The IPO process is a structured journey that companies must navigate to go public. This chapter provides a detailed breakdown of each step involved in the IPO process, offering insights into both procedures and timelines.
Step-by-Step Guide to the IPO Process
When a company decides to go public, it follows a specific set of steps mandated by the stock exchanges where it aims to list its shares. Here’s how the IPO process unfolds in India:
1. Appointment of Merchant Banker (Lead Manager)
The first step is for the company to appoint a Merchant Banker or Lead Manager. This crucial partner guides the company through the entire IPO journey, from initial preparations to post-listing activities. The Merchant Banker is responsible for conducting due diligence and preparing the draft prospectus.
Merchant Bankers, who are registered with SEBI, offer financial advice and solutions, assist in fund-raising, and sometimes act as underwriters.
- Companies can appoint multiple Merchant Bankers, especially for larger IPOs.
- Most major banks and financial institutions are licensed Merchant Bankers.
2. SEBI Approval for DRHP
The company submits its Draft Red Herring Prospectus (DRHP) to SEBI for approval, a process that can take between 2 to 4 months. SEBI reviews the document to ensure compliance with all regulatory requirements.
Note: For SME IPOs, approval is required from the stock exchange rather than SEBI.
3. Submitting the IPO Application to Exchanges
Once SEBI gives the green light, the Merchant Banker files the IPO application and the DRHP with the stock exchanges. After a thorough review, the exchange grants in-principle approval.
4. Determining the Price
Together with the Merchant Banker, the company decides on the IPO pricing method, choosing between a fixed price or a book-building process.
- In a fixed-price issue, the share price is set and announced upfront.
- In a book-building issue, a price range is provided (e.g., Rs 80 to 90), allowing investors to place bids within that range.
5. Filing the Red Herring Prospectus
The next step is to file the Red Herring Prospectus (RHP) with the exchange. This document is an updated version of the DRHP, including the latest financial information and additional details such as the IPO schedule and pricing.
6. Conducting Roadshows
Merchant Bankers, in collaboration with PR and advertising agencies, promote the IPO through roadshows. These events involve meetings with potential investors, including institutional buyers, journalists, and analysts, across various cities.
7. Opening for Anchor Investors
The IPO first opens for anchor investors, who are qualified institutional buyers (QIBs) that bid for at least Rs 10 crore. These investors receive their share allocation a day before the IPO opens to the public.
8. Public Opening of the IPO
The IPO becomes open to the public for bidding, a period that can last from three to ten days. Investors submit their bids through brokers or banks, but share allocation is typically done through a lottery system.
9. Share Allotment
After the public bidding closes, the exchanges forward the application data to the IPO registrar, who oversees the allotment process.
- The exchange verifies the bank and demat account details.
- Banks confirm the account matches.
- The registrar rejects any flagged third-party applications.
- Shares are allotted either by lottery or on a pro-rata basis.
- Funds are deducted from investors’ accounts.
- Shares are transferred to investors’ demat accounts.
10. Announcing the Listing Date
The company submits listing documents to the stock exchange and sends a credit confirmation from the depository. The stock exchange issues a listing circular with details like the final price and trading symbol.
11. Listing of IPO Shares
IPO shares begin trading on the stock exchanges in two phases:
- Pre-open Session
This session, lasting from 9:00 a.m. to 9:45 a.m., allows for order entry, modification, and cancellation. Prices are set during this period, with confirmations sent out by 9:55 a.m.
- Beginning of Regular Trading
Starting at 10 a.m., the market opens for regular trading, allowing anyone to buy or sell the newly listed shares.
12. Submission of Post-Listing Documents
Post-listing, the issuer must provide the stock exchange with documents such as board meeting invitations, annual reports, and governance reports.
Differences Between Mainboard IPO and SME IPO
Although both types of IPOs share a common structure, there are key distinctions:
| Aspect | Mainboard IPO | SME IPO |
|---|---|---|
| Regulatory Review | Reviewed by SEBI. | Reviewed by the stock exchange. (NSE Emerge / BSE SME) |
| Market Maker Requirement | Not required. | Mandatory – appointed jointly by issuer company and merchant banker. |
| Migration to Mainboard | Not applicable as already direct listing on NSE and BSE. | Must remain on SME platform for minimum 3 years, then migrate if criteria is met. |
| Post-Issue Compliance | Stricter compliance: quarterly results, detailed governance & disclosure norms. | Relaxed compliance: half-yearly reporting, simplified norms for SMEs. |
Timeline of the IPO Process in India
The duration of the IPO process in India varies widely, typically ranging from 3 months to a year, depending on factors like the IPO type, company size, and market conditions.
Note: Companies must complete their IPO within 12 months of receiving SEBI comments on their initial filing.
Estimated Timelines by IPO Platform
| Platform | Duration |
|---|---|
| Mainboard IPO | 6 to 12 months |
| SME IPO | 3 to 4 months |
Estimated Timelines by Stages
| Phase | Timeline |
|---|---|
| Planning | 2 weeks |
| Due diligence | 4-5 weeks |
| DRHP Preparation | 1 week |
| SEBI Approval | 4-8 weeks |
| RHP Submission | 2-3 weeks |
| IPO Launch | Minimum 3 days |
| Allotment | Within 1 day of issue closure |
| Listing | Within 3 days of issue closure |
| Post-issue activities | 2-3 weeks |