presentation on ipo process in india

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The ABC of IPOs in India: A Beginner's Guide

Posted on 10 October 2021 Updated on 31 July 2023

What is an IPO process?

Steps involved in an ipo process, step 1: preliminary planning, step 2: selection of underwriters.

• IPO underwriters work closely with the issuing body to determine the initial offering price of the securities using a combination of factors like company profitability, market perception, cash flows, asset valuation, etc. to value its shares.
• They empower the company to proactively prepare for the IPO process, by considering critical factors such as determining the appropriate fundraising target, strategically selecting the securities to be issued, and establishing a mutually beneficial agreement between the underwriter and the company.
• During the IPO, an underwriter can purchase the entire IPO issue and sell it to investors, using their distribution network.
• They create a market for the stock by contacting a wide range of institutional investors, including mutual funds, insurance companies, pension funds, and more.
• Once the issue is on the market, the underwriter guides, stabilizes, and establishes a market for the issued stock.
• Takes on the roles of advisor and evaluator after the issue has been launched.

Step 3: Due Diligence

Step 4: drafting the prospectus, step 5: sebi filings and approval, step 6: roadshow and investor presentations, step 7: pricing and allocation, step 8: ipo subscription and allotment, step 9: listing on stock exchanges (nse and bse), step 10: post-ipo compliance, ipo process duration, factors impacting ipo duration.

• Regulatory Approvals: IPO processes in India follow SEBI guidelines . Obtaining the requisite SEBI approvals is a critical stage in the procedure. The time it takes to receive these approvals might vary based on factors such as the prospectus's completeness and correctness, the complexity of the business, and the timeliness of the firm.
• Due Diligence and Document Preparation: Thorough due diligence, prospectus preparation, and acquiring the relevant documentation are all time-consuming activities. Financial audits, legal compliance assessments, and the disclosure of all necessary information are all part of this. The length of time required for these tasks might be influenced by the complexity and size of a company.
• Market Conditions and Investor Sentiment: The timing of an IPO can be influenced by overall market circumstances and investor mood. Companies may opt to postpone or accelerate their IPO plans depending on market conditions. If market circumstances are unfavourable, corporations may wait for better conditions, which may result in a lengthier IPO process.
• Underwriting Process: Engaging underwriters and selecting the offering price can be time-consuming. Underwriter IPO supports the company with pricing, marketing the IPO, and collaborating with regulatory agencies. The underwriting process's arguments and discussions might influence the schedule.
• Roadshow and Investor Demand: The roadshow, in which the firm presents its investment case to potential investors, is an important component of the IPO process . The time it takes to generate investor demand and gather indications of interest might have an impact on the entire time frame.
• Compliance and Listing Requirements: Companies must meet the compliance standards and listing criteria of the stock exchanges where their shares will be listed. Adherence to corporate governance norms, financial reporting duties, and achieving minimum capitalization requirements are all part of this. The time required to complete these regulations may influence the IPO timetable.

Complete documentation process in IPO

• Draft Red Herring Prospectus (DRHP): The DRHP is a preliminary prospectus that gives thorough information on the firm, its business activities, financials, risk factors, and IPO objectives. It is submitted to a regulatory authority for examination and approval, such as from SEBI.
• Red Herring Prospectus (RHP): The RHP is the final prospectus, which includes any revisions or adjustments made throughout the regulatory review process. It contains the same detailed information as the DRHP and is distributed to prospective investors during the IPO subscription period.
• Memorandum and Articles of Association: These are the company's constitutional papers. The Memorandum of Association explains the company's goals and powers, whereas the Articles of Association include the rules and regulations that regulate the company's internal operations and management.
• Audited Financial Statements: Companies must furnish audited financial statements for the last three to five years, comprising the balance sheet, income statement, cash flow statement, and statement of changes in equity. These statements give an in-depth analysis of the company's financial performance and status.
• Legal and Regulatory Disclosures: Any legal processes, lawsuits, conflicts, or regulatory actions concerning the company, or its directors must be disclosed. This includes disclosing details regarding outstanding litigation, investigations, or regulatory compliance concerns that might have a major impact on the company's operations or financials.
• Corporate Governance Reports: Companies must provide reports on their corporate governance practices, including information on the membership of their boards, committees, related-party transactions, and codes of conduct. These reports illustrate the company's dedication to openness and sound governance.
• Management Discussion and Analysis: This portion of the prospectus contains information about the company's activities, strategy, prospects, and dangers. It contains talks on industry dynamics, market trends, competition, and the company's market positioning.
• Underwriting Agreement: This agreement is made between the company and the underwriters in charge of the IPO. It specifies both parties' responsibilities and obligations, including the underwriters' pledge to acquire and distribute the shares to investors.
• Legal Opinions: The company's legal counsel provides legal advice to authenticate the legitimacy of the IPO process , compliance with rules, and the integrity of the disclosure papers.
• Other Supporting Documents: Additional papers, such as licenses and permissions, intellectual property registrations, contracts, and other important agreements may be necessary depending on the company's industry, unique requirements and circumstances.

Applying for IPO: Guidance for retail investors

• Rainbow Children’s Medicare Ltd. IPO
• Veranda Learning Solutions Ltd. IPO
• Paradeep Phosphates Ltd. IPO
• Aether Industries Ltd. IPO

Things to consider before investing in an IPO

Top ipos in india, alternatives to ipos available, direct listing, private placements, venture capital and private equity funding, crowdfunding, special purpose acquisition companies (spacs), mergers and acquisitions (m&a), faqs – frequently asked questions, what are the general requirements of an ipo .

• Certain financial conditions, such as a certain degree of profitability, sales, or market capitalization, must be met by a company.
• To give transparency to potential investors, the firm must have audited financial statements for a particular time, generally three years.
• The firm must file an IPO prospectus or offering document, which contains thorough information on the company's operations, finances, risks, and other pertinent information.
• Compliance with securities rules and regulations of the jurisdiction in which the IPO is held.

How many ways can we apply for an IPO ?

• Individual investors can apply for an IPO using their brokerage accounts, directly through UPI, either online or on paper, or using paperwork given by the firm or intermediaries participating in the IPO process.
• Institutional investors, such as mutual funds, pension funds, and hedge funds, can participate in initial public offerings (IPOs) by placing substantial orders directly with underwriters or through the book-building process.

How to apply for an IPO ?

What are the sebi guidelines regarding ipo , how does an ipo process work .

• Selection of investment banks
• Due diligence and disclosure
• Marketing and roadshows
• Pricing and allocation
• Listing and trading

How important is the IPO process ?

• IPOs help retail as well as institutional investors participate in the growth of a thriving company by becoming part owners.
• IPOs enable corporations to obtain large funds by selling shares to the public, which may then be used for expansion, R&D, debt repayment, and other corporate goals.
• An IPO boosts a company's visibility, brand recognition, and credibility among investors, consumers, and suppliers.
• A publicly listed company can utilize its shares as a currency for acquisitions, making strategic alliances and mergers simpler to pursue.
• An IPO allows current owners, including founders, employees, and early investors, to monetize their interests and realize the value of their capital.

What is the lock-up period in an IPO ?

What are the advantages of an ipo .

• Access to capital for the company
• Enhanced profile and credibility for the brand
• Liquidity for shareholders
• Chance to be a part of a growing company's success.

What is the role of underwriters in an IPO ?

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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• Products & Services
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• Initial Public Offering (IPO)

About Initial Public Offerings (IPO)

• Book Building
• Reverse Book Building
• Bid Verification
• FAQs on IPOs
• User Hierarchy
• Trader Workstation
• About Offer for Sale (OFS)
• FAQs on OFS
• OFS - EOD Report Status
• OFS - Announcement
• Tender Offer - Buyback
• Rights Issue
• About Innovators Growth Platform
• Key Eligibility Criteria
• Other Listing Criteria
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• About Accredited Investors
• Accredited Investor Framework
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• Migration to the Mainboard
• Relevant Guidelines
• PUBLIC OFFER DOCUMENTS
• Infrastructure Investment Trusts (InvIT)
• Draft Offer Documents
• Offer Documents (RHP)
• Final Offer Documents (RHP)

The Capital market represents the “Primary Market” and the “Secondary Market. The capital market has two interdependent and inseparable segments, the new issuers (the primary market) and stock (secondary) market. The primary market is used by issuers for raising fresh capital from the investors by making initial public offers or rights issues or offers for sale of equity or debt. An active secondary market promotes the growth of the primary market and capital formation, since the investors in the primary market are assured of a continuous market where they have an option to liquidate their investments.

A corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company.

An IPO is an important step in the growth of a business. It provides a company access to funds through the public capital market. An IPO also greatly increases the credibility and publicity that a business receives. In many cases, an IPO is the only way to finance quick growth and expansion. In terms of the economy, when a large number of IPOs are issued, it is a sign of a healthy stock market and economy.

When the company makes its first IPO to the public, the relationship is directly between the company and investors, and the money flows to the Company as its “Share Capital”. Shareholders thus become owners of the Company through their participation in the Company’s IPO and have ownership rights over the company. This is the largest source of funds for a company, which enables the company to create “Fixed Assets” which will be employed in the course of the business. The shareholders of the Company are free to exit their investment through the secondary market.

What is Book Building?

SEBI guidelines defines Book Building as "a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built-up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document".

Book Building is basically a process used in Initial Public Offer (IPO) for efficient price discovery. It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date.

Difference between Book Building Issue and Fixed Price Issue

In Book Building securities are offered at prices above or equal to the floor prices, whereas securities are offered at a fixed price in case of a public issue. In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.

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Initial Public Offerings 2024

Chapter content, introduction.

This chapter on initial public offerings (IPOs) is aimed at discussing how the process plays a key role for companies in the capital market and provides the opportunity for companies to improve liquidity by way of increased investments.  In this chapter, we will discuss how an IPO brings in new investors and how it facilitates access to future capital growth.  Another crucial element of going public is the reduced cost of raising future capital by stimulating the supply of information from the investment community.  IPOs are regarded as the health barometer of the capital market and are closely watched by investors and the media.  We discuss how IPOs can help companies unlock their growth ambitions and raise capital while delivering optimal value to shareholders.

Brief history of IPOs in India

The first modern IPO occurred in March 1602 when the Dutch East India Company (VOC) offered shares of the company to the public to raise capital.  It was the first company in history to issue bonds and shares of stock to the general public.  In India, Reliance was the first Indian company to go public in 1977, before the regulator – the Securities and Exchange Board of India (SEBI) – was constituted.  During the 1990s, India opened its doors to foreign capital and embarked on a journey of economic liberalisation.  This era featured a wave of significant landmark IPOs.  The turn of the millennium saw a surge in companies in India going public, marking an upbeat phase for IPO activity.  Over time, the Indian IPO market has matured, reflecting the country’s burgeoning entrepreneurial energy.

Historically, the capital market has represented two interdependent segments, the primary market and the secondary market.  While the former is used by issuers for raising fresh capital from investors by way of IPO, rights issues or offers for sale of equity or debt, the latter promotes the growth of the primary market and capital formation.  In layman’s terms, equity fundraising happens when companies enter into the process of IPO for the primary purpose of raising funds.  It is the transition of a company from being privately traded to being publicly traded.

Why are companies, domestic and foreign, choosing to go public in India?

There are a number of advantages of a company going public, some of which include that it:

• Enables the company to raise funds for growth and expansion : This is the primary reason for companies to list their securities on stock exchanges. By going public, the company can issue fresh share capital, which eventually helps in raising funds for growth and enables further expansion by taking up capital expenditures that would increase operational capacity and eventually profitability of the company.  The funds can also be used to fulfil the debt liabilities of the company.
• Provides an exit route for existing shareholders : Going public can help the existing shareholders (including seed investors) liquidate their stake in the company. An IPO enables them to offer their shares in the company to the public by way of offer for sale, pursuant to which they can liquidate their stake partially or completely.
• Amplifies reputation and credibility of the company : Pursuant to becoming listed, the company falls under the obligation to adhere to certain compliances and disclosures as prescribed by SEBI, thus ensuring implementation of good corporate governance practices and protection of the stakeholders from fraud and mismanagement. It helps boost the confidence of shareholders in the management and operations of the company.
• Enhances diversification : When a company lists its securities, investors can buy and sell shares on an exchange. As a result, there is more diversity among investors, as no single investor owns a majority of the company’s outstanding stock (because of certain disclosures and holding restrictions imposed by SEBI).  As a result, purchasing stock in a publicly traded company can help diversify investment portfolios.

The current regulatory scheme and market practices

In a constant endeavour to promote ease of doing business in India, the Government’s proposed initiatives have strategically positioned the nation as a stable and investor-friendly sector for increased investments.  Over the years, increasing stability and investor confidence in the stock exchanges has enhanced market demand, thus attracting more and more players to go public and reap the benefits of being a listed entity, despite the cost of having to observe stricter governance practices.  The past three years (from 2021 to 2023) have witnessed a total of 160 IPOs in India, raising close to a whopping 230,000 crore INR from the market.  This shows the confidence of investors on the market.  During this period, 350 small and medium-sized enterprise (SME) IPOs were also launched that raised close to 7,700 crore INR.  Additionally, in this period, two real estate investment trust (REIT) IPOs and one infrastructure investment trust (InvIT) IPO were also issued that raised around 7,000 crore INR each.  2023 marked a milestone for India with the inaugural listing of a non-profit organisation on the Social Stock Exchange (SSE).  SGBS Unnati Foundation, a not-for-profit organisation (NPO) based in Bengaluru, succeeded in raising just under 2 crore INR through the SSE, primarily from high-net-worth individuals.

The Manufacturing industry, especially the Pharmaceutical and Chemical industries, and the Fast-Moving Consumer Goods (FMCG) industry have been the top sectoral performers since 2022.  One may consider that the upward trend in these industries is due to the profitability brought on by the onset of COVID-19 and the increased demand in consumer goods post-pandemic.

Noteworthy trends

A growing appetite for equities, a considerably stable socio-economic-political paradigm and the positive outlook of the economy towards growth has led to increased participation of retail investors, often resulting in oversubscription of the issues.  The dynamic regulatory framework has also added to this trend.

A noteworthy trend in the IPO segment is the role of ESG factors for stakeholders to help them prepare for the listing phase.  A global push for companies to disclose where they stand on their ESG maturity journey and on their future roadmap towards achieving their ESG targets and goals is on the rise.  More and more investors and institutions are prioritising ESG investing over traditional parameters; thus, the need to be ESG-centric has now become a business imperative.  Companies that endeavour to go public are recommended to maintain a resolute focus on ESG-related disclosures and performance, thus demonstrating responsible value for all existing as well as potential stakeholders.  From April 1, 2022 onwards, the top 1,000 listed companies in India have been asked to mandatorily report on SEBI’s BRSR (Business Responsibility and Sustainability Reporting) performance standard, and SEBI recently laid down a glide path for these companies to provide assurance on a few core BRSR elements, making it stricter for companies to follow ESG practices in letter and spirit.

Recent IPO activity and expected trends

Post-COVID-19, the pace of the market has picked up and, barring a few hurdles caused by certain noteworthy startups entering into public trading, has boosted fundraising and public confidence.  A few upcoming IPOs that are likely to include Oyo, Swiggy, FirstCry, PhonePe and PharmEasy reflect multi-sector opportunity and increased dominancy of startups and the fintech/service sector industries, which are blossoming in India.

The IPO process: Steps, timing and parties and market practice

An IPO can be of both equity and debt instruments of the company.  In India, while a public limited company is allowed to issue equity and debt by way of an IPO, a private limited company can only issue and list its debt instruments.  Both types of issue have their own set of regulations.  However, since we are considering IPOs of company shares, an indicative timeline of the IPO process is presented below:

The IPO window, i.e. the day on which the shares are opened for subscription, and the closure of subscription might be very short (five to six days), but the entire IPO process takes approximately seven to eight months.  There is no statutory timeline specified for completion of an IPO; however, depending on the size of the organisation going public and how quickly due diligence is carried out, the same may increase to 12 months or more.

Adherence to the prerequisites mentioned in the SEBI ICDR Regulations is required by the entity wishing to become listed.  Chapter II of said Regulations prescribes the eligibility requirements for companies that can go public.  Once these eligibility criteria are satisfied, approval of the Board and then the shareholders is required, which might take close to two months (considering the Board and general meetings and the timelines involved).  Furthermore, after the appointment of Lead Managers and other parties, the due diligence process starts along with preparation of the DRHP.  It takes approximately three to five months to complete the process and finalise the DRHP, which is filed with SEBI and the stock exchanges for their observations and approval, which takes approximately one month.  Once these observations are considered and the final red herring prospectus/offer document is filed with the RoC, the issuer can book-build the issue (if it is not a fixed-price issue), finalise the price, allot the shares and list them on receipt of approval from the exchanges.

Parties and their roles and responsibilities

Predominantly, there are two groups of stakeholders involved in an IPO process – statutory bodies/parties and non-statutory bodies appointed by the issuer.

Parties involved as mandated by governing legislation are detailed below:

• Book-Running Lead Managers (BRLMs) and Lead Managers – the Merchant Bankers who are authorised to submit the DRHP to SEBI vide the SEBI (Merchant Bankers) Regulations. BRLMs carry out the entire due diligence process pre-IPO, coordination with SEBI during the IPO and investor grievance redressal post-IPO.
• Registrar – the Registrar to the IPO carries out the acceptance and processing of forms and is responsible for the allotment and refund processes.
• Bankers to the issue/Escrow Collection Bank – these parties collect and keep the money received from Anchor Investors and also manage the refunds. Anchor Investors are qualified institutional buyers who make an application for a value of at least 10 crore INR in a public issue on the Main Board made through the book-building process.
• Syndicate Bank – a Banker to an issue that facilitates the ASBA process.
• Underwriter/Syndicate Member – an intermediary registered with the Board who is permitted to accept bids and applications, place orders with respect to the issue and carry on the activity as an Underwriter.
• Advertising Agency – works with BRLMs to publish all statutory publications.
• Monitoring Agency – the public financial institution or the scheduled bank that is involved in IPOs over 500 crore INR and manages IPO proceeds.
• Stock exchanges – accord listing and trading approval.

In addition, the issuer generally appoints/engages with the following stakeholders for a smooth and timely IPO process:

• Legal Counsel – Legal Counsel will advise the issuer in the overall IPO process and in carrying out due diligence documentation.
• Valuers – arriving at the right issue price considering the financial and non-financial factors is a very critical and difficult task in which the Valuers’ assistance is required by the issuer.
• Chartered Accountants and Company Secretaries – along with the Valuers, Chartered Accountants and Company Secretaries are required for pre- and post-issue certifications and regulatory approvals, if any.
• Printers – Printers shall be appointed for all the red herring prospectus and advertisement material that the issuer needs to print.

Market practice

Valuation and grading of IPOs are the two things that, in a way, do not affect the pricing in India.  The SEBI ICDR Regulations allow the issuer to obtain grading from credit rating agencies.  Valuations carried out by independent Valuers do play a significant role, but the non-financial aspects are the key in the pricing process.  In other jurisdictions, both valuation and grading are mandatory and are decisive factors in price discovery.

Regulatory architecture: Overview of the regulators and key regulations

The governmental bodies, self-regulatory organisations and public stock exchanges responsible for regulating ipos.

The Companies Act specifies that SEBI, a statutory body established under the SEBI Act, 1992, is the governing authority for the IPO process in India.  The stock exchanges (predominantly the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE)) are the electronic platforms on which the shares are listed and subsequently traded.

The public in general has access to these bourses and is bound by the rules/regulations prescribed by them.  Furthermore, in the IPO process, there are multiple self-regulatory organisations recognised by SEBI that play a key role.  These include BRLMs/Lead Managers, Registrars to the issue, Escrow Collection Banks, Monitoring Agencies, Syndicate Members, Advertising Agencies, Monitoring Agencies, etc.  SEBI has prescribed different sets of rules/regulations/guidelines to govern these organisations.

All these entities are interdependent and work in conjunction until conclusion of the IPO.

The key rules and regulations applicable to the IPO process

There are two sets of legislation applicable to an IPO process, the first being the legislation applicable before and during the IPO and the second being the legislation applicable after the IPO is concluded:

• Legislation to be complied with before and during the IPO:
• Companies Act, 2013 – Chapter III of the Act governs public issues and the listing process to be followed. It sets out the basic premise of going public for companies.
• Securities Contracts (Regulation) Act, 1956 – recognises and regulates stock exchanges.
• SEBI ICDR Regulations – govern the entire modus operandi of IPOs and listing of equity shares and convertible debt instruments, inter alia .
• SEBI (Merchant Bankers) Regulations, 1992 – govern the Lead Managers, Advisers, Underwriters, and Consultants to an issue.
• SEBI (Research Analyst) Regulations, 2014 – govern the Research Analysts required to undertake research for the IPO.
• SEBI (Bankers to an issue) Regulations, 1994 – govern Escrow Collection Banks.
• Legislation to be complied with after the IPO, i.e. post-listing:
• Companies Act, 2013 – provisions relating to listed companies shall be additionally applicable.
• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 – popularly known as the ‘Listing Regulations’ (erstwhile listing agreements with stock exchanges), they specify corporate governance norms for all listed entities.
• SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 – popularly known as the ‘Takeover Code’, it must be adhered to by promoters and the public at large acquiring shares from the stock market above certain thresholds with the purpose of keeping the market competent. Listed entities are required to do periodic and event-based disclosures.
• SEBI (Prohibition of Insider Trading) Regulations, 2015 – popularly known as the ‘Insider Trading Code’, it prescribes the norms required to be followed to ensure fairness and competitiveness of the market and to negate trading of shares based on insider information before it is known to the public at large. Listed entities are required to do periodic disclosures.

Other SEBI Regulations in case of corporate actions such as delisting, buyback of shares, etc. shall apply as and when the corporate action is undertaken.

The key legal documents applicable to the IPO process in India are the following:

• Issue agreement – executed between the issuer and BRLM.
• Escrow agreement – executed between the issuer, BRLM, Syndicate Members, Escrow Collection Banks and Registrar to an issue (and selling shareholders in case offer for sale of existing shares is involved).
• Syndicate agreement – executed between the BRLM and Syndicate Members (and selling shareholders in case offer for sale of existing shares is involved). Syndicate Members include all other parties involved in the IPO process.
• Underwriting agreement – executed between the issuer and Underwriters (and selling shareholders in case offer for sale of existing shares is involved).
• Registrar agreement – executed between the issuer and Registrar to an issue.
• Service Provider/Advertising Agency agreement – executed between the issuer, BRLM and Service Provider/Advertising Agency.
• DRHP/draft Offer Letter – filed with SEBI for its observations and containing the details mentioned in the SEBI ICDR Regulations.
• Red herring prospectus/Offer Letter – filed with SEBI after considering its comments on the DRHP. The same is filed with the RoC.

Part VI of Chapter II of the SEBI ICDR Regulations, as authorised by the Companies Act, specifies the disclosures required to be made for an IPO, specified in Part A of Schedule VI.  From a practical standpoint, it specifies the following disclosures:

• General disclosures:
• Definitions, abbreviations, etc.
• Market data.
• Summary of offer document.
• Risk factors.

iii.  Introduction:

• Capital structure.
• Summary of financial information.
• Objects of offer.
• Basis of offer price.
• Tax benefits.
• About the company:
• Industry overview.
• Business of the company.
• Key regulations and policy.
• Management, Promotors, group and subsidiary companies.
• Dividend policy.
• Financial information:
• Financial statement with track record.
• Related party transactions.
• Financial indebtedness.
• Legal and other information:
• Outstanding litigations and material developments.
• Government and other approvals.
• Regulatory and statutory disclosures.

vii. Offer information:

• Terms of offer.
• Offer structure and procedure.

viii. Other material information.

IPOs of shares (including convertible debt) in India are governed by the SEBI ICDR Regulations only.  The following are the key differentiators of IPOs:

• Differentiation on the basis of price : Fixed-price and book-building IPOs. A fixed-price issue is where the price at which shares are to be allotted and sold is known to the investors, while in a book-building issue (which the majority of issuers opt for), the issuer puts forth a 20% range/price band in which the price is determined.  The bids (which are essentially placed above the floor price/minimum threshold but below the cap price/maximum threshold) are generally kept open for three days and the best price is discovered and finalised at which all the shares are issued.
• Differentiation on the basis of exchange : Main Board and SME Exchange. SME Exchange is a stock exchange specialised in trading the shares and securities of SMEs that would otherwise struggle to obtain listing on the Main Board.
• Differentiation on the basis of type of issue : Equity, debt and hybrid. An issuer can issue either equity or debt securities or opt for equity plus offer for sale of existing shares (known as hybrid).  A noteworthy provision is that private entities are entitled only to debt issues.
• Differentiation on the basis of jurisdiction : Equity, convertible and non-convertible debt, IDR and, outside India, external commercial borrowings (ECBs), American depository receipts (ADRs)/global depository receipts (GDRs), foreign currency convertible bonds (FCCBs) and foreign currency exchangeable bonds (FCEBs). The issues of debt and equity are governed by the SEBI (Issue and Listing of Non-Convertible Securities) Regulations and the SEBI ICDR Regulations, respectively.  Indian companies are allowed to raise capital in the international market through the issue of ECBs/ADRs/GDRs/FCCB/FCEB and are predominantly governed by Reserve Bank of India (RBI) regulations.

Recently, India has seen growth in the non-conventional securities market as explained below.

IPOs by SMEs on SME Exchange (Chapter IX of the SEBI ICDR Regulations)

SME Exchange is a trading platform of a recognised stock exchange with nationwide trading terminals permitted by SEBI to list the specified securities.  This includes a stock exchange granted recognition for this purpose, but does not include the main platform of the stock exchange.  This trading platform is available to companies registered as SMEs willing to get funds from the public.

Under these Regulations, an issuer shall be eligible to carry out an IPO only if its post-issue paid-up capital is less than or equal to 10 crore INR.  In case of an issuer whose post-issue face value capital is between 10 and 25 crore INR, he can also list on SME Exchange subject to certain conditions.  Migration of such listing to the Main Board is permissible, again subject to certain conditions.

Barring the aforementioned restrictions, the entire IPO and listing process is similar to that of a conventional IPO.

Innovators Growth Platform (IGP) (Chapter X of the SEBI ICDR Regulations)

IGP is a credible, regulated platform for young, fast-growing companies to list and gain visibility and increase their brand presence.  This platform recognises that these young companies are unique in terms of their business models, which tend to be revenue- rather than profit-focused and hence do not fit the traditional valuation models.  The listing norms on this platform are made easier for aspiring entrepreneurs.

An issuer that uses technology, information technology, intellectual property, data analytics, bio-technology or nano-technology to provide products, services or business platforms with substantial value addition shall be eligible for listing on this platform.

On the date of filing the draft information document or draft offer document with the Board, as the case may be, 25% of the pre-issue capital of the issuer company for a period of at least two years should have been held by qualified institutional buyers, IGP investors, or the following regulated entities:

• A foreign portfolio investor.
• A pooled investment fund with minimum assets under management of 150 million USD.
• Registered with a financial sector regulator in the jurisdiction of which it is a resident.
• Resident of a country whose securities market regulator is a signatory to the International Organization of Securities Commissions’ (IOSCO) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to the Bilateral Memorandum of Understanding with the Board.
• a jurisdiction having strategic anti-money laundering or combatting the financing of terrorism deficiencies to which countermeasures apply; or
• a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

An issuer seeking to issue and list its specified securities shall file a draft offer document and other necessary documents with the Board in accordance with these Regulations, along with the fees as specified in Schedule III of the SEBI ICDR Regulations.  The draft offer document shall disclose the broad objectives of the issue.  The basis of issue price shall include disclosures, except projections, as deemed fit by the issuer in order to enable the investors to make informed decisions, and the disclosures shall suitably contain the basis of valuation.

SSE (Chapter X-A of the SEBI ICDR Regulations)

The SSE is a platform where social enterprises/organisations can raise funds from the public.  Just like equity, commodities, derivatives, and SMEs, the SSE will be a separate segment on the stock exchange.  Organisations listed on the SSE can be for-profit social enterprises (FPEs) (seeking to be identified as a social enterprise) and NPOs.  To be eligible to be listed on the SSE, FPEs and NPOs are required to establish primacy of social intent as specified in the Regulations.

An NPO may raise funds through: (a) issuance of zero-coupon, zero-principal instruments to eligible investors as per the Regulations; (b) donations through mutual fund schemes as specified by SEBI; or (c) any other specified means.

An FPE may raise funds through: (a) issuance of equity shares on the Main Board, SME platform or IGP, or equity shares issued to an alternative investment fund including a social impact fund; (b) issuance of debt securities; or (c) any other means as specified by the Board from time to time.

InvITs and REITs public offer (governed by SEBI (Infrastructure Investment Trusts) Regulations, 2014 and SEBI (Real Estate Investment Trusts) Regulations, 2014)

InvITs and REITs are special instruments that share a similar framework as pooled investment entities, managed by a sponsor or a trustee, which accumulates capital from various investors.  REITs predominantly focus on real estate ventures, including both finished properties and projects under development.  Conversely, InvITs allocate their funds to infrastructure initiatives, including but not limited to roads, power plants, highways, etc.  REITs are required to allocate a minimum of 80% of their portfolio into real estate properties that are complete and generate revenue, while their investment in real estate projects that are still under development, as well as in stocks and bonds, is capped at 20%.  Similarly, InvITs must direct at least 80% of their investments into completed projects that yield income within the infrastructure sector.  The investment targets for REITs are generally properties that deliver consistent revenue streams, such as from rent, whereas InvITs look to assets that accrue earnings through user charges like tolls and tariffs.

The IPO process is similar to an equity market IPO; however, it is completely governed by the aforementioned REIT and InvIT Regulations.

Non-convertible debentures (SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021)

A non-convertible debenture (NCD) is a secure and redeemable corporate bond, a bond issued by a corporation to raise money from the capital market.  Unlike equity shares, bondholders do not have any ownership interest in the company.  They are also known as securities that do not have any equity element attached to them.  NCDs are tradable instruments and can even be issued on a private-placement basis.  This is the instrument that can be used by private companies to access the capital market.

The IPO process is similar to an equity market IPO.

Restrictions on communications or publicity

Schedule IX of the SEBI ICDR Regulations specifies restrictions on public communications, publicity material, advertisements and research reports.  Furthermore, all issue-related advertisements are governed by Schedule X of the SEBI ICDR Regulations.

Schedule IX specifies that any public communication, including advertisements, publicity material and research reports, shall contain only the information as given in the draft offer document/offer document and shall adhere to the following:

• it shall be truthful, fair and not manipulative, deceptive or distorted and shall not contain any statement, promise or forecast that is untrue or misleading;
• if it reproduces or purports to reproduce any information contained in the draft offer document or draft letter of offer or offer document, as the case may be, it shall reproduce such information in full and disclose all relevant facts not to be restricted to select extracts relating to that information;
• it shall be set forth in a clear, concise and understandable language;
• it shall not include any issue slogans or brand names for the issue except the normal commercial name of the issuer or commercial brand names of its products already in use or disclosed in the draft offer document or draft letter of offer or offer document, as the case may be;
• it shall not contain slogans, expletives or non-factual and unsubstantiated titles;
• if it presents any financial data, data for the past three years shall also be included along with particulars relating to revenue, net profit, share capital, reserves/other equity (as the case may be), earnings per share, dividends and book values, to the extent applicable;
• issue advertisements shall not use technical, legal or complex language or excessive details that may distract the investor;
• issue advertisements shall not contain statements that promise or guarantee a rapid increase in revenue or profits;
• issue advertisements shall not display models, celebrities, fictional characters, landmarks, caricatures or the like;
• issue advertisements on television shall not appear in the form of crawlers (advertisements that run simultaneously with the programme in a narrow strip at the bottom of the screen);
• issue advertisements on television shall advise the viewers to refer to the draft offer document or offer document, as the case may be, for the risk factors;
• an advertisement or research report containing highlights shall advise the readers to refer to the risk factors and other disclosures in the draft offer document or offer document, as the case may be, for details in not less than point seven size;
• an issue advertisement displayed on a billboard/banners shall contain information as specified in Part D of Schedule X; and
• an issue advertisement that contains highlights or information other than the details contained in the formats as specified in Schedule X shall prominently advise the viewers to refer to the draft offer document or offer document for details and risk factors.

Recent, impending or proposed changes to the regulatory architecture

With a view to improving the transparency and accountability of IPOs, SEBI has been making changes in regulatory requirements.  Recently, the SEBI (Listing Obligations and Disclosure Requirements) Regulations (SEBI LODR Regulations) have been amended for book-building issues where it is mandated for the issuer to put a minimum price band of at least 105% of the floor price to avoid narrow price bands and give more leverage to investors.

SEBI has been vigilant in ensuring a reduction in volatility of shares, bringing more stability in the market by proactively making regulatory changes.

Current regulatory focus

In November 2022, SEBI released an option to confidentially file draft offer documents with SEBI, known as the pre-filing option, which is available to all issuers.  This does not preclude the issuer from disclosing the offer document to the public, but it does allow the issuer to file a DRHP with SEBI first for its comments, after which the updated DRHP is issued for public comments after incorporating comments from SEBI.

The pre-filing option allows discussions with SEBI on a confidential basis, which enables the selling shareholders to fulfil the one-year holding period requirements and for rights to receive equity shares to subsist.  At the same time, the pre-filing option may add an audit cycle and result in prolonging the overall IPO process, while restricting the investor interaction permitted during the pre-filing process.

On the investor awareness front, SEBI has been very strict on financial influencers (finfluencers) who provide illegal investment advice through social media.  SEBI has also placed restrictions on intermediaries such as brokers and mutual funds from using the services of such unregistered finfluencers for promotion of their products.  Also, there have been strict restrictions on the use of social media platforms for these activities.

This indicates a progressive approach by SEBI in sync with current international standards being followed in the US, UK and Canada.

Recent regulatory changes that impact IPOs

To make the entire IPO process more transparent and attractive to investors, SEBI has been mandating certain requirements by amending the relevant governing legislation.

Recently, in its board meeting on March 15, 2024, SEBI took a few key decisions involving the IPO process in particular.  For facilitating ease of doing business for companies entering IPOs/fundraising, SEBI has approved the following amendments to the SEBI ICDR Regulations:

• Eliminated the requirement of a 1% security deposit in public/rights issues of equity shares, thereby reducing the financial burden on issuers.
• Promoter group entities and non-individual shareholders holding more than 5% of the post-offer equity share capital are to be permitted to offer a minimum promoters’ contribution (MPC) without being identified as promoter.

iii.  Equity shares resulting from the conversion of compulsorily convertible securities held for a year before filing the DRHP are to be considered for meeting the MPC requirement.

• The increase or decrease in size of an offer for sale requiring fresh filing shall be based on only one of the criteria, i.e. either issue size in rupees or number of shares, as disclosed in the draft offer document.
• The Board has approved the flexibility in extending the bid/offer closing date on account of force majeure events by a minimum of one day instead of the present requirement of a minimum of three days.

Foreign and supranational regulatory regimes or bodies

SEBI is a member of IOSCO, which is a leading international policy forum for securities regulators and recognised as the global standard setter for securities regulation.  When bringing in governance legislation in India, SEBI follows the guidelines provided by IOSCO.

Significant market practices that impact how IPOs are conducted in India

The grey market premium, also known as the IPO GMP, is data computed based on the demand for a firm that is planning an IPO.  After the IPO date and price band announcements, the grey market begins unofficially in the unregulated market and is also published online by some portals.  Before investing in an IPO, investors always look at the premium, although it might vary depending on market conditions, demand, and subscription numbers.  This practical scenario is not taken into account by Indian market legislation.

In view of the surge in startups coming forward with IPOs, SEBI is now very conscious about the valuation of shares.  Recently, SEBI asked many companies to audit their non-financial aspects/key performance indicators and to explain how they arrived at the valuation.

SEBI has been considering and implementing certain relaxations on foreign investment limits, floor prices in an IPO, and exercising of a greenshoe option, which are more prevalent in foreign markets.  SEBI keeps a keen eye on policy developments at the Securities and Exchange Commission (US) and the Financial Conduct Authority (UK) and matches the international trends where possible in India.

Public company responsibilities

For public listed entities, compliances as prescribed under SEBI legislation are as under:

Shareholder proxy or voting obligations

Under the Companies Act, any member who is entitled to attend and vote in a company meeting can appoint a proxy.  However, a proxy cannot be appointed by a member of a company that does not have a share capital unless the articles provide for it.

A proxy has a very limited set of rights.  He is permitted to attend the conference to which he has been assigned.  He can only vote in the meeting on a poll, and if he meets certain requirements of the Act, he can even demand a poll as a matter of right.  The proxy has a lot of limitations as well.  To begin with, the proxy is not considered part of the meeting’s quorum.  Secondly, he has no legal authority to speak at the meeting.  The company’s articles, on the other hand, may allow the same for certain things.  Thirdly, he is unable to vote by show of hands, and finally, he can only represent a certain number of members and shareholdings.

Potential risks, liabilities and pitfalls

Due diligence provides investors with comprehensive background information about a company and helps them make an informed decision with respect to the IPO.

Even though there are no specific details given in the SEBI ICDR Regulations with respect to documents and deeds required for the Lead Manager to carry out due diligence, as per general practice, below is a detailed checklist of facts and documents that needs to be considered.

Corporate structure

• Certificate of Incorporation.
• The company’s MoA and AoA, including any revisions, as well as all appropriate form filings with the applicable RoC.
• Change of company name along with the RoC filings.
• Alteration in registered office of company.
• For the last five years, minutes of meetings from (i) the company’s shareholders, (ii) the Board of Directors, and (iii) all Board of Director committees.
• Annual reports and annual returns for the last five years of the company, joint ventures, and group entities, if applicable.
• All statutory books and records that the company is required to keep, including but not limited to the register of members, of share transfers, of charges, of debenture holders, and of contracts, companies, and firms in which the company’s directors have an interest.
• Information related to all filings made to the RoC in the last five years.
• Information related to compounding applications filed to the RoC by the company.
• Information related to any show cause notice issued by the RoC to any alleged or actual failure or delay in meeting reporting obligations, corporate governance obligations, or other obligations.
• List of all of the company’s group companies, including those that are covered by applicable accounting standards and those that the company’s Board of Directors considers material. A board resolution naming the ‘group companies’ should be passed, and a copy of the resolution should be distributed.
• authorised share capital;
• number of equity shares issued (including after transition of any outstanding convertible securities);
• subscribed and partly paid capital (including shares for which calls have been made but no money has been received); and
• preference shares as well as other convertible instruments.
• Information including the company’s share capital along with shareholding information about the promoter. The list should specify the quantity and type of shares held, as well as who owns them. Nominees who possess shares must produce copies of documents proving their ownership, including appropriate RoC filings.
• Details about any liens, charges, pledges, or encumbrances on the company’s shares, as well as applicable agreements relating to such encumbrances and regulatory documents filed with the RoC, depositories, or anyone else.
• History of the company’s share capital, date of allotment, number of shares, face value of shares issued, issue price, method of payment (cash or otherwise), reasons for allotment, and cumulative share premium are all covered. Copies of Forms PAS-3, PAS-4, and PAS-5, as well as board and shareholder resolutions, with the explanatory statements for allotments issued through private placements after April 1, 2014.
• Information on whether any single shareholder, whether individual or corporate, has affirmative/extra rights in the company, as stated in the company’s AoA.
• Details of the promoter’s source of funds for the purchase of shares (including any loans or financial aid received, and in the event of personal funds, details thereof, as well as copies of transfer, sale, gift deeds, and other relevant documents) and supporting documentation.
• Details about the Board of Directors’ composition, including director identification numbers, dates of appointment, and terms of office. Each of the directors is profiled briefly, including their age, address, relevant academic and professional qualifications, prior professional experience, and directorships in other businesses.

Company’s profile

• Indicate briefly the company’s milestone developments and ‘firsts’ since its incorporation.
• Trace the various stages of the company’s growth in terms of new markets (geographical or additional services in the same areas) and growth in the business of competitors since incorporation, i.e. increase in the volume of business/services provided over the years, tracing growth in terms of new markets (geographical or additional services in the same areas) and growth in the business of competitors during the same period.
• Information related to capital raised by the company.
• Details of any company merger or arrangement, including any current conversations with third parties about mergers, joint ventures, interest purchases, and so on, as well as all related back-up documentation.
• A list of all companies that have dealt with the company in the past.

Permits and approvals

• Information on important applicable regulations for the company’s business and service offerings, as well as details of all relevant consents, approvals, licences, registrations, objections, clearances, and permits required by the company for carrying out its business and operations, as well as back-up for the same, including licences from the National Housing Bank, licences to conduct business, service centres, payment hubs, and collection centres, among others.
• Copies of all approvals acquired by the company from statutory and regulatory bodies, as well as their current status.

Litigations

• Information about pending legal, tax, and arbitration proceedings involving (i) the company, (ii) its directors, and (iii) its group companies before any court, forum, tribunal, department, or other judicial or quasi-judicial regulatory or administrative body, whether in India or elsewhere, as well as the potential liability of claims arising from such litigation in India and elsewhere.
• Details about any such proceedings that the company may face or expect, as well as supporting paperwork.
• Any ongoing or previous regulatory inquiries concerning the company, whether in India or elsewhere.

Potential legal liabilities, defences and penalties associated with going public

SEBI may reject a preliminary offer document if it has reasonable grounds to think that, among other things, the ultimate promoters are unidentifiable, the purpose for which the funds are being raised is ambiguous, or the issuer’s survival is contingent on the resolution of an ongoing dispute.

In accordance with the SEBI ICDR Regulations and the SEBI (Framework for Rejection of Draft Offer Documents) Order, 2012, SEBI may reject the offer document on a variety of grounds, including:

• The ultimate promoters are unidentifiable.
• The investment is being raised for an ambiguous purpose.
• Investors may be unable to analyse risks linked with the issuer’s business model because it is overstated, convoluted, or misleading.
• There is a rapid surge in business prior to submission of the offer document, and responses to clarification requests are not adequate.
• The issuer is involved in serious litigation, the conclusion of which is critical to the issuer’s survival.

The issuer must provide detailed disclosures about the purpose for which the funds are being raised, such as, among other things: the implementation schedule; deployment of funds; sourcing of financing for funds already deployed; and details of all material existing or anticipated transactions in relation to utilisation of the issue proceeds or project cost with the issuer’s promoters, directors, key management personnel, associates, and group companies.  Furthermore, the amount for general corporate purposes as mentioned in the objects of the issue cannot exceed 25% of the total amount raised by the issuer.

As a result, issuers are prohibited from establishing war chests and must disclose all relevant information in the offer document.  In addition, an issuer is not allowed to deduct its expenditures from the amount raised through an IPO.  The promoters or shareholders in control of an issuer must make an exit offer to dissenting shareholders in accordance with the Companies Act and the SEBI ICDR Regulations, if the objects differ.

It should be ensured that existing shareholders have no special privileges during an IPO.  If a significant investment remains after the issuer’s equity shares are listed, there will be a lot of discussion with financial, private, or strategic investors who want to keep a seat on the Board of Directors or specify policy, functional, and information covenants.

Liabilities and penalties that may arise during the IPO process

Penalties related to liabilities that may arise during the IPO process are covered under the various provisions of the Companies Act.  The following table includes the liabilities and penalties if the company does not fulfil the requirements as provided under the Companies Act:

Common missteps and pitfalls during the IPO process that may increase liability risk

A few of the common pitfalls observed in the IPO process are as follows:

• Ill-prepared and managed timelines to capture market sentiments can ruin the success of an IPO.
• If the business model is not presented in a way that is easy to understand for investors, it might create confusion and might not show growth prospects and could therefore reduce investor confidence.
• The wrong advisory team may increase the timeframe, cost and efforts in the entire IPO.
• Ignoring actual valuations and setting arbitrary valuations based on perceptions.

Common missteps and pitfalls after becoming a public company that may increase liability risk

Penalties related to liabilities that will arise after becoming listed are covered under the SEBI LODR Regulations read with SEBI Circular No. SEBI/HO/CFD/CMD/CIR/P/2020/12.  The penalty ranges from 1,000–50,000 INR for contravention, with appointment of a Compliance Officer, Share Transfer Officer, etc. being the lowest and liability to take prior permission of the stock exchange to issue shares being the highest.  There are other liabilities on the listed company, of which a list of key compliances and penalties for non-compliance is as follows:

Editor’s Note

This chapter has been written by a member of GLI’s international panel of experts, who has been exclusively appointed for this task as a leading professional in their field by Global Legal Group , GLI’s publisher. GLI’s in-house editorial team carefully reviews and edits each chapter, updated annually, and audits each one for originality, relevance and style, including anti-plagiarism and AI-detection tools.

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Process of IPO in India - 9 Easy Steps

•   4 min read
• 01 Dec 2023

For a business that has decided to go public, the road to launching an IPO is a long and lonely one. Typically, an IPO process takes six to nine months. The following outline should give you an idea of all the steps involved:

The IPO Process

Step1: appointment of investment bankers/underwriters.

These financial experts carry out the IPO process on behalf of the company. They act as intermediaries between the company and the investors.

Step 2: Registration for IPO

The investment bank and the company prepare a registration statement and a draft prospectus. Known as the red herring prospectus (RHP), it is the most important document that a retail investor has access to and can use to evaluate the offer. The document details all the information about the business, with the exception of price or quantum of shares being offered. All businesses have to submit the red herring prospectus. According to Section 32 of the Companies Act:

• The company offering an IPO needs to submit the Red Herring Prospectus with the Registrar of Companies at least 3 days before the offer is opened to the public for bidding.
• All the obligations that the company’s prospectus will have, should also be contained in the RHP. Any variations between the two will have to be highlighted and be duly approved by SEBI and ROC.
• Once the IPO bidding is closed, the company has to submit the final prospectus to both ROC and SEBI. This should contain both the quantum of shares being allotted and the final issue price on which the sale is closed.

The RHP is the document that the issuer and the underwriters use to market the IPO with. It is the most important tool that a retail investor has access to and can use to evaluate the offer. The document contains all the financial and other information about the company. All the mandatory disclosures that SEBI and the Companies Act are collated in this document as well. The sections include:

• Definitions : All the important issues and industry specific keywords are defined in this section. If you are analyzing an offer from an industry you are already familiar with, this section may not warrant a close reading.
• Risk Factors : Every business faces risks and uncertainties.This section is meant to disclose every possibility that could have a material impact on company’s performance post listing, and the share price.
• Use of Proceeds : This is probably the most important section of the prospectus. This gives the investors information about where the money raised through the IPO will be used. This is a good indicator of the direction the business will develop in, and proxy for how well the finances are being handled by the company.
• Industry Description : This section provides forecasts and predictions about the larger industry the company operates in.
• Business Description : This section talks about the core activities that the company carries out. It describes how the company generates profits. Investors pay close attention to this, as it describes what they will end up owning, if they get the shares of the company.
• Management : Details about the promoters, directors and key management personnel is provided in this section. Investment in a new company is largely an investment in the management team’s competency. Therefore, investors read this section with interest and gather whatever information they can about the people behind the company.
• Financial Information : This section contains auditor’s reports and the financial statements of the company for the previous 5 years.
• Legal and Other Information : All litigations filed against the company or a promoter or a director which are not yet settled are listed in this section.

Step 3: Cooling-off period

This is the time when SEBI verifies the facts disclosed by the company. It looks for errors, omissions, and discrepancies. Only after SEBI approves the application can the company set a date for the IPO.

Step 4: Application to stock exchange

The company files an application with the stock exchange where it plans to float the initial issue.

Step 5: Creating a buzz

Companies need to ensure that the IPO is a big-ticket event, much like how summer Hollywood blockbusters or the Khan tentpole movies are. One way to spread the excitement in the investor circles is through the IPO road show. Upon getting approval for an IPO, the investment bankers and underwriters hired by the business get into action. They travel to important finance destinations around the world to showcase the IPO offer. Since they literally ‘take to the road’, the name ‘road show’ has stuck.

Road shows are organised much before the IPO date. This gives investors time to decide how much to invest. Typically, the timeline is like this:

• When a company decides to go public, it employs one or more teams of investment bankers or underwriters. These teams help the company to carry out the IPO process.
• Upon getting approval from the market regulator, the date for floating the IPO is set.
• Following this, a financial prospectus is released.
• Soon after, the investment bankers, underwriters, and company management set out on the road shows.

The Process

Road shows are used to convince investors about the potential of the company. They highlight the future growth trajectory of the business as well as the expected market share. The teams responsible for the road shows also meet with business analysts and fund managers. Such professionals may offer insights that enhance the company’s IPO process. Company executives provide every detail about the IPO through multimedia presentations, Q&A sessions, and other user-friendly means. Increasingly, companies are posting online versions of road shows which any individual can access. To help out investors, companies may also arrange small group meetings a few days or weeks before floating the IPO.

There are two types of IPO processes. They are:

• Fixed price issue
• Book building issue

In a fixed price issue, the price at which shares will be sold and allotted is made known to the investors in advance. Whereas, in a book building issue, the issuer offers a 20% range within which investors can bid for the shares. The final price is decided only after the bidding is closed. This 20% range is called an IPO price band. Both retail and institutional buyers are called to submit their bids within this price range. The book, that is the collection of bids that have come in for the IPO, is open to all investors. In other words, the demand for the shares offered at various prices is available for all current and potential investors. No bid price can be less than the IPO floor price, which is the lower bound of the band. Neither can it be higher than the IPO cap price, the upper bound of the band. The book is normally open for 3 days, and the bidders can revise their bids as long as the book is open. Issuers prefer book building issues over fixed price issues as the process gives them the opportunity to discover the price and demand. This way, the issuer is able to ensure that the issue generates as much value as the market is willing to provide. The price at which the issue is finally sold is called the cut-off price. This is the highest price at which all the shares offered can be sold.

This is the last step before an IPO is launched.. Businesses also ensure that company insiders (internal investors) don’t trade in the IPO. That’s because:

• It helps stabilise the market without additional selling pressure from insiders. It prevents corrupt executives from pawning off overpriced shares at the expense of general buyers. It protects retail investors from a manipulated offer price of the shares. It stops the market from being flooded with too many shares that might disturb the natural demand–supply balance.

Finally, the issues are sold on the primary market and the money is collected from the investors. The bidding period is usually about five working days.

The IPO shares are allotted to bidders within 10 days of the last date of bidding. In case the IPO is oversubscribed, the shares are allotted proportionately to the applicants. For example, suppose the oversubscription is four times the allotted number of shares. Then an application for 10 lakh shares will be allotted only 2.5 lakh shares.

A Quick Recap

The IPO jamboree is a months-long process. It requires the company to put on a charm offensive, launch ad blitzes, do exhaustive paperwork, solve insurmountable problems, ceaseless number-crunching and endless legwork.

AWFIS Space Solutions IPO

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Get to know the A-Z of stock markets under 5 mins!

•   6 min read

Wondering What’s The Ideal Age To Start Investing In Mutual Funds?

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• Personal Finance Guide

IPO Process in India

Why is IPO Process?

What are the steps in the ipo allotment process, factors to consider before ipo process is complete.

As an investor, if you want to invest in equities, you will also look for opportunities in upcoming IPOs . But do you know the IPO Process in India? It is essential to know the IPO process, which will help you enhance your knowledge.

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Through an Initial Public Offering (IPO) , a company changes from a privately held entity to a publicly traded one. The companies raise money through IPO, giving them access to market liquidity by offering stock/shares to the public. However, companies have to abide by the IPO process in India before their shares are available for trading publicly. This is a complicated process by stock exchanges under the regulation of SEBI .

Step1: Hiring an Underwriter or Investment Bank

To start the IPO process in India, the company seeks help from a team of underwriters or investment banks. Mostly, companies prefer taking services from more than one bank. The team will study the company’s financial position, assets and liabilities and then plan to cater to its financial needs. The underwriters act as an intermediary between the company and its investors. Finally, an underwriting agreement will be signed, which contains the following components – 

• Details of the deal
• Amount to raise for the issue
• Details of securities to issue

Step 2: Registration of IPO

The company and the underwriters file a registration statement together, which comprises the company’s fiscal data and business plans. It also mentions how the company will utilise the fund raised from the IPO. 

Along with the registration statement, the company also submits a draft prospectus which is mandatory as per the Companies Act. This is also known as Red Herring Prospectus(RHP) . This prospectus comprises all compulsory disclosures by SEBI and the Companies Act. The following are the key components of RHP:

• Definitions: It contains an explanation of industry-specific terms.
• Risk Factors: It discloses the possibilities that can impact the company’s finances. 
• Use of Proceeds: It discloses how the company will use the money raised from investors.
• Industry Description: This section explains the working of the company in the particular industry segment. For instance, if the company belongs to the consumption sector, this section will provide forecasts and predictions about this sector. 
• Business Description: This section contains the core business activities of the company. 
• Management: This section discloses information about key management people.
• Financial Description: This section provides financial statements and the auditor’s report.
• Legal and Other Information: This section provides the litigation against the company along with required other information. 

The underwriters submit the document to the Registrar of Companies(ROC). The officials ensure that the company discloses every detail that a potential investor should know. If the registration statement is compliant with the set rules by SEC, it gets a green signal. Otherwise, ROC will send back with comments. The company should work on the comments and file for registration again. Finally, after submission, the company can make an application for IPO to SEBI.

Recommended Read: What is Draft Red Herring Prospectus?

Step 3: Verification by SEBI 

The market regulator, SEBI, verifies the disclosure of facts by the company. The company can announce the date of its IPO, after the application gets the approval.

Step 4: Application to Stock Exchange

The company has to make an application to the stock exchange for floating its initial issue. 

Step 5: Creating IPO Buzz through Roadshows

Before an IPO opens for subscription to the public, the company aims to create a buzz in the market through roadshows. The company executives will advertise the upcoming IPO across the country for two weeks. It includes marketing and advertising tactics to attract potential investors. Also, the company shares the key facts and figures with various people like business analysts, fund managers , etc. Furthermore, they adopt different user-friendly methods like question and answer sessions, group meetings, multimedia presentations, online virtual roadshows and many more. 

Step 6: Deciding the IPO Price

The company initiates the pricing of the IPO either through a fixed price IPO or a bookbinding offering. In a fixed price offer, the company announces its stock price in advance. While in bookbinding offering, the company announces a 20% price range, following which the investors place their bids within the price bracket. Also, during the bidding process, the investors have to place their bids as per the company’s lot price, i.e. the minimum number of shares to purchase. 

At the same time, the company also provides the IPO floor price and IPO cap price, which are the minimum bid price and maximum bid price, respectively. Typically, the subscription period is open for three to five working days. Therefore, investors can avail the opportunity where they can apply for the IPO through designated banks and brokerage firms. Once the details are filled in, they can submit a cheque or do an online transfer to register for the IPO. 

After the bidding process is completed, the company will determine the cut-off price. This is the final price at which the company will sell its stocks. 

Step 7: Allotment Process

Once the company finalises the IPO price, the underwriters and stakeholders decide how many shares each investor will receive. Investors will receive total securities unless the IPO is oversubscribed. The shares will directly credit to the linked demat account. However, a refund is given if shares are oversubscribed. The stocks will be allotted to the investors within ten working days from the last bidding date. Finally, on the IPO listing date, the stock market will start trading the company’s IPO. 

Check Out What is IPO Listing?

Any company aims to prevent the company insiders or internal investors from participating in the IPO process. You should know that insiders trading their own shares can disrupt the demand and supply balance. Also, there are measures to protect retail investors from manipulated offer prices. It prevents fraudulent company officials from passing on the overpriced stocks at the cost of general investors. Also, this measure helps to protect the additional selling pressure from inside. Finally, this sustains the market price of the shares. 

Since you know the IPO process in India and its importance, it can help you make informed decisions while investing in any upcoming IPO. Also, it would help you select the proper stockbroking firm that provides you multiple benefits with a demat account .

Discover More

• What is Primary Market?
• Follow on Public Offer (FPO)
• Equity Shares
• Primary Market vs Secondary Market
• What is GMP in IPO?
• Direct Equity Investment
• Money Market vs Capital Market
• Equity Shares vs Preference Shares
• What is Secondary Market?
• Types of IPO

Posted on 24 Oct, 2023

Last updated October 24, 2023

See all 6 sources / citations

Trupti Jalan

Trupti Jalan is a Certified Financial Planner. She has diversified and rich experience in personal finance for more than 5 years. Her previous associations were with asset management companies and investment advising firms. She brings in financial markets subject matter expertise to the team and create easy going investment content for the readers.

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• The Process of SME IPO - Step-by-step Guide to Schedule IPO

Published on Saturday, April 14, 2018 by Chittorgarh.com Team | Modified on Thursday, April 20, 2023

SME IPO Enquiry

Thinking about an SME IPO? We could help.

What is SME IPO Process in India?

Small and medium enterprise Initial Public Offer (SME IPO) is the process when an unlisted SME company sells its shares to the public for the first time and listed on the stock exchange for trading. IPO Process makes a private SME company to a public limited company.

The process of SME IPO is also known as SME company 'going public'.

Fundraising through IPO is a complex process. It involves many legal processes, audits, and professionals to help with the process. Some of the critical players in this process include:

• Company Promoters
• SME IPO Assistants
• Registrar of Companies (RoC)
• Merchant Banker or Investment Banker
• Registrar and Transfer Agents (RTA)
• Market Maker
• Depositories (CDLS, NSDL)
• Stock Exchanges (BSE or NSE)

SME IPO Process Steps (High Level)

IPO process is easy for SMEs in comparison to mainline IPO. But it is still a long and complicated process. It takes at least 4 months from the day company appoints a lead manager.

• Appointment of Merchant Banker
• Capital Structuring, Due Diligence, and Pre-IPO preparation
• Appointment of Bankers, Registrar, Market Makers, RTA etc.
• Preparation of Offer Document (DRHP)
• Filing of DRHP with Stock Exchange
• Approval from Exchange and RoC
• Issue Pricing
• The Opening of Public Issue
• Closure of the Issue & Allocation of Shares
• Listing & Trading at the Exchange

SME IPO Process Steps with Timelines

Below are the activities an SME company must take to get listed through IPO route:

SME IPO Process Schedule

How can we help.

Our expert & dedicated team offer end-to-end assistance and hand-holding throughout the IPO process. Simply fill the contact us form and we will give you a call back.

Read More...

• SME IPO - Cost of Fundraising (Fees & Expenses)
• SME IPO Listing - Key Requirements & Eligibility Norms
• Post Listing Compliance for SME Platform
• Part 1 - SMEs in India - Current Status & Hindrances
• Part 2 - Financing of SME remains main hurdle
• Part 3 - SMEs Stock Market Listing Benefits Explained

SME Company Owners We could help you get listed on the stock market.

• SME IPO Post Listing Compliance
• SME Listing Procedure and Norms in India

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