THE IPO PROCESS IN INDIA

"Ever wondered how a private company transforms into a publicly traded giant? The journey from a startup to ringing the stock market bell is an exciting, high-stakes process known as an Initial Public Offering (IPO)”

All of you must have heard about IPOs of companies at least once in news articles or elsewhere. But have you ever realized how complex this process must be? In this article, we will understand the entire process of how a company goes public in India.

Before diving into the process, let’s understand why a company opts for an IPO. The primary reason is to raise substantial capital in exchange for its securities. A company typically goes public when it needs large capital to finance its future projects.

Additionally, companies opt for an IPO to enhance their brand visibility. A public company enjoys better credibility, allowing it to attract talented employees, more customers, and potential partners. IPOs also offer liquidity to existing shareholders, as private company shares are not easily tradable—unlike those in a public company.

An IPO provides a company access to the capital market, where it can explore a wide range of financial options, including bonds, debt instruments, additional share issues, and other forms of capital.

Now that we know why a company chooses to go public, let’s explore the process of an Initial Public Offering (IPO).

STEP 1: HIRE AN INVESTMENT BANK

Once the company decides to go public, the first step is to hire an investment bank—often more than one—to secure the best deal. The investment bank analyzes the company’s financials, assets, and liabilities to determine the ideal amount to be raised through the IPO.

An underwriting agreement is then signed, detailing the capital to be raised and the securities to be issued. Although the underwriters are responsible for raising capital, they do not bear the entire risk.

STEP 2: PREPARE RHP AND REGISTER WITH SEBI

The next step involves preparing a Red Herring Prospectus (RHP) and registering with SEBI. The RHP is a preliminary document that includes details about the company’s management, financial data, risk factors, and business plans. It also outlines the intended use of the raised funds.

These documents must be submitted to the local ROC (Registrar of Companies) at least 3 days before the public bidding opens. After that, the company can apply to SEBI for IPO approval.

The first page of the RHP includes a warning that it is not the final prospectus. SEBI reviews the documents for completeness and accuracy. If discrepancies are found, SEBI returns the registration with comments, and the company must revise and resubmit.

STEP 3: APPLY TO STOCK EXCHANGES

After SEBI approves the registration and RHP, the company applies to list its shares on a stock exchange of its choice.

STEP 4: GO ON A ROADSHOW

Before the IPO is launched, the company’s executives travel to major financial hubs to promote the IPO. This roadshow aims to attract potential investors and showcase the company’s growth potential.

STEP 5: IPO PRICING

After the roadshow, the company finalizes the offer price of its shares—a key factor in the IPO’s success. There are two common methods to set the price:

Fixed Price Method

The company and underwriters decide on a fixed price based on liabilities, capital requirements, and market demand.

Book Building Method

A price range is set, and investors submit bids within this range. The final price is determined by demand and total bids received.

STEP 6: MAKE IPO AVAILABLE TO THE PUBLIC

After pricing, the IPO is opened to the public. Application forms are made available at designated banks or brokers and can also be submitted online. Typically, the IPO remains open for 5 working days as per SEBI guidelines.

Timing plays a crucial role. Launching during favorable market conditions or when fewer competitors are going public can help maximize returns. After bidding closes, the final prospectus—listing the number of shares and final price—is submitted to SEBI and the ROC.

STEP 7: IPO ALLOTMENT

After pricing, the company and underwriters decide how many shares to allocate to each investor. If the IPO is not oversubscribed, investors receive full allotments. In case of oversubscription, shares are allotted proportionately.

CONCLUSION

An Initial Public Offering (IPO) is a significant milestone in a company’s journey. While the process is complex, meticulous planning ensures successful execution. An IPO not only enables companies to scale but also offers investors a valuable opportunity to earn attractive returns