A Presentation on Initial Public Offering (IPO)

Shivam Sharma
Presented By : Ashish Sharma
Archit Sood 1
 Contents
• Introduction to IPO
• History of IPO
• Types of IPOs
• How IPO works?
• Book Building
• Process of IPO
• Grey Market
• Steps to apply in an IPO
• Upcoming IPOs in India
• Resources
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 What is an Initial Public Offering (IPO)?
• An initial public offering (IPO) refers to
the process of offering shares of a 
private corporation to the public in a
new stock issuance.

• Public share issuance allows a company

to raise capital from public investors.

• The transition from a private to a

public company can be an important
time for private investors to fully
realize gains from their investment as it
typically includes share premiums for
current private investors 3
 History of IPOs
• The term initial public offering (IPO) has been a buzzword on Wall Street and among investors for
decades. The Dutch are credited with conducting the first modern IPO by offering shares of the Dutch
East India Company to the general public. Since then, IPOs have been used as a way for companies to
raise capital from public investors through the issuance of public share ownership.
• Through the years, IPOs have been known for uptrends and downtrends in issuance. Tech IPOs
multiplied at the height of the dot-com boom as startups without revenues rushed to list themselves
on the stock market.
• The 2008 financial crisis resulted in a year with the least number of IPOs. After the recession following
the 2008 financial crisis, IPOs ground to a halt, and for some years after, new listings were rare.
• More recently, much of the IPO buzz has moved to a focus on so-called unicorns; startup companies
that have reached private valuations of more than $1 billion. Investors and the media heavily
speculate on these companies and their decision to go public via an IPO or stay private.

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 There are five types of IPOs for a company to choose from.
1. Fixed Price Offering
As the name suggests, in a fixed price offering the prices of the issue is fixed by the
company. The issue price is disclosed to the investors well in advance. Investors pay a
fixed amount when the shares are allotted.

2. Book Building Offering

• In a book building issue, the company offers a price band to the investors. Here, the
investors are free to bid on a particular price at which they want to buy the share.
• The lowest price in the price band is referred to as the floor price and the highest
price in the band is referred to as cap price. The difference between the floor price
and the cap price is not more than 20%.
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3. Green Shoe Option
• Green shoe option is an over-allotment option. In this option, the underwriter is under a
provision and can issue 15% more shares at the same price. This happens when there is high
demand for the share in the market.

4. Dutch Auction
• In a Dutch auction, the investors are free to bid for the required amount of shares and the price
they are willing to pay. Here, all the bids are arranged in a descending order. Later, a cut-off
price is decided. Shares are issued to everyone who bid at or above the cut-off price. Rest of
the bids are rejected.

5. Hybrid Option 
• The hybrid option is a mix of two or more of the above strategies.
• The most common one among the five types is the Book Building offering.
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 How an Initial Public Offering Works?
 Prior to an IPO, a company is considered private. As a private company, the business has grown with a
relatively small number of shareholders including early investors like the founders, family, and friends
along with professional investors such as venture capitalists.
 When a company reaches a stage in its growth process where it believes it is mature enough for the
rigors of SEBI regulations along with the benefits and responsibilities to public shareholders, it will begin
to advertise its interest in going public.
 An IPO is a big step for a company as it provides the company with access to raising a lot of money. This
gives the company a greater ability to grow and expand. The increased transparency and share listing
credibility can also be a factor in helping it obtain better terms when seeking borrowed funds as well.
 IPO shares of a company are priced through underwriting due diligence. When a company goes public,
the previously owned private share ownership converts to public ownership, and the existing private
shareholders’ shares become worth the public trading price.
 Share underwriting can also include special provisions for private to public share ownership. Generally,
the transition from private to public is a key time for private investors to cash in and earn the returns they
were expecting.

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• Book building is the process by
which an underwriter attempts to
determine the price at which an
initial public offering (IPO) will be
offered.
• The process of price discovery
involves generating and recording
investor demand for shares
before arriving at an issue price.
• Book building is the de facto
mechanism by which companies
price their IPOs and is highly
recommended by all the major
stock exchanges as the most
efficient way to price securities.
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 Book building Process
• The issuing company hires an investment bank to act as an underwriter who is
tasked with determining the price range the security can be sold for and drafting
a prospectus to send out to the institutional investing community.
• The investment bank invites investors, normally large scale buyers and fund
managers, to submit bids on the number of shares that they are interested in
buying and the prices that they would be willing to pay.
• The book is 'built' by listing and evaluating the aggregated demand for the issue
from the submitted bids. The underwriter analyzes the information and uses a
weighted average to arrive at the final price for the security, which is termed the 
cutoff price.
• The underwriter has to, for the sake of transparency, publicize the details of all
the bids that were submitted.
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 Process of an IPO
Issue price is
Selecting an Shares are made
decided &
Investment available to the
shares are
Bank public
alloted

Type and Price Listing and

Registration
of IPO is Unblocking of
with the SEBI
Decided Funds

Red Herring
Go on a Road
Prospectus is
Show
Prepared 11
 Step 1: Selecting an Investment Bank

• The main motive of issuing an IPO is to raise the highest possible capital. The
company approaches an investment bank which also acts as an underwriter.
Who is an underwriter?
• Underwriter helps in the process of issuing shares in an IPO. During this IPO
process, investment bank gives suggestions to the company for a fee.
• The investment banker understands the financial situation of the company and
suggests how much issue they will have to raise to meet their future plans 12
 Step 2: Registration with the Securities Exchange Board of India

• During this phase, the company

and the team of underwriters
submit a draft to SEBI.
• This draft clarifies the reason why
the company wants to raise
money from the public.
• SEBI scrutinizes this report and
does a background check on the
company. If the data is compliant
with the guidelines of SEBI, the
draft is approved or else rejected. 13
 Step 3: Red Herring Prospectus is Prepared
While awaiting approval from SEBI, a preliminary draft is prepared by the underwriters.
It consists details about the company like,
• Management background
• Financial statements
• Legal issues of the company
• Insider holdings
• Proposed ticker symbol that the company will use at the stock exchange.

This prospectus is very useful for investors who want to invest in the company. This
draft is submitted to SEBI and the cooling off period is introduced. Here, the regulatory
body verifies that all the material information about the company has been duly
submitted. Once this draft is approved, the company is free to come up with an IPO.
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 Step 4: Go on a Road Show
Before the IPO goes public,
the executives of the
company promote the IPO.
They travel all around the
country and spread the word
about upcoming IPO to
potential investors, mostly
qualified institutional buyer
(QIB). The promotions that
company do before IPO is
known as road show. 15
 Step 5: Type and Price of IPO is Decided

In this step type and price of the IPO is decided. We have discussed it
earlier in the PPT about the 5 types of IPOs i.e.
1. Fixed Price IPO
2. Book Building offering
3. Dutch Auction
4. Green Shoe option
5. Hybrid Option

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 Step 6: Shares are Made Available to the Public

• On the specified date, the company makes shares available to the

public. These application process is kept open for three to five
working days. Investors can fill out the IPO applications using the
ASBA Process (Application supported by a blocked amount).
• They can specify the price at which they wish to make the
purchase and submit the application.
• If the application is a book building issue, then the retail investor
can apply at cut off price.

Step 7: Issue Price is Decided & Shares are Allotted

• The underwriters wait till the subscription period is over. Later

they discuss with the company and decide the price at which
shares are to be allotted.
• This price would be determined by the demand of share and
the price quoted by the applicants.
• Once the IPO allotment price is finalized, shares are allotted to
investors. 17
Step 8: Listing and Unblocking of Funds
• The last step is the listing of shares on the
Stock Exchanges . The investors who had
subscribed to the IPO get the allotment of
shares in their Demat account and
equivalent amount is debited from their
bank accounts.
• If the issue is oversubscribed, then shares
are not allotted to all the applicants. The
funds of investors are unblocked who do
not receive an allotment.

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• Grey market is an unofficial or dabba market. Here, individuals buy and sell IPO
shares before they are listed on the stock exchange. Grey market trading is done
by a small set of individuals. It is an over the counter market and the transactions
are settled on a cash basis.
• Trading in the grey market is risky and illegal. We strongly recommend investors
to avoid trading in the grey market.
• Usually, investors test the demand of shares through the grey market for
upcoming IPOs. Many investors refer to the grey market to analyse what could be
the listing price of an upcoming IPO. 19
 Steps to apply in an IPO
1. Decision
• IPOs are gaining lot of traction from retail investors. As everyone is rushing to apply for all the upcoming IPOs.
• Let me tell you. IPOs are not always successful. There are many reputed companies which had failed IPOs such as
Cafe Coffee Day, Adlabs Entertainment, Reliance Power, and most recently IRFC etc.
• Hence, before investing in any upcoming IPO you can read the Red Herring Prospectus(RHP) which has all the
information.
2. Arranging Funds
• To apply for an IPO online, you need to have sufficient balance in your bank account. Once you ensure there are
adequate funds in your account you can apply for the IPO.
3. Open a Demat and Trading Account
• Investors who do not have a demat account cannot apply for an IPO online. A demat account will help you store
shares after allotment and a trading account will help you buy and sell shares with ease.
4. Applying for an IPO with ASBA
• Once your trading and Demat account is opened, you can quickly apply for an IPO through the ASBA process.
ASBA stands for Application Supported by Blocked Account. The amount is temporarily blocked in your bank
account. It is debited only if the shares are allotted to you. If you are not allotted shares, then the amount is
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unblocked.
5. Applying for an IPO with UPI
• Previously, applying for an IPO was a cumbersome process. You either had to fill an offline form or you had to fill an
online form.
• Now an IPO can be applied through a UPI ID

6. Bidding Process
• While applying for an IPO, you need to bid for the specific number of shares you wish to avail. It is done according to
the lot size mentioned in the company’s prospectus. A Lot size is the minimum number of shares that an investor
must apply. He can even apply for more share but only in multiples of lot size.
• Please note: While you bid for a IPO consider bidding at the cut-off price or the highest bid price. It will increase your
chances of IPO allotment.

7. IPO Allotment 
• After the bids are received, the company assigns the shares to the applicants. Getting an allotment in an
oversubscribed IPO is a matter of luck. If the shares are allotted to you, they will be credited into your Demat
account.

8. Listing of Stock
• The shares are listed within 6-7 days of bidding process on the stock exchanges. You are free to buy and sell the
shares of the company in the secondary market. A lot of people apply in IPO’s only for ‘listing gains’.
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 Upcoming IPOs in India
IPO Name Month

Dodla Dairy Ltd April 2021

Paras Defence and Space April 2021

Technologies

KIMS Hospitals April 2021

Sona Comstar Ltd May 2021

Seven Islands Shipping Ltd May 2021

Aadhar Housing Finance Ltd May 2021

ESAF Small Finance Bank Ltd June 2021 22

 Sources
 www.investopedia.com
 Samco.in
 https://www.bseindia.com/
 https://nsdl.co.in

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