The IPO Journey: From Decision to Listing
The process of taking a company public in India is a well-regulated, multi-step journey that typically takes 6-12 months from start to finish. Understanding this process helps investors appreciate the due diligence that goes into each IPO and make more informed investment decisions.
Stage 1: Preparation Phase (3-6 months)
Decision to Go Public
The journey begins when a company's board of directors decides to pursue an IPO. This decision is influenced by factors like capital requirements, market conditions, and the company's readiness for public scrutiny.
Appointing Intermediaries
The company hires several key intermediaries:
- Book Running Lead Managers (BRLMs): Investment banks that manage the IPO process
- Registrar to the Issue: Handles applications and allotments
- Legal Advisors: Ensure regulatory compliance
- Auditors: Verify financial statements
Due Diligence
BRLMs conduct extensive due diligence covering the company's business, financials, legal matters, and risk factors. This forms the basis of the prospectus document.
Stage 2: Documentation and SEBI Filing
Draft Red Herring Prospectus (DRHP)
The DRHP is a comprehensive document containing everything investors need to know about the company and the IPO. It includes:
- Company history and business overview
- Financial statements (3-5 years)
- Risk factors
- Objects of the issue (use of IPO proceeds)
- Management details
- Industry analysis
- Legal and regulatory information
SEBI Review
The DRHP is filed with SEBI, which reviews it thoroughly. SEBI may raise observations or seek clarifications, which the company must address. This review typically takes 2-3 months.
Stock Exchange Approvals
Simultaneously, the company applies to NSE and/or BSE for listing approval. The exchanges verify that the company meets listing requirements.
Stage 3: Marketing and Price Discovery
Roadshows
Once SEBI gives preliminary approval, the company and BRLMs conduct investor roadshows. These are presentations to institutional investors explaining the investment opportunity and gauging interest.
Anchor Investor Bidding
One day before the IPO opens, qualified institutional buyers can participate as anchor investors. Up to 60% of the QIB portion can be allocated to anchors. This helps establish initial demand and price discovery.
Price Band Announcement
Based on roadshow feedback and anchor interest, the final price band is announced. For example, ₹500-525 means investors can bid at any price within this range.
Stage 4: The IPO Period (3-5 working days)
IPO Opens
The IPO opens for public subscription. During this period:
- Retail investors can apply through ASBA (Applications Supported by Blocked Amount)
- Applications are accepted through banks, brokers, and UPI
- Investors choose their bid price and quantity
- Money is blocked (not debited) in investor accounts
Subscription Updates
Stock exchanges publish subscription data twice daily, showing how many times each category is subscribed. This helps investors gauge demand.
IPO Closes
After the subscription period ends, no more applications are accepted.
Stage 5: Post-IPO Processing
Final Price Determination
Based on total demand and bid prices, the final issue price is determined. In most cases, this is the upper end of the price band for well-subscribed IPOs.
Basis of Allotment
The registrar, in consultation with stock exchanges, determines the allotment methodology:
- Retail Category: If oversubscribed, a lottery system determines winners. Each winning applicant gets at least one lot.
- NII Category: Proportionate allotment based on subscription
- QIB Category: Discretionary allocation by BRLMs
Timeline Post-Closure
- T+3 days: Basis of allotment finalized
- T+4 days: Shares credited to demat accounts, refunds initiated
- T+5 days: Trading begins (Listing Day)
Note: T refers to the IPO closing date
Stage 6: Listing Day
Price Discovery
Listing day is when shares start trading on stock exchanges. The opening price is determined through a price discovery mechanism based on buy and sell orders.
Listing Gains/Losses
If the listing price is higher than the issue price, investors have listing gains. If lower, they have listing losses. Many retail investors aim to sell on listing day to book quick profits.
Circuit Limits
On listing day, IPO stocks have wider circuit limits (20% for mainboard IPOs) compared to regular trading days. From the second day, normal circuit limits apply.
Key Timelines Summary
| Event | Typical Timeline |
|---|---|
| DRHP Filing to SEBI Approval | 2-3 months |
| Anchor Bidding | 1 day before IPO opens |
| IPO Open Period | 3-5 working days |
| Basis of Allotment | T+3 days |
| Share Credit/Refund | T+4 days |
| Listing | T+5 days (now T+3 for some IPOs) |
Regulatory Framework
SEBI's ICDR (Issue of Capital and Disclosure Requirements) Regulations govern the IPO process in India. Key requirements include:
- Minimum 3-year track record for mainboard IPOs
- Minimum issue size of ₹10 crores
- At least 25% public shareholding post-IPO
- Strict disclosure requirements
Conclusion
Understanding the IPO process helps investors appreciate the regulatory oversight and due diligence involved. While the process may seem complex, it's designed to protect investor interests and ensure companies provide adequate information for informed decision-making. As an investor, familiarizing yourself with these stages helps you better evaluate IPO opportunities and understand the timeline for your investment.