What is SME IPO? Meaning, How to Apply

Small and Medium Enterprises (SMEs) are pivotal to economic growth, often seeking capital through an Initial Public Offering (IPO). An SME IPO enables these companies to offer shares to the public for the first time. With the convenience of IPO online services, investors can now apply for these offerings easily. IPO application app like HDFC SKY streamline the process, allowing users to browse upcoming SME IPOs, place bids, and monitor their applications directly from their smartphones. This integration of technology makes investing in SME IPOs more accessible and efficient.

What Is an SME?

Small and Medium Enterprises (SMEs) are companies that operate on a smaller scale compared to large corporations but play a critical role in any economy by driving growth, creating employment, and fostering innovation. SMEs typically have fewer employees, limited financial resources, and operate in niche markets. In India, the classification of SMEs is based on their annual turnover and investment in equipment or machinery.

What is an SME IPO?

An SME IPO (Initial Public Offering) is a process by which a Small or Medium Enterprise raises capital by offering its shares to the public for the first time. Unlike Mainboard IPOs (offered by large corporations), SME IPOs are tailored specifically for small and medium-sized businesses. SME IPOs allow these enterprises to raise funds from retail and institutional investors to fuel growth, expand operations, or enhance their market position.

Key benefits of SME IPOs:

• Access to capital: SME IPOs provide SMEs with the capital they need for growth.
• Visibility and credibility: Listing on a recognized stock exchange increases the credibility of the SME.
• Liquidity for shareholders: It provides an exit opportunity for early investors and promoters.

Features of SME IPOs

1. Lower Scale of Operations: Unlike larger companies, SMEs typically operate on a smaller scale, both in terms of operations and finances.
2. Minimum Lot Size: SME IPOs have a higher minimum lot size compared to Mainboard IPOs. This limits access primarily to High Net-Worth Individuals (HNIs) and seasoned investors.
3. Lower Listing Costs: The cost of listing an SME IPO is significantly lower than a Mainboard IPO. This makes it an affordable option for smaller companies.
4. Stricter Investor Eligibility: Investors in SME IPOs are generally expected to meet certain financial criteria to participate, limiting participation mainly to HNIs and sophisticated retail investors.
5. Lower Regulatory Burden: SME IPOs have slightly relaxed regulatory norms compared to Mainboard IPOs, making it easier for smaller companies to comply.

Difference Between SME IPO and Mainboard IPO

How to Apply for SME IPOs Through HDFC SKY App

HDFC SKY provides a seamless platform to apply for SME IPOs. 

Here’s apply IPO through HDFC Sky app:

1. Download and Install the HDFC SKY App: Start by downloading the app from the Google Play Store or Apple App Store.
2. Create an Account: Register by providing your personal and bank details.
3. Open Free Demat Account Online: Ensure you have an active Demat and trading account linked to HDFC SKY for IPO investments.
4. Access the IPO Section: Navigate to the IPO section of the app to view the list of upcoming IPOs.
5. Select the SME IPO: Choose the SME IPO that interests you, and carefully review the prospectus.
6. Place Your Bid: Enter the number of shares you want to bid for, in compliance with the IPO’s minimum lot size.
7. Complete the Payment: Make the payment via UPI or net banking as required.
8. Track the Allotment: After the bidding period ends, use the app to track your application and the status of the IPO allotment process.

Impact of SME IPO

The introduction of SME IPOs has had a significant impact on the SME sector. Here’s how:

• Capital Access: SME IPOs enable small companies to raise essential capital without relying on traditional forms of debt, which are often more expensive.
• Economic Growth: By allowing more SMEs to grow and expand, SME IPOs contribute to broader economic growth and job creation.
• Market Expansion: Listing on a stock exchange opens new doors for SMEs, including potential international investments and collaborations.
• Improved Corporate Governance: Listed SMEs are required to adhere to stricter governance standards, which can help improve their internal processes.

How Does SME IPO Listing Work?

The process of listing an SME IPO is relatively straightforward but follows a series of well-defined steps:

1. Appointment of Advisors: The company appoints a merchant banker and other advisors to prepare the IPO.
2. Regulatory Filings: Required documentation, including the Draft Red Herring Prospectus (DRHP), is filed with SEBI (Securities and Exchange Board of India).
3. Approval from Stock Exchange: The SME applies for listing on either the BSE SME or NSE Emerge platforms.
4. Public Offering: Once approved, the shares are offered to the public for subscription through brokers or platforms.
5. Distribution and Listing: After the shares are distributed to investors, the SME will be registered on the selected stock exchanges where the shares can be traded.

How to Apply for SME IPO through the HDFC Sky App

Applying for an SME IPO through HDFC Sky is convenient. Here’s how you can apply:

1. Install the App: Download the HDFC Sky from the App Store or Play Store.
2. Open an Account: Register for Demat and trading account.
3. Access IPO Section: Navigate to the IPO section within the app.
4. Review Available IPOs: Check for the latest SME IPOs under the upcoming IPO section.
5. Place Your Bid: Select the SME IPO you wish to invest in, review the minimum lot size, and place your bid.
6. Payment: Complete the payment process using UPI or net banking.
7. Track Allotment: Use the app to monitor the allotment status and trade the shares once listed.

Conclusion

Investing in SME IPOs can be a lucrative opportunity for those who have a higher risk appetite and are looking to invest in growing enterprises. SME IPOs provide small and medium-sized businesses with the funding they need to expand, while also offering investors the chance to participate in the growth story of these companies. Whether applying through HDFC Sky or any other app for IPO, the process is straightforward, and with proper research and due diligence, SME IPO investments can lead to substantial returns over the long term.

By carefully evaluating the risks and benefits and staying informed about upcoming IPOs, investors can make more informed decisions and use IPO app to manage their IPO investments seamlessly.