Small and Medium Enterprises (SMEs) can achieve faster growth by taking advantage of opportunities to list on SME-focused exchanges. There are numerous appealing benefits, including easy and cost-free access to capital and enterprise valuation. Growth-oriented SMEs find these opportunities hard to resist, especially with relaxed criteria and an easy listing process.
Many small and medium enterprises (SMEs) remain uncertain about how to list on the SME platform. While some SMEs wish to do so, others hold significant misconceptions about the listing process on the exchange. But listing is highly beneficial and easy with a fit-for-SME eligibility. As far as an SME is concerned, listing is a rapid road to grow into a corporate size.
Listing takes a company to the next level, if the promoters are keen to keep the company well-capitalised without recurring interest burden and enforce self-discipline. Now SMEs have good opportunities for listing on the SME platform of BSE or NSE, or both. The SME platform of BSE opened in March 2011, and NSE’s SME platform came into existence in September 2012. Since then, around 700 companies have been listed on the SME platform of BSE, and approximately 200 of them have migrated to the main platform. As of now, the BSE SME platform is the biggest SME exchange in India, and the NSE stands second with around 600 companies traded on its platform.
A company incorporated under the Companies Act, 1956, with less than Rs 25 crore paid-up capital, a minimum Rs 1 crore net worth for two consecutive years, and tangible assets worth Rs 3 crore in the preceding year, can seek listing, provided it meets other criteria laid out by the exchange and regulators.
The prospective listing seekers should be at least three years old, including their legacy, if any, of a proprietorship concern, registered partnership firm, or limited liability partnership with a record of operating profit. There should not be any changes in the promoters of the IPO-targeting company in the preceding year.
A company planning for an IPO should have a track record of operations spanning at least one full financial year, along with audited financial results for that year. If a company lacks three years of operational history, it should have a project appraised and funded by NABARD, SIDBI, commercial banks (excluding cooperative banks), and NBFCs. In such cases, the company needs only one full year of audited financial results showing a profit. The companies should have a leverage ratio (debt-equity) of not more than 3:1, with some relaxation in the case of finance companies. The company, its promoters, any of the subsidiaries, and directors should not have been in default or facing disciplinary action by the exchange or market regulator in the past.
Broking companies and microfinance companies have different criteria in terms of net worth, existence, and profitability. All companies must have a functional website, 100 per cent of promoter holdings in dematerialised form, and a mandatory agreement with depositories to trade in demat securities.
The application procedure begins with submitting the Draft Red Herring Prospectus (DRHP), typically prepared by Merchant Bankers and filed with both the Exchange and SEBI as required. After submission of the DRHP, the Exchange verifies the documents, officials visit the site, and the promoters are called for an interview with the Listing Advisory Committee, before processing it. The exchange issues an In-principle approval on the recommendation of the Committee, provided the company complies with all the requirements. The Merchant Banker files these documents with the Registrar of Companies (RoC), indicating the opening and closing date of the issue. RoC intimation to the Exchange follows the declaration of the issue opening date. The exchange finalises the basis of allotment and notifies the date of listing for trading.
Benefits galore
- Easy access to substantial no-cost capital
- Self-discipline and accountability
- Better public attention and credibility
- Enhanced financial status
- Easy to find the right enterprise value
- Higher valuation as per the performance and business prospects
- Opportunities for growth and scaling up the business
- Easy to plan for expansion, mergers, and acquisitions
- Liquidity for shareholders to exit and new investors to position and share the benefits of growth
- An exit route for Venture Capital firms
- Opportunities for employees to share the benefits of enterprise value and capital appreciation based on the company’s performance and business prospects
