Dreaming to list your SME IPO on NSE Emerge but not sure if you meet the exchange eligibility criteria, we have the solution for you. Both the BSE SME and NSE SME Exchange have similar IPO listing requirements with some differences. Let’s check out the detailed eligibility criteria to bring SME IPO on the NSE Emerge platform. The key requirements include the company’s post-issue paid-up capital, track record, profitability, net worth, free cash flow, etc.
Small business founders who want to get listed on the NSE Emerge must have their company incorporated in the Companies Act 1956 or 2013 in India.
If you own a private limited company, sole proprietorship or partnership firm, it must get converted into Public Limited Company to raise funds from the public.
Post-issue Paid-up capital
SME owners whether want to get listed on BSE SME or NSE Emerge, the after-issue paid-up capital should not exceed Rs 25 crore. Companies above Rs 25 crore paid-up capital will be listed on BSE and NSE exchange.
SMEs must be operational for a minimum of 3 years to take their company public.
The applicant company seeking listing has completed 3 years of operations or more.
Promoters or promoting companies, in or outside India, must have a minimum of 3 years of experience and hold at least 20% of post-issue share capital individually or collectively
Proprietary or partnership firms that have been converted into a company has 3 years of operational history (not as a company but overall)
SME Net worth and Minimum Profitability Criteria
Is it mandatory for SMEs to be profitable for listing on the SME exchange?
Yes, promoters filing for NSE SME IPO must have operating profit (earnings before interest, depreciation, and tax) for at least any 2 out of 3 full financial years preceding the application. As per SEBI's new norms dated December 18, 2024, all SMEs planning for IPO must report a minimum of Rs 1 crore EBITDA in any two out of the last 3 financial years.
Also, companies must exhibit positive net worth.
Positive Free Cash Flow
For the increased level of scrutiny, NSE has added eligibility criteria of positive free cash flow for listing on NSE emerge w.e.f 1st Sep 2024. The new criteria require SMEs to have positive Free cash flow to equity (FCFE) for at least 2 out of 3 financial years preceding the date of filing for IPO.
Here, FCFE is the net cash available after meeting all operating expenses, interest obligations, taxation, capital expenditures, and repayment of debt.
NSE Emerge Exchange Guidelines to Calculate Free Cash Flow to Equity (FCFE)
As per the new guidelines issued on 22 August 24, SMEs desirous to get listed on the NSE Emerge must have positive Free Cash Flow to Equity (FCFE) for at least 2 out of 3 full financial years. The new rules will be applicable for DRHPs filed on or after 1st September 2024.
FCFE = Cash Flow From operations – Purchase of Fixed Assets + Net Borrowings – Interest *(1-T)
Cash Flow from operations = Cash generated from operating activities – Income tax
Purchase of Fixed Assets = purchase of property, plant, and equipment (PPE) including capital work in progress – sale proceeds of PPE including capital work in progress + capital advances
Net borrowings = Proceeds of Long-term borrowing – Repayment of long-term borrowings + Proceeds of short-term borrowings – Repayment of short-term borrowings
Interest (1-T) = Interest expense on short-term and long-term borrowings * (1-tax rate)
Promoters Lock-in and restriction on OFS
OFS size in SME IPO is restricted to 20% means any SME IPO can have maximum 20% OFS and remaining 80% as fresh issue. No SME can offer IPO via 100% offer for sale.
Promoters who are selling shares in the company (Selling shareholders) cannot sell more than 50% stake or shareholding.
Minimum promoters contribution is locked for 3 years and 50% of excess of minimum contribution is locked for 1 year and rest for 2 years.
Restriction on Fund Utilization
A company cannot use funds raised through IPO to repay promoter/s loan.
SME cannot use more than 15% of total funds raised or Rs 10 crore, whichever is lower to meet general corporate purposes.
Additional Listing Requirements for NSE SME
IPO applicant has not been referred to the Board for Industrial and Financial Reconstruction (BIFR) or no proceedings are undergoing under the Insolvency and Bankruptcy Code.
The entity has not received a winding-up petition from the Court or NCLT.
The issuer has not been involved in any regulatory misconduct and no disciplinary action has been taken by a regulatory authority in the past 3 years.
IPO issuer company must ensure that none of the IPO merchant banker or lead manager’s draft offer documents filled with exchange has been rejected in the last 6 months before the date of IPO application. You can find the list on merchant banker-wise list of returned SME IPO applications on the NSE SME exchange.
Disclosure Requirements
The IPO offer document must disclose the following matters;
Any materialistic regulatory or disciplinary action by the stock exchange or regulatory authority against the promoters, promoting company (ies), other companies promoted by the SME promoters in the last 1 year
Default in interest and principal payment to debenture, bond, and fixed deposit holders in the last 3 years
Litigation records with nature and status of lawsuits against the Applicant Company, promoters or promoting company, or group companies.
Criminal cases filed against company directors and its effect on the business.
Rejection Cooling Off period
The company seeking listing, their application should not have been rejected in the last 6 months. Means, if the exchange has rejected any company’s application, it is not eligible to apply for listing within 6 months.
Are you an SME company looking to raise funds and get listed on the stock market? We can help — contact us today to start your IPO journey with trusted professionals.
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