In the context of the Indian markets, an Initial Public Offering (IPO) refers to the process through which a private company offers shares to the public for the first time and becomes a publicly traded company listed on a stock exchange such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE). This process is regulated by the Securities and Exchange Board of India (SEBI).
Description
Key Aspects of an IPO in Indian Markets:
1. Purpose
- Capital Raising Companies use IPOs to raise funds for expansion, diversification, debt repayment, and other corporate objectives.
- Public Profile Going public enhances the company’s visibility and credibility.
- Liquidity Provides liquidity to existing shareholders, including promoters and early investors.
2. Process
- Selection of Merchant Bankers Companies appoint merchant bankers or lead managers to manage the IPO.
- Filing of Draft Red Herring Prospectus (DRHP) The company files the DRHP with SEBI, which includes details about the business, financials, and risks involved.
- Approval from SEBI SEBI reviews the DRHP and provides observations or approval.
- Marketing and Roadshows The company, along with the merchant bankers, conducts roadshows to attract institutional and retail investors.
- Book Building Process Investors bid for shares within a price band, and the final price is determined based on demand.
- Listing Shares are allotted to investors, and the company gets listed on the stock exchange.
3. Benefits
- Access to Capital Provides substantial funds that can be used for various business needs.
- Market Valuation Establishes a market-based valuation for the company.
- Credibility Increases the company's credibility and visibility in the market.
- Employee Incentives Facilitates stock-based compensation and incentives for employees.
4. Risks and Considerations
- Regulatory Compliance Increased regulatory requirements and compliance costs.
- Market Volatility Exposure to market volatility and investor sentiment.
- Transparency Requirement to disclose financial and business information publicly.
Example of A Recent IPO in Indian Markets – As on date Best Performer
Company Jyoti CNC Automation -
- Jyoti CNC Automation Limited is a manufacturer and supplier of CNC machines.
- IPO Listed on 16th Jan2024
- Issue Size Approximately ₹1,000 crore
- Objective To fund growth initiatives, repay debts, and for general corporate purposes
Key Highlights
- The company has a wide range of CNC machines with 200 types in44 series, last three financial years.
- The IPO is expected to be one of the major IPOs in 2024, attracting significant investor interest.
- The company’s customer base includes Indian Space Applications Center-ISRO.
Here are some criteria for IPOs on listing day:
- Stock exchanges set a circuit limit for IPO stocks on the day of listing to control sudden price movements. The circuit limit is a percentage of the listing price set by the exchange in the pre-opening session.
- Listing price: The listing price is determined by market forces when the shares are listed for trading on the stock exchange. The price is based on investor demand and supply, and is determined through price discovery during the pre-open session on the listing day.
- Pre-open trading session: The pre-open trading session is from 9:00 AM to 9:45 AM.
- Price discovery: The price discovery session is from 9:45 AM to 10:00 AM.
- Normal trading: Normal trading starts at 10:00 AM.
