Mainboard Transition: Challenges for SMEs Amid Stricter Norms
As of January 2024, small and medium enterprises (SMEs) seeking to transition to the mainboard of stock exchanges in India are facing increased hurdles. The minimum listing tenure has been raised from two years to three, complicating the journey for many companies aspiring for this elevation.
Declining Migration Trends
India’s stock exchanges initially envisioned SME platforms as vital stepping stones for smaller firms progressing to the mainboard, where larger corporations operate. However, this aspiration is proving increasingly challenging:
– Slowdown in Mainboard Migration:
– 2021: 65 companies
– 2022: 62 companies
– 2023: 38 companies
– 2024: 14 companies
– 2025: 3 companies
– Overall, from 2015 to 2025, only 336 out of 1,420 listed SMEs—approximately 24%—successfully migrated to the mainboard.
Bankers attribute this slowdown to mounting restrictions established by the BSE and NSE. Abhishek Sharma, Director at GYR Capital, notes, The revised quality-control measures by exchanges are filtering out smaller players and aiming to protect the long-term integrity of the mainboard.
Stricter Requirements Impacting Migration
The new regulations effective January 2024 include:
– Minimum Listing Tenure: Companies must now have a minimum listing period of three years to qualify for migration.
– Increased Financial Criteria:
– Average Market Capitalization: Raised from Rs 25 crore to Rs 100 crore
– Average EBITDA: Increased from Rs 5 crore to Rs 15 crore over three years, with a minimum of Rs 10 crore annually.
– Public Shareholders: Increased to 1,000, up from 250.
– Additional stipulations entail:
– Proactive Applications: Companies are required to actively apply to migrate and meet extensive compliance checks.
– New Shareholder Requirements: From March 2024, the minimum number of shareholders must shift to 500, promoting a diversified shareholder base.
The NSE’s additional criteria further intensify these requirements:
– Paid-up Capital: Rs 10 crore
– Average Market Capitalization: Rs 100 crore
– Revenue: Must exceed Rs 100 crore in the previous fiscal year
– Net Worth: Minimum of Rs 75 crore
– Maintain at least 20% promoter holding, with restrictions on promoter sales.
Uday Patil, Executive Director of Investment Banking at PL Capital, emphasizes, “Stringent norms act as a quality filter to ensure that only financially sound and well-governed companies move to the mainboard.”
Success Stories Post-Migration
Despite the challenges, several SMEs have thrived after migrating:
– Manorama Industries: Launched its IPO in September 2018, raising Rs 60.79 crore, transitioned to the mainboard in July 2021, and saw its stock soar 295% by February 24, 2026.
– Zota Health Care: Their IPO on April 27, 2017, raised Rs 55.5 crore; after migrating on August 19, 2019, the stock surged 511%.
– Sarveshwar Foods: Raised Rs 52.2 crore through their IPO on March 5, 2018, transitioning in December 2022, achieving a 44% gain since then.
However, performance among newly listed SMEs has been inconsistent. Of the 134 SMEs listed in the past year, only 30 yielded gains, with many experiencing negative returns.
Notable Past Successful Migrations:
– MMP Industries Ltd: IPO on March 28, 2018, raised Rs 80.37 crore, migrated in January 2020.
– Sirca Paints India: Launched its IPO in May 2018 for Rs 74 crore, transitioning in July 2019.
Conclusion
The journey from SME platforms to the mainboard is becoming increasingly complex as enterprises navigate stricter regulations. While a select few manage successful transitions and impressive gains, the landscape remains challenging for many. To elevate their status in the Indian stock market, SMEs must adapt and meet the evolving criteria, ensuring their growth and sustainability in a competitive environment.