IPO Process in India: From Filing to Listing

Introduction: Going Public

“An IPO is not just a fundraising event—it’s a transformation of the company.”

When a private company decides to sell shares to the public for the first time, it embarks on one of the most significant journeys in corporate life. The Initial Public Offering (IPO) process transforms ownership, increases scrutiny, and opens new avenues for growth. Let’s understand how companies go public in India.

What Is an IPO?

Definition

An Initial Public Offering (IPO) is the first sale of shares by a private company to the public. It converts a privately-held company into a publicly-traded one.

Types of Public Offerings

IPO Components

1. Fresh Issue: New shares issued by company

• Proceeds go to company
• Increases share capital
• Dilutes existing holdings

2. Offer for Sale (OFS): Existing shareholders selling

• Proceeds go to selling shareholders
• No new capital for company
• Used for exit/liquidity

Many IPOs combine both.

Why Do Companies Go Public?

Primary Reasons

The Trade-offs

Benefits:

• Access to large capital pool
• Enhanced prestige
• Employee wealth creation
• M&A currency

Costs:

• Regulatory compliance
• Public disclosure
• Short-term pressure
• Loss of control
• IPO expenses (3-5% of issue)

IPO Eligibility Requirements

SEBI ICDR Requirements

For Main Board IPO:

Alternative Route (Profitability not required):

• 75% of issue to QIBs
• No minimum profitability
• Used by many tech/new-age companies

SME IPO Requirements

The IPO Process: Step by Step

Phase 1: Preparation (3-6 months)

Step 1: Decision to Go Public

• Board approval
• Evaluate readiness
• Business plan for use of proceeds

Step 2: Appoint Advisors

Step 3: Due Diligence

• Financial due diligence
• Legal due diligence
• Business due diligence
• Regulatory compliance check

Step 4: Restructuring (if needed)

• Corporate structure simplification
• Related party clean-up
• Compliance gaps closure

Phase 2: Documentation (2-3 months)

Step 5: Draft Red Herring Prospectus (DRHP)

Key Contents:

1. Risk factors
2. Business description
3. Financial statements (3-5 years)
4. Management discussion
5. Objects of the issue
6. Use of proceeds
7. Industry overview
8. Promoter details
9. Legal proceedings

Step 6: SEBI Filing

• Submit DRHP to SEBI
• File on SEBI website (public document)
• Address SEBI observations
• Multiple rounds of clarification

Timeline: SEBI response typically 30-60 days, but can extend.

Phase 3: Marketing (2-4 weeks)

Step 7: Roadshows

• Investor presentations
• One-on-one meetings
• Domestic and international
• Build order book interest

Step 8: Anchor Investor Round

• One day before issue opens
• Up to 60% of QIB portion
• Minimum ₹10 crore per anchor
• 30-day lock-in

Phase 4: Issue Period (3-5 days)

Step 9: Price Band Determination

• Based on valuation analysis
• Roadshow feedback
• Typically 5-10% band width

Step 10: Issue Opens

• Application window: 3 working days (extendable to 10)
• ASBA mandatory (money blocked, not debited)
• Online applications via UPI

Phase 5: Post-Issue (6-7 days)

Step 11: Basis of Allotment

• Registrar finalizes allotment
• Lottery for oversubscribed categories
• SEBI approval on basis

Step 12: Listing

• T+6 timeline (from issue close)
• Trading commences
• Price discovery in market

Book Building Process

What Is Book Building?

A price discovery mechanism where investors bid at various prices within a band, and final price is determined based on demand.

Price Band

Components:

• Floor Price: Minimum bid price
• Cap Price: Maximum bid price
• Cut-off: Retail can bid at “cut-off” (final price)

Example:

• Price Band: ₹300-315
• Floor: ₹300
• Cap: ₹315
• Band Width: 5%

Bidding Categories

QIB Sub-categories:

• Mutual Funds: 1/3 of QIB portion
• Other QIBs: 2/3 of QIB portion (FIIs, banks, insurance)

Allotment Process

If Oversubscribed:

Example (Oversubscribed IPO):

• Total Applications (Retail): 50 lakh
• Retail Shares: 10 lakh (lots of 100)
• Lots Available: 10,000
• Each applicant gets lottery chance for 1 lot
• Probability: 10,000/50,00,000 = 0.2%

IPO Pricing

Valuation Methods

1. Comparable Company Analysis

• Look at similar listed companies
• Apply multiple to issuer’s metrics
• Discount for illiquidity/new listing

2. Discounted Cash Flow

• Project future cash flows
• Discount to present value
• Less common for IPO pricing

3. Precedent Transactions

• Recent IPOs in sector
• Private funding rounds

Pricing Considerations

IPO Discount

Common Practice:

• Price below fair value
• Leave “money on the table”
• Ensures successful listing
• Creates positive sentiment

Typical discount: 10-20% below estimated fair value

Key Documents

Draft Red Herring Prospectus (DRHP)

• Filed with SEBI
• No price mentioned
• Public document (on SEBI website)

Red Herring Prospectus (RHP)

• After SEBI approval
• Contains price band
• Filed with ROC

Prospectus

• Final document
• Contains issue price
• Post-pricing, pre-listing

Key Sections to Read

1. Risk Factors: Most important for investors
2. Objects of Issue: Where money will go
3. Financial Statements: Historical performance
4. Promoter Background: Track record
5. Peer Comparison: How company stacks up

Recent Developments

T+3 Settlement (Upcoming)

• Faster listing after issue closes
• Currently T+6
• Moving to T+3

UPI for IPO

• Mandatory for retail
• No physical forms
• Instant mandate and block

ASBA (Application Supported by Blocked Amount)

• Money stays in your account
• Blocked, not debited
• Interest earned till allotment
• Debited only on allotment

Direct Listing Discussion

• Allowing direct listing without IPO
• Under SEBI consideration
• Would benefit well-funded startups

Costs of an IPO

Typical IPO Expenses

Post-IPO Ongoing Costs

• Listing fees (annual)
• Registrar fees (ongoing)
• Compliance costs
• Investor relations
• Additional audits and disclosures

Key Takeaways

1. IPO = Private to Public transformation
2. Fresh Issue vs OFS – New capital vs exit
3. SEBI approval required through DRHP
4. Book Building determines price
5. 3 categories: QIB, NII, Retail with specific allocations
6. ASBA mandatory – Money blocked, not debited
7. T+6 listing – Trading starts ~6 days after issue close

Disclaimer

This article is for educational purposes only. IPO investments carry market risks. Past IPO performance doesn’t guarantee future results. Read the prospectus carefully before investing. This is not investment advice.

Frequently Asked Questions

Q: How do I apply for an IPO? A: Through your broker’s platform or bank (using ASBA/UPI). You need a demat account, trading account, and linked bank account. Apply online during the issue period.

Q: What is cut-off price option? A: Retail investors can bid at “cut-off” instead of a specific price. This means you agree to pay whatever the final price is (up to cap price). Recommended for retail.

Q: What happens if I don’t get allotment? A: Your blocked amount is unblocked (ASBA) or refunded. No deduction from your account if you don’t get shares.

Q: How is listing price determined? A: On listing day, price is determined by market demand and supply. It can be above (premium), below (discount), or at issue price.

Q: Can I sell on listing day? A: Yes, there’s no lock-in for retail investors. You can sell immediately when markets open on listing day (if you get allotment).

An IPO is like a debutante ball for companies—months of preparation, careful selection of partners, a grand introduction to society, and then the ongoing responsibility of living up to public expectations. The process is rigorous because public markets demand transparency and accountability.