IPO Process
The IPO process involves multiple steps from preparation to listing. Understanding each stage helps you evaluate IPO opportunities better.
A typical IPO takes 6-12 months from decision to listing. Understanding the process helps you know what to look for at each stage.
Pre-IPO Preparation
Before filing, companies must:
| Task | Purpose |
|---|---|
| Due diligence | Verify all claims and data |
Key Players
| Role | Function |
|---|---|
| Company (Issuer) | The company going public |
| Lead Manager(s) | Investment banks running the IPO |
| Registrar | Handles applications and allotments |
| SEBI | Regulator that approves the IPO |
| Stock Exchange | NSE/BSE where shares will list |
Reputable lead managers (Kotak, ICICI, Axis, JM Financial) often indicate better-managed IPOs. Check who's handling the issue.
DRHP and RHP
Draft Red Herring Prospectus (DRHP)
- Filed with SEBI for approval
- Contains all company information
- Price range not yet final
- Public can read and comment
Red Herring Prospectus (RHP)
- Final prospectus after SEBI approval
- Contains final price band
- Basis for making investment decisions
SEBI Approval
SEBI reviews:
- Financial disclosures
- Risk factors
- Use of proceeds
- Promoter background
- Related party transactions
Approval can take 2-4 months. SEBI may ask questions or require changes.
SEBI approval doesn't mean the IPO is a good investment. It only means disclosures meet regulatory standards.
Roadshow
After SEBI approval:
- Company presents to institutional investors
- Gauges demand
- Builds interest
- Helps set price band
Price Band Setting
The price band:
- Upper and lower range (e.g., ₹100-₹105)
- Final price discovered during bidding
- Usually fixed at upper end for good IPOs
The IPO Subscription Period
Typically 3 working days:
What Happens:
- Investors place bids through brokers
- Can bid at cut-off (final price) or specific price
- Funds blocked via ASBA (not debited yet)
- Subscription figures released daily
ASBA (Application Supported by Blocked Amount)
- Money stays in your bank account
- Only blocked, not transferred
- Debited only if you get allotment
- Released if not allotted
Subscription Metrics
| Subscription | Meaning |
|---|---|
| Under-subscribed (< 1x) | Less demand than shares available |
| Fully subscribed (1x) | Demand equals supply |
| Oversubscribed (> 1x) | More demand than supply |
| Heavily oversubscribed (50x+) | Very high demand |
Allotment
After subscription closes:
- If oversubscribed, lottery system for RII
- Proportionate allotment for QIB/NII
- Refunds for unsuccessful/partial allotments
Timeline: Usually 2-3 days after issue closes.
Listing Day
6-7 days after IPO closes:
- Shares credited to Demat
- Trading begins on exchange
- Opening price set by market
- Can be above or below issue price
Key Takeaways
- IPO involves extensive preparation and regulatory approval
- DRHP is draft; RHP is final prospectus
- SEBI approval is about disclosure, not investment quality
- ASBA keeps your money in bank until allotment
- Listing happens about a week after subscription closes
Next: Let's understand the different types of IPOs you might encounter.
Sources & Disclaimer
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
- SEBI Guidelines for Red Herring Prospectus (RHP) Format
Note: Any benchmarks (e.g., "Good ROE is > 20%", or specific P/E ranges) are simplified industry heuristics for educational purposes. True evaluation depends on specific industry context, market cycles, and individual company circumstances.