The Potential Changes in IPO Regulations
Are you contemplating starting your own company and getting it listed on the stock market? Do you wish to raise funds through an Initial Public Offering (IPO)? You might have wondered about the ease of launching an IPO in India when you learn that a company with just eight permanent employees received bids worth ₹4,800 crores for a modest ₹12 crore IPO—an astonishing 400 times subscription. Just days after this IPO, the Securities and Exchange Board of India (SEBI) has hinted at tightening the IPO process for small companies.
Staggering Figures: Profit of ₹1.5 Crore, Bids of ₹4,800 Crore
This discussion focuses on the recent IPO of Resourceful Automobile, which was merely ₹11.99 crores. However, it garnered an overall subscription of 400 times. What’s remarkable is that the retail sector alone subscribed to the IPO a staggering 500 times more than available shares, leading to bids totaling ₹4,800 crores for a company whose profit stands at just ₹1.52 crores.
Moreover, this company operates only two Yamaha showrooms under the name ‘Sahni Automobile’ in Delhi and employs just 8 permanent staff. The overwhelming subscription for such a small enterprise raises concerns for regulators, suggesting that the process may need further scrutiny. Consequently, SEBI is likely to enforce stricter regulations for Small and Medium Enterprises (SMEs) seeking to launch IPOs.
Implications of Stricter SME IPO Regulations
Recently, Ashwini Bhatia, a full-time member of SEBI, announced at the Global Fintech Fest that the regulatory body plans to strengthen the rules monitoring SME IPOs in the near future. This is crucial because SEBI had previously warned retail investors about misleading financial estimates presented by numerous small and medium businesses.
Bhatia indicated that SEBI intends to release a consultation paper on this issue by the end of the year. Upcoming changes may involve enhanced oversight along with a rigorous examination of companies’ audit reports. He emphasized that diligent work by Chartered Accountants (CAs) could avert many potential issues.
The Process of Launching an IPO in India
Launching an IPO in India involves a detailed process. Companies planning to go public must appoint at least one merchant banker; larger IPOs may require multiple bankers. The merchant banker assesses the company’s valuation, thereby determining the IPO size and share price range.
The IPO process necessitates preparation of a comprehensive draft that includes detailed information about the company and how the raised funds will be utilized. SEBI conducts an in-depth review based on this draft before granting approval for the IPO.
During the fund-raising process, the company aims to secure initial investments from anchor investors before opening the IPO to the general public. Importantly, the IPO must be a minimum size of ₹10 crores for the company to get listed on the stock exchange.
