What is an SME IPO and How Does It Work?

What is an SME IPO?

SME IPO refers to the process of small and medium-sized enterprises going public and offering their shares to public investors for the first time. In contrast to normal IPO, SME IPO refers to the class of businesses going public. A small or medium-sized industrial entity is referred to as a SME in India.

 

How Does an SME IPO Work?

Here are the important steps that the SME IPOs follow:

 

1. Eligibility

First, SMEs have to meet the eligibility requirement for listing by the stock exchanges. Normally, an eligibility requirement includes a minimum level of net tangible assets, a satisfactory track record of profitability, and a number of years of operation.

 

2. Hiring Underwriters

SMEs then hire an underwriter who takes care of the issuance of shares, prepares all the relevant documents, and markets the IPO to the investors. They also highlight the company's financial health and growth prospects in the best possible light to highlight what is being offered by the SME.

 

3. Prospectus Drafting

The prospectus is the main sale document of an SME. It is a detailed report that includes the financial statements, risk issues, the business model, and utilization of money raised by means of IPO. To the investors, this is a vital document while considering buying into the IPO.

 

4. Filing with Stock Exchanges

The prepared prospectus is then filed with the stock exchanges, like NSE and BSE, for scrutiny. The exchange scrutinizes everything relating to compliance with laws and confirms the veracity of information declared in the document before publishing.

 

5. Roadshow

Potential investors are shown the investment opportunity by the company's management and underwriters during a roadshow that is part of the IPO marketing process. To pique the interest of institutional and individual investors, they hold these presentations in significant cities and financial centers.

6. Pricing and Sharing

The pricing is set by following a process known as fixed price or book building method, where institutional investors bid for shares based on their valuation of the company. The approach ensures that the final share price is competitive at market-driven prices to help attract as wide a range of investors as possible.

 

7. IPO Launch

When everything is approved, the IPO goes live on the stock exchange. This means all the shares can be bought and sold by public investors.

 

Conclusion

SME IPOs are excellent avenues for raising capital, exhibiting good governance, and increasing their market share for the small and medium-scale enterprises. They are also a good avenue for investors to participate in such growth companies that have higher potential but demand thorough scrutiny in every case. Careful analysis of financials, business models, and market conditions will help ensure informed investment decisions.