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How to List

Listing an IPO is a cumbersome and an exercise needing high diligence. Thus, it is important that every corporate is aware about the requirements and kind of preparation required to do before being ready to enter the capital markets.

Selection of Merchant Banker

Engaging the right Merchant Banker who understands the philosophy, business model and wave-length of the SME company and its promoters is the most important step in the IPO process. One of the foremost role of the merchant banker is due diligence and preparation of draft offer document. This assumes increased importance, as SME IPO does not require the offer document to be cleared by SEBI.

Another major role of the merchant banker is to chalk-out the IPO strategy and market the issue. Merchant banker needs to ensure 100% underwriting, including 15% underwriting out of its own account, for any SME IPO.

Thirdly, the merchant banker plays an important role in selecting right market makers for the company's scrip. Choosing and using all the intermediaries is a great challenge for any merchant banker. It is important for the merchant banker to assist the issuer in selecting intermediaries like Registrar & Transfer Agent, Syndicate Members/Sub Syndicate Members, Printers, Bankers, Advertising Agency etc. Understanding of the stock exchange regulations and determining the Designated Stock Exchange are also very important functions

Selection of Merchant Banker
An SME needs to convert itself to a public limited company, if already not a public limited company.
SME is also required to restructure capital so as to comply with regulations and requirements of raising equity capital through IPO.
Valuation of SME needs to be carried out to arrive at the financial strength of the company as well as to decide size and pricing of its IPO.
Due Diligence as part of IPO

Due diligence is required to be conducted on various approvals and regulations that a corporate is required to comply. The risk factors associated with the company and the external environment have to be very clearly understood. The applicability of certain regulations needs to be clearly mentioned. The litigations have to be listed out and their relative magnitude be analyzed by the corporate but left to the judgment of the legal people.

Avoid suppression of profits from taxation point of view. Full and truthful disclosure of profits will help in getting better valuation
Before coming for listing on Exchanges, improve Operating Profit Margins, Profit Margins, EPS (Earning per Share), Cash Flow of company. Industry Price/Equity (P/E) Ratio and Goodwill are some of the critical items considered for valuation of the company
Net worth of the company and Debt/Equity ratio are important to decide the extent of equity capital that the SMEs can raise from the capital markets. The companies are advised to dilute the equity in phases at different stages of their growth, instead of diluting large equity upfront. This will help them to raise optimal capital from markets for their growth and expansion
Detailed Disclosures on Company

Indian Capital Markets are governed by disclosure-based Regulations. Hence, detailed disclosures on various aspects of a company are must. Some of the important disclosures required in an SME IPO include the following :

Audited Annual Reports
Peer Review by Reputed Chartered Accountant firms (since its inception or last 5 years, whichever is shorter)
Due diligence on the applicability of various regulations
Due Diligence on various approvals required from regulatory bodies
Detailed disclosures about the profile of the company
Detailed disclosures on Promoters & Management
Detailed disclosures about the Past Performance of the company
Detailed disclosures about the Risk Factors associated with the company
Detailed disclosures about the External Environment affecting the company
Detailed disclosures about litigations and documenting its magnitude and ramifications
Detailed disclosures about the Business activity, Industry background, competition and business environment
Objects of the issue and issue structure
Future plans and strategy of the company
Management's discussion and analysis of the financial results
Material Contracts and Agreements
Articles of Association (AoA) for allowed lines of business
Letters of Contract with each member of issue management team
Loan agreements and sanction letters with Financial Institutions/Banks
Deeds of hypothecation /mortgages executed in favour of lenders
Underwriting agreements
Agreement with the Key Management Personnel (KMP)
Purchase Orders with major suppliers
All utilities contracts and permissions
Syndicate and Escrow agreement
Promoters and Management
Quality experience, qualifications, reporting structures, composition of Board of Directors
Quality of human resources
Details of Key Management
Pledge details
Preparation of Offer Document
Offer Document for IPO

The offer document explains the company's competitive strengths, strategy and market opportunity. The offer document also informs investors of the risks relating to the company in order to protect the company and its directors from potential liability.

The offer document is the main marketing document for any IPO and SME IPO is no exception. Therefore, it is important that the offer document is prepared with utmost diligence, and by merchant bankers with professional team having technical knowledge and domain business expertise.

The offer document should not contain statements that are ambiguous or not supportable. This involves checking that each statement in the offer document has a legitimate source. Otherwise, the company and the directors may be liable for any misleading statements in the offer document.

Marketing Strategy and Targeting Potential Investors

The next step in the listing process is to target and meet key potential investors. This is an opportunity for senior management and advisers to meet with potential investors and persuade them to invest in the company.

This typically involves a number of presentations to institutional investors, as well as one-on-one meetings with key potential investors. It is important that potential investors should come away from this meeting with a clear understanding of, and enthusiasm for the company's business and prospects.

Along with the direct efforts, a sustained media effort including visual media, regular interaction with the brokers, large institutional investors and high net worth individuals is necessary to create awareness about the public issue. It is also important that the industry news and the story relating to company needs to be well positioned. Selection of bidding centers should be done by identifying the investors' centres and brokers so that maximum investors can participate in the bidding process. Targeting the key potential investors will help save time and cost of marketing.

Pillars of successful Marketing Strategy
Effective equity story supplemented by proper research and proper documents
Presentations to the investors and the analysts; and consider their feedback
Creating sustainable valuation and sustainable shareholder base
Effective communication for better results
Appointment of other Intermediaries

Apart from the Merchant Banker to the issue, there are various other intermediaries involved in the process of listing. The same have been listed as below;

Syndicate Members

The Book Runner(s) may appoint those intermediaries who are registered with the Board and who are permitted to carry on activity as an 'Underwriter' as syndicate members. The syndicate members are mainly appointed to collect and entire the bid forms in a book built issue.


The Registrar finalizes the list of eligible allotees after deleting the invalid applications and ensures that the corporate action for crediting of shares to the Demat accounts of the applicants is done and the dispatch of refund orders to those applicable are sent. The Lead manager coordinates with the Registrar to ensure follow up so that that the flow of applications from collecting bank branches, processing of the applications and other matters till the basis of allotment is finalized, dispatch security certificates and refund orders completed and securities listed.

Bankers to the Issue

Bankers to the issue, as the name suggests, carries out all the activities of ensuring that the funds are collected and transferred to the Escrow accounts. The Lead Merchant Banker shall ensure that Bankers to the Issue are appointed in all the mandatory collection centers as specified in SEBI ICDR Regulations 2009. The LM also ensures follow-up with bankers to the issue to get quick estimates of collection and advising the issuer about closure of the issue, based on the correct figures.

Issue Stationery Printers

These are firms that specialize in printing of issue stationery-offer documents, abridged prospectuses and application forms, and in subsequently dispatching these to the designated points.

Filing of offer document with Exchange and others

With a view to quicken the process of listing, the SEBI has delegated the powers to Exchange with respect to approving the Draft Red Hearing Prospectus.

Issue Pricing and Allocation

Like a main board listing, Initial Public Offering in SME Exchange can be made either through the fixed price method, book building method or a combination of both. For details, please refer "hyperlink"

Listing and Market Making

In comparison to the main board listing, SEBI has made it mandatory to have market maker for all the scrips listed on SME Platform.

The obligations for market makers are as follows:

The merchant bankers to the issue will undertake market making through a stock broker who is registered as market maker with the SME Platform.
The merchant bankers shall be responsible for market making for a minimum period of 3 years.
The market makers are required to provide two way quotes for 75% of the time in a day. The same shall be monitored by the exchange.
There will not be more than 5 market makers for scrip.
Market makers will compete with other market makers for better price discovery.
The exchange shall prescribe the minimum spread between the bid and ask price.
During the compulsory market making period, the promoter holding shall not be eligible for the offering to market makers.
Market Maker shall be allowed to deregister by giving one month notice to the exchange.
Trading system may be either order driven or quote driven.

The application and trading lot size is being kept at Rs. 1, 00,000/- so as to curtail the entry of retail investors. It has also been stated that the minimum depth shall be of Rs. 1, 00,000/- and at any point of time it cannot go below that amount. The investors holding with value less than Rs. 1, 00,000/- shall be allowed to offer their holding to the market maker in one lot. However, in functionality the market lot will be subject to revival after a stipulated time.

Further, in accordance with the new regulation, the sub regulations (1), (2), and (3) of regulation 6 (filing of offer document) regulations 7 (in principal approval), regulation 8 (documents to be submitted before opening the issue), regulation 9 (draft offer document to be made public), regulation 10 (fast track issue), regulation 25,26, & 27 (eligibility requirements for IPO & FPO) and sub regulation (1) of regulation 49( minimum application value) of these issues shall not apply to an issue of specified securities made under this Chapter. That means, all other regulations will apply as such with such modifications as necessary.