Initial Public offering (IPO) in India.
Meaning:
1. Shares of the company sold to institutional investors as well as retail (individual) investors.
2. It is process through which a private company becomes a publicly traded company.
3. It is used to raise new equity capital for the company to become a publicly traded company.
4. After the IPO, shares that is traded freely in the open market are known as Free Float.
5. The Prospectus must be issued for the purpose of IPO.
6. It is done through the Merchant banker or Investment banker who act as an underwriter and Issue manager.
7. An IPO can be underwritten by more than one merchant banker.
IPO is a process through which an Unlisted company can be listed on the stock exchange by offering its securities to the public in the Primary market
Types of IPO:
There are two types of IPO:
· Fixed price IPO
· In this method, the price at which the issue is coming up is properly mentioned. The price is fixed i.e for example, Company A is coming up with an issue of 20000 equity share of 95 each, the face value of the share is 10 Rs. Premium of 85 Rs. On each share.
· This is called fixed price method. Where the share price is fixed i.e 95 rs.
· In Fixed Price offering, the prices of the share is already fixed. The investors know the prices of the share before the offering. They know what is the initial offering price of the share which company is offering.
· Book building IPO.
The price is decided by the “BID’ which is done by the investors. The final prices is decided after taking into consideration the bid that is done by the investors. There are generally three prices that come up in Book building:
i. Cap Price: it is the highest price of the share.
ii. Floor Price: it is the lowest price of the share and
iii. Final share price: It is the final price that is decided through Investors bid.
There are also 3 category of the IPO:
i. Retail investors
ii. Institutional Investors
iii. Qualified institutional buyers.
- In this method the price of the issue is not fixed. It is first circulated and then the investor decide the price in between the range that is given by the company.
· For example: Company A is coming up with an issue of 20000 equity share of 90 to 95 Rs each.
· So the price range is decided and the investors will bid and then the final price will come up.
· Company coming up with Book Building Public Issue decided a price band for the issue. The price band usually contains an upper level and a lower level.
· Floor Price is the minimum price (lower level) at which bids can be made for an IPO. Investors can bid for the Book Build IPO at any price in the price band decided by the company. In Book Build process retail investors have an addition option to choose "Cut-Off" price for bidding.
Cut-off price means the investor is ready to pay whatever price is decided by the company at the end of the book building process. Retail investor has to pay the highest price while placing the bid at Cut-Off price. If company decides the final price lower then the highest price asked for IPO, the remaining amount is return to the retail investor.Listing Platform
There are two listing platform in which a company can get listed:
1. NSE (National Stock Exchange)
2. BSE (Bombay Stock Exchange).
If a company want to list on main board, they can get listed through both but if a company want to come for SME (Small medium enterprise) IPO, then there are two platforms which is
1. NSE Emerge.
2. BSE SME.
In this above two platforms, SME can be listed.
1. NSE Emerge.:
· The SME platform of the Exchange is intended for small and medium sized companies with high growth potential. The SME platform of the Exchange shall be open for SMEs whose post issue paid up capital shall be less than or equal to Rs.25 crores. The platform is expected to offer a new and alternate asset class to informed investors having longer investment horizon. The platform shall allow new, early stage ventures and small quality companies to raise much needed growth capital as they grow, mature and transit to the Exchanges’ main board.
· EMERGE is a credible and efficient market place to bring about convergence of sophisticated investors and emerging corporates in the country. It offers opportunities to informed investors to invest in emerging businesses with exciting growth plans, innovative business models and commitment towards good governance and investor interest.
· Emerge will have customized processes and systems which will help prospective issuers in their journey of metamorphosing into listed public companies
2. BSE SME.:
· BSE Ltd has set up the BSE SME Platform as per the rules and regulations laid down by SEBI. BSE SME Platform offers an entrepreneur and investor friendly environment, which enables the listing of SMEs from the unorganized sector scattered throughout India, into a regulated and organized sector.
· The listed SMEs will step into the threshold of BSE SME Platform and foray in to the world of finance for further growth and development. BSE SME will assist these SMEs to raise equity capital for their growth and expansion and thus help them blossom into full-fledged companies. In due time enable them to migrate into the Main Board of BSE as per the existing rules and regulations.
· BSE SME will provide immense opportunities to the following market participants.
§ Entrepreneurs: To raise equity capital for growth and expansion of SMEs in a cost effective manner.
§ Investors: Opportunities to identify and invest in good companies at an early stage and Exit Route.
Process Of IPO:
The detailed process of SME IPO is as follows:
1. Conversion of company into the public company.
2. Preparation and submission of the conversion documents to ROC.
3. ROC approves the conversion.
4. Appointment of RTA (Registrar and transfer agent)
5. Appointment of MD, Independent Directors and company secretaries.
6. Deciding their pay and the fees.
7. Committee formation like Audit committee etc.
8. Company website creation.
9. Signing of Agreement with NSDL (National Securities Depositories limited) and CDSL (Central Depositories Services Limited).
10. Appointment of peer review auditor and the re-audit is done.
11. Appointment of Merchant Banker.
12. Preparation of Draft Red Herring Prospectus.
13. Filing of DRHP with the stock exchange along with the permission of approval with stock exchange.
14. Clearing from stock exchange
15. Filing of prospectus with ROC and getting it clear from ROC.
16. Filing of final prospectus with SEBI
17. Opening of the Issue
18. Closing of the Issue.
19. Finalization of Basis of Allotment by RTA and submit to Stock exchange.
20. Filing of corporate action form with NSDL and CDSL.
21. Filing of listing application with Stock exchange to give listing and trading permission.
22. Post issue advertisement in Newspaper.
23. Receipt of trading approval from Stock exchange.
This whole is the process of when a private company want to become a public company by coming up with IPO (Initial Public Offering).
This is a detailed process which is being used to come up with IPO.
SME IPO listing key requirements and Norms.
For Exchange:
S.No.
|
Eligibility Criteria
|
NSE Emerge Requirement.
|
BSE SME Requirement
|
1.
|
Post Issue Capital
|
· Minimum: 3 Crore Rs.
· Maximum: 25 Crore Rs.
|
· Maximum: 25 Crore Rs.
|
2.
|
Track Record
|
· Net Tangible Asset: 3 Cr
· Net Worth: 3 Cr.
· Distributable profit of at least 2 year out of preceding 3 year or net worth shall be at least 5 Cr.
|
· Track record of at least 3 years.
· The company should have positive EBDT for at least 2 financial years preceding the application
|
3.
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Other Requirements
|
· Mandatory facilitation of trading in Demat securities.
· Certificate that no winding petition or reference to BIFR.
· Mandatory corporate website
· Promoters to attend to interview with Listing Advisory Committee
· No change in promoter in preceding 1 year
|
· The Company has not been referred to Board for Industrial and Financial Reconstruction (BIFR).
· No petition for winding up is admitted by a Court of competent jurisdiction against the Applicant Company.
· No material regulatory or disciplinary action by a stock exchange or regulatory authority in the past three years against the applicant.
|
Key SEBI Norms for listing:
S.No
|
Eligibility Criteria
|
Main Board
|
SME
|
1.
|
Public Shareholding
|
Minimum 25%
|
Minimum 25%
|
2.
|
Minimum Subscribers in IPO
|
1000 investors
|
50 investors
|
3.
|
Minimum application amount/trading lot
|
10000 Rs. - 15000 Rs.
|
₹1 Lakhs
|
4.
|
Underwriting
|
Not Mandatory
|
100% Mandatory (of which 15% to be done by MB in his own account)
|
5.
|
Market making
|
NA
|
Through exchange registered market makers for min 3 years
|
6.
|
Offer Document Vetting
|
To SEBI
|
To Exchange(NSE or BSE)
|
Parties Involved in the IPO:
· Company Promoters,
· Registrar of Companies (ROC),
· Merchant Banker or Investment Banker,
· Bankers Registrar and Transfer Agents (RTA),
· Market Maker Depositories (CDLS, NSDL),
· Stock Exchanges (BSE or NSE),
· Auditors.
Main line IPO in FY. 2017-18:
No. of IPO's in FY 2017
|
38
|
Total Money Raised
|
75475.37 Crores
|
SME IPO in F.Y 2017-18:
No. of IPO's in FY 2017
|
133
|
Failed IPO:
|
2
|
Total Money Raised
|
1737.67 Crores
|
Current Top Performer in IPO:
Company Name
|
Issue Price
|
List Price
|
LTP (Last Trade Price)
|
Change (%)
|
Avenue Supermart Limited
|
299
|
604.4
|
1574.05
|
426.44
|
G G Engineering Limited
|
20
|
21
|
55.5
|
177.5
|
Salasar Techno Engineering Limited
|
108
|
259.15
|
280
|
159.26
|
Diksha Green Limited
|
30
|
36.2
|
74.2
|
147.23
|
Sun Retail Limited
|
23
|
36
|
52.5
|
128.26
|
Worst Performer in IPO:
Company Name
|
Issue Price
|
List Price
|
LTP (Last Trade Price)
|
Change (%)
|
Indian Energy Exchange Limited
|
1650
|
1500
|
161.55
|
-90.21
|
MRC Exim Limited
|
15
|
15
|
2.26
|
-84.93
|
Ashoka Metcast Limited
|
20
|
16
|
3.85
|
-80.75
|
New India Assurance Company limited
|
800
|
748.9
|
180.9
|
-77.39
|
For further query or any suggestions please mail me at: nayanparihar96699@gmail.co
