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The IPO Process in India

The consistent creation of IPOs (Initial Public Offering) in India is a trending topic in today’s fintech industry. In the first 9 months of 2021 alone, investors have shown an earnest willingness to shell out money in IPOs – companies generated a massive $9.7 billion through initial shares. This amount was raised by 72 companies who hit IPOs this year till date. The funding industry is raging, and taking your company to IPO is the aim of most startups – as Zomato had aptly asserted – “From one day to day one.” Iconic, to say the least.

But Why Take Your Company to IPO?

IPO is the transitory step that allows a privately held company to convert into a publicly traded one. Provided a privately held company fulfils the necessary underlying conditions to be a public company (in terms of capital, revenue, number of directors and the like), companies offer IPO for raising money by offering their stocks and/or shares to the public for subscribing. Different stock exchanges have different processes for taking a company to IPO, and the process is often beyond tedious.

The IPO Process

Step 1: Take the help of financial experts
To begin the IPO process, financial intermediaries need to intervene. The job of these intermediaries, like investment bankers, is to act as a bridge between the investors (who will subscribe to the shares of the company when it goes to IPO) and the company. They study the financial details of the company and assure the company that the desired amount of funds are being raised via IPO.
Step 2: Register for IPO
This involves registering the company for IPO. A registration statement that has to be prepared and submitted to the registrar of companies. In addition to this, a draft prospectus has to be shared as well, which is also known as a Red Herring Prospectus (RHP).
red herring prospectus explainer in red for IPO
Step 3: SEBI Verification
SEBI (Securities and Exchange Board of India) verifies the details provided by the company as part of their IPO application. Once approved, the company can decide a date for its IPO.
Step 4: Stock Exchange Application
Post approval by SEBI, the company must send applications to the stock exchanges on which they wish to be listed. In India, companies are most commonly listed on the National Stock Exchange (NSE) and/or the Bombay Stock Exchange (BSE).
Step 5: News, PR, and Promotion
In the two weeks prior to the decided IPO date, companies rigorously create buzz around their company and their IPO. They share important information about the company to attract investors, such as financial parameters, growth numbers, predicted growth forecasts etc.
Step 6: Pricing the IPO
After the stock exchange application gets approved, the company can initiate pricing their IPO. This happens through two ways – Fixed Price IPO and Book Building Offering. All book building IPOs require the opening of an escrow account. The company provides a Floor Price and Cap Price for the IPO as well, which respectively refers to the minimum and maximum bid prices. The company invites subscription to shares for 3-5 working days. After the bidding period is over, the company decides on a Cut-Off Price, which is the final price at which the issue will be sold.
difference between fixed price IPO and book building IPO depicted on yellow background image detailed
Step 7: Allotting Shares
Once the IPO is finalised, the company gets together with its financial advisors to assess how many shares ought to be allotted to different investors. If the IPO gets oversubscribed, shares are allotted partially.

Advantages of Scaling to IPO

Benefit 1: Greater access to capital – for investors to feel apprehensive about investing in a venture is understandable. Companies may therefore find it difficult to raise funds for growth through venture capital companies, RBFs, and the like. Comparatively, while raising funds directly from the public, companies may find a more welcoming attitude from investors.
Benefit 2: Liquidity – getting listed on a stock exchange helps the investing stakeholders of a company to liquidate their assets.
Benefit 3: Simplified ESOPs – a publicly listed company finds it quite easy to provide ESOP Buyback facilities to its employees. In comparison to this, for a privately held company to issue stocks to employees, an extremely tedious process has to be followed.
Benefit 4: Improved Company Image – a listed company is comparatively considered more attractive by the general public due to the prerequisites it has fulfilled to scale to IPO. Listed companies also attract big loans from banks more readily.
Benefit 5: Mergers and Acquisitions – Akin to the provisions of offering ESOPs, the process to facilitate mergers and acquisitions is much easier for a publicly listed company than for a privately held one. Acquisitions are carried out either by a statutory merger or a tender offer. The condition on the listed company is to maintain at least 25% public shareholding.

Upcoming IPOs - What To Look Out For

IPOs are a great way to seize the potential benefit of investing. In order to translate your investing prowess into the maximum return, it is important to identify the right stocks at the right moment. Here are some IPOs you should keep an eye out for in 2021-22 in India and the US-
  • Adani Wilmar Limited IPO – India
  • One Mobikwik Systems Limited IPO – India
  • PolicyBazaar IPO – India
  • Paytm IPO – India
  • OYO IPO – India
  • Fino Payments Bank IPO – India
  • Sigachi Enterprises IPO – India
  • SJS Enterprises IPO – India
  • Instacart IPO – US
  • Robinhood IPO – US
  • NextDoor IPO – US
  • Stripe IPO – US
  • ThoughtSpot IPO – US
  • – IPO – US
  • Krispy Kreme IPO – US

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