What is Initial public offer?
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. Meanwhile, it also allows public investors to participate in the offering.
- How many types of different IPO are there?
Generally, there are two type of IPO i.e. Main Board IPO and IPO listed on SME Platform; difference between this two are as follows:
|Eligibility||Eligibility norms are a bit more complex compared to SME to ensure that competent firms are given the access to stock market||Eligibility norms are very relaxed when compared to regular IPO|
|Paid up capital||After issue the face value of the paid-up capital should be Rs.10 crores at least.||Post issue, paid up capital should not exceed Rs. 25 crores.|
|Minimum number of allottees||There should be at least 1000 allottees||Should be at least 50 allottees|
|Track record||Three years track record of profitability||Operating cash flows should be positive for the past two years|
|Reporting requirements||Quarterly audited accounts should be submitted.||Half yearly audited accounts should be submitted.|
|Focus||Main board IPO focuses more on institutional and retail investors.||Focused on institutional & High net worth individuals.|
- What is the type of pricing decisions are there while determining price of IPO?
Fixed Price Offering
Under fixed price, the company going public determines a fixed price at which its shares are offered to investors. The investors know the share price before the company goes public. Demand from the markets is only known once the issue is closed. To partake in this IPO, the investor must pay the full share price when making the application.
Book Building Offering
Under book building, the company going public offers a 20% price band on shares to investors. Investors then bid on the shares before the final price is settled once the bidding has closed. Investors must specify the number of shares they want to buy and how much they are willing to pay. Unlike a fixed price offering, there is no fixed price per share. The lowest share price is known as the floor price, while the highest share price is known as the cap price. The final share price is determined using investor bids.
- What is IPO grading whether it is there for both types of IPO?
IPO Grading: As per The Securities and Exchange Board of India (SEBI), “IPO grading is the grade assigned by a Credit Rating Agency (CRAs) registered with SEBI, to the initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. Such grading is generally assigned on a five‐point scale with a higher score indicating stronger fundamentals and vice versa as below”.
|2/5||Below Average fundamentals|
|4/5||Above Average fundamentals|
- What is the process of IPO?
- What are the do’s and don’ts
- Understand the Nature of Business of the company, analysis various aspects such as applicable law, modus-operandi of the business.
- Finding the reasons that why the company is raising funds i.e. whether it is for repayment of unsecured/secured loans or for working capital or for any other expansion purpose.
- Look at the current market condition i.e. whether it is economically favorable condition to invest or not.
- Look at the past recordsof Company.
- We shall not blindly apply based on subscription figures or based on good premium as premium figures are prone to frequent changes.
- We shall not rely on advice by any expert, except the figures and facts based on which opinion is given is been verified by us.