Comparing SME IPO and Mainboard IPO: Key Differences

For businesses looking to raise capital through public markets, understanding the distinctions between an SME Initial Public Offering (IPO) and a Mainboard IPO is critical. While both are pathways to access funds and expand operations, they cater to different segments and come with unique features, compliance requirements, and opportunities. This blog compares SME IPOs and Mainboard IPOs to help you choose the right path for your business.

  1. Definition and Purpose
  2. Eligibility Criteria
  3. Compliance Requirements
  4. Costs and Fundraising Potential
  5. Investor Base
  6. Market Visibility and Credibility
  7. Post-IPO Obligations
  8. Choosing the Right Path

1. Definition and Purpose

SME IPO: Designed specifically for small and medium enterprises, SME IPOs provide a simplified and cost-effective way for smaller businesses to access public markets. They are listed on platforms like NSE Emerge and BSE SME.Mainboard IPO: Aimed at larger and more established companies, Mainboard IPOs are listed on primary exchanges like NSE and BSE’s main platforms. These IPOs cater to businesses with significant market presence and higher capital requirements.Key Difference: SME IPOs are tailored for smaller companies with lower entry barriers, while Mainboard IPOs require extensive compliance and cater to larger enterprises.

2. Eligibility Criteria

SME IPO Eligibility:

  • Minimum net tangible assets of INR 3 crore.
  • Positive cash flows in two of the last three financial years.
  • An operational track record of at least three years.
Mainboard IPO Eligibility:
  • Minimum post-issue capital of INR 10 crore.
  • Net worth exceeding INR 1 crore in each of the last three years.
  • Profitability in three of the last five financial years.
Insight: SME IPOs have relatively lenient eligibility criteria, making them more accessible to small businesses.
3. Compliance Requirements

SME IPO Compliance:

  • Simplified disclosure norms.
  • Lower costs for regulatory filings.
  • Streamlined reporting requirements post-listing.
Mainboard IPO Compliance:
  • Comprehensive regulatory filings and disclosures.
  • Adherence to stringent SEBI guidelines.
  • Higher costs for compliance and reporting.
Pro Tip: If compliance is a concern, SME IPOs offer a more manageable alternative for smaller businesses.
4. Costs and Fundraising Potential

SME IPO Costs:

  • Lower costs for underwriting, marketing, and compliance.
  • Fundraising potential typically ranges between INR 5 crore and INR 25 crore.
Mainboard IPO Costs:
  • Higher expenses due to extensive documentation, roadshows, and regulatory requirements.
  • Fundraising potential often exceeds INR 100 crore.
Example: EaseMyTrip raised INR 510 crore through its Mainboard IPO, while Shree Ganesh Remedies raised INR 8.55 crore via an SME IPO.
5. Investor Base

SME IPO Investors:

  • Primarily retail investors and high-net-worth individuals (HNIs).
  • Limited participation from institutional investors.
Mainboard IPO Investors:
  • Attracts institutional investors, mutual funds, and foreign institutional investors (FIIs).
  • Broader investor base, including retail participants.
Why It Matters: SME IPOs provide opportunities for smaller investors, whereas Mainboard IPOs cater to a more diverse and global audience.
6. Market Visibility and Credibility

SME IPOs:

  • Enhance credibility within niche markets and among local stakeholders.
  • Offer visibility on specialized SME platforms.
Mainboard IPOs:
  • Significantly boost brand recognition and market presence on a national and global scale.
Example: Nazara Technologies leveraged its Mainboard IPO to establish itself as a leading gaming company globally, while Heranba Industries used its SME IPO to strengthen its regional presence.
7. Post-IPO Obligations

SME IPO Post-Listing Requirements:

  • Quarterly and annual financial disclosures.
  • Adherence to simplified corporate governance norms.
Mainboard IPO Post-Listing Requirements:
  • Stricter corporate governance and reporting standards.
  • Higher scrutiny from regulators and institutional investors.
Insight: While both require transparency, Mainboard IPOs demand more robust reporting mechanisms.
8. Choosing the Right Path

When to Choose an SME IPO:

  • Your business is in the growth phase and needs moderate capital for expansion.
  • Compliance costs are a concern.
  • Your target audience includes retail and local investors.
When to Choose a Mainboard IPO:
  • Your business has an established market presence and significant capital requirements.
  • You aim to attract institutional investors and build global credibility.
  • You are ready to adhere to extensive compliance and governance norms.
Pro Tip: Evaluate your business size, growth trajectory, and funding needs before deciding on the IPO route.
Still deciding between an SME IPO and a Mainboard IPO? Join Our SME IPO Masterclass to gain expert insights and choose the right path for your business’s growth.
FAQs

1. What is the primary difference between SME IPOs and Mainboard IPOs?

  • SME IPOs cater to smaller businesses with lenient compliance norms, while Mainboard IPOs are for larger enterprises with extensive requirements.
2. Which IPO option is more cost-effective?
  • SME IPOs are more cost-effective due to lower compliance and marketing expenses.
3. Can SMEs transition from SME platforms to Mainboard platforms?
  • Yes, SMEs can migrate to Mainboard platforms after meeting specific criteria.
4. How do investor bases differ between SME and Mainboard IPOs?
  • SME IPOs primarily attract retail and HNI investors, while Mainboard IPOs have a broader and more diverse investor base.
5. What are the compliance differences between SME and Mainboard IPOs?
  • SME IPOs have simplified reporting and disclosure norms, whereas Mainboard IPOs require detailed filings and higher scrutiny.

Nischal Mittal
Nischal Mittal, a Chartered Accountant and Investment Banker, brings over a decade of expertise in IPO and Fund Raising advisory and Financial consulting.