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IPO Process For Companies In India

For prospective investors, delving into the intricacies of this process is not only enlightening but also essential in identifying promising opportunities. This article aims to demystify the IPO journey from the company’s perspective in the Indian market. By understanding the fundamental steps, regulatory requirements, and considerations, investors can confidently navigate the world of upcoming IPOs.

The Significance of the IPO Process

  • Raising Capital for Expansion: At the core of the IPO process is the aspiration to secure fresh capital. Companies opt for IPOs to fuel their expansion plans, whether it be scaling operations, launching new products, or funding ambitious research and development endeavours.

Importance of Underwriters or Investment Bank

  • Access to Capital: IPO underwriters help companies raise funds from the public markets, enabling growth and financial stability.
  • Pricing Expertise: Underwriters determine the optimal share price, maximizing the company’s fundraising potential.
  • Risk Mitigation: Underwriters assume financial risk, ensuring the company receives the expected capital injection.
  • Marketing and Distribution: Underwriters use their networks to market the IPO and generate investor interest.
  • Regulatory Compliance: Underwriters guide the company in meeting legal and regulatory standards throughout the IPO process.
  • Credibility and Validation: Underwriters’ involvement lends credibility to the company, boosting investor confidence.
  • Stabilization: Underwriters can stabilize the stock price post-IPO, preventing excessive volatility.
  • Guidance and Advice: Underwriters provide valuable guidance on timing, deal structure, and investor relations.
  • Liquidity and Exit Strategy: Going public with underwriters creates a liquid market, allowing stakeholders to monetize their investments.

Underwriters of largest IPO’s

UNDERWRITER COMPANY DEAL SIZE (BILLION $)
Citi – Saudi Aramco 25.59
Credit Suisse – Alibaba Group Holding 21.77
Nomura Sec. – Softbank Corp 21.35
Goldman (Asia) – NTT Mobile 18.1
JP Morgan – Visa 17.86

 

  • Access to Liquidity: Going public offers companies the priceless benefit of liquidity. By having their shares listed on stock exchanges, companies enable investors to buy and sell these shares, providing a liquid market for their ownership stakes. This enhanced liquidity makes it easier for founders, early investors, and employees to convert their equity into cash, offering an exit strategy and financial flexibility.
  • Compliance with Regulatory Framework: The transition from a private to a publicly traded company involves rigorous adherence to the regulatory framework set forth by Indian stock exchanges and the Securities and Exchange Board of India (SEBI). Companies must navigate through a structured and meticulous process, ensuring that they are fully compliant with all the necessary prerequisites before they can go public.

The IPO Process Steps

Selecting an Underwriter or Investment Bank

To initiate the IPO process, a company typically seeks the expertise of financial professionals, such as investment banks and underwriters. An underwriting agreement is a key component of this step, encompassing details of the deal, the amount to be raised, and specifics of the securities being issued.

IPO Registration

The preparation of a registration statement, including the Red Herring Prospectus (RHP), is a vital step in the IPO process. As per the Companies Act, submission of the RHP is mandatory, and it encompasses crucial disclosures in line with SEBI and Companies Act standards. Components of the RHP cover industry-specific terms, risk factors, fund utilization plans, industry insights, business activities, key management details, financial statements, auditor’s reports, legal information, and more. The document must be filed with the registrar of companies three days before the IPO’s public bidding begins, adhering to SEBI guidelines.

SEBI Verification

The Securities and Exchange Board of India (SEBI), as the market regulator, scrutinizes the accuracy and completeness of the company’s disclosed information. Upon approval, the company can announce a date for its IPO.

Application to the Stock Exchange

At this stage, the company applies to the stock exchange, signalling its intent to initiate the IPO.

Building IPO Anticipation

In the lead-up to the IPO’s public opening, the company engages in an array of promotional activities. Over a two-week period, company executives and staff embark on a journey across the nation to build anticipation for the impending IPO. The company highlights its key strengths and shares insights with various stakeholders, including business analysts and fund managers. The roadshow often incorporates diverse formats, such as question and answer sessions, multimedia presentations, group meetings, online virtual roadshows, and more.

Pricing of IPO 

IPO pricing commonly employs two methods: Fixed Price IPO and Book Building Offering. SEBI regulations also allow companies to launch either a fixed-price IPO (subject to some conditions) or a book-built IPO. The final issue price, or Cut-Off price, is determined based on investor demand.

Allotment of Shares 

Once the IPO price is determined, the company, in collaboration with underwriters, allocates shares to investors. In cases of oversubscription, where demand exceeds supply, allotments are made proportionally. The process aims to ensure a fair distribution of shares among investors, maintaining transparency and equity in the IPO process.

Phase Timeline
Planning 2 weeks
Due diligence 4-5 weeks
DRHP Preparation 1 week
SEBI Approval  4-8 weeks
RHP Submission 2-3 weeks
IPO Launch Minimum 3 days
Allotment 3 days after the issue closes
Listing 6 days after the closing date
Post issue activities 2-3 weeks

Recent Example

Zaggle Prepaid Ocean Services IPO

IPO Date September 14, 2023 to September 18, 2023
Listing Date September 22, 2023
Face Value Rs. 1 per share
Price Band Rs. 156 – Rs. 164 per share
Lot Size 90 shares
Total Issue Size 3,43,52,255
Fresh issue 2,39,02,439
Offer for Sale 1,04,49,816
Issue Type Book Built Issue IPO
Listing At BSE, NSE
Shareholding pre issue 9,81,94,319
Shareholding post issue 12,20,96,758

Read: IPOs In India: A Journey Of Capital, Confidence And Change

In summary, the IPO process is a multifaceted undertaking that reshapes the financial landscape for companies and offers investors promising opportunities.

Disclaimer:This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.

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