Initial Public

Offering
What IPO IS?
Initial public offering (IPO), is referred when a
company issues common stock or shares to the
public for the first time.
They are often issued by smaller, younger
companies seeking capital to expand, but can also
be done by large privately-owned companies
looking to become publicly traded.
IPO is New shares Offered to the public in the
Primary Market .The first time the company is
traded on the stock exchange.
Major IPO’s In INDIA
Major IPOs in India are:
Reliance Power IPO
Wockhardt Hospital IPO
KNR Constructions Ltd. IPO
Manjushree Extrusions Ltd IPO
J Kumar Infraprojects Ltd. IPO
Future Capital Holding Ltd IPO
Cords Cable IPO
Reason for listing in IPO
The increase in the capital: An IPO allows a
company to raise funds for utilizing in various
corporate operational purposes like acquisitions,
mergers, working capital, research and
development, expanding plant and equipment
and marketing.

Liquidity: The shares once traded have an

assigned market value and can be resold. This is
extremely helpful as the company provides the
employees with stock incentive packages and the
investors are provided with the option of trading
their shares for a price.
Cont……………
Valuation: The public trading of the shares
determines a value for the company and sets
a standard. This works in favor of the
company as it is helpful in case the company
is looking for acquisition or merger. It also
provides the share holders of the company
with the present value of the shares.
Increased wealth: The founders of the
companies have an affinity towards IPO as it
can increase the wealth of the company,
without dividing the authority as in case of
partnership.
 Procedure for IPO
IPOs generally involve one or more investment banks
as "underwriters." The company offering its shares,
called the "issuer," enters a contract with a lead
underwriter to sell its shares to the public. The
underwriter then approaches investors with offers to
sell these shares.
The sale (that is, the allocation and pricing) of shares
in an IPO may take several forms. Common methods
include:
Bought deal
Dutch auction
Firm commitment
Self Distribution of Stock
Pricing IPO
Investment banks, take many factors into
consideration when pricing an IPO, and
attempt to reach an offering price that is low
enough to stimulate interest in the stock, but
high enough to raise an adequate amount of
capital for the company. The process of
determining an optimal price usually involves
the underwriters ("syndicate") arranging share
purchase commitments from leading
institutional investors.
Issue Price
A company that is planning an IPO appoints lead
managers to help it decide on an appropriate
price at which the shares should be issued. There
are two ways in which the price of an IPO can be
determined: either the company, with the help of
its lead managers, fixes a price or the price is
arrived at through the process of book building.
Note: Not all IPOs are eligible for delivery
settlement through the DTC system, which would
then either require the physical delivery of the
stock certificates to the clearing agent bank's
custodian, or a delivery versus payment ("DVP")
arrangement with the selling group brokerage
firm. This information is not sufficient.
How public can apply in
IPO?
When a company floats a public issue or IPO,
it prints forms for application to be filled by
the investors.
. Public issues are open for a few days only.
As per law, any public issue should be kept
open for a minimum of 3days and a maximum
of 21 days.
The duly complete application from,
accompanied by cash, cheque, DD or stock
invest should be deposited before the closing
date as per the instruction on the from. IPO's
by investment companies (closed end
funds) usually contain underwriting fees which
Factors that require to keep
in mind before deciding to
apply to an IPO?
Track record of the promoters
Financials position of that company
Read Prospectus very carefully
Issue price
Is IPO Risky for Public
IPOs can be a risky investment. For the
individual investor, it is tough to predict what
the stock or shares will do on its initial day of
trading and in the near future since there is
often little historical data with which to
analyze the company. Also, most IPOs are of
companies going through a transitory growth
period, and they are therefore subject to
additional uncertainty regarding their future
value.
Drawbacks of IPO
It is true that IPO raises huge capital
for the issuing company. But, in order
to launch an IPO, it is also necessary
to make certain investments.
Setting up an IPO does not always
lead to an improvement in the
economic performance of the
company. A continuing expenditure
has to be incurred after the setting
Cont….
A lot of expenses have to be incurred in
the form of legal fees, printing costs and
accounting fees, which are connected to
the registering of an IPO.

the rules and regulations involved to set

up public offerings and this entire process
on the other hand involve a number of
complexities which sometime require the
services of experts in relevant fields.
Conclusion
IPO is used by a company to raise it’s
funds. The extra amount obtained
from public may be invested in the
development o f the company,
although it costs a little to a company
but it gives a way to get more money
for long term investments.