IPO Process Step by Step
Learn the detailed process of how an IPO goes from planning to listing on the stock exchange.
Pre-IPO Preparations
Company appoints investment banks and legal advisors.
Due diligence is conducted on financials, governance, and risks.
Draft Red Herring Prospectus (DRHP) is prepared for SEBI approval.
Check Points
DRHP must disclose financials, risk factors, and company background clearly.
Regulatory Approval
DRHP is filed with SEBI for review.
SEBI may ask questions and recommend changes.
After clearance, the company prepares the Red Herring Prospectus (RHP).
Alert
Any misstatement in the prospectus can lead to penalties or IPO rejection.
Book Building and Pricing
What is Book Building in IPO
The Book Building process helps determine the price of shares when a company goes public.
In this process, the company establishes a price range with a minimum and maximum limit. Investors interested in the public offering place their bids within this range. After the bidding period ends, the company and the fund managers use a weighted average method to set the final issue price. This final price is at which the shares are sold to investors.
How Does the Book Building Process Work
The Book Building process involves the following step-by-step procedure:
Step 1: Hiring an Underwriter
Companies typically bring on investment banks as underwriters for their IPOs. The underwriter helps determine the size of the issue and sets a price range. Investors then place their bids within this range.
Step 2: Bidding
The underwriter, along with the issuer, invites investors to submit bids for the shares being sold through the IPO based on the given price range.
Step 3: Setting the IPO Price
The underwriter keeps an order book that records all investor bids. They usually use a weighted average method to determine the final IPO price.
Step 4: Allotting Shares
Once all bids are received, the IPO price is finalised. Investors whose bids meet or exceed the cut-off price are allotted shares. Those who bid above the cut-off receive a refund for the excess amount.
Example
If demand is high, the price is fixed at the upper end of the band.
Allotment and Listing
Registrar processes bids and allots shares as per SEBI rules.
Refunds are given if shares are not allotted.
Company gets listed on the stock exchange and trading begins.
IPO listing day can be exciting — prices often fluctuate based on demand and sentiment.
Summary
IPO journey includes preparation, SEBI approval, bidding, and final listing.
Every stage involves strict compliance to protect investors.
Remember
Understanding the IPO process helps investors know where risks and opportunities lie.
Practice Questions
What is the role of the DRHP in the IPO process?
How is the final issue price decided in a book-built IPO?
What happens if SEBI finds misleading information in the DRHP?
References
SEBI ICDR Regulations - 2018
NSE IPO Process Guide, 2023
BSE Investor Education Materials