Small Medium exchange (SME) is a stock exchange to list securities of Small & Medium Enterprises. Currently there are two SME exchange- NSE Emerge platform and BSE SME platform. SEBI had launched the SME platform in 2011 and since then there has been exponential growth in the number of companies listed on the SME exchange and their market capitalization. The major difference in SME IPO vs the main board IPO is that the offer document is vetted by stock exchange in case of SME IPO while in case of main board IPO it is vetted by SEBI.

2024 has seen a record year for SME listings as under:

Retail Investors exuberance driven by strong post listing gains is the primary reason for the robust fund raising in the SME market. However, given the enthusiasm amongst retail investors, SEBI has tightened regulations in December 2024 as under to ensure that companies with strong track record only list on the SME platform.

• Only issuers with operating profits of atleast 1 Crore over 2-3 FYs can launch an IPO.
• Limit on offer for sale by Promoters to 20% of issue size limiting the sale to maximum of 50% of their holding.
• Objects of the issue should not be repayment of loan from promoter or promoter group.
• DRHP to be published in newspaper for public comments for 21 days with QR code.
• RPT norms for main board listed companies to be applicable to SME listed, Material RPT threshold shall be 10% of the consolidated turnover or 50 Cr whichever is lower.
• Amount for General Corporate Purpose (GCP) in SME IPO shall be capped to 15% of amount being raised by the issuer or Rs. 10 crores, whichever is lower.
• SME issues shall not be permitted, where objects of the issue consist of Repayment of Loan from Promoter, Promoter Group or any related party, from the issue proceeds, whether directly or indirectly.
• Allocation methodology for non-institutional investors (“NIIs”) in SME IPOs to be aligned with methodology used for NIIs in main board IPOs.

These stocks are extremely risky and illiquid and small investors should be very cautious before subscribing to these stocks. Hence, the minimum application size for SME issues is kept at Rs 1lac while for main board it is Rs 15,000. SME IPO boosts investor confidence and ensures strong financials and governance although it offers higher risk investment despite their potential for high returns.

Akansha Rathi and Associates (ARACS), Company Secretary Firm in Navi Mumbai is engaged into compliance related services. We have a team of experts who not only possess required skills and experience but also have worked in complex business environment and were engaged in providing complex solutions in terms of providing related Compliance services to our clients.