shares’ value increase. Understanding what is SME IPO, how it works, and checking the SME IPO list and subscription will assist any investor in simplifying the process of IPO research.
The above article also assists an investor in getting knowledge and identifying essential risks and benefits while considering applying for an IPO. However, it is critical to remember that subscription is not a sufficient metric an investor should use for decision-making.
Understanding fundamentals, valuation, liquidity, and risk-reward analysis before applying for an IPO will potentially enable better portfolio growth performance.
FAQs
An SME IPO essentially means a company issuing a public invitation to buy its shares to raise funds. An SME, by definition, refers to a small or medium-sized company ready for a listing to increase its capitalisation on markets, such as NSE Emerge or BSE SME.
An investor can check the latest SME IPO list either from the listed NSE or BSE official website or from financial market websites. Such details will provide an understanding of the upcoming and recent SME IPOs.
An investor can check the subscription status of an IPO on the NSE or BSE IPO listing website. One can look up the subscription multiple and the category-subscription information.
Yes, investing in an SME IPO involves a certain degree of risk, mainly because of low liquidity, high volatility, business-specific risk, and lot size requirements. Before making such an investment, it is critical for an investor to assess business fundamentals and personal risk versus reward expectations.
No, although high subscribe indicates high demand, the listing gain depends on several factors, such as valuation, market demand, and company performance. An oversubscribed IPO may still trade at a discount to its issue price on listing.
Yes, an individual investor can apply for SME IPOs if they fulfil the eligibility and process requirements. Minimum investment and category size depend on a current listing, and the application process varies for every IPO.
