IPO in India is not just a financial event but an important milestone for a private company going on to become a public listed company. Going public opens up new opportunities in terms of growth, visibility, and capital for the company. However, going public through an IPO is a lengthy and tedious journey filled with regulatory scrutiny, strategic planning, and diligent preparation. In this article, we will explore the IPO process in India, the key milestones the company has to achieve,e and the timelines required for each milestone as the company undertakes its IPO journey to get finally listed on India’s major stock exchanges i.e., the NSE & BSE.
What is an IPO?
An IPO, or Initial Public Offering is when a private company offers its shares to the public for the first time. It gives an opportunity to investors a chance to be part of the company from its start as a publicly traded company. An IPO allows the company to raise capital, which then could be utilized for growth initiatives, business expansion, or debt repayment. The process of going public is not an easy task; it’s a structured and time-intensive process that requires stringent compliance with the guidelines laid down by the Securities and Exchange Board of India (SEBI, along with other regulatory requirements.
The Typical IPO Timeline: How Long Does It Take To Complete IPO Process In India?
There are no set timelines or a defined timetable for a company to launch an IPO. Factors such as the company’s preparedness, regulatory approvals, and market conditions can impact the timelines for the IPO process in India. However, on average, it takes anywhere between 6-12 months from the initial decision by the company to go public to the actual listing on the exchanges. Below, the key stages and their typical timelines have been elaborated.
Stage 1: Pre-IPO Planning (1-3 Months)
This is a self-assessment stage, where the company analyses its readiness to go public. This stage involves the steps.
- Internal Assessment: The company examines whether it is financially, legally, and operationally equipped for public exposure. Normally, companies check whether they have consistent revenues, excellent prospects of growth, and stable management.
- Hiring Advisors: The next step is hiring a team of advisors who are well-versed in the Indian IPO landscape. The team includes lawyers, investment bankers, auditors, and financial advisors.
- Due Diligence: The advisor analyzes the financial books of the company, regulatory compliance, and the business model to point out flaws that must be corrected before filing with the SEBI.
Stage 2: SEBI Filing and Approval (3-6 Months)
The next crucial step is the filing with the market regulator, SEBI. This step can take anywhere between 3 to 6 months. The time taken will largely depend on the complexity of the business done by the company and the time taken by SEBI to review the company’s documents.
- Draft Red Herring Prospectus (DRHP): The company submits a draft document called Draft Red Herring Prospectus (DRHP) to SEBI. The draft outlines the company’s business, financial statements, and the risk involved in investing.
- SEBI Review and Feedback: The DHRP submitted by the company is reviewed by SEBI. If necessary, SEBI may give their observations or request for additional information from the company. The regulator typically takes 30 days to respond, however, in case additional information is sought from the company the process is prolonged.
Stage 3: Marketing and Roadshow (2-4 Weeks)
Once the DRHP is approved by SEBI, the company initiates a marketing campaign, called as “roadshow”. This phase involves presenting the IPO to potential investors and is crucial for building confidence among the investors. This phase can last for 2 to 4 weeks.
- Investor Meetings: The management of the company along with investment bankers travel to meet institutional investors to pitch the IPO. They explain the business of the company, the growth prospectus, and the reasons to invest in the IPO. This outreach helps to gauge the market interest in the IPO and to refine the offering.
- Setting the Price Band: Based on feedback received from these meetings, the company and underwriters set a price band for the IPO. The price band is the minimum and the maximum price at which the investors can place the bids. The finalized price band is then included in the Final Prospectus.
Stage 4. Filing the Final Prospectus (Red Herring Prospectus)
Once the price band is decided, the company files the Red Herring Prospectus(RHP), also known as Final Prospectus, with SEBI. The RHP contains all the up-to-date information about the IPO, this includes.
- The price band for bidding
- The total number of shares available
- IPO open and close dates
- Updated company information, financial data, and risk factors
The final prospectus is a critical document, as it contains the latest and the most comprehensive information about the IPO, which helps the investors to make an informed bidding decision.
Stage 5. Bidding and Book-Building Process (3-5 Days)
Once the RHP is filed, the IPO bidding period opens, the period generally lasts for 3-5 days. During this period, investors place bids for the IPO within the given price band.
Placing Bids: Investors submit their bids at a price within the price band and also specify the quantity of shares they wish to purchase.
Types of Investors:
- Qualified Institutional Buyers (QIBs), such as banks and mutual funds
- High Net Worth Individuals (HNIs), investing above a specific amount
- Retail Investors, individuals with smaller investments (capped at Rs. 2 lakh per person)
Demand Analysis: The book-building process helps to determine the final demand for the shares, also giving the company insights into what investors are willing to pay. The main goal of the book-building process is to gauge investor demand and find the fair price at which the shares can be issued.
Stage 6. Final Offer Price Determination
After the closure of the bidding period, the final offer price is determined based on the demand during the book-building process.
Here’s how it works:
- High Demand: If the IPO is oversubscribed due to strong demand, the final offer price is most likely set at the upper end of the price band.
- Moderate Demand: If demand is moderate, then the final price will be around the mid-point of the price band.
- Low Demand: If demand is lower than expected, the final price may be set at the lower end of the price band.
The final offer price is the uniform price at which shares are allotted to all successful bidders, irrespective of the price they bid for the shares.
Stage 7. Allotment and Listing Day (1-2 Weeks)
The first step after the final offer price is decided is the allotment of shares to successful bidders and then the listing of the company on the exchanges, namely NSE or BSE, or both.
- Allotment of Shares: Shares are distributed to successful bidders. If the IPO is oversubscribed, retail investors are allocated shares through a lottery system. Investors can check the allotment status on the following websites KFINTECH or LINKIntime .
- Refunds and Credit: Shares are credited to the Demat account of successful bidders. Investors who do not receive the shares receive refunds.
- Listing Day: Finally, the company’s shares are officially listed on the stock exchange, marking its entry into the public market.
Key Takeaways of the IPO Process in India
The IPO journey from planning to listing spans several months and the journey involves multiple steps which are taken to ensure transparency and price discovery.
Here’s a quick recap:
- Pre-Planning and DRHP Filing: Preparing groundwork and filing with SEBI.
- Marketing and Price Band Setting: Investor outreach and price band finalization.
- Final Prospectus (RHP): Provides updated details, including the price band, before bidding starts.
- Bidding and Book-Building: Investors bid within the price band.
- Final Offer Price: Determined by demand after the bidding period ends.
- Allotment and Listing Day: Shares are allotted, and the company goes public on the exchange.
For more details on the IPO process in India and regulatory requirements in India, you may visit the SEBI official website.
Happy IPO Investing!