SME IPO Expenses (Cost of SME IPO in India) (2024)

The cost of SME IPO ranges from 50 lakhs to a few crores, depending on the size of the issue and the services used by the issuing company.

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All companies planning to raise capital from the public must also consider the costs involved. Costs can be divided as follows:

• Fees to exchange, RoC and governing bodies.
• Payments to service providers (e.g., merchant bankers, registrar)
• Payments for underwriting and market making.
• Expenses for marketing and PR.

Cost of SME IPO

The cost of an SME IPO ranges from 50 lakhs to a few crores, depending on the size of the issue and the services used by the issuing company.

The merchant banker, who orchestrates the IPO process, handles payments to other intermediaries.

For a small IPO of less than 25 crore rupees, the merchant banker charges a fee of about 25 lakhs, and 11 lakhs is for fees for various services. In addition, the issuing company must make provisions for market making, underwriting, and advertising expenses, as needed.

SME IPO Expenses by Category

SME IPO expenses could be categorized in to 3 major areas:

1. Service Fees
2. Exchange Charges
3. Miscellaneous Charges

1. Service Fees

The intermediaries to whom the Company pays fees for services rendered. It includes fees for merchant bankers, registrar, legal counsel, auditor, advertising and printing fees, market maker fees, underwriting fees, bank fees, sponsor bank fees, and other professional fees. At a high level, some of these fees are as below:

Note:

• RoC fees include fees for increasing authorized capital, issuing a bonus, and splitting shares. They are charged as required.
• The company must issue 5% of the issue volume to the market maker.
• GST and other statutory fees, if any, at the applicable rates.
• Merchant Bankers Termination Fee - If the SME IPO is withdrawn at the request of the Company, the Merchant Banker may charge 50% of the fees. The termination clause and fees are set forth in the Merchant Banker's IPO Mandate signed by the Company at the time of engagement for the IPO.

2. Exchange Fees

For the listing of the shares, the company pays a fee to the stock exchange for the basic admission, processing, listing and annual fee. Below is the fee structure for the stock exchanges NSE SME Emerge and BSE SME.

3. Miscellaneous Expenses

Other expenses include optional, as-needed expenses for fundraising through the IPO. These include, but are not limited to:

• Underwriting expenses.
• Marketing and PR expenses.
• Out of pocket expenses (travel, transportation, communications, duplication, procurement and delivery of documents and related matters) for intermediaries.
• Expenses for road shows, site visits for journalists, bloggers and influencers.

Key Takeaways

• For small SME IPOs with an issue size of less than Rs 25 Cr, the cost is at least Rs 36 lakhs (Rs 25L merchant banker fee and Rs 11 lakhs other expense). Additional out of pocket expense are extra.
• The merchant banker provides a comprehensive cost estimate after due diligence.
• The merchant banker fee is the largest expense on SME IPO.
• The cost of raising capital via SME IPO is 5 to 20 times lower than for IPOs on the main board.

Frequently Asked Questions

1. 1. What is the cost of an SME IPO?

   The cost of an SME IPO can be anywhere between Rs 50 lakhs to a few crores.

   The cost of an SME IPO includes fees for intermediaries, exchanges, and other expenses. The actual cost depends on the size of the IPO.

   For an SME IPO of below Rs 25 Cr public issue size, the approximate merchant bank fees are around 25 lakhs and other mandatory expenses are around 11 lakhs. The PR and marketing budgets are extra.

   In addition to this, there is a recurring cost of the annual listing fees by the stock exchange (Rs 10k to 45k), market-making expenses for 3 years, and compliance costs.

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2. 2. How much does it cost to raise capital through an SME IPO?

   SME IPO cost between Rs 50 lakhs and a few crores.

   The SME IPO cost depends on various factors, including the size of the issue, the services used and the negotiations conducted by the company. Every IPO is different and the cost may vary depending on the IPO.

   The costs of an SME IPO include fees for the merchant bank and other intermediaries, exchange fees, taxes, and optional expenses for advertising the IPO. The largest item is the merchant banker fee, which starts at Rs 25 lakh for an issue size below Rs 25 Cr.

   There are many parties involved in the process of SME IPO including a lead manager, legal advisors, registrar, stock exchanges, depositories, distributors, etc. The issuer pays a certain amount to these intermediaries for the services they provide during the IPO process. For a small SME IPO (size below Rs 25 Cr), it costs about Rs 11 lakhs.

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