Six IPOs open today – 5 mainboard & 1 SME

Six IPOs open today – 5 mainboard & 1 SME. But what is the difference between a mainboard and an SME IPO? 🧐

The Indian exchanges allow companies to either list on the main board, or if the company operates at a smaller scale, it is allowed to list as an SME company. The “mainboard,” like snail mail, acoustic guitars, and analog watches, is a retronym. Like these were named after the advent of their digital/electronic counterparts, the mainboard was named such after the SME segment was conceptualized.

What are the listing requirements for the companies wanting to list on the SME segment? 👨‍🎓

1. Post-Issue Paid-up Capital: The company’s post-issue paid-up capital (at face value) should not exceed Rs. 25 crores.

2. Tangible Assets: The company should have net tangible assets amounting to at least Rs 1.5 crore.

3. Track Record: The company or its predecessor entity (such as a partnership, proprietorship, LLP firm, etc.) that has been converted into the company must have a combined track record of at least three years. Alternatively, if the company has not been operational for three years, it must have been funded by banks, financial institutions, central or state government, or be a part of a group company listed on either the main board or SME board of the Exchange for at least two years.

4. Cash Accruals and Net Worth: The company (or its predecessor form) must have had positive cash accruals (earnings before depreciation and tax) in at least one of the last three years, and its net worth should be positive.

➡ Unlike mainboard listings, where you can trade a minimum of 1 share, SME stocks can be traded in multiples of their lot size.

➡ The minimum lot size for SME IPOs and subsequent trading is above Rs. 1 lakh. This restriction is put in place to convey that SME stocks are coupled with higher risk and small investors should not participate in this segment.

This guest post is by Mohit Mehra. Mohit splits his time between Zerodha & Rainmatter, sharing his experiences on this blog.