SEBI has laid down entry norms for entities making a public issue/ offer. The same are detailed below
Entry Norms: Entry norms are different routes available to an issuer for accessing the capital market.
(i) An unlisted issuer making a public issue i.e (making an IPO) is required to satisfy the following provisions:
Entry Norm I (commonly known as “Profitability Route”)
The Issuer Company shall meet the following requirements:
(a) Net Tangible Assets of at least Rs. 3 crores in each of the preceding three full years.
(b) Distributable profits in atleast three of the immediately preceding five years. (c) Net worth of at least Rs. 1 crore in each of the preceding three full years. (d) If the company has changed its name within the last one year, atleast 50% revenue for the preceding 1 year should be from the activity suggested by the new name.
(e) The issue size does not exceed 5 times the pre‐ issue net worth as per the audited balance sheet of the last financial year
To provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters, SEBI has provided two other alternative routes to the companies not satisfying any of the above conditions, for accessing the primary Market, as under:
Entry Norm II (Commonly known as “QIB Route”)
(a) Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs).
(b) The minimum post‐issue face value capital shall be Rs. 10 crores or there shall be a compulsory market‐making for at least 2 years
Entry Norm III (commonly known as “Appraisal Route”)
(a) The “project” is appraised and participated to the extent of 15% by Financial Institutions / Scheduled Commercial Banks of which at least 10% comes from the appraiser(s).
(b) The minimum post‐issue face value capital shall be Rs. 10 crores or there shall be a compulsory market‐making for at least 2 years.