FAQs

Is market making compulsory in SME IPO?

Yes, the SME IPO market maker is compulsory in SME IPOs. As per the SEBI (ICDR) Regulations, 2018, and the framework of SME exchanges (NSE Emerge and BSE SME), a company issuing SME IPO must appoint a registered market maker. The objective is to provide liquidity to investors and reduce price volatility in relatively less-traded SME stocks.

The key conditions include:

Appointment: At least one SEBI-registered market maker must be appointed during the SME IPO.
Tenure: Market making is mandatory for a minimum period of 3 years from the date of listing.
Inventory Requirement: The market maker must maintain a minimum inventory of shares (as prescribed by the exchange) to provide two-way quotes.
Spread and Depth: The market maker is required to provide continuous buy and sell quotes within the maximum spread defined by the exchange, ensuring fair price discovery and liquidity.
Exemptions: If trading volume increases substantially and liquidity is self-sustained, certain relaxations may be granted by the exchange.
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Applicable laws include SEBI (ICDR) Regulations, 2018, and the rules of the respective SME exchange in India. These collectively make market-making a unique feature of SME IPOs in India.

What’s the cost of bringing a SME IPO?

The Cost of SME IPO in India means the IPO expenses to get listed on the Stock Exchange. It includes the expenses of Initial Public Offer incurred by the company throughout the entire IPO process. The major IPO and SME IPO costs include fees paid to Merchant Bankers, Regulatory fees to SEBI/Stock exchanges, Legal Advisors, Auditors, and Marketing Expenses (Roadshows). Fundraising cost is another type of IPO expense for IPO bound companies. For SME IPOs and Mainboard IPO, IPO cost depends on the IPO Issue size.
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How much minimum revenue and profit is required for bringing a SME IPO?

For Listing on SME Platforms like NSE Emerge and BSE SME, the company must meet certain eligibility criteria for IPO. The IPO Eligibility requirements states that the company must have operating profit of 1Cr in 2 out of 3 financial years before making IPO Application. Though there is no minimum criteria for turnover of the company. However, companies that have achieved a turnover of 20Cr + and PAT of 1Cr + has an advantage over other companies. A company with lower turnover or profitability cannot derive good valuations.

How much assets are required for bringing a SME IPO?

For bringing SME IPO in India, the minimum asset and NSE and BSE eligibility requirements are laid down by SEBI (ICDR) Regulations, 2018 and the listing guidelines of SME platforms such as BSE SME and NSE Emerge.

The SME IPO Eligibility is as under:

Net Tangible Assets: The company must have a minimum net tangible asset of 3 crores as per the latest audited financial results for the BSE SME Platform.
Net Worth: A minimum net worth of ₹3 crores is required.
Track Record: Track record of business for at least 3 years. Minimum EBITDA requirement of at least Rs 1 crore for the last two financial years.
Post-Issue Capital: The post-issue paid-up capital of the company should be between ₹1 crore and ₹25 crores (if it exceeds ₹25 crores, the company must list on the main board).
Other Requirements: The company must have a functioning website, in-principle approval from the exchange, and should not be referred to BIFR or a wilful defaulter.

Who will raise funds/connect with investors for the IPO?

In an IPO (Initial Public Offer), the company raises funds by offering its shares to the public. However, the process of connecting with investors and managing the IPO is handled by investment banks and IPO merchant bankers, also known as book-running lead managers (BRLMs). They prepare the prospectus, decide the price band, market the IPO to investors, and ensure smooth allotment of shares. These intermediaries are vital in reaching out anchor investors, Qualified Institutional Buyers (QIBs), High Net-worth Individuals (HNIs), and retail investors. Simply put, the company raises capital, but the merchant bankers and underwriters connect with investors.

What will be the cost of underwriting the IPO?

The cost of underwriting an IPO, including SME IPO, is not fixed and depends on several factors, such as the size of the issue, the company's risk profile, and market conditions.

For SME IPO, an underwriting partner is mandatory (as per SEBI ICDR Regulations and BSE and NSE SME exchange norms). At least 15% of the issue must be compulsorily underwritten by the merchant banker(s), and the remaining portion can be underwritten by underwriters in consultation with the issuer. The Lead Manager/Merchant Banker has to underwrite at least 5% of the issue size.

In terms of cost, underwriting fees usually range between 2% to 5% of the issue size, depending on:

Size of IPO (smaller issues generally attract higher underwriting costs as a %).
Risk appetite of underwriters.
Company’s financial standing and subscription confidence.

Currently the Company is showing lower profits due to tax impacts, can we now show higher profitability for bringing the IPO?

Company cannot artificially inflate profits just for the purpose of going public in India. However, there are legitimate ways in which a company can reflect higher profitability in the current or upcoming financial year compared to previous years:

Tax Adjustments – If the lower profit was primarily due to one-time or extraordinary tax impacts (like deferred tax liability, MAT credit, or prior-period tax adjustments), then those won’t necessarily affect future years. The upcoming year can naturally show higher profitability.

Normalised Profits – In the IPO process, companies are often allowed to present adjusted or normalised profits by excluding exceptional or non-recurring items, with proper disclosures in the DRHP/RHP.

Improved Operations – If genuine operational improvements, better margins, or cost optimisations are happening, those can reflect in higher profitability and be presented to investors.

Any presentation of profits must be true and fairly stated as per audited financials and SEBI/ICDR regulations.
Misrepresentation or “window dressing” of accounts is strictly prohibited and could lead to rejection of IPO or regulatory penalties.
A company can show higher profits in the current financial year if they arise from genuine operational performance, lower tax impacts, or the exclusion of extraordinary items — but not by artificially adjusting past numbers.

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Currently we are doing business as a proprietorship firm, can we still bring the SME IPO?

A sole proprietorship cannot directly bring an SME IPO in its existing form. To raise funds from the public, it must first be converted into a company.

As per SEBI ICDR Regulations, 2018, if the issuer was a sole proprietorship, it can apply for an IPO only if the converted company has been in existence for at least one full financial year before filing the draft offer document.

Along with this, the business must also meet the eligibility criteria set by SEBI and the stock exchanges. There are generally two ways a sole proprietorship can move toward an IPO:

First option is that a sole proprietorship can first convert itself into a private limited company. Later, when planning for an IPO, it can convert into a public limited company to meet the requirements.
Another option is to directly convert into a public limited company. However, this route involves stricter rules and compliance, so it is usually more challenging.

Currently we are doing business as a partnership firm, can we still bring the SME IPO?

A partnership firm also cannot directly launch an SME IPO in its current organizational form. To access the capital markets, it must first be converted into a company.

As per SEBI ICDR Regulations, 2018, if the issuer was a partnership firm, it can apply for an IPO only if the converted company has been in existence for at least one full financial year before filing the draft offer document.

In addition, the company must meet the eligibility norms prescribed by SEBI and the stock exchanges. A partnership firm has two main routes to move toward an IPO:

Convert into a Private Limited Company first – The firm can first register as a private company and later change into a public limited company. Conversion of Private company into Public company is very important criteria when a company is ready to issue an IPO.
Directly convert into a Public Limited Company – This route is possible but involves stricter regulations and higher compliance requirements, making it a more challenging process.

We are doing 2-3 businesses under our firm, however we wish to list only one business and keep the rest of businesses under the firm. Can we do it?

Yes, a company engaged in multiple businesses can bring an IPO while intending to highlight or raise funds primarily for one business.

However, under SEBI ICDR Regulations, the company must provide full and transparent disclosure of all business activities in the prospectus, including segmental revenues, profitability, risks, and liabilities. Investors and regulators should have a clear understanding of the overall operations, even if the IPO focus is on a single business.

If the company wishes to ensure that the IPO reflects only the chosen business, a common practice is to consolidate into a wholly-owned subsidiary or carry out a demerger. It improves valuation clarity and simplifies the IPO objectives. Otherwise, if all businesses remain under the same entity, the offer document should clearly explain how IPO proceeds will be applied specifically to the targeted business and how the other businesses will continue.

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