SME Exchange provides a great opportunity to the entrepreneurs to raise equity capital for the growth and expansion of SMEs. SME exchange is a stock exchange dedicated for trading the shares of small and medium scale enterprises (SMEs) who, otherwise, find it difficult to get listed in the main exchanges. The concept originated from the difficulties faced by SMEs in gaining visibility or attracting sufficient trading volumes when listed along with other stocks in the main exchanges. World over, trading platforms / exchanges for the shares of SMEs are known by different names such as Alternate Investment markets or growth enterprises market, SME Board etc.

In India, Small and Medium Enterprises (SMEs) looking to raise capital through an Initial Public Offering (IPO) can list their shares on two dedicated platforms: the BSE SME and the NSE EMERGE.

• BSE SME: This platform was launched by the Bombay Stock Exchange (BSE) to offer SMEs a gateway to raise equity capital for growth and expansion. It supports SMEs by providing an investor-friendly environment, which helps them list and trade their shares similarly to the larger corporations on the main exchanges.
• NSE EMERGE: This platform is managed by the National Stock Exchange (NSE). It specifically caters to SMEs, facilitating them to not only access capital markets but also to enhance their visibility and credibility in the market. NSE EMERGE aims to support the growth of these enterprises through easier access to public financing.

Both platforms are regulated and designed to accommodate the unique needs of SMEs, providing a structured and compliant environment for them to list and trade their shares. These platforms enable SMEs to expand their investor base and achieve greater scalability.

When a small or medium enterprise decides to go public through an SME IPO, it is crucial to clearly communicate how the raised funds will be utilised. This information, known as the objects of the issue, is detailed in the offer documents and provides transparency to potential investors. The object of the issue is typically categorised into two main components:

• Fresh Issue: This involves the creation and sale of new shares, with the proceeds directly benefiting the company. For instance, a growing e-commerce startup might use fresh issue funds to expand its warehouse networks across India.
• Offer for Sale (OFS): In this case, existing shareholders sell their stakes. The proceeds go to these selling shareholders rather than the company. An example could be an early investor/Promoter in a successful tech firm selling a portion of their shares to realise returns.

Companies often use a combination of these approaches to meet various objectives. Common purposes for SME IPOs include:

• Funding working capital requirements
• Repaying existing debts
• Investing in research and development
• Supporting general corporate activities
• Expanding into new markets or product lines
• Strengthening the brand through marketing initiatives
• Acquiring new equipment or technology
• Pursuing strategic partnerships or acquisitions
• Opening new retail locations or production facilities

Though, the technical requirement as per the eligibility criteria is that the company should have positive EBITDA.

- For SME IPO : Profitability in 2 out of the last 3 years

- For Main Board : Average operating profit of ₹15 crore over 3 years

It takes around 3-5 months if all the documents are given on time.

No, the company with a track record of 3 years is eligible for raising IPO.

Cost of raising funds through SME IPO ranges from 50 Lakhs to 1 crores depending on parameters like IPO size, services used etc. Sometimes it may be lower also as every IPO is different and cost varies depending on the IPO.

Yes, a proprietorship firm/Partnership firm can bring the IPO on conversion to public limited company.

The listing happens at the Company level not the business level.

The SME platform will have one time listing fee of Rs. 50,000/-.

Annual Fees will be minimum Rs. 25,000 or 0.01% of full Market Capitalization whichever is higher. The basis of calculation of Market Capitalization will be average of price as on March 31 or last day of trading in the financial year.

SME stocks are listed on BSE SME and NSE Emerge. The platforms are run by BSE and NSE and governed as per SEBI regulations.

Though, the technical requirement as per the eligibility criteria is that the company should have positive EBITDA. However, the company which has achieved a turnover level of 20 cr+ and PAT of around 1cr+ (however in case turnover is 30cr+, 3-4% PAT is feasible) of revenues has an advantage over others.

The Merchant Banker who has been appointed for the IPO usually raises the funds. Else the companies may arrange for investors themselves in their investor community.

Deciding between SME IPO and the main exchange depends on your company's size, profitability, and funding needs. SME IPOs are ideal for smaller companies with lower capital requirements, typically profitable for the last two years. The main exchange suits larger businesses with a minimum average operating profit of ₹15 crore over the last three years, seeking broader market access and higher funding.

The SME Exchange is designed for small and medium-sized enterprises to raise capital with fewer compliance requirements and lower listing costs, making it suitable for smaller businesses. The Main Exchange caters to larger companies with higher capital needs, requiring stricter regulatory compliance and higher listing expenses. SME Exchange provides easier entry for growing businesses, while the Main Exchange offers greater visibility and access to institutional investors.

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