Explore SME IPOs: What Are They And How To Apply

Small and Medium Enterprises (SMEs) play a vital role in the economic growth of India. In recent years, SME Initial Public Offerings (IPOs) have gained traction, providing retail investors with unique opportunities. This blog aims to highlight the benefits of SME IPOs for retail investors in India, discuss key considerations while applying for such offerings, and provide examples of successful SME IPOs from the past year.

Let us quickly learn a few key terms about IPOs first :

• Exchange: The stock exchange where the IPO shares are proposed to be listed. Mainline IPOs are listed on BSE and NSE. The SME IPOs are listed on the NSE EMERGE or BSE SME platform of the respective exchanges.
• IPO Open Date / Issue Close Date: The opening and closing date of the IPO bidding process. Investors can apply for an IPO during this time only.
• Lot Size: The minimum count of shares an investor can apply for in an IPO. Example – A lot size of ‘400’ means that an investor needs to bid for at least 400 shares.
• Issue Price: The price per equity share. There are 2 types of IPOs- Book Building and Fixed Price IPOs. Book Building IPOs will have a price range, say Rs 120-125, and investors need to bid within the price range. A fixed price issue has a specific price to bid.
• Issue Size: The total monetary value of the IPO. It is arrived at by multiplying the number of shares offered by the company by the issue price per share.

1. What do SME IPOs offer retail investors?

• Growth Potential and Wealth Creation:

SME IPOs offer retail investors the chance to invest in small companies during their early stages of growth. These enterprises often have promising business models and robust growth plans. By participating in SME IPOs, retail investors can potentially reap substantial rewards as the companies expand and gain market share. 

One notable example is the IPO of Phantom Digital Effects Limited. The IPO witnessed impressive listing gains of 229.16%!
( Source : https://www.chittorgarh.com/ipo/phantom-digital-effects-ipo/1322/ , listing date: Oct 21, 2022)

• Portfolio Diversification:

Investing in SME IPOs allows retail investors to diversify their portfolios beyond large-cap and mid-cap stocks. SMEs operate in diverse sectors, providing an opportunity to balance risk by adding exposure to different industries and growth drivers. This diversification helps reduce vulnerability to market fluctuations. 

For instance, the IPO of Agni Green Power Limited, a green energy solar PV platform, provided retail investors with an opportunity to participate in the booming sustainable green solar energy segment, diversifying their investment portfolios beyond traditional sectors. Also, the IPO witnessed 162% listing day gains and the stock price is up from listing price as of date: 12-June-2023.
(Source : https://www.chittorgarh.com/ipo/agni-green-power-ipo/1273/ , listing date : Aug 01, 2022 and stock price as of date : 12-June-2023)

• Access to Promising Sectors:

SME IPOs often emerge from sectors with high growth potential that are yet to be fully explored. Retail investors can seize the opportunity to invest in these sectors and capitalize on their future prospects. 

For example, the IPO of Droneacharya Aerial Innovations Ltd in December 2022 showcased the potential of the drone industry. The company’s strong IPO performance, with the stock price nearly tripling within a short span, demonstrated the rewards of investing in a promising sector.

(Source: https://www.chittorgarh.com/ipo/droneacharya-aerial-innovations-ipo/1348/ , listing date : Dec 23, 2022 and stock price as of date : 12-June-2023)

• Potential for Higher Returns:

Given their growth potential, SME IPOs can offer higher returns compared to well-established companies. As these companies expand and capture market share, their valuations may increase significantly. Retail investors who identify promising SMEs and participate in their IPOs stand a chance to benefit from this potential upside, possibly yielding attractive returns on their investments.

• Support to Small Businesses:

By investing in SME IPOs, retail investors provide vital capital to small businesses, which can be crucial for their growth and development. Your investment plays a part in fostering entrepreneurship, creating job opportunities, and contributing to the economy. SMEs often operate in niche sectors, making them the backbone of innovation and diversification in the market.

2. What should a person keep in mind while applying for an SME IPO?

• Company Analysis:

Thorough research and analysis of the company’s fundamentals are crucial. Evaluate the business model, competitive advantage, and growth prospects. Review financial statements, such as revenue growth, profitability, and debt levels.

• Management Quality:

Assess the competence and experience of the company’s management team. Evaluate their ability to execute growth plans and navigate challenges. The management’s track record and domain expertise play a significant role in the company’s success.

For example, the IPO of Infinium Pharmachem in April 2023 showcased the importance of a strong management team. The company’s management expertise in the pharma industry and its focused growth strategy contributed to its successful IPO debut.

• Market Sentiment and Timing:

Consider the prevailing market sentiment and economic conditions. Assess whether the market environment is conducive to IPO investments. Additionally, analyze the demand for the IPO and oversubscription levels. An oversubscribed IPO indicates market confidence in the company. 

3. Top 10 SME IPOs by performance listed this year 2023 :

4. How to apply for SME IPOs

On the website, surf to : https://www.paytmmoney.com/stocks/ipo. You can apply for IPOs mentioned with the SME IPO tag. 

1. Open the Paytm Money app or website: www.paytmmoney.com
2. From the home screen, scroll the headers to IPOs in the last
3. Scroll down to the IPOs and NFOs section, and apply from there
4.  You can apply for IPOs mentioned with the SME IPO title. 
5. Choose your quantities and bid price and place your application successfully!