INITIAL PUBLIC OFFERING

(IPO)
 TABLE OF CONTENTS
A. Introduction
B. Eligibility Criteria
C. Process
Parties Involved
Structure
Pricing
Marketing Plan
D. Conclusion
INTRODUCTION AND MEANING
 INTRODUCTION

Investment in stock market can be done in two ways:

Through the secondary market by investing in the stocks of the company which are
already listed

Through the primary market by participating in an IPO

When a company issues its shares to the general public for the first time, it is called an
initial public offering or IPO
 An initial public offering (IPO) or stock market launch is a type of public
offering where shares of stock in a company are sold to the general public
for the first time.

This is done by offering those shares to the public, which were held by the
promoters or the private investors.

This is why doing an IPO is also referred to as "going public."

There are mainly any of the two purposes behind an IPO

1) ESTABLISHING NEW BUSINESS
2) EXPANSION OF EXISTING BUSINESS

IPOs are often issued by smaller, younger companies seeking capital to

expand, but can also be done by large privately-owned companies looking
to become publicly traded.
TERMINOLOGIES USED IN IPO
FPO : FPO stands for Follow-on Public Offer. the first public issue of a
company is an IPO, and any further public issue of the same company is
called an FPO.
Listing : Listing means that company has adhered to the terms and
conditions of the stock exchange and its shares are now a part of the list of
shares which can be traded on the stock exchange. Post listing, any
investor can sell the shares, allotted at the time of the issue, in the
secondary market.
Bid-cum-Application Form : For applying in any public issue, each
investor must fill a standard form providing all the relevant details like
Name, PAN, Demat id, Bank account details, Bid price, Number of
shares applied etc. Such a form is called a Bid-cum-Application form.

Price Band : A price band is the range of price within which an investor can
place his bid for the securities. The price mentioned by the investor in the
bid-cum-application form can neither be less than the lower limit of the price
band nor can it exceed the upper limit of the price band. For example, In the
recent IPO of Coal India, the price band was Rs. 225-245 per share, which
means that an investor can bid only within the range of Rs. 225 to Rs. 245
 Floor Price : In a price band, the lowest price is called the floor price, below
which a bid cannot be placed. In the above example Rs. 225 is the floor price of
the Coal India IPO

Cap Price : Cap price is the upper ceiling limit in a price band beyond which a
bid cannot be placed. Again, taking the same example of Coal India, Rs. 245 is
the Cap price, beyond which you cannot place the bid.

Minimum order quantity : Minimum Order Quantity is the minimum number of

shares which the investor has to apply for in a public issue. For example, in the
case of Coal Indias IPO, the minimum order quantity was 25, i.e. an investor has
to bid for atleast 25 shares.

Market Lot : If an investor wants to bid for shares which are more than the
minimum order quantity, then he can do so by bidding in multiples of a certain
number of shares which is known as the Market Lot.
 Maximum Subscription Limit for Retail Investors : Maximum Subscription Limit
for Retail Investors is the maximum amount of investment which can be made
though a single bid-cum-application form.

Cut Off Price : In book building issues, the issuer company specifies a price band
within which the bids are made. The actual issue price can be any price above the
floor price and within the price band. This issue price is called the Cut Off Price. T

ASBA (Application Supported by Blocked Amounts) : ASBA is an

alternative mode of making payments in public issues whereby the application
money stays in the bank account of the investor until the allotment is made.
Only that much amount of funds are debited to the investors bank account for
which the allotment is made and the rest of the blocked amount is released. I

BRLM (Book Running Lead Manager) : BRLM are those financial institutions
whose names you find at the bottom of the bid-cum-application form like Karvy
Securities, Kotak Mahindra, SBI Capital etc.
 Prospectus : is a formal legal document, which is required by and filed with the
SEBI, that provides details about an investment offering for sale to the public. A
prospectus should contain the facts that an investor needs to make an informed
investment decision.It is also known as an "offer document."
It is supposed to have all the key information about the company, like its
financials, growth prospects, key personnel, etc

Red Herring Prospectus : In case of a book building issue, the prospectus

does not contain the price at which the shares will be sold. Rather it contains a
price band. Such a prospectus is known as Red Herring Prospectus
PROCESS OF GOING PUBLIC
 IPO PROCESS
Funds
Decision to
Transferred to
Go for IPO
Issuer

Appointment
of BRLM and Listing
Legal Counsel

ROC Filing &

Due Diligence Final
Prospectus

Drafting and Pricing &

Draft Red
Herring Allocation

Filing with SEBI

Pre- Road
SEBI & Stock Clearance & Book Building
Marketing ROC Filing shows
Exchanges
 WHO INVESTS IN IPOS?

There can be two kinds of investors for IPOs. One is the long term investor who buys
the stock of a company with a mindset of holding it for a long period of time to make
profits.

The other kind is the short term investor who just buys into the IPO to sell during the
initial few days or even hours of listing and make what are known as listing gains.
PRICING OF AN IPO
The pricing of an IPO is a very critical aspect and has a
direct impact on the success or failure of the IPO issue.
There are many factors that need to be considered while
pricing an IPO and an attempt should be made to reach an
IPO price that is low enough to generate interest in the
market and at the same time, it should be high enough to
raise sufficient capital for the company. The process for
determining an optimal price for the IPO involves the
underwriters arranging share purchase commitments from
leading institutional investors.
PROCESS

Once the final prospectus is printed and distributed to investors,

company management meets with their investment bank to choose the
final offering price and size. The investment bank tries to fix an
appropriate price for the IPO depending upon the demand expected and
the capital requirements of the company. The pricing of an IPO is a
delicate balancing act as the investment firms try to strike a balance
between the company and the investors. The lead underwriter has the
responsibility to ensure smooth trading of the companys stock. The
underwriter is legally allowed to support the price of a newly issued
stock by either buying them in the market or by selling them short.
 UNDERPRICING AND OVERPRICING OF
IPOS

UNDERPRICING:
The pricing of an IPO at less than its market value is referred to as Underpricing. In other
words, it is the difference between the offer price and the price of the first trade. Historically,
IPOs have always been underpriced. Underpriced IPO helps to generate additional
interest in the stock when it first becomes publicly traded. This might result in significant
gains for investors who have been allocated shares at the offering price. However,
underpricing also results in loss of significant amount of capital that could have been raised
had the shares been offered at the higher price.
OVERPRICING

The pricing of an IPO at more than its market value is referred to as

Overpricing. Even overpricing of shares is not as healthy option. If
the stock is offered at a higher price than what the market is willing to
pay, then it is likely to become difficult for the underwriters to fulfill
their commitment to sell shares. Furthermore, even if the underwriters
are successful in selling all the issued shares and the stock falls in value
on the first day itself of trading, then it is likely to lose its marketability
and hence, even more of its value.
 PRICING
There are two ways in which the price is determined in the IPO.

FIXED PRICE ISSUES

Offer Price :- Price at which the securities are offered and would be allotted is made known in
advance to the investors
Demand :- Demand for the securities offered is known only after the closure of theissue
Payment:- 100 % advance payment is required to be made by the investors at the time of application.
Reservations:- 50 % of the shares offered are reserved for applications below Rs. 1 lakh and the
balance for higher amount applications.

BOOK BUILDING ISSUES

Offer Price:- A 20% price band is offered by the issuer within which investors are allowed to bid and
the final price is determined by the issuer only after closure of the bidding.
Demand:- Demand for the securities offered, and at various prices, is available on a real time basis on
theBSE website during the bidding period
Payment:- 10% advance payment is required to be made by QIBs along with the application, while
other categories of investors have to pay 100% advance along with the application
Reservations:- 50% of the shares offered are reserved for QIBs, 35% of small investors and the
balance of all other investors.
HOW IS THE PRICE
FIXED?
All the applications received till the last date are analysed and a final
offer price, known as the cut-off price is arrived at. The final price is the
equilibrium price or the highest price at which all the shares on offer can
be sold smoothly. If your price is less than the final price, you will not get
allotment. If your price is higher than the final price, the amount in excess
of the final price is refunded if you get allotment. If you do not get
allotment, you should get your full refund of your money in 15 days after
the final allotment is made. If you do not get your money or allotment in
a month's time, you can demand interest at 15 per cent per annum on the
money due.
WHAT TO LOOK FOR BEFORE INVESTING
IN AN IPO
1. Valuation: First thing to look at is how aggressively the
IPO is Priced. The more aggressively it is priced the lesser
the chances of price appreciation.
2. Promoters Goodwill: the Promoters Goodwill is an
important parameter in analyzing an IPO as a goodwill
creates trust in taking decision for applying for an IPO.
3. Brokers Report: Brokers can provide an investor with all
the info he needs on the co. so an investor must take advice
from his stock broker before applying for an IPO.
4. Ratings: SEBI has now made it mandatory for every co.
to get its IPO rated through any approved rating agencies
like CRISIL, ICRA etc. but remember that it does not
provide guarantee of success.
CONCLUSION
 Going public raises cash and provides many benefits for a company.

IPO is one of the forms of raising the capital and which is the effective one
though it has defects.

Getting in on a hot IPO is very difficult, if not impossible.

An IPO company is difficult to analyze because there isn't a lot of historical

info.

Lock-up periods prevent insiders from selling their shares for a certain
period of time. The end of the lockup period can put strong downward
pressure on a stock.

Road shows and red herrings are marketing events meant to get as much
attention as possible. But one should not get influenced by the hype
THANK YOU