SME IPOs – Complete Explanation

 

1. What is an SME IPO?

Before understanding SME IPOs, you need to know two terms:

SME – Small & Medium Enterprises

MSME categories (based on turnover):

• Micro: up to ₹5 crore
• Small: up to ₹50 crore
• Medium: up to ₹250 crore

SME IPOs include only Small & Medium enterprises — not micro.

---

2. IPO Meaning

The meaning of IPO is the same for all companies:

• Fresh issue or OFS can be included
• Shares are offered to the public for the first time

There is no difference in IPO structure for SME vs Mainboard; only the platform is different.

---

3. Where do SME companies get listed?

They cannot list on the normal NSE/BSE mainboard immediately.
They list on dedicated SME exchanges:

✔ BSE SME Platform

✔ NSE Emerge Platform

Both were launched in 2012.

Later, if a company grows large enough, it can migrate to the mainboard.

---

4. SME vs Mainboard – Key Differences

The transcript highlights three critical differences:

---

Difference 1: Minimum Number of Allottees

Platform	Minimum Allottees
Mainboard IPO	1,000 investors
SME IPO	50 investors

---

Difference 2: Minimum Investment (Lot Size)

Platform	Minimum Investment
Mainboard	₹10,000 – ₹15,000
SME IPO	₹1,00,000+

The lot size is huge → high entry barrier.

And even in the secondary market, you must buy/sell in full lots only.
You cannot sell shares worth just ₹5,000 or ₹20,000 separately.

---

Difference 3: Reporting Requirements

Platform	Reporting Frequency
Mainboard	Quarterly results (Q1–Q4)
SME Emerge	Half-yearly results

This gives less frequent financial data, which increases risk.

---

5. Navigating the NSE Emerge Website

The transcript explains:

• The Nifty SME Emerge Index exists
• Launched in 2016 with a base value of 1000
• Now at around 6863 (7x growth in a few years)

This is one reason SMEs are attracting attention.

But F&O is NOT allowed on this index.

The website shows:

• Active SME IPOs
• Market watch
• Many stocks showing 0% movement daily

This reveals a major risk → low liquidity.

---

6. Major Risks Before Investing in SME Stocks

Risk 1: Low Liquidity

Many SME stocks show no buyers or sellers on most days.

If you want to exit:

• You must wait until a buyer appears
• Your capital may get stuck

---

Risk 2: Lot-size-based Buying/Selling

Even in the secondary market:

• You MUST buy/sell the full lot
• Lot value = typically ₹1,00,000+

So small investors cannot exit partially.

---

Risk 3: Retail Hype, Not Fundamentals

Most investors do not check:

• What business the company actually does
• Financial history
• Valuation
• Sustainability

Example used: Dronacharya Aerial Innovations

---

7. Example: Dronacharya Aerial Innovations (Explained)

Revenue Growth

From:

• 0 (2020)
• ₹1 lakh (2021)
• ₹3.58 crore (2022)

So mathematically the growth % becomes 35,800%.
But such growth from near-zero base is not meaningful alone.

Profitability

• Loss-making earlier
• First time profit shown in FY22

Valuation

• Issue Price: ₹54
• Current Price: ₹172
• P/E: 1008

Extremely high valuation for a young SME firm.

Price Chart Analysis

• Continuous upper circuits
• Then a fall of ~40%
• Now moving sideways

This illustrates the typical SME cycle:

1. Listing hype
2. Circuits
3. Sharp correction
4. Illiquidity
5. Sideways consolidation

---

8. Why Are Retail Investors Crazy About SME IPOs?

A statistic shown:

• 247 companies listed on NSE Emerge till 2022
• Capital raised: ₹3,801 crore
• Market Cap: ₹35,375 crore

Market cap expanded ~10x from money raised.
This creates the “frenzy” and attracts retail buyers without research.

---

9. Key Takeaways

✔ SME investing is not bad, but it is risky

✔ Do thorough research before investing

✔ Don’t invest only because someone suggested

✔ Check:

• Liquidity
• Lot size
• Reporting frequency
• Business model
• Financials
• Valuation
• Promoter background

✔ High returns are possible, but volatility is extreme

SMEs can double…
…and can also drop 40–70% quickly.

---

Conclusion

SME IPOs offer opportunities, but they require:

• Higher capital
• Patience
• Detailed research
• Awareness of liquidity issues
• Understanding of valuation risk

Invest wisely—hype-driven decisions are dangerous.