Step-by-Step IPO Process in India

Decision to Go Public

The IPO process begins with a well-considered decision by the company's board and senior management. Before committing to a public offering, they evaluate the following key factors:

• Capital Requirements: If the company requires substantial funds for business expansion, infrastructure development, or entering new markets, an IPO offers an effective route to raise large-scale capital from public investors.
• Financial Strength: The company must demonstrate consistent revenue growth, profitability and a sound balance sheet, all of which are essential to building investor confidence.
• Market Conditions: Timing the IPO during favourable market conditions and positive investor sentiment can significantly enhance the offering's success and valuation.
• Regulatory Compliance: The company must meet all eligibility norms prescribed by the Securities and Exchange Board of India (SEBI) before initiating the process.
• Evaluation of Alternatives: Management also considers other funding options, such as venture capital, private equity, or debt financing, before concluding that an IPO is the most suitable course of action.

Once the decision is finalised, the company begins assembling a team of professionals to manage the IPO process.

Appointing a Merchant Banker (Lead Manager)

The first formal step in the IPO process is to appoint a SEBI-registered Merchant Banker, also known as the Book Running Lead Manager (BRLM). Under SEBI (Merchant Bankers) Regulations, 1992, any entity managing a public issue in India must hold a valid SEBI registration as a merchant banker.

The merchant banker plays a central role in the IPO and is responsible for:

• Assessing the company's readiness for a public offering
• Structuring the issue - determining the offer size, price band and issue type
• Drafting and executing the underwriting agreement
• Coordinating with SEBI, stock exchanges, legal advisors and auditors
• Managing the book-building process and investor outreach
• Providing support during and after the listing

Selecting a credible and experienced merchant banker is critical, as their expertise and market standing directly affect the success of the IPO.

Appointment of Key Advisors

In addition to the merchant banker, the company appoints a team of specialists, each with a defined role in the IPO process:

• Legal Advisors: Draft transaction documents and ensure compliance with SEBI regulations and applicable laws
• Statutory Auditors: Certify the company's financial statements and conduct requisite due diligence
• Registrar and Transfer Agent (RTA): Manages share allotment, refund processing and demat-related operations
• PR and Marketing Firms: Handle investor communications, media relations and retail investor awareness campaigns

These professionals work in coordination throughout the IPO lifecycle to ensure a seamless and compliant process.

Due Diligence

Before filing any regulatory documents, a thorough due diligence exercise is conducted. This involves a comprehensive review of the company's financial records, legal structure, corporate governance practices, pending litigation and material risk factors.

The objective of due diligence is to ensure that all information that may influence an investor's decision is identified, verified and accurately disclosed. This process also protects the company from potential legal liability arising from any omission or misrepresentation in the offer documents.

Preparation of the Draft Red Herring Prospectus (DRHP)

The Draft Red Herring Prospectus (DRHP) is one of the most important documents in the IPO process. It is a comprehensive disclosure document that provides investors and regulatory authorities with detailed information about the company's business, financials and the terms of the offering.

A DRHP typically covers the following:

• Company Overview: Business model, key products and services, revenue sources, competitive strengths and management profile
• Financial Statements: Audited profit and loss accounts, balance sheets and cash flow statements for a minimum of three preceding financial years
• Risk Factors: Clear disclosure of business, market, regulatory and operational risks that may affect the company's performance
• Objects of the Issue: A detailed breakdown of how the IPO proceeds will be utilised, whether for capital expenditure, debt repayment, acquisitions, or working capital requirements
• Industry and Market Analysis: An overview of the sector, market size, growth trends and competitive landscape
• Legal and Regulatory Disclosures: Details of ongoing litigation, regulatory orders and corporate governance framework

The DRHP is jointly prepared by the merchant banker, legal advisors and auditors and is filed with SEBI upon completion.

SEBI Review and Approval

Upon receipt of the DRHP, SEBI undertakes a detailed review to ensure that the document complies with its regulations and adequately protects investor interests. The review process involves the following:

• Document Scrutiny: SEBI examines the financial disclosures, risk factors and compliance status to verify accuracy and completeness
• Queries and Clarifications: If SEBI identifies any gaps or requires additional information, it issues an observation letter with specific queries, which the company must address within the prescribed timeline
• Modifications: Where disclosures are found to be insufficient, SEBI may direct the company to revise and resubmit the document
• Public Availability: The DRHP is made publicly accessible on SEBI's website, allowing investors, analysts and other stakeholders to review and raise concerns if required

Once SEBI is satisfied with the disclosures, it issues a formal observation letter, which serves as the regulatory clearance to proceed with the IPO.

Stock Exchange Listing Application

Following SEBI's approval, the company applies for listing on one or more recognised stock exchanges in India, the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), or both. The stock exchange conducts its own review, assessing the following:

• Financial Eligibility: Compliance with the minimum net worth, profitability and paid-up capital requirements prescribed by the exchange
• Minimum Public Shareholding: For mainboard IPOs, at least 25% of the post-issue capital must be offered to the public
• Document Submission: Submission of the approved DRHP, financial statements and applicable compliance certificates
• In-Principle Approval: Upon satisfactory review, the stock exchange grants in-principle approval for listing, clearing the way for the IPO to open for subscription

Roadshows and Pre-IPO Marketing

With all approvals in place, the company and its merchant banker conduct a structured marketing campaign to generate investor interest ahead of the subscription period. This phase is critical for building demand and establishing the right valuation.

Key activities during the pre-IPO marketing phase include:

• Investor Roadshows: The company's leadership team and merchant banker meet with institutional investors, mutual funds and high-net-worth individuals (HNIs) across major financial centres, both domestically and internationally
• Analyst and Media Briefings: Structured presentations for financial analysts and journalists to provide clarity on the company's business model, financials and growth prospects
• Retail Investor Campaigns: Public advertisements, digital outreach and media appearances to create awareness among retail investors
• Price Band Finalisation: Demand feedback gathered during roadshows is used to finalise the IPO price band in consultation with the merchant banker
• Publication of the Red Herring Prospectus (RHP): The final prospectus containing the confirmed price band, issue size and subscription schedule is published before the subscription window opens

Price Band and Book-Building Process

Most IPOs in India are conducted through the book-building mechanism, which enables market-driven price discovery. The company sets a price band consisting of a floor price and a cap price. Investors categorised as Qualified Institutional Buyers (QIBs), Non-Institutional Investors (NIIs) and retail investors submit their bids within this range.

Once the bidding period closes, all bids are aggregated to determine the final issue price, known as the cut-off price. This price reflects genuine investor demand and ensures a fair and transparent pricing process.

IPO Subscription Period

The IPO is open for public subscription for a period of three working days, during which investors may apply for shares through the following mechanisms:

• ASBA (Application Supported by Blocked Amount): The bid amount is blocked in the investor's bank account at the time of application and is only debited upon successful allotment. In cases where allotment is not received, the blocked amount is released automatically.
• UPI-Based Applications: Retail investors may apply through their stockbroker platforms or banking applications using a UPI payment mandate, enabling a seamless, paperless application experience.

Share Allotment and Stock Exchange Listing

Once the subscription window closes, the Registrar and Transfer Agent processes all applications and allots shares in accordance with SEBI's prescribed methodology:

• Oversubscribed IPOs: In the retail investor category, allotment is carried out through a computerised lottery system. In the QIB and NII categories, shares are allotted on a proportionate basis.
• Refunds and Unblocking: Investors who do not receive an allotment have their ASBA amounts unblocked or refunded within the stipulated regulatory timeline.
• Demat Credit: Allotted shares are credited to successful applicants' demat accounts before the listing date.
• Listing Day: The company's shares are officially listed and begin trading on the stock exchange, marking its formal transition from a privately held entity to a publicly listed company.