Basic Information about IPO

Basic Information about IPO

What is an IPO?

  • IPO [initial public offering] is the first issue of shares by a private company to the general public.
  • It is the process by which a private company goes public and becomes a public limited company.
  • Through IPO, private companies can raise funds in form of the equity capital from public investors after getting listed on any stock exchange as BSE or NSE.

What is SME’s IPO?

  • An SME’s IPO is the issuing of shares to the public for the first time by a privately owned Small and Medium Enterprise (SME) company.
  • Eligibility for SME IPO: In India, Companies with a minimum post-issue capital of ₹ 1 crore and a maximum of ₹ 25 crore are eligible for SME IPO.
  • Stock exchange for SME IPO: -Both BSE and NSE allow SME companies to raise funds and get listed at the exchange through separate platforms:-
    BSE's Platform for SME's IPO: - BSE SME  and
    NSE's Platform for SME's IPO: - NSE EMERGE

When can an investor apply for an IPO?

The investor can either apply before an IPO or during an IPO for a stock:-
 1. Pre - apply:-
Investors can also pre-apply to an IPO however, the chances of allotment remain the same irrespective of the time the IPO is applied for. The pre-apply window opens only one day before the IPO and is available till 10:00 AM of the issue open date. Afterward, the regular apply option will be available. This option of pre-applying is not available for SME’s IPO.Note that pre-applying to an IPO is different from Pre-IPO.

2. Applying during an IPO : -

  • Generally, an IPO is kept open for a Minimum of 3 working days and a Maximum 10 working days.
  • Stock exchanges accept the application for an IPO between 10 a.m. to 5 p.m. on working days only.
  • Investors can place a bid for IPO shares any time in 24 hours i.e., even after the market closes if their broker/bank allows them to place the order. 
  • Orders placed after market closing time will be forwarded to the exchange on the next business day after 10 a.m.
  • On the last day of the IPO, the investor should place his bid before 4.30 p.m. So that, he can also accept the mandate before 5 p.m. and can successfully complete the application process. 
  • Every issuing company declares its IPO subscription period (i.e. IPO open date and issue close date). Investors can apply for an IPO during this time.

What are the different terms related to an IPO? 

1). Lot Size: 

  • The lot size is the minimum count of shares that an investor can apply for in an IPO.
  • For example: a lot size of 400 means that an investor needs to bid for at least 400 shares or its multiples as 800 or 1200. Thus, the investor cannot bid for 600 or 1000 share.

2). Issue size:

  • Issue prices are the price per equity share issued. There are two types of issues - book building and fixed price IPOs:
    1. Book building IPOs: - It has a price range or price band. For example, The price range is between ₹120 to 125. So, investors need to bid within this price range.
    2. Fix price issue: It has a specific price to bid.

3). Issue Size (in Rs.): 

  • The total monetary value of the IPO is the issue size. 
  • Issue size is arrived at by multiplying the number of shares offered by the company with the issue price per share.
  • (Issue size =  number of shares offered x issue price per share).

What is a Follow-on Public Offering (FPO)?
A Follow-on Public Offering (FPO) is the issuance of additional shares by a company that is already publicly listed. It allows the company to raise more capital after its initial public offering (IPO).

Who decides the date of the issue?
Once the Draft Prospectus of an IPO is cleared by SEBI and approved by the Stock Exchanges, it is up to the company going public to finalize the IPO date and duration. The company consults with the Lead Managers, Registrar of the Issue, and Stock Exchanges before deciding on the date.