The SME IPO Market in 2026
As of April 28, 2026, 524 companies are actively trading on NSE Emerge, with 159 companies having migrated to the mainboard, bringing the total to approximately 683 companies that have used the platform since its launch.
SME equity fundraising through the stock exchange hit a record high in FY26, with 254 IPOs raising Rs. 10,955 crore.
But the eligibility bar has moved. SEBI tightened profitability norms in December 2024. NSE introduced FCFE as a mandatory criterion in September 2024. Another circular followed in April 2026, revising how FCFE is calculated. Founders who last looked at eligibility two years ago are working from an outdated picture.
This blog covers what the current framework actually requires.
The Core Eligibility Framework
Legal and Structural Requirements
The company must be incorporated under the Companies Act, 1956 or 2013, as a public limited company. Post-issue paid-up capital must not exceed Rs. 25 crore. This is the ceiling that separates the SME platform from the mainboard. If the post-issue paid-up capital crosses Rs. 25 crore, the company must consider a mainboard listing instead.
OFS size in an SME IPO is restricted to 20 percent. No SME can offer an IPO via 100 per cent offer for sale. Promoters who are selling shares cannot sell more than 50 per cent of their stake.
A company cannot use funds raised through the IPO to repay promoter loans. An SME cannot use more than 15 per cent of total funds raised or Rs. 10 crore, whichever is lower, to meet general corporate purposes.
Track Record
To qualify for a public listing on NSE Emerge, the company must have been in operation for at least three years. Promoters must have a minimum of three years of relevant experience in the same industry and must collectively or individually hold at least 20 percent of the post-issue share capital.
Proprietorships or partnership firms that have transitioned into a corporate structure must have a cumulative operational history of three years, including their previous business form.
This matters for converted entities. The three-year clock does not restart at incorporation if the business was operating under a different structure before conversion.
Financial Conditions: What Has Changed Since 2024
Operating Profit: The December 2024 SEBI Change
Companies applying for NSE Emerge must have operating profits, that is, earnings before interest, depreciation, and tax, of Rs. 1 crore for at least two out of the three full financial years prior to the application. This change in profitability criteria was approved by SEBI in December 2024 and applies to both NSE Emerge and BSE SME.
Before this change, the profitability threshold was lower and more loosely defined. The Rs. 1 crore EBITDA floor for two out of three years is now a hard requirement that screens out companies showing profit only in their most recent year.
Net Worth and Net Tangible Assets
Under NSE Emerge norms, the company must have a positive net worth and net tangible assets of at least Rs. 3 crore in the last preceding full financial year. For BSE SME, the net worth requirement is Rs. 3 crore as per the latest audited financial statements, also with net tangible assets of Rs. 3 crore.
Revaluation reserves are excluded from the net worth calculation for eligibility purposes on both platforms. Inflated asset values from revaluation exercises do not help the calculation.
In January 2024, BSE revised its tangible asset requirement upward from Rs. 1.5 crore to Rs. 3 crore for new filings. This effectively doubled the minimum tangible asset expectation and signalled a move toward stronger financial screening at the SME level.
FCFE: The New Gate
NSE introduced an additional FCFE eligibility criterion effective September 1, 2024. Under this requirement, SMEs must demonstrate positive Free Cash Flow to Equity for at least two out of the three financial years preceding their IPO application.
This requirement applies only to NSE Emerge. BSE SME does not currently mandate FCFE compliance. A company that fails the FCFE test on NSE Emerge can still apply to BSE SME, subject to meeting all other criteria there.
The FCFE formula and what changed in April 2026 is covered in detail in the companion blog on this page.
Governance and Compliance Requirements
What the Exchange Checks Beyond Financials
The application review is not limited to financial statements. The IPO offer document must disclose any material regulatory or disciplinary action by the stock exchange or regulatory authority against the promoters or promoting companies in the last one year, any default in interest and principal payment to debenture, bond, and fixed deposit holders in the last three years, and litigation records with the nature and status of lawsuits against the company, promoters, or group companies.
The company must not have been referred to the Board for Industrial and Financial Reconstruction or have any proceedings undergoing under the Insolvency and Bankruptcy Code. The entity must not have received a winding-up petition from the court or NCLT.
Merchant banker selection also matters. The IPO issuer must ensure that none of the merchant banker’s draft offer documents filed with the exchange has been rejected in the last six months before the date of the IPO application.
Lock-In and Promoter Obligations
The minimum promoter contribution is locked in for three years from the date of commencement of commercial production or the date of allotment in the IPO, whichever is later. Fifty per cent of the excess above the minimum contribution is locked in for one year, and the remainder for two years. The entire pre-issue capital held by persons other than promoters is locked in for one year from the date of allotment.
How to Prepare: The Practical Checklist
Start With a Financial Diagnostic
Before engaging a merchant banker, run the numbers against every current criterion. EBITDA for the last three years. Net worth and net tangible assets. FCFE under the revised April 2026 formula. Post-issue paid-up capital assuming the planned issue size. If any one criterion is not met, the filing will be returned.
Many companies approach the IPO process only to discover that the most recent year’s profitability does not meet the two-out-of-three requirement or that net tangible assets fall short after excluding revaluation reserves. Finding this before filing saves months.
Restate Financial Statements Properly
Financial statements must be restated for the last three years by peer-reviewed auditors. Financials must not be older than six months at the time of submission of the offer document to the stock exchange.
Restated financials prepared by the company’s existing statutory auditor without peer review do not meet the requirement. This is a step that needs to be planned well before the filing timeline.
Address Structural Issues Early
Conversion from proprietorship, partnership, or private limited company to a public limited company must happen with enough time for the three-year track record to be cleanly established. Related party transactions that inflate reported margins or net worth need to be addressed before the due diligence process begins, not during it.
Lorvet Advisory Services works with SMEs through every stage of the IPO readiness process, from initial eligibility assessment and financial structuring through to merchant banker selection, DRHP preparation, and post-listing compliance. Companies that engage early, before the filing timeline is compressed, are consistently better positioned to meet the current criteria without last-minute restructuring.
Migration to the Mainboard
Where the post-issue paid-up capital is likely to exceed Rs. 25 crore by virtue of a further issue, the company must migrate its securities to the mainboard. Shareholder approval through a special resolution via postal ballot is required, with votes cast by non-promoter shareholders in favour amounting to at least two times the votes cast against. In-principle approval from the mainboard is also required before migration.
FAQs
Can a company that was a partnership firm qualify for NSE Emerge?
Yes, provided the cumulative operational history, including the period as a partnership, adds up to three years. The track record is not reset at conversion.
Does FCFE apply to BSE SME as well?
No. The FCFE criterion is specific to NSE Emerge. BSE SME does not currently require FCFE compliance.
Can IPO proceeds be used to repay bank loans?
Yes, bank loans can be repaid from IPO proceeds. The restriction is on repayment of loans from promoters or related parties.
What is the Rs. 25 crore cap based on?
It is based on post-issue paid-up capital at face value, not market capitalisation. A company can have a much higher market cap and still list on the SME platform, as long as the face value of paid-up equity capital does not exceed Rs. 25 crore after the issue.
Is the EBITDA of Rs. 1 crore cumulative or per year?
Per year. The company must have EBITDA of at least Rs. 1 crore in each of at least two of the three preceding full financial years. It is not a cumulative total across three years.
