Upcoming SME IPO

Of late, several small and medium enterprises (SMEs) have launched their initial public offerings (IPOs). Investing in SME IPOs gives you the chance to participate in the growth story of these firms. Stay updated with upcoming SME IPOs in India and track their subscription and status live here. Not only this, you can also track the performance of ongoing SME IPOs. Here’s your one-stop destination for all upcoming SME IPOs. We constantly update our SME IPO list so that you don’t miss out on anything.

What is an SME IPO?

SME IPOs are IPOs offered by small and medium-sized companies. Like big companies, SMEs also offer shares to the public for the first time during IPOs. SMEs use the proceeds received from the IPO to fulfil various objectives such as funding expansion, buying machinery, investing in technology, etc. Once the IPO ends, the shares are listed on the designated stock exchange.

Note that SMEs often lack the necessary funding to operate at their full potential. They raise funds through IPOs to meet their objectives. Investing in upcoming SME IPOs allows you to become a part-owner of the company. If the company performs well, it can benefit you in the long run.

Who Can Invest in an Upcoming SME IPO?

Several categories of investors can invest in upcoming SME IPOs. These include:

• Qualified Institutional Bidders

Qualified institutional bidders (QIBs) comprise experienced and large investors. They generally have more information about markets than others. These include asset management companies (AMCs), insurance firms, banks, public financial institutions, etc. Generally, not more than 50% of the issue size is allotted for QIBs in a book-built issue.

• Non-institutional Investors

Non-institutional investors, or NIIs as they are commonly known, are high-net-worth individuals. Though big, they are not as large as qualified institutional bidders. However, they do spend relatively large sums of money and do play a vital role in an SME IPO’s overall subscription status. A strong participation of NIIs, like QIBs, is seen as a sign of confidence in the company.

• Retail individual bidders

Retail individual bidders comprise small investors, who are smaller in scale than QIBs and NIIs. On most occasions, generally not less than 35% of an IPO’s allocation is reserved for them in a book-built issue. This gives them a fair chance to participate in an IPO, and they generally apply through the Application Supported by the Blocked Amount (ASBA) facility. This ensures their money remains blocked till allotment is finalised.

Key Features of SME IPOs

Listed below are the key features of SME IPOs:

• Listing Platforms

SME IPOs don’t get listed on the main exchange of the NSE or BSE. Instead, they are listed on platforms designated for SMEs. These include NSE Emerge and BSE Emerge. Listing on these platforms offers visibility to SMEs, helps them raise capital, and enables them to migrate to the main board once they become eligible.

• Use of IPO Proceeds Capital market regulator SEBI has recently imposed restrictions on how SMEs can utilise funds raised through IPOs. The funds raised can’t be used to repay loans taken from promoters, promoter groups, or related parties.

• Risk and Return

SME IPOs are generally riskier than mainboard IPOs. This is because these companies are less established and face greater business uncertainties. To reduce speculative participation, SEBI has doubled the minimum application size for SME IPOs to two lots. This makes it difficult for casual investors to invest in them. That said, their return potential is also higher. If the company performs well, your returns can also grow.

What is the SME IPO Eligibility Criteria?

SME IPO eligibility criteria include a positive EBITDA over the past 2 years (preceding the application date), along with non-exit of promoters before a year post-listing. Some other eligibility norms include:

• Valid Registration

The company must be registered under the Companies Act 1956 (now Companies Act 2013). It can’t go public without a valid registration.

• Operational History

SME IPO companies must have an operational history of at least 3 years. If they don’t, they can’t offer shares to the public.

• Net Tangible Assets

Net tangible assets represent the total value of a company’s physical assets minus all its liabilities and intangible assets. For SMEs who wish to go public, the value of net tangible assets should be a minimum of ₹1.5 crores.

• Post-issue Paid-up Capital

Post-issue paid-up capital is received by the company from shareholders in exchange for shares offered after the issue. For SME IPOs, the post-issue paid-up capital shouldn’t be more than ₹25 crores.

Factors to Consider Before Investing in SME IPOs

Whether you wish to invest in an ongoing SME IPO or upcoming SME IPOs, you need to be aware of certain things. These include:

• Company Business Model

Find out what the company does and how it makes money. It's crucial for you to evaluate whether the business model is sustainable in the long run or not.

• Financial Performance

Numbers don't lie, and they tell the real story. Go through key financial parameters, such as the company's revenue, profit, and cash flow over the years. Consistent numbers show stability and vice versa.

• Industry Outlook

Strong companies can struggle in weak industries. It's vital for you to study the sector in which the company operates and find out its future prospects. A growing and promising sector augurs well for you.

• Risk Factors

Every company going for an IPO has certain risk factors. It’s important for you to understand the risks that can affect business operations and revenues. Go ahead only if you are comfortable with them.

What is the Impact of SME IPOs on Investors and Markets?

SME IPOs impact investors and markets in several ways. To investors, it gives them a chance to participate in the growth story of fundamentally strong companies at a lower entry price. If the company performs well, you, as an investor, can gain in the long run.

As far as markets are concerned, SME IPOs help bring more diversification and help spread wealth beyond large corporations. It encourages entrepreneurship, which boosts competition. Opening up avenues for collaboration and expansion, they help build confidence among small businesses. It also helps strengthen capital markets, thus making them more inclusive. Successful ones eventually migrate to large exchanges, thus adding stronger companies.

How to Apply for an SME IPO?

You can easily apply for upcoming SME IPOs in India through Kotak Securities. All you need is a Demat account with us, post which you can easily apply. Once you have a Demat account:

• Log in to your Demat account - Log in to your Demat account with the credentials to access IPO investments. Next, select the current IPO section.
• Specify IPO details - Input the number of lots and the price you wish to apply for.
• Enter UPI ID - Click submit, after entering your UPI ID. This will place your bid with the exchange.
• Mandate Notification - Your UPI app will get a mandate notification to block funds.
• Approve Request - Upon approval of the mandate request, your funds get blocked.

How to Increase Your Chances of SME IPO Allotment?

To enhance your allotment chances:

• Use More Than One Demat Account Apply from multiple Demat accounts and not just one. However, make sure each account has a unique PAN. You can apply through the Demat accounts of your family and friends. When you use more than one Demat account, it boosts the chances of receiving at least one allotment.

• Avoid Last-Moment Applications Don't wait for the last day to apply. Last day applications may encounter several issues, such as technical glitches and server overloads due to high traffic. Try to apply early, on the first or second day of the IPO.

• Double-Check Your Application

Cross-check all the information in your application, including your name, PAN number, Demat account number, bank account details, etc. Also, make sure the linked bank account has sufficient funds to cover the application amount. Incorrect details and insufficient funds could result in a rejection.

• Apply at the Cut-off Price

Select the cut-off price for IPO application. Doing so boosts your chances of allotment. When you apply at the cut-off price, you show your willingness to purchase shares at the price set by the company.

How to Track SME IPO Allotment Status?

You can track the allotment status of SME IPOs on the website of the IPO registrar, BSE and NSE. To know the allotment status on the BSE website:

• Visit the BSE website
• Click on ‘Status of Issue Application’ under ‘Investor Services’
• Choose ‘Equity’ as issue type and choose ‘Issue Name’ from the dropdown
• Enter either your ‘Application Number’ or ‘PAN Number’
• Click on ‘Search’ to know the status

To check the status on the NSE website:

• Go to the official website of the National Stock Exchange
• Next, follow this path: Invest > Resource & Tools > Check Trades/Bids > Verify IPO Bids
• Select the company name from the dropdown
• Enter your PAN or application number
• Click on ‘Submit’ to know about the IPO allotment status check

To track allotment status on the registrar’s website:

• Visit the official website of the IPO registrar
• Find out the IPO Allotment Status Link
• Select the IPO and enter your PAN or application number
• Click on ‘Submit’ to know the status

Conclusion

As India emerges as an economic powerhouse, SMEs have a crucial role to play in the coming days. Investing in upcoming SME IPOs not only helps companies mobilise funds for their growth but also aids you in diversifying your portfolio. That said, adopt due diligence, go through the company’s red herring prospectus, and make sure you do your homework right.