IPO Process & Underwriting: The Blockbuster Launch
Going public is like launching a blockbuster movie. You need a script (DRHP), a producer (Investment Bank), and a marketing tour (Roadshow). Let's see how it happens.
Key Takeaways
- IPO (Initial Public Offering): When a private company sells shares to the public for the first time.
- Underwriters: Investment Banks that guarantee to sell the shares. They are the 'Salesmen' of the IPO.
- DRHP: The 'Draft Red Herring Prospectus' is the bible of the IPO. It contains all the risks and financials.
- Warning: IPOs are often overpriced. The 'Listing Pop' is not guaranteed profit.
Part 1: Why Go Public? (The Motivation)
Why does a successful private company want to deal with the headache of public scrutiny?
- To Raise Capital: To build factories, pay off debt, or expand to new countries.
- To Exit (OFS): Early investors (Venture Capitalists) want to sell their stake and book profits.
- Prestige: Being a "Publicly Listed Company" increases trust and brand value.
Part 2: The Timeline of an IPO
This process takes 6-12 months. It is a marathon, not a sprint.
The Road to Listing Day
From hiring the banker to ringing the bell, the process involves intense regulatory scrutiny.
Detailed Steps:
- Hiring the Underwriter: The company hires Investment Banks (like Kotak, Axis, Goldman). They are called Book Running Lead Managers (BRLMs) . Their job is to ensure the shares get sold.
- Filing DRHP: The Draft Red Herring Prospectus is submitted to SEBI. It tells you everything that is wrong with the company (Risk Factors).
- The Roadshow: The bankers travel across the world (New York, London, Singapore) to pitch the company to big investors like Mutual Funds.
- Book Building: Instead of a fixed price, a "Price Band" is announced (e.g., ₹500 - ₹520). Investors bid within this range.
Part 3: Fresh Issue vs. Offer for Sale (OFS)
This is the most critical distinction for an investor.
Fresh Issue
New shares are created. The money goes Into the Company .
✅ Good Sign: Used for expansion or paying debt.
Offer for Sale (OFS)
Existing shareholders (Promoters/VCs) sell their shares. The money goes To the Individuals , not the company.
⚠️ Caution: Why are they leaving?
The FinKinetic Verdict
IPO stands for Initial Public Offering , but cynics call it
"It's Probably Overpriced"
.
Investment bankers are paid to get the highest price for the company, not the best deal for you.
Rule: Never invest for "Listing Gains". Invest only if you believe in the business for 5 years.
Frequently Asked Questions
What is ASBA in IPO? ▼
ASBA (Application Supported by Blocked Amount) means the money doesn't leave your bank account until you are actually allotted shares. It just gets "blocked".
Why do I never get IPO allotment? ▼
If an IPO is oversubscribed (e.g., 50 times), allotment is done via a Lottery System . It is pure luck. To increase chances, apply from multiple family accounts.