BAJAJ BROKING
April 28, 2024
5 mins read
Initial Public Offerings (IPOs) mark the transition of a private company into a publicly listed entity by offering its shares to the general public for the first time. This process allows businesses to raise capital from retail and institutional investors. However, companies must fulfil specific IPO eligibility criteria before proceeding with the listing process. These requirements vary depending on whether the listing is on the mainboard or SME (Small and Medium Enterprises) platform and are governed by regulatory bodies such as SEBI and stock exchanges like NSE and BSE. The eligibility norms, IPO criteria, and IPO requirements ensure that only companies with a certain level of financial, operational, and governance standards can access public markets.
This article outlines the detailed eligibility criteria for IPO in India, covering mainboard and SME IPOs, regulatory norms from SEBI and NSE, and additional IPO requirements.
IPO eligibility refers to the minimum standards a company must meet to list its shares on a stock exchange through an Initial Public Offering. These criteria assess the company’s financial strength, operational history, corporate governance practices, and other compliance factors. The eligibility criteria for IPO in India are categorised based on the type of listing—mainboard or SME—and may also differ for specific sectors such as microfinance and broking.
Launching an IPO (Initial Public Offering) is a complex process. Companies must fulfil various regulatory requirements and provide full disclosure of their financial data and other important details to investors.
If a company wants to be publicly listed in the Indian stock market, it must meet all the eligibility criteria of the Indian stock market regulator (SEBI) and stock exchanges (NSE & BSE). In this blog, we will learn the different IPO eligibility criteria in India.
When a large company with a post-issue paid-up capital of Rs. 10 crore lists its shares through the IPO process, it is a mainboard IPO. Popular IPOs launched in recent years, including Paytm, Zomato, MobiKwik, LIC, etc., are all mainboard IPOs. These are some requirements that a company must meet before launching its mainboard IPO:
SEBI has mentioned two routes for private companies to issue an IPO:
The company must have at least Rs. 1 crore in net worth in the last three years
The company's net tangible assets should be at least Rs. 3 crore in the last three years
For fresh issues, the cash or cash equivalent tangible assets should be less than 50%
Its average operating profit should be at least Rs. 15 crore (pre-tax) in three years out of the last five years
If the company changed its name, 50% of revenue from the previous year should be generated under its new name
Before the issue, the pre-issue valuation should not be more than five times the company’s net worth
In this route, the IPO should be offered in a book-building process
Companies have to allocate at least 75% of the total IPO offer to qualified institutional buyers
If the minimum allotment requirements are not met, the company have to refund the IPO subscription money
Besides SEBI, National Stock Exchange (NSE) also has its IPO eligibility criteria for private companies:
At least one promoter of the company has a minimum of 3 years of experience in the industry
An Issuer has to submit the annual reports to the NSE for the last three financial years
For issues less than Rs. 500 crore, it must have a positive net worth
An issuer should have a post-paid-up equity of more than Rs. 10 crore
The company’s market capitalisation should be more than Rs. 25 crore
Apart from the IPO eligibility and listing criteria, companies must fulfil additional regulatory and operational requirements set by SEBI and NSE when applying for an IPO. These are designed to maintain transparency and reduce risk for public investors.
There are some other eligibility criteria for companies to list themselves in the BSE:
Issue size should be at least Rs. 10 crore
The company should have a post-paid-up equity of more than Rs. 10 crore
The company’s market capitalisation should be more than Rs. 25 crore
To use the name of BSE in its offer-for-sale or prospectus documents, the company have to obtain prior consent from BSE
The company need to apply with one or more exchanges and it has to select one exchange as its desired exchange
The company should make arrangements with a depository (CDSL and NSDL) to take care of the dematerialisation process before and after the IPO
Promoters need to keep their shares in demat form before filing the DRHP
Before the issue, the company need to deposit 1% of the issue amount as a deposit with the selected stock exchange
The company must have no bankruptcy proceedings admitted by NCLT or BIFR
The company applying must have been seeking IPO applications for at least 3 years. Alternatively, it could be a partnership firm converted into a company or have promoters incorporated for the period.
Additional Read: IPO Allotment Status
An Initial Public Offering by a small or mid-sized company is called SME IPO. As the SME companies do not have enough track records it is hard to conduct a mainboard IPO or to raise funds from financial institutions.
To allow them to raise funds, NSE and BSE allow the listing and trading of SME companies with the following eligibility criteria:
For a company seeking listing on the BSE SME platform, the following conditions apply:
To launch an SME IPO in BSE, the issuer should meet these requirements:
Eligibility | Eligibility Requirement |
Net worth | At least Rs. 1 crore for last 2 financial years |
Operating profits | Should be positive for 2 out of the last 3 fiscal years |
Leverage ratio | Less than 3:1 |
Net Tangible Assets | Rs. 3 crore in the last fiscal year |
Track record (operations) | Min 3 years |
There are some additional eligibility for Microfinance and Broking Companies:
Microfinance Institutions (MFIs) applying for IPO are required to fulfil conditions in addition to standard IPO eligibility norms:
Client Base | More than 10,000 |
Asset Under Management | More than Rs. 100 crore |
Public Deposit | None |
For stockbroking companies, additional IPO criteria include:
Rs. 3 crore as last audited financial report
At least Rs. 5 crore each in any 2 out of 3 fiscal years
Or
Minimum net worth of Rs. 25 crore in any 3 out of 5 fiscal years
Rs. 3 crore
NSE also has its IPO eligibility in India for SME IPOs:
The issuer should be registered in India under the Companies Act 1956 or Companies Act 2013.
Promoters should jointly or individually hold a minimum of 20% of the share capital (post-issue).
The company has to present their track records (operations) of at least three years.
One of the promoters has at least 3 years of experience in the industry.
The company’s operating profit and net worth should be positive in at least 2 out of 3 financial years.
There should be no petitions from the National Company Law Tribunal (NCLT).
In this blog, you have learned the most important IPO Eligibility for the public listing of a privately owned company. To protect public interest, regulatory bodies including the Securities and Exchange Board of India and the stock exchanges place strict regulations on companies about to go public. This provides the benefit of transparency, liquidity and a fair chance to investors.
To apply for an IPO you need a demat account. Open your demat and trading account with Bajaj Broking and get a simplified and faster IPO application.
Companies planning to list their shares through an IPO in India must meet a comprehensive set of IPO eligibility criteria and regulatory requirements. These criteria vary based on the nature of the company and the platform it intends to list on, such as the mainboard or SME platform. Additionally, regulatory frameworks established by SEBI and exchanges like NSE and BSE define various compliance steps beyond financial metrics, covering corporate governance and operational standards.
Understanding all IPO requirements helps in assessing whether a company is prepared to initiate the public listing process and continue with ongoing compliance after listing.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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Any individual investor, institutional investor, high-net-worth individual (HNI), or qualified institutional buyer (QIB) meeting the IPO eligibility criteria can apply for an IPO. Retail investors need a demat account and PAN card, while companies must meet SEBI regulations. Foreign investors can participate via foreign institutional investor (FII) routes.
Investors must have a demat and trading account, PAN card, and sufficient funds. NRIs and foreign investors must follow SEBI’s IPO eligibility guidelines. Institutional investors need regulatory approvals, while retail investors can apply through ASBA (Application Supported by Blocked Amount) to participate.
Individual retail investors, HNIs, QIBs, mutual funds, banks, insurance companies, and FIIs can participate in an IPO. The SEBI-regulated IPO eligibility norms classify applicants into different categories, with retail investors having a reserved quota, typically 35% of the offering.
SEBI regulations define IPO eligibility, requiring retail investors to have a demat and trading account, PAN, and funds. Institutional investors must meet specific financial criteria. Companies must maintain profitability, adhere to corporate governance norms, and meet minimum net worth and asset requirements.
Yes, individuals can invest in an IPO if they have a demat account, PAN card, and adequate funds. They apply through brokers or ASBA-supported banks. SEBI’s IPO eligibility criteria allow retail investors to invest up to Rs.2 lakh per IPO under the retail category.
Yes, SEBI’s IPO eligibility norms require companies to have a minimum net tangible asset of Rs.3 crore in the last three years and a minimum average pre-tax profit of Rs.15 crore for the last three years. The company must also have a track record of three years of operations.
Investors with legal or regulatory restrictions, blacklisted entities, those with pending financial disputes, and persons barred by SEBI cannot invest. SEBI’s IPO eligibility guidelines also restrict retail investors from applying under multiple categories, ensuring fairness in allotment.
SEBI frequently updates IPO eligibility rules, including tighter disclosure norms, increased institutional participation, and reduced lock-in periods for anchor investors. Recent changes include enhanced risk disclosures, price band restrictions, and the introduction of a mandatory 10% QIB allocation in mainboard IPOs.
Retail investors can improve their allotment chances by applying under the retail quota, submitting multiple applications through family members, choosing cut-off pricing, and investing in smaller-sized IPOs. SEBI’s IPO eligibility rules ensure transparency, and using ASBA reduces rejection chances.
To apply for an IPO, investors need a PAN card, demat and trading account details, bank account with ASBA facility, and KYC documents like Aadhaar or passport. Institutions must submit financial reports and approvals as per SEBI’s IPO eligibility norms.
For a mainboard IPO, the company should have a minimum average pre-tax operating profit of ₹15 crore in at least three of the last five years. SME IPOs may have different thresholds, such as a net worth of ₹1.5 crore and a positive operating track record.
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Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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