Mainboard vs. SME IPOs: Key Differences, Benefits, and Investor Insights

Strategic IPO Choices: Mainboard vs. SME for Your Business Growth

Taking your company public can redefine its future, opening doors to growth, visibility, and new opportunities. But not all IPOs are created equal. Depending on the size and ambitions of your business, you’ll need to choose the right path: a Mainboard IPO or an SME IPO. Each route brings unique advantages and challenges that can shape your company’s journey to the public markets. So, how do they stack up against each other? Let’s dive in and explore the key differences that could determine your company’s next big move.

Understanding Mainboard IPO vs. SME IPO

Mainboard IPO refers to the process of listing a company on the primary stock exchanges, such as the NSE or BSE in India, typically reserved for larger and more established companies. These companies are expected to meet stringent eligibility criteria, including net tangible assets & average operating profit.

On the other hand, an SME IPO is designed for small and medium enterprises looking to raise capital through public offerings but on a smaller scale. SME IPOs are listed on specialised platforms like the NSE Emerge or BSE SME. The eligibility criteria for SME IPOs are more relaxed, allowing smaller companies to enter the market with lower turnover and profitability requirements.

Key Differences

• Company Size: Mainboard IPOs cater to large, established companies, while SME IPOs are tailored for smaller, emerging businesses.
• Eligibility Criteria: Mainboard IPOs have stricter requirements, including a minimum net worth, profitability for the last three years, and higher capital needs. SME IPOs, however, have lower thresholds, making it easier for smaller companies to qualify.
• Regulatory Oversight: Mainboard IPOs are subject to more rigorous regulatory scrutiny, with higher compliance standards. SME IPOs still have regulatory oversight but with lighter reporting and compliance burdens.
• Stock Exchanges: Mainboard IPOs are listed on major exchanges, giving companies broader exposure and access to more institutional investors. SME IPOs are listed on dedicated SME platforms, which cater specifically to smaller enterprises.

Eligibility Criteria for Companies

1. Mainboard IPO Requirements

A Main Board IPO is an initial public offering of large and established companies with a paid-up capital of at least Rs 10 crores. A Main Board IPO is a regular IPO listed and traded on the stock exchange platforms of the NSE/BSE.

The listing standards and eligibility requirements for Mainboard IPOs are set out in the SEBI ICDR Regulations 2018.

1.  SEBI IPO Eligibility Criteria

SEBI eligibility criteria under the profitability route include but is not limited to the following:

• The company should have net tangible assets of at least Rs 3 crores in each of the three preceding years.
• For fresh issues (not OFS), of the above Rs 3 crores of tangible assets, not more than 50% should be cash or cash equivalent.
• The company should have an average operating profit (before tax) of at least Rs 15 crore in any of the three years out of the last five years.

SEBI requirements for directors/promoters/founders/investors

• There is no disciplinary action against the company founders/promoters/directors/selling shareholders.
• The promoters/directors/founders/investors/issuing company should not be barred from accessing the capital markets. The company cannot apply for an IPO until the debarment period has expired.

2. NSE & BSE IPO Eligibility Criteria

In addition to the IPO guidelines prescribed by SEBI, the NSE requires that the issuing company meet the following eligibility criteria:

• At least one promoter should have at least 3 years of experience in the same industry.
• The company has a positive net worth. (This clause is applicable to companies with an issue size of less than Rs 500 Cr).
• The post-issue paid-up equity of the company should be more than Rs 10 Cr.
• Market capitalization should be more than Rs 25 Cr.

Equity and market capitalization requirements are the same for the NSE and the BSE. According to BSE,

• The minimum issue size should be Rs 10 Cr.

There exist multiple other document submissions and conditions to be fulfilled before filing for a mainboard IPO.

2. SME IPO Requirements

The post-issue paid-up capital of the company issuing SME IPO should not exceed Rs 25 crores. The other eligibility requirements for SME IPO company directors/promoters/investors remain the same as for a regular IPO, where the said persons should not be defaulters, offenders or disqualified from accessing the capital markets.

In addition to the above criteria, SMEs must also meet other eligibility requirements prescribed by the exchanges. The criteria for SME IPO are explained in detail below.

1. BSE SME IPO Eligibility

SMEs must meet the following criteria set by the BSE SME platform for issuing SME IPO.

Eligibility requirements for BSE SME IPO include but are not limited to:

Eligibility	Eligibility Requirement
Net worth	At least Rs 1 crore for 2 preceding full financial years
Net Tangible Assets	Rs 3 crores in the last preceding financial year
Track record (operations)	At least 3 years
Operating profits	Positive for 2 out of 3 latest financial years.
Leverage ratio	Not more than 3:1.

2. NSE SME IPO Eligibility

NSE Emerge platform lists the following eligibility criteria for a company to issue SME IPO:

• The company should have a track record (operations) of at least three years.
• The promoters should individually or jointly hold at least 20% of the share capital after the issue.
• One of the promoters should have at least three years of experience in the same industry.
• The company should have operating profit and positive net worth in at least 2 out of 3 fiscal years.

These criteria ensure that Mainboard IPOs are primarily for larger, well-established companies, while SME IPOs provide smaller businesses with access to capital markets, even if they haven’t yet reached the scale of Mainboard companies.

Benefits and Challenges of Mainboard IPO

The Mainboard IPO market remained strong in 2023, with 48 IPOs raising over ₹44,159 crore. Investor demand was high, with an overall subscription rate of 32.4 times the intended issue size. While a Mainboard IPO provides access to significant capital and broader market exposure, it also brings challenges, such as rigorous regulatory requirements and high costs. The year saw a surge in IPOs during the second half, with several issues attracting major institutional investors. However, the competitive environment and intense scrutiny continue to make Mainboard IPOs a challenging path for companies seeking public listing.

Benefits

1. Access to Capital and Growth Opportunities

A Mainboard IPO opens the doors to significant capital, allowing companies to fund expansion, enter new markets, and invest in innovation. For large companies, the Mainboard IPO is often the most efficient way to raise substantial amounts of capital at once, providing them with the resources needed to scale and compete on a global level.

2. Broader Investor Base

Mainboard IPOs attract institutional investors, such as mutual funds, insurance companies, and pension funds, alongside retail investors. This broader investor base can provide not just capital but also credibility and market validation, boosting the company’s profile.

Challenges

1.Stringent Listing Requirements

The regulatory requirements for a Mainboard IPO are demanding. Companies must meet high standards of corporate governance, financial reporting, and transparency. These requirements can be time-consuming and costly, as they often involve extensive audits, disclosures, and compliance with SEBI regulations.

2. Intense Regulatory Scrutiny

Once listed, companies are under the constant watch of regulators and investors. They must provide quarterly reports, comply with various legal requirements, install corporate governance structures and adhere to multiple disclosure requirements. This level of scrutiny can place additional pressure on management, who must ensure that the company adheres to the high standards expected by public shareholders.

3. Costs and Timelines

Going public on the Mainboard can be an expensive and lengthy process. From underwriting fees to legal expenses, the costs can quickly add up. Additionally, the time it takes to prepare for a Mainboard IPO tends to be around 9 – 12 months on average, depending on the company’s readiness and the complexity of the listing process.

Benefits and Challenges of SME IPO

The SME IPO market saw remarkable activity in 2023, with 179 listings raising over ₹4,643 crore. This surge was driven by the success of the primary market and investor enthusiasm for smaller companies with high growth potential. However, the SME IPO boom also highlighted some challenges that small and medium enterprises face when going public.

Benefits

1.Easier Access to Capital

In 2023, SME IPOs provided small businesses with much-needed capital. With the average ticket size increasing from ₹18 crore in 2022 to ₹25 crore in 2023, SMEs were able to tap into public markets for expansion and growth. This access to capital allowed these companies to scale, invest in new technology, and explore new markets.

2. Lower Entry Barriers

The SME IPO route remains more accessible than the Mainboard IPO, with relaxed eligibility criteria allowing smaller companies to list on platforms like BSE SME and NSE Emerge. This flexibility attracted a wide range of SMEs looking to gain visibility and credibility in the public markets without the stringent requirements of larger IPOs.

3. Faster Timelines

SME IPO platforms continue to offer listing requirements that cater specifically to the needs of smaller enterprises. This support system helps SMEs go public in as little as 3 – 4 months.

Challenges

1.Higher Risk Perception

Despite the benefits, SMEs continue to face a higher risk perception among investors. The smaller scale and limited track record of these companies often translate into higher volatility and less predictable returns. In fact, while many SME IPOs performed well post-listing, a few saw steep declines in value, highlighting the risks associated with investing in this space.

2. Limited Market Exposure

SME IPOs, though promising, generally have lower liquidity due to bigger lot sizes which limits retail investors from trading as much as Mainboard IPOs. This can impact investor confidence, as limited market exposure makes it harder to sell shares when needed, potentially leading to lower overall stock performance.

3. Increasing Regulatory Control Due To Sudden Breakout

While regulatory requirements for SME IPOs are less demanding, stricter regulations, penalties and warnings from SEBI are expected due to the sudden breakout of SME IPOs and to prevent any resultant misleading, miscommunication or malpractices resulting in losses to retail investors. 

Investor Perspectives on Mainboard IPO vs. SME IPO

2023 saw substantial interest in both Mainboard and SME IPOs, with 48 Mainboard IPOs raising ₹44,159 crore. Investors flocked to these IPOs, with the overall demand being 32.4 times the intended issue size. However, the investor perspectives on Mainboard and SME IPOs differ significantly.

Risk Profiles and Potential Returns

• Mainboard IPO: Mainboard IPOs continue to be seen as more stable investments, attracting institutional investors and offering relatively safer returns. In 2023, 83.33% of Mainboard IPOs were trading at a premium, reflecting strong investor confidence and more predictable growth.
• SME IPO: Conversely, SME IPOs carry higher risks but also offer the potential for significant returns. In 2023, some SME IPOs delivered impressive gains, with companies like Bondada Engineering Limited achieving returns as high as 4,578%. However, this space also saw notable volatility, with certain IPOs underperforming.

Liquidity and Trading Volumes

• Mainboard IPO: One of the key advantages of a Mainboard IPO is liquidity. Higher trading volumes and broader market participation make it easier for investors to enter and exit positions, which can lead to more stable stock performance.
• SME IPO: In contrast, SME IPOs often suffer from lower liquidity, which can impact both stock performance and investor sentiment. The smaller pool of investors and limited trading activity makes it harder to achieve the same level of market stability that Mainboard IPOs enjoy due to bigger lot sizes.

To summarise, the choice between a Mainboard IPO and an SME IPO isn’t just about company size—it’s about strategy. For larger companies with a strong track record, a Mainboard IPO offers broader exposure, more liquidity, and access to institutional investors. But it also comes with significant regulatory hurdles and costs. On the other hand, SME IPOs provide a valuable opportunity for smaller businesses to raise capital and gain visibility with fewer entry barriers, though they come with higher risks and limited liquidity.

Ultimately, the decision to go public, whether through the Mainboard or SME route, should align with the company’s growth stage, financial health, and long-term vision. Preparation is key. Companies that understand the unique benefits and challenges of each path will be better positioned to make an informed decision that drives sustained success in the public markets.