Know IPO Process - Steps, Selection of Investment Banks, Price Band and Number of Shares

Gaurav Seth
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Gaurav Seth



The IPO process is where an unlisted entity slides existing or new shares and securities and offers them to the general public for the very first time. Prior to an IPO, an entity is considered to be private limited with a comparatively smaller number of shareholders, limited to accredited investors (Like venture capitalists/angel investors and HNIs) and early investors (for example the founder, friends and family). 

Post the IPO, the issuing entity becomes a public limited company and listed on a recognised stock exchange. Hence, an IPO is often referred to as companies going public!



The first and foremost thing that company management must make sure of is to find an investment bank or a combination of investment banks that will act as underwriters on behalf of the entity. Underwriters purchase the securities to the entity and resell them to the public in general. The entity must also hire lawyers that can lead and guide them through the legal matters in the maze of IPO setup. The company must also be ready with detailed financial records and auditors opinion on each matter for scrutiny that SEBI will perform. SOme companies may also opt to sell their securities through the stock exchange but maximum prefer to go through the underwriters. 

Following is the list of some prominent stages in an IPO journey of the company:

  1. Preparing the DRHP (Draft Red Herring Prospectus)
  2. Marketing the IPO to public
  3. Get Stock exchange and SEBI approval
  4. Deciding on Issue Price and Issue Size
  5. IPO opens for public for bidding
  6. Determining the Issue Price and share allotment
  7. Listing and Unblocking of funds

Let’s discuss each of these steps briefly to gain a better understanding.

1. Preparing the DRHP

While awaiting the approval from SEBI regarding the financial scrutiny, the company with the help of underwriters must create a Draft Red Herring Prospectus, It includes detailed financial details and records, future plans and the specification of expected share price range. This prospectus is meant for investors who are interested in buying the securities. It also has a legal warning about the SEBI approval for IPO pending. 

2. The Marketing

Once the DRHP is prepared, company officials and underwriters go on countrywide marketing, visiting the major trade hubs and centrs and promote the IPO among a select few private buyers which are generally few HNIs and corporates. They are fed with detailed financial and other information regarding the company's future aspect and growth potential. They get a feel of investor response through these visits and try to woo the biggies in the market.

3. Stock exchange and SEBI approval

Once SEBI gives a go ahead with the registration statement, a date is to be fixed for the same. Sometimes it asks for some amendments to be made before giving its approval. The prospectus can’t be given to the general public without the amendment suggested by SEBI. The company needs to select a stock market where it intends to sell its securities and get listed.

4. Price band and number of share decision

After the approval of SEBI, the company with the help of underwriters decided on the price band of the shares and also took a decision over the number of shares to sell. 

There exist 2 types of issues: Book Building IPO and Fixed Price IPO:

1. Book Building IPO

A book building issue helps the company to discover the price of the IPO issue. The company decided on a band and it gives the investor a choice for the price at which they wish to bid for the company. 

For instance, XYZ ltd issue of 10 lakh shares of face value Rs 10/- each at a price bank of Rs 70 to Rs 80 is available to the public thereby generating upto Rs 7 Crs. Here the price generated through the issue will depend on the highest amount bid by the majority of investors. 

2. Fixed Price IPO

In a fixed price issue, the company decided the bank of the issue and the number of shares being sold. For instance XYZ ltd public issue of 10 lakhs shares of face value of Rs 10 each at premium of Rs 65 each available to the public thereby generating Rs 6 Crores. 

5.  Available for purchase to general public

On the dates written and mentioned in the RHP, the shares are available to the general public. Investors can fill out the form and specify the specific price at which they wish to make the purchase and submit the application.

6. Issue Price determination and Allotment

Once the subscription period is finished, members of the underwriters, issue company among others will determine the price at which shares are to be alloted to the prospective investors. The price would be determined directly by the demand and the bid price quoted by investors. Once the price is blocked, shares are allotted to investors based on the bidding amounts and the shares available. 

7. Unblocking of funds and Listing

The last step is the listing on the stock markets. Investors who have applied through ASBA and to whom shares were allotted will get the credit shares to the DEMAT accounts and the funds will get debited from their bank account or else for those investors to whom the lots were not allotted, funds will get unblocked in their bank account.


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