IPO market in India and return on investment part -2

 1. why do companies go public?

 

·       Raise capital: This is the primary reason most companies go for IPO in stock market . The capital raised can be used for various purposes, such as funding acquisitions, expanding operations, or developing new products.

·       Increase liquidity: IPO in stock market  make it easier for company shareholders to sell their shares, which can increase their liquidity and make the company more attractive to investors.

·       Enhance brand awareness: The publicity surrounding an IPO in stock market  can raise the company's profile and make it more recognizable to consumers and businesses.

·       Provide an exit for early investors Once the company goes public, the shares of the company start trading publicly. Any existing shareholder of the company – could be promoters, angel investors, venture capitalist, PE funds; can use this opportunity to sell their shares in the open market. By selling their shares, they get an exit on their initial investment in the company. They can also choose to sell their shares in smaller chunks if they wish

·       Reward employees –Employees working for the company would have shares allotted to them as an incentive. This sort of arrangement between the employee and the company is called the “Employee Stock Option”. The shares are allotted at a discount to the employees. Once the company goes public, the employees stand a chance to see capital appreciation in the shares.

·       Improve visibility - Going public definitely increases visibility as the company has a status of being publicly held and traded. There is a greater chance of people’s interest in the company, consequently creating a positive impact on its growth.

 

2.       Steps of  IPO in stock market  

Needless to say each and every step involved in the IPO sequence has to happen under the SEBI guidelines. In general, the following are the sequence of steps involved.

 

1.   Appoint a merchant banker. In case of a large public issue, the company can appoint more than 1 merchant banker

2.   Apply to SEBI with a registration statement – The registration statement contains details on what the company does, why the company plans to go public and the financial health of the company

 

3. Getting a nod from SEBI – Once SEBI receives the registration statement, SEBI takes a call on whether to issue a go ahead or a ‘no go’ to the IPO

 

4.       DRHP – If the company gets the initial SEBI nod, then the company needs to prepare the DRHP. A DRHP is a document that gets circulated to the public. Along with a lot of information, DRHP should contain the following details..

·      The estimated size of the IPO  .   The estimated number of shares being offered to public

·        Why the company wants to go public and how does the company plan to utilize the funds along with the timeline projection of fund utilization

·       Business description including the revenue model, expenditure details

·       Complete financial statements

·   Management Discussion and Analysis – how the company perceives the future business operations to emerge

·      Risks involved in the business

·      Management details and their background

 

5. Market the IPO – This would involve TV and print advertisements in order to build awareness about the company and its IPO offering. This process is also called the IPO road show Fix the price band – Decide the price band between which the company would like to go public. Of course this can’t be way off the general perception. If it is, then the public will not sub[1]scribe for the IPO

6.  Book Building – Once the road show is done and price band fixed the company now has to officially open the window during which the public can subscribe for shares. For example, if the price band is between Rs.100 and Rs.120, then the public can actually choose a price they think is fair enough for the IPO issue. The process of collecting all these price points along with the respective quantities is called Book Building. Book building is perceived as an effective price discovery method

7.  Closure – After the book building window is closed (generally open for few days) then the price point at which the issue gets listed is decided. This price point is usually that price at which maximum bids have been received.

8.  Listing Day – This is the day when the company actually gets listed on the stock exchange. The listing price is the price discovered through the book building process

 

3 .What happens after the company goes public?

During the bidding process also called the date of issue investors can bid for shares at a particular price within the specified price band. This whole system around the date of issue where one bids for shares is referred to as the Primary Market. The moment the stock gets listed and de[1]buts on the stock exchange, the stock starts to trade publicly. This is called the secondary markets. Once the stock transitions from primary markets to secondary markets, the stock gets traded daily on the stock exchange. People start buying and selling the stocks regularly. Why do people trade? Why does the stock price fluctuate? Well, we will answer all these questions and more in the subsequent chapters.

4. Key risk of IPO

·    A)  For Investors:

·         Valuation Risks:

o                              a)   Overvaluation: IPOs can be hyped, leading to inflated share prices                         compared to the company's actual value. This can result in significant                    losses if the price corrects after listing.

o                          b)Uncertainty about future performance: New companies with limited track              records pose a higher risk of not meeting future growth                                       expectations, negatively impacting share prices.

·                          c) Lock-in Periods: Some IPOs have lock-in periods where early                               investors cannot sell their shares for a certain time, limiting liquidity and                flexibility.

·         Volatility: IPOs can experience higher-than-average price fluctuations immediately after listing, making them riskier for short-term investors.

·         Information Asymmetry: Access to detailed information about the company's financials and future plans might be limited before the IPO, leading to potentially uninformed investment decisions.

For Companies:

·         Market Pressure: Public scrutiny and pressure to meet quarterly earnings expectations can be challenging for newly public companies, potentially hindering long-term growth strategies.

·    Loss of Control: Sharing ownership and decision-making with public shareholders can reduce control for founding members and early investors.

·    Increased Costs: Compliance with reporting and regulatory requirements associated with being a public company can be expensive and time-consuming.

·  Reputational Risks: Public scrutiny can magnify negative news or controversies, potentially impacting brand image and investor confidence.

 

                        2023 IPO in stock market  and there listing gain

S.No.	Script	Issue price	Listing gain	Current price
1	Flair writing ind.	304	48%	383
2	Tata technologies	500	162%	1250
3	Gandhar oil and refinery india	162	78.34%	308
4	IREDA	32	87%	112
5	Ask automotive.	282	9%	291
6	ESAF small fin. Bank	60	15%	66
7	Cello world	648	22%	792

 

 

                  Open and coming IPO 2023

S.No.	Script	Issue price	Date	Listing date (expected )
1	DOMS ind.	790	13/12 to 15/12	20/12/2023
2	India shelter fin. co	493	13/12 to 15/12	20/12/2023
3	Inox india	660	14/12 to 18/12	21/12/2023

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