Valuation India

SME IPO – 24 aug

General Expectations from SMEs before applying for IPO:

  • Books of accounts should be clean, properly documented.
  • All legal compliances such as taxes, labour laws, pollution control etc should be complied with timely.
  • Board members preferable should have outsiders with domain / technical expertise.
  • Corporate Governance should be better than a normal family-owned firm.
  • All financials and accounting data for at least for 3 to 5 years including accounting software must be available.
  • Internal management team for IPO process should preferably have a CA or an Accounting / Finance Expert.
  • Internal management team for IPO process should preferably have a Company Secretary.
  • Mindset of the management should be more positive and open ended towards investors. Roles shifts from owner to trustee of the Company.
  • IPO process require patience, proper planning, and execution. Timing is also very important. You cannot rush things.

Benefits of SME IPO:

Apart from fund raising in IPO following are additional benefits:

  1. Brand recognition.
  2. Credit rating improvement.
  3. Better financial stability
  4. Unlimited capital market access for future fund raising.
  5. Unlocking of value to promoters.
  6. Wealth creation

Step required for IPO:

  1. Preparation of business plan for fund raising.
  2. Finalization of Equity raising Plan
  3. Group / Company restructuring if any. (e.g., carving out other assets, business divisions)
  4. Conversion from Private to Public Company.
  5. Increase in Share Capital limits, if any.
  6. Forming an internal team for IPO planning & decision.
  7. Approach Merchant Bankers / Lead managers and discuss about your plans.
  8. Get interests from Merchant Banker for possibility of IPO.
  9. Prepare and conduct for Financial and Legal Due Diligence
  10. Restatement and re-audit of Financial Statements for 3 years from a Peer Reviewed CA Firm.
  11. Appoint Independent Directors
  12. Constitute various Committees.
  13. Appoint various intermediaries such as
    • Registrar to the issue
    • Banker to the Issue
    • Legal Advisors
    • Underwriters and syndicate members
    • Stationary printers
    • Depositories
    • Stockbrokers
    • Market Makers
  1. Preparation of DRHP and file with Stock Exchanges
  2. Verification by Exchanges.
  3. Interview with Exchange IPO approval committee.
  4. Obtaining approval.
  5. Preparation of RHP
  6. Getting approval from MCA.
  7. Marketing Strategy.
  8. Intimation to exchange for open and closure of IPO.
  9. Opening & closing of IPO
  10. Allotment of shares.
  11. Submission of listing application with exchange.
  12. Final Listing.

 

 

Time required:

3 to 6 months if all documents and details are timely available.

Cost Estimates:

  • Overall Cost including MB fees shall be minimum Rs 40-50 Lakhs with a range from 7% to 15% of the IPO size.
  • Out which approx. 40% is required to be paid before IPO and balance is recovered from IPO money post listing.

 

IPOs size:

IPO size various from Rs. 1 Cr to Rs 50+Cr.

 

IPOs Valuation:

IPO valuation is depending upon various factors:

  1. Business Segment.
  2. Size of the business.
  3. Profitability of the Company.
  4. Previous track record & future potential.
  5. Management team background.
  6. Economic scenario, market fluctuations.

Normally Companies are valued approx. 6 to 20 times of the recent profit after tax.

E.g., FY 2023 PAT is Rs. 5 Cr. Then at 10 Price earning multiple (PE) = Value is Rs 50 Cr.

IPO shall be min. 25% of the value. i.e., Rs 12.50 Cr.

How Valuationindia.co.in will help you for SME IPO:

  • Initial Study for eligibility, Valuation, Understanding of Business plan and other areas.
  • Legal structuring, merger / transfer of business divisions, business transfer agreements, tax efficient structuring.
  • GAP Analysis study for identify gaps for preparation of IPO, feasibility, etc.
  • Finalisation of Merchant Bankers and other intermediaries.
  • Co-ordination for preparation of DRHP, Stock Exchange approvals, RHP & MCA Approval.
  • Preparation for roadshows / meeting with investors.

BSE SME Listing Criteria for SME IPO:

Incorporation: The Company shall be incorporated under the Companies Act, 1956 / 2013.

Financials: 

  • Post Issue Paid up Capital: The post issue paid up capital of the company (face value) shall not be more than Rs. 25 crores.
  • Net worth: Positive Net worth.
  • Tangible Asset: Net Tangible Assets should be Rs 1.5 Crore.

Track Record:

  1. The company or the partnership/proprietorship/LLP Firm or the firm which have been converted into the company should have combined track record of at least 3 years.

Or

  1. In case it has not completed its operation for three years then the company/partnership/proprietorship/LLP should have been funded by Banks or financial institutions or Central or state government or the group company should be listed for at least two years either on the main board or SME board of the Exchange.

The company or the firm or the firm which have been converted into the company should have combined positive cash accruals (earnings before depreciation and tax) in any of the year out of last three years and its net worth should be positive.

Other Requirements

  • It is mandatory for a company to have a website.
  • It is mandatory for the company to facilitate trading in demat securities and enter into an agreement with both the depositories.
  • There should not be any change in the promoters of the company in preceding one year from date of filing the application to BSE for listing under SME segment.

 

Disclosures

A certificate from the applicant company / promoting companies stating the following.

a) " The Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR)."

Note: Cases where company is out of BIFR is allowed.

b) There is no winding up petition against the company, which has been admitted by the court or a liquidator has not been appointed.

NSE SME Listing Criteria for SME IPO:

INCORPORATION: The Issuer should be a company incorporated under the Companies Act 1956 / 2013 in India.

POST ISSUE PAID UP CAPITAL: The post issue paid up capital of the company (face value) shall not be more than Rs. 25 crores.

TRACK RECORD: Track record of at least three years of either

  1. the applicant seeking listing; or
  2. the promoters****/promoting company, incorporated in or outside India or

iii. Proprietary / Partnership firm and subsequently converted into a Company (not in existence as a Company for three years) and approaches the Exchange for listing.

****Promoters mean one or more persons with minimum 3 years of experience in the same line of business and shall be holding at least 20% of the post issue equity share capital individually or severally

The company/entity should have operating profit (earnings before interest, depreciation, and tax) from operations for at least any 2 out of 3 financial years preceding the application and its net-worth should be positive.

OTHER LISTING CONDITIONS      

  • The applicant company has not been referred to erstwhile Board for Industrial and Financial Reconstruction (BIFR) or No proceedings have been admitted under Insolvency and Bankruptcy Code against the issuer and Promoting companies.
  • The company has not received any winding up petition admitted by a NCLT / Court.
  • No material regulatory or disciplinary action by a stock exchange or regulatory authority in the past three years against the applicant company.

DISCLOSURES       

  The following matters should be disclosed in the offer document:

  • Any material regulatory or disciplinary action by a stock exchange or regulatory authority in the past one year in respect of promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) of the applicant company.
  • Defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit holders, banks, FIs by the applicant, promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) during the past three years.
  • The applicant, promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) litigation record, the nature of litigation, and status of litigation.
  • In respect of the track record of the directors, the status of criminal cases filed, or nature of the investigation being undertaken about alleged commission of any offence by any of its directors and its effect on the business of the company, where all or any of the directors of issuer have or has been charge-sheeted with serious crimes like murder, rape, forgery, economic offences.

REJECTION COOLING OFF PERIOD: The application of the applicant company should not have been rejected by the Exchange in last 6 complete months.

Other Important Conditions for IPO:

  • The issues shall be 100% underwritten and Merchant Bankers shall underwrite 15% in their own account.
  • Change in promoters’ holding There should not be any change in the promoters of the company in preceding one year from date of filing the application.
  • Market making: Mandatory for min 3 years.
  • Public Shareholding Min. 25%
  • Min. 50 investors (No post-listing continuous requirement)
  • Lot size: Minimum Rs. 1 Lakhs per application.