IPO Listing Criteria for Mainboard IPOs

Incorporation: The Issuer should be company incorporated under companies act 1956/2013 in India.

Eligibility Criteria for SME IPOs

Eligibility Criteria and Listing requirements for an Initial Public Offer (IPO):

1. Paid up Capital:
   The paid-up equity capital of the applicant shall not be less than Rs. 10 crores and the capitalization of the applicant's equity shall not be less than Rs 25 crores as per the IPO Eligibility criteria of NSE.
2. Average Operating Profits: Profitability Criteria
   The company must have an average operating profits of at least Rs. 15 crores over the last three years (each year being 12 months) on a restated and consolidated basis, with a positive operating profit in each of those three years. This given criteria is as per the SEBI ICDR Regulations (2018)
3. Minimum Net Tangible Assets:
   • The company must have net tangible assets worth at least Rs. 3 crores in each of the last three full years (12 months each), of which not more than 50% are held in monetary assets.
   • If more than 50% of the net tangible assets are in cash or similar monetary assets, the company must have already used or firmly committed to using the extra cash for its business or projects.
   • Provided further that the limit of 50% on monetary assets shall not be applicable in case the initial public offer (IPO) is made entirely through an offer for sale.
4. Track Record:
   • To be eligible for listing, the applicant must have at least three years of track record in one of the following categories:
     • The company applying for listing.
     • Its promoters or a promoting company, whether based in India or abroad.
     • A partnership firm that has been converted into a company. 
   • For this purpose, the applicant or promoting company must submit annual reports for the last three financial years to NSE and provide a certificate confirming the following:
     • The company has not been referred to the Board of Industrial & Financial Reconstruction (BIFR), and no proceedings under the Insolvency and Bankruptcy Code have been initiated against the company or its promoters.
     • No winding-up petition has been admitted by the National Company Law Tribunal (NCLT).
5. Net Worth Requirement:
   • The company must have a net worth of at least Rs 1 crore in each of the last three years (12 months each), calculated on a restated and consolidated basis as per SEBI ICDR Regulations (2018).
6. Name change condition:
   • If the company has changed its name in the last year, at least 50% of its revenue from the past year (calculated on a restated and consolidated basis) must come from the business activity reflected in its new name.
7. Other conditions:
   • Redressal Mechanism of Investor grievance:
     • Details of pending investor grievances against Issuer, listed subsidiaries and top 5 listed group companies by Market Cap.
     • Arrangements or mechanism evolved for redressal of investor grievances including through SEBI Complaints Redress System.
   • Defaults & Financial Obligations:
     • Companies with pending defaults in payment of interest or principal to bondholders, debenture holders, or fixed deposit holders may not be listed until obligations are cleared.
   • Cooling-off Period for Rejected Applications
     • If the company's application has been rejected by the exchange in the last six months, it cannot reapply until the cooling-off period ends.

 

What role does IPO Advisors play in successful IPO?

IPO Advisors play an important role in successful launch of an IPO. Their advisory role from IPO readiness, selecting the best merchant banker in India for SME IPO, various due diligence activities and IPO valuation guides the company throughout the IPO Issue and listing process. IPO platform in India provides information on upcoming IPOs on NSE Emerge and BSE SME and list of merchant bankers and anchor investors. Role of IPO advisor is important in the success of the listings. 

 

Investing in an IPO involves understanding the different investor categories such as QIBs, NIIs/HNIs, RIIs, and Anchor Investors, each with distinct quotas and criteria. Whether you’re a retail investor or an institutional player, choosing the right category based on eligibility and investment amount is key. Explore how these categories work, their quotas, and what makes each unique to assist in informed decision-making and guides SMEs in selecting suitable, experienced merchant bankers.

 

Basis	Eligibility Criteria
Paid-up Capital Requirements	Minimum Rs. 10 crores post-issue paid-up equity capital and Rs. 25 crores market capitalization
Average Operating profits	Average operating profits of Rs. 15 crores over the last three years, with a positive profit each year (on a restated and consolidated basis).
Net Tangible Assets	Minimum Rs. 3 crores in each of the last three years (max 50% in monetary assets unless committed to business).
Track Record Requirement	At least 3 years of operations for the company, its promoters, or a converted partnership firm.
Net Worth Requirement	At least Rs. 1 crore in each of the last three years (on a restated and consolidated basis).
Name Change	If Company has changed its name in the last year, 50% of last year's revenue must come from the new name.

Eligibility Criteria for SME IPO

 

Entities which are not Eligible for the Initial Public Offer (IPO)

1. An Issuer shall not be eligible to make an IPO:
   • The Issuer, its promoters, directors, or selling shareholders are barred by SEBI from accessing the capital market.
   • Any promoter or director is associated with another company barred by SEBI.
   • The Issuer, its promoters, or directors are classified as wilful defaulters or fraudulent borrowers.
   • Any promoter or director is declared a fugitive economic offender.
2. An Issuer cannot make an IPO if there are any outstanding convertible securities or rights that allow anyone to opt for equity shares of the company.
   • Provided that provision of this regulation does not apply to; 
     • Employee Stock Options (ESOPs): Outstanding options granted to employees (current or former) under a valid ESOP scheme as per the Companies Act, 2013, and applicable accounting standards.
     • Convertible Securities: Fully paid-up convertible securities that will be converted before filing the red herring prospectus (for book-built issues) or the prospectus (for fixed price issues).

 

General Conditions to be met by Issuer company for IPO on NSE or BSE Stock Exchanges in India

1. For an Issuer to be eligible for an IPO, it must meet the following conditions:
   • The Issuer must apply to one or more stock exchanges for in-principle approval to list its securities and select one exchange as the designated one.
   • It must have an agreement with a depository to dematerialize both existing and proposed securities.
   • All securities held by the promoters must be in dematerialized form before submitting the offer document.
   • Any partly paid-up equity shares must either be fully paid-up or forfeited.
   • The Issuer must have secured financial arrangements for 75% of the funds needed for a specific project, excluding the funds to be raised from the IPO or internal accruals.
2. The amount for general corporate purposes, as mentioned in objects of the Issue in the draft offer document and the offer document shall not exceed twenty-five per cent. of the amount being raised by the issuer.
3. The funds raised for:
   • general corporate purposes, and
   • projects where the Issuer has not identified a specific acquisition or investment target, as mentioned in the draft offer document and the offer document,
     • cannot exceed 35% of the total amount being raised. However, for projects without a clear target, the funds cannot exceed 25% of the total amount.
     • These limits do not apply if the Issuer has identified a specific acquisition or investment and provides detailed disclosures about it in the draft and final offer documents.

 

Additional conditions in case of an Offer for Sale Issue as per SEBI ICDR Regulations (2018)

• Only fully paid-up equity shares held by the sellers for at least one year before filing the draft offer document can be offered for sale to the public.
• Provided that if the equity shares being sold were obtained through the conversion or exchange of fully paid-up compulsorily convertible securities (like depository receipts), the combined holding period of both the convertible securities and the resulting equity shares will count towards the one-year requirement.
• The one-year holding period must be fulfilled at the time of filing the draft offer document.

Provided that above requirement of holding One year shall not apply to;

• In case where an Offer for sale is made by any government company or statutory authority or corporation or any special purpose vehicle set and that is controlled by any one or more of them, which is engaged in Infrastructure Sector.

• Equity shares offered for sale that were acquired through a scheme approved by a High Court, tribunal, or the Central Government under Sections 230 to 234 of the Companies Act, 2013, are eligible if the business and invested capital involved in the scheme had existed for more than one year before the scheme's approval.

• Equity shares offered for sale through a bonus issue are eligible if the original securities were held for at least one year before filing the draft offer document with the Board. Additionally:

  • The bonus shares must be issued from free reserves or share premium existing in the books at the end of the financial year before filing the draft offer document.
  • The bonus shares must not be issued using revaluation reserves or unrealized profits.

Additional conditions for an Offer for Sale;

For Issues where the draft offer document is filed under Regulation 6(2):

1. Shareholders holding more than 20% of the issuer's pre-issue shareholding (on a fully diluted basis) can only sell up to 50% of their pre-issue shares in the offer.
2. Shareholders holding less than 20% of the issuer's pre-issue shareholding (on a fully diluted basis) can only sell up to 10% of their pre-issue shares in the offer.
3. Shareholders holding more than 20% of the issuer's pre-issue shareholding (on a fully diluted basis) must follow the lock-in requirements of six months prescribed in Regulation 17, and the relaxation given under Regulation 17(c) will not apply to them.

Conclusion