IPO or Initial Public Offering is the culmination of years of planning, preparation and execution. The journey starts with the business ideas given a legal share on incorporation of a legal entity. On successful IPO, the legal entity will have access to large pool of public investor money, market visibility, opportunity for expansion, paying off the existing debt and exit opportunity. In the present article, we are exploring the enjoyable and exhausting journey of IPO of SME (Small and Medium Enterprise) from the ideas to execution.
1. Business and customers are key. After incorporation of a company, the promoter must focus on business with own capital and less debt fund. If the business grows, everything will fall in line. Be prudent and reasonable in taking business decisions. No show off of big car, flat and luxury life. Build a reputation in the market you are in. Make timely payment to your vendors, give quality products/services as promised to the customers. No short cut in legal, taxation and other compliances.
2. Time Horizon: Keep a time horizon of 3-5 years of robust business. The financials of your business must be consistently upward moving. Keep close watch on revenue and profitability. They should outperform the industry. This will fetch good valuation for your business.
3. Planning for Pre-IPO: Hire expert legal and financial consultants. Use your common sense for timing of IPO. Remember you know your business and industry better than anyone else and all risks and reward will be yours only. Meet and hear the consultants, but take decisions of timing based on your own perception of market. Market optimism will generate more and more interest in your IPO. Plan everything in details with timelines and the costs.
4. Take care of 5 Ps for IPO:
- Planning- Appoint a reasonable Merchant Banker (MB) as advisor. While selecting the Merchant Banker, be careful of the reputation, time and cost and experience of MB.
- Preparation: MB will undertake due diligence of your business, legal and financial aspects and advise you on IPO structure, share issue and financial requirements.
- Process: It is the time for preparation of Draft Red Herring Prospectus/draft prospectus. MB will help in preparation along with your inhouse team and then submit to the stock exchange and SEBI. The stock exchange officer will visit your business premises. The promoters will have the meeting/interview with the Listing Advisory Committee of the Stock Exchange. The BSE will issue the approval in principle on recommendation of the Committee. Now, it is the time to file RHP with ROC and seek its approval.
- Public Offering: The IPO opens and closes as per the Schedule already shared with the Stock Exchange. Submit the documents as per the checklist for finalisation of allotment.
- Post Listing: Now after finalisation of basis of allotment, the stock exchange issues notice for listing and trading.
5. Criteria of SME IPO:
Post issue paid up capital not to exceed Rs. 25 crores.
- Minimum 3 year existence after incorporation
- Net worth of Rs. 1 crore for 2 full financial year
- Net Tangible assets of Rs. 3 crore in last preceding full financial year
- Operating profit to be positive
- Leverage ratio not more than 3:1
- No default in payment of interest/principal
- No disqualification/debar from any regulatory authority
There are additional requirements and stringent post issue compliances.
*****
In case you are planning for SME IPO, and need any support or have any query, you may like to connect with us.
Abhinarayan Mishra FCA, FCS, LL.B, IP, RV; Partner, KPAM & Associates, Chartered Accountants, New Delhi ; +91 9910744992; ca.abhimishra@gmail.com
Author Bio
