Brief
SEBI proposes new thresholds and profitability rules for SME IPOs
The regulator's consultation paper outlines ten reforms, including a ₹1,000 cr market‑cap ceiling and a ₹3 cr average profit floor.
By Felo News Desk · Published
The Securities and Exchange Board of India (SEBI) released a consultation paper on Oct 14 proposing ten changes to the rules governing small‑ and medium‑enterprise (SME) initial public offerings. The regulator invited comments until Nov 4, saying the draft reflects a working‑group review of the rapid growth in SME IPO funding and investor participation.
What happened
Since the SME platform launched in 2012, about 1,500 companies have listed, raising roughly ₹40,222 cr. The paper suggests that firms with a post‑issue market capitalisation of ₹1,000 cr or less may list on the SME board, while those valued between ₹1,000 cr and ₹4,000 cr can choose either the SME board or the main board. Companies above ₹4,000 cr would be required to list on the main board.
SEBI also proposes replacing the existing paid‑up share‑capital test (₹25 cr) with the post‑issue market‑cap metric. Firms in the ₹1,000‑₹4,000 cr band opting for the SME board would need to submit restated consolidated financial statements under Indian Accounting Standards for the last three years, if they have not already adopted Ind AS. If an applicant’s market cap crosses a threshold during the IPO process, it must re‑file under the appropriate framework.
What the reports add
The paper raises the minimum average operating profit requirement to ₹3 cr per year over the past three financial years, up from the current ₹1 cr in at least two of the three years. The draft mentions EBIT, whereas the existing rule refers to EBITDA, a point SEBI notes needs clarification.
Applicants that do not meet the profit test could still list via a book‑building process, allocating at least 75 % of the net offer to qualified institutional buyers (QIBs). The regulator also proposes lowering the minimum application threshold and removing mandatory underwriting and market‑making obligations.
What was said
SEBI said the proposals aim to align SME IPO standards with the growing scale of fundraising and investor interest, and to provide clearer pathways for companies that outgrow the SME board.
How it came about
The changes follow a decade of SME listings that have attracted roughly ₹40,000 cr in capital, with notable issuers such as Zappfresh, DroneAcharya, TAC Infosec and Yudiz using the platform. Earlier this year, SEBI also issued guidance on other market reforms, reflecting a broader regulatory push to modernise Indian capital markets.
Key facts
- SEBI's consultation paper proposes a ₹1,000 cr market‑cap ceiling for SME IPO eligibility. (inc42.com)
- Companies with market caps between ₹1,000 cr and ₹4,000 cr may list on either the SME board or the main board. (inc42.com)
- The minimum average operating profit requirement is raised to ₹3 cr per year over three years. (inc42.com)
- Firms failing the profit test can still list by allocating at least 75 % of the offer to qualified institutional buyers. (inc42.com)
- Public feedback on the proposals is invited until Nov 4. (inc42.com)
Sources
- [1] inc42.com — originally reported as “Inside SEBI’s 10 Key Proposed Changes To SME IPO Rules”
