In an initial public offering (IPO), a privately owned company for the first time made its shares available to the general public. Companies take the root of IPO to fund their growth, expansion and future investments.
Every year new companies are getting listed their stocks on the National Stock Exchange (NSE) and BSE.
Before investing your hard earned money in any of the initial public offerings (IPOs), you should ask yourself why this company has come up with an IPO and how its going to grow in future.
Here in this article, we have listed the most important reasons why a company goes public and launches an initial public offering (IPO).
IPOs helps to raise capital for growth
IPOs offer several benefits to companies.
Initial public offering (IPO) helps a company to raise a significant amount of capital to finance new projects, pay off debts, and fuel growth. It’s the most important reason for launching an IPO.
The main reason is to raise capital to help in future development. Thus, an initial public offering (IPO) allows a company to tap into investors’ funds for business expansion.
A company can also float an Initial public offering (IPO) to reduce debt by getting funds from equity shareholders. Many investors avoid these types of IPOs as it can be a risky investment.
Also Read: Equity vs. Debt Financing: What’s the Difference?
Initial public offering (IPO) Offer liquidity to existing shareholders
Initial public offering (IPO) offers existing shareholders an opportunity to sell their shares at a premium to the general public. However, it can be a red flag if a substantial number of promoters sell their stakes through an IPO.
Few private investors prefer to exit the company by offering their shares to the general public in an Initial public offering (IPO).
Once the company’s shares are listed on the stock exchange after Initial public offering (IPO), they are easily tradable. Anyone can purchase and sell securities in the stock exchange. Therefore, company’s stocks become easily marketable and liquid.
Credibility and branding
After listing in the stock exchange, a company’s credibility and visibility will grow substantially. The company is also required to comply with the rules and regulations of the market regulator, SEBI.
As per present law, a listed company is required to undergo different types of audit, disclosure and compliance. Therefore, there will be little room for malpractice and fraud.
This increases the company’s credibility among stakeholders.
As an investor you can read the company’s red herring prospectus to know exactly how the company is going to utilize money raised through Initial public offering (IPO).
Read Herring Prospectus is required to be submitted to SEBI and made public during the announcement of the Initial public offering (IPO).
You can find the Red Herring Prospectus on SEBI’s website.
Red Herring Prospectus (RHP) should contain followings;
- The amount of money company plan to raise through the IPO
- Current shareholding pattern
- Where the money will be utilized
- Key financial information
- Name of the auditing firm
However, IPOs have few drawbacks.
Going public comes with lots of compliance with regulatory requirements and extensive reporting obligations. It increases a significant amount of legal, accounting, and reporting workload.
Investors worldwide always keep a close eye on the success of upcoming IPOs.
Here are 2 most recent IPOs in India;
Company Name: JSW Infrastructure Limited
- IPO Open Date: 25-Sep-2023
- IPO Close Date: 27-Sep-2023
- Lot Size: 126
- IPO Price Range: ₹ 113 to ₹ 119
- Min Investment: ₹ 14,238
- Listing Date: 03-Oct-2023
- Listing Price: ₹ 143
Company Name: Yatra Online Limited
- IPO Open Date:15-Sep-2023
- IPO Close Date: 20-Sep-2023
- Lot Size: 105
- IPO Price Range: ₹ 135 to ₹ 142
- Min Investment: ₹ 14,175
- Listing Date: 28-Sep-2023
- Listing Price: ₹ 130
Also Read: Largest IPOs of all time: The Biggest Initial Public Offerings Ever
Frequently Asked Questions on IPOs-FAQs
What does IPO mean?
IPO stands for “initial public offering”.
It’s the first time that a privately held company would like to sell its stock to members of the general public.
How can one apply for an IPO?
Anyone having a Demat account can submit an application for an initial public offering (IPO).
What is the issue price?
The issue price is the amount per share a company asks its interested investors to pay when it becomes available to the public for purchase.
What is an issue size?
Issue size of an IPO is the number of shares multiplied by the value of each share.
What is the cut-off price?
In an Initial public offering (IPC), the price at which an investor can buy shares is known as cut-off price.
What is a bid lot?
The minimum number of shares an investor can apply for is called the bid lot.
What is QIB?
QIB stands for qualified institutional buyers.
What is NII?
NII stands for “non-institutional investors”. These are individuals who don’t have affiliation with a large financial institution, wealthy individuals and brokerage firms.
What is market capitalization?
A company’s market capitalization can be found out by multiplying current market share price with the total number of shares outstanding.
