IPO process how Initial Public Offering works in India

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    10. CAPEX Understanding Capital Expenditure with examples
    11. Private Equity Explained Understanding PE With Examples
    12. Initial Public Offering (IPO): What It Is and How It Works
    13. Launch IPO Why Do Companies Go Public
    14. IPO process how Initial Public Offering works in India
    15. What is IPO Key Terms Related to Initial Public Offering
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Marketopedia / Stock Markets Basic / IPO process how Initial Public Offering works in India

After deciding to issue an IPO, the firm must take several steps to ensure a successful launch. Prioritizing this objective, it is essential to hire a merchant banker. Also known as Book Running Lead Managers (BRLM) or Lead Managers (LM), their primary function is to guide the organization through the multiple facets of the IPO such as:

  1. Thoroughly investigate the company that is sending for an initial public offering, guarantee that legal requirements are met, and issue a due diligence certificate.
  2. Work with the company and prepare the listing documents, such as a Draft Red Herring Prospectus (DRHP). We can discuss this further later.
  • In March 2020, Anthony Waste Limited’s IPO subscription was under the set threshold and, as such, failed. 
  • As a result, merchant bankers had to take up any unsubscribed portion of the share issue. 
  • If, however, the subscription level was above the defined boundary but not totally subscribed, then these remaining shares were taken up by the merchant banker. 
  • All investor money is unblocked in their accounts regardless of success or failure of an IPO.
  1. Assist the company in fixing the price range of its Initial Public Offering (IPO). The cost band is the minimal and maximum figure of the share prices in which they will divest their shares. For instance, Keystone Realtors Limited’s recent IPO has a price band between Rs.514 to Rs.541.
  2. Aid the company in conducting roadshows, i.e. promotions or marketing to promote its initial public offering.
  3. The Lead manager appoints other intermediaries, too, like registrars, bankers, and advertising agencies. Additionally, they devise varied marketing plans for the issue.
  4. Once the company joins with the merchant banker, they will strive to go public.

 IPO sequence of events

The Securities and Exchange Board of India (SEBI) provides a clear framework for executing an Initial Public Offering (IPO). The steps should follow accordingly to ensure the successful completion of the offering. Generally, the sequence is like this:

– Appoint a merchant banker, or for large public issues, multiple may be necessary.

– Submit a registration statement to SEBI with information pertaining to the business’s nature, its IPO’s purposes, and all relevant financial data.

– Once SEBI has obtained the registration statement, it decides whether to grant approval for the IPO or not.

– If the company receives the first approval from SEBI, it must compile a DRHP document. This document needs to be disseminated to the public and includes numerous details, such as:

  • The estimated size of the IPO 
  • The estimated number of shares being offered to the public 
  • Why the company wants to go public, and how does the company plan to utilize the funds along with the timeline projection of fund utilization 
  • Business description including the revenue model, expenditure details 
  • Complete financial statements Management Discussion and Analysis- how the company perceives future business operations to emerge 
  • Risks involved in the business  
  • Management details and their background

– Market the IPO- One can go with TV and print advertising to create recognition of the business and its public offering. This procedure is also referred to as the IPO roadshow.

– Set a reasonable price range – Carefully consider the appropriate cost of the Initial Public Offering (IPO) so that both the company and potential investors benefit. An unrealistic asking rate will put off purchasers, so it is important to establish a sensible rate.

– Book Building- Once the roadshow is over and the price band is set, collecting all price points along with various quantities begins, known as Book Building. 

This process has been seen as an effective way of determining the appropriate price for an IPO. Investors can then choose the price they feel best suits them within this range.

– Closure- Once the book building window is shut (normally open for a few days), the price point at which the issue is listed can be determined. It usually corresponds to where the greatest number of bids have been placed.

– Listing Day- On Listing Day, the company’s stock is made available on the stock exchange. The listing cost is determined according to market forces of supply and demand, signifying whether the security will be listed at a premium, par, or discount to its cut-off rate.