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SEBI Introduces Stricter Profitability Requirement for SME IPOs.

Banking & Finance | Dated: 12 Mar 2025

In March 2025, the Securities and Exchange Board of India (SEBI), based in Mumbai (Maharashtra), introduced a more stringent regulatory framework for Small and Medium Enterprises (SME) Initial Public Offerings (IPOs). The new rules mandate a profitability requirement and impose a 20% cap on the Offer-For-Sale (OFS) component of the IPO.

🎯 Key Highlights:

  • - Additionally, selling shareholders are restricted from offloading more than 50% of their existing holdings.
  • - SMEs planning to launch an IPO must show a minimum operating profit (EBITDA) of Rs 1 crore in at least two out of the previous three financial years (FY).

💡 Other Important Facts:

  • (i) The total OFS component of the IPO is capped at 20%, ensuring that the primary purpose of the IPO remains to raise funds for the company.
  • (ii) The promoters' shareholding over the Minimum Promoter Contribution (MPC) will be subject to a phased lock-in-period. Fifty percent of the excess holding will be released after one year, with the remaining 50% being released after two years.
  • (iii) These changes are designed to ensure that only SMEs with a strong financial track record are allowed to raise public funds, thus safeguarding investor interests.

📚 Test Your Knowledge:

Recently, which regulatory body introduced a stricter profitability requirement for SMEs planning to launch an IPO?

Correct Answer: SEBI

🚀 Quick Recap:

About SEBI

  • Chairman : Tuhin Kanta Pandey
  • Headquarter : Mumbai