Supriya Lifescience Limited is a company that manufactures Active Pharmaceutical Ingredients (APIs). APIs are raw materials used in making drugs, medicines, vaccines, and other pharmaceutical products. Supriya Lifescience has filed for an Initial Public Offering (IPO) that goes live on December 16, 2021, and closes on December 20, 2021. The company plans to raise close to Rs 700 crore through the IPO. In this piece, we discuss the company’s business model, its finances, and what makes this IPO stand out from others.
Business Model
Headquartered in Mumbai, Supriya Lifescience Ltd produces38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and antiallergic. It is the largest exporter of Chlorpheniramine Maleate (CPM) and Ketamine Hydrochloride from India. CPM is used to treat hay fever, allergy and the common cold, whereas Ketamine Hydrochloride is used to make anaesthetic to induce a loss of consciousness and relieve pain.
According to a CRISIL report, the company was the largest exporter of Salbutamol Sulphate in India,contributing to 31% of the API exports from India in FY 2021 in terms of volume. Salbutamol Sulphate is used to treat asthma, bronchospasm, and reversible airways obstruction.
Ketamine Hydrochloride contributed the most to the revenue stream. In FY21, it contributed to 27.42% of total revenue, followed by Chlorpheniramine Maleate and Salbutamol Sulphate, which contributed 18.17% and 9.86%, respectively.
The company has a manufacturing plant in Lote in Ratnagiri District of Maharashtra. The main manufacturing plant at Lote is spread across 23,806 sq. mts, having a reactor capacity of 547 KL/ day and seven cleanrooms. The company has also acquired a plot of land of 12,551 sq. mt, near the present manufacturing facility for expanding capacity. The manufacturing plant has been approved by international drug agencies like USFDA, EDQM, TGA Australia, KFDA-Korea, PMDA-Japan, NMPA (previously known as SFDA)- China, Health Canada.
The company is export-oriented, with only 22.53% of total revenue coming from India for FY21. Its products were exported to 86 countries to 1,296 customers including 346 distributors. In all, Asia (excluding India) contributed to 29.3% of the total revenue, followed by Latin America at 19.2%, Europe at 17.4%, and North America at 4.8%.
At present, the company is entirely owned by the Wagh Family. Chairman Satish Wagh, his mother Asha Waman Wagh, wife Smita Satish Wagh, daughters Shivani and Saloni Wagh are the sole promoters in the company.
Financial Performance
The company has witnessed consistent growth in Total Revenue, Profit After Tax, and Total Asset holdings.
The company’s total income, EBITDA, and profit after tax grew at a CAGR of 17.73 %, 56.47%, and 77.23%, respectively, from Fiscal 2019 to Fiscal 2021.
As of September 30, 2021, the company had total borrowings of Rs 70.9 crore, down from a debt of Rs 89.8 crore in FY19.
IPO Details in a Nutshell
The company plans to raise a total of Rs 700 crore through the IPO. It would get Rs 200 crore in hand, and the remaining Rs 500 crore would go to the promoter Satish Waman Wagh. According to the company’s ‘Objects of the Offer’, it plans to use the money for the following purposes:
Rs 92.3 crore to be used for funding capital expenditure requirements of the company.
Rs 60 crore would be used for repayment or prepayment of borrowings or debt.
The Way Ahead
Supriya Lifescience will be one of the many pharmaceutical companies that get listed this year. The company’s diversified product portfolio and global market reach make it a relatively safer bet than others. It has even managed to diversify geographically, ensuring that geopolitical instability in a particular region does not impact the company’s performance. The company has shown strong growth in terms of Revenue, Net Profit, and Asset Holdings.
Through this IPO, the company plans to pay off ~85% of its total borrowings and still have a great amount for capital expenditure. Supriya Lifesceinces’s IPO shares are trading at a Grey Market Premium (GMP) of 91%. This means that the shares are trading at 91% more than their upper issue price band of Rs 247. It is advised that investors do thorough research before investing in all IPOs. You can check the official Red Herring Prospectus over here.
The year 2021 saw a stream of Initial Public Offerings (IPOs) that entered many investors’ pockets. Companies from all sectors and industries tried to unlock their true value by listing on the stock market. According to credit rating agency India Ratings and Research (Ind-Ra), the financial year 2022 has the highest number of IPOs lined up in over two decades. A closer look at the 2021 IPO bull run shows that companies might have tried to list without sufficient reason or cause. The question is, can the recent and upcoming IPOs sustain investor gains? Are the listed companies overpriced? Have the IPO-raised funds been used in the right manner? Read on to know more.
Are IPOs Overpriced?
A total of 72 companies had their IPOs in FY22. Between January and November, 38 out of 52 mainboard IPOs ended up with listing gains. Listing gains happen when a company’s share debuts at a higher price than what the IPO subscribers bought it for. Based on the issue size, the top 10 companies gave average listing gains of nearly ~17%.
According to Ind-Ra, the IPO count for FY22 stood at 71, amounting to Rs 85,600 crores as against Rs 27,200 crore raised by 56 companies last year. Life Insurance Corporation or LIC is planning to raise nearly Rs 1,00,000 crore through an IPO. If it happens by year-end, it could drive the total issue size for the fiscal to nearly Rs 2,00,000 crore. The IPO bull run is being led by the new-age tech-oriented companies like Zomato, Nykaa, PayTM, Policy Bazaar, to name a few. Unlike traditional companies, new-age tech-oriented companies are listing for brand recognition and premium value unlocking.
IPOs Not Helping In Cutting Down Corporate Debt?
According to Ind-Ra, 26% of the companies used the funds for corporate purposes, 19% used them for funding capital expenditure, another 19% used them for repayment of existing loans, and the remaining 11% used it to carry out an offer for sale.
There has been a shift in trend regarding objects of offer that a company mentions in Red Herring Prospectus (IPO Report). While the purpose of an IPO is generally considered to be either for funding capital expenditure or repaying existing debt, many companies have clearly stated ‘brand recognition’ as the sole reason.
The availability of cheap Commercial Paper (CP) has also fueled the IPO of Bullrun. CPs are borrowings made from NBFCs for short-term use (up to one year). IPO Investors, mostly institutional ones, would borrow from Non-Banking Financial Companies (NBFCs) to fuel their IPO gig. The Reserve Bank of India has now capped an individual borrowers limit for NBFCs to Rs 1 crore. This move could significantly impact the subscription status of the IPOs.
The Way Ahead
The bull run in 2021 was fuelled by the enormous liquidity offered by monetary and fiscal easing. Once the central banks start cutting interest rates, the money could make its way out of the recent IPO stocks, many of which are known to be overvalued.
Another cause of worry is the reason why certain companies got listed. Many have done so with the intent of getting a premium valuation from the hype caused by retail and institutional investors alike. If a company does not utilize the IPO funds correctly, it might face operational or financial bottlenecks in the future, which could be the reason for the investor’s dissatisfaction. This dissatisfaction could drive down the valuation of the company. The upcoming quarter is crucial for the stock market. With fears regarding the Omicron variant of COVID-19, sensitive oil prices, and interest rate cut expectations, investors need to weigh their investments in light of these risks and make the right choices.
What a thrilling year for startups! After Zomato, companies such as Paytm, Oyo, and MobiKwik are lining up to launch their IPOs. FSN E-Commerce Ventures Ltd, the parent company of Nykaa, has launched its initial public offering (IPO) today— October 28. It is a unicorn (startup with more than $1 billion valuation) led by women with a lot of growth potential. In this article, learn more about Nykaa and its IPO.
Company Profile – FSN E-Commerce Ventures (Nykaa)
FSN E-Commerce Ventures Ltd is a digitally native consumer technology platform. It delivers content-led lifestyle retail experiences to consumers. The company has a diverse portfolio of beauty, personal care, and fashion products. It sells cosmetics, clothes, and grooming products.
The company operates under two verticals:
Nykaa: Beauty and personal care
Nykaa Fashion: Apparel and accessories
FSN E-Commerce Ventures (Nykaa) was established in April 2012 by Falguni Nayar, a former investment banker. She ventured into beauty and cosmetics products as it was an underpenetrated segment in online e-commerce at that time. Now, her company has grown multi-fold into one of India’s top digital retail sites for beauty products. Nykaa is seeking a valuation of $7 billion (~Rs 52,315.55 crore)!
The company records ~1.5 crore average monthly unique visits and lists over 4,000 brandson its platform. They own six prominent brands— Nykaa Cosmetics, Nykaa Naturals, Kay Beauty, Nykd by Nyka, Twenty Dresses, and Pipa Bella. Apart from its online presence, Nykaa currently operates 80 physical stores across 40 cities in India. It has grown into one of the preferred destinations for certain luxury and prestige products in India for consumers and brands. The company also focuses on educating consumers via digital content, digital communities, and tech-product innovations, which is an integral component of its business model.
About the IPO
FSN E-Commerce Ventures’ public issue opens on October 28 and closes on November 1. The company has fixed Rs 1,085-1,125 per share as the price band for the IPO.
The fresh issue of shares (of the face value of Rs 1 each) aggregates to Rs 630 crore. The offer for sale (OFS) of up to Rs 4.19 crore equity shares from existing shareholders aggregates to Rs 4,721.92 crore. Individual investors can bid for a minimum of 12 equity shares (1 lot) and in multiples of 12 shares thereafter. You will need a minimum of Rs 13,500 (at the cut-off price) to apply for this IPO. The maximum number of shares that can be applied by a retail investor is 168 equity shares (14 lots).
Objectives of the Issue
Nykaa will utilise the net proceeds from the IPO for the following purposes:
Investment of Rs 42 crore in subsidiaries FSN Brands and/or Nykaa Fashion for funding the establishment of new retail stores.
Rs 42 croretowards capital expenditure and investment in its subsidiaries Nykaa E-Retail, Nykaa Fashion, and FSN Brands for funding the set-up of new warehouses.
Rs 156 croretowardsrepayment or prepayment of outstanding borrowings availed by the company and one of their subsidiaries, Nykaa E-Retail.
Expenditure of Rs 234 crore for enhancing the visibility and awareness of its brands.
General corporate purposes.
The total promoter in the company holding will fall from 54.22% to 52.56% post the IPO.
Financial Performance
Nykaa has turned profitable in the financial year ended 2020-21 (FY21). Despite the Covid-19 pandemic hitting non-essential spending for more than a year, the company has reported a surge in revenues. It posted a net profit of Rs 61.94 crore in FY21, compared to a net loss of Rs 16.34 crore in FY20. The revenue from operations rose 38.1% year-on-year (YoY) to Rs 2,440.8 crore in FY21. Nykaa reported a 35.3% increase in total orders to 1.71 core over the previous year. Thus, it has a capital-efficient business model with a combination of strong growth and profitability.
The company’s online business has been growing rapidly, with cumulative downloads of nearly 4.37 crore across all its mobile applications.
Source: Red Herring Prospectus
While the company’s domain was the Beauty and Personal Care segment, it has made considerable progress in its Fashion segment. A key indicator in the e-commerce space is the Gross Merchandise Value or GMV. It indicates the value of goods and services that are sold on a marketplace at a given point in time. For Nykaa, the GMV is the monetary value of orders inclusive of taxes and gross of discounts. In FY21, the GMV in Beauty and Personal Care segment was Rs 33,804.10 crore, which is the amount of goods sold by the company inclusive of taxes and discounts before return or cancellation.
Risk Factors
The failure to acquire new customers in a cost-efficient manner may affect the company’s profitability.
Nykaa’s core business depends heavily on the growth of India’s online commerce industry and its ability to effectively respond to changing user behaviour on digital platforms.
There are pending litigations against the company, its subsidiaries, and its directors. Any adverse decisions in legal proceedings may render them liable to penalties.
Failure to identify and effectively respond to changing consumer preferences, spending patterns, and changing fashion trends in a timely manner may harm Nykaa’s overall operations.
Changing regulations in India could lead to new compliance requirements that are uncertain.
Any harm to the company’s brand or reputation may adversely affect its financial condition and cash flows.
IPO Details in a Nutshell
The book-running lead managers to the public issue are BofA Securities India, Citigroup Global Markets India, ICICI Securities, JM Financial Consultants, Kotak Mahindra Capital, and Morgan Stanley India.
Ahead of the IPO, the company was able to raise Rs 2,396 crore from 184 anchor investors.
Conclusion
The first two weeks of November will be raining with IPOs. Mostly tech IPOs such as Paytm, PolicyBazaar, Nykaa, and MobiKwik. The IPOs are coming out all at once with extremely high valuations and buzz in the market. It might leave the market out of liquidity. Nykaa is the first IPO going up in November and might therefore have a first-mover advantage. The company has grown significantly in a very small period, much faster than its other tech-commerce peers.
Nykaa scored two consecutive losses in the past financial years. According to SEBI regulations, the company needs to offer not less than 75% of the Net Offer to Qualified Institutional Buyers (QIBs). This will bring down the retail quota from 35% to 10% as is the requirement laid down by SEBI. Therefore, retail investors like you and me have a lesser chance of getting an allotment.
In today’s trend and time, wherein tech startup giants have extremely inflated valuations supported by the post-COVID market boom, it is difficult to project where these stocks might be headed. Just like its tech peers, Nykaa too is on the same path. The company’s growth has been good, it recorded a net profit last year despite the Covid-19 pandemic. Its key metrics hint towards a flourishing business. Even if one was to say that Nykaa is overvalued, one cannot question its growth metrics. Conclusively, there is considerable room for Nykaa’s IPO to be a successful one.
What are your views on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.
Another IPO has hit the markets! This time it’s a company that works in a niche sector, the Space and Defence Equipment sector. We are talking about Paras Defence and Space Technologies Limited. The IPO opens on September 21, 2021, and closes two days later, on September 23, 2021. This article discusses the business model, finances, and the prospects of the company.
Business Model
Paras Defence And Space Technologies is engaged in designing, developing, manufacturing, and testing a wide range of defence and space engineering products and solutions. With a focus on the Defence & Space Sector, the company offers five primary product segments: Defence & Space Optics, Defence Electronics, Heavy Engineering, Electromagnetic Pulse Protection (EMP) Solutions, and Niche Technologies. The company has offices, R&D centres, and manufacturing lines in Nerul, Ambernath, and Thane in Maharashtra. Out of 341 employees, 159 are on the company’s payroll, while 182 are on contract.
The company offers services primarily to government entities. In fiscal 2021, 50.84% of the company’s total sales consisted of orders from Government of India (GoI) entities. As of June 30, 2021, 42% of the company’s total order book consists of GoI orders. The company’s clientele consists of PSU giants like Bharat Electronics Limited (BEL), Hindustan Aeronautics Limited (HAL), and Bharat Dynamics Limited (BDL).
Segment
Total Orders
Order Value (Rs crore)
Defence and Space Optics
37
202.63
Defence Electronics and EMP Protection
49
70.563
Heavy Engineering for Defence
34
31.79
Total Order Book
120
304.9
The company derives 39.20% of total revenue from private companies and 12.50% of it from exports.
Paras Defence has a first-mover advantage as there is minimal to no competition in the sector in India, especially in the optics for defence and space segment. Government policies such as Make In India and Atmanirbhar Bharat favour Paras Defence and Space Technologies.
The Ministry of Defence (MoD) has banned imports of EMP Racks, EMP filters, etc. These devices help protect electrical equipment against electromagnetic pulses arising from harmful radiations. This will help the company increase its foothold as a supplier for the product and expand its existing products portfolio by using R&D.
The company also faces the threat of cyber attacks, as it deals in a sector where confidentiality is prime. In October 2019, the company faced a cyber fraud wherein it lost close to Rs 20 lakh.
Financial Performance
Paras Defence and Space Technologies Ltd. have recorded a consistent reduction in revenue as well as profit numbers. The company hasn’t witnessed any visible growth in terms of financial metrics.
As of June 30, 2021, the order book from Government of India entities stood at Rs 130.59 crore. In the same period, the total order book stood at Rs 304.9 crore.
The company has consistently recorded negative cash flows from operating as well as investing activities. A negative cash flow occurs when a company spends more than it makes within a given period.
As of July 31, 2021, the company has a total outstanding debt of Rs 115.82 crore.
In fiscal 2021, the working capital requirement was more than the company’s revenue (~112% of total revenue). Working Capital Requirement(WCR) is the money needed to cover the costs of the production cycle, operational expenses and repayment of loans. In case the company falls short of working capital, it would impact production.
IPO In a Nutshell
The company plans to use Rs 34.6 crore towards the purchase of machinery and equipment, Rs 60 crore towards funding incremental working capital requirements, and Rs 12 crore for repayment or prepayment of all or a portion of certain borrowings/outstanding loans. The remaining funds would be used for general corporate purposes.
Should You Invest?
Paras Defence and Space Technologies offers an exciting business model yet an unexciting balance sheet. Private involvement in India’s defence sector is a relatively new venture. There aren’t many Indian companies involved that could pose as competition to Paras Defence and Space Technologies, which gives it the first-mover advantage.
The company has consistently showcased declining revenue and profits, and negative cash flows from operations and investment for the past three fiscals. Keeping numbers aside, the company poses an excellent growth potential in the long term as the defence sector opens up to more private players. One should watch out for Grey Market Premium (GMP) of the share before moving ahead. The last reported GMP of the company was Rs 215, which means that shares of the company are trading at anywhere between Rs 380-Rs 390. The company’s small issue size, untapped potential and lesser competition could positively attract investors.
All companies need to raise funds to invest in new projects and grow. Firms can raise capital through equity, debt, or invest their retained earnings back into the business. An Initial Public Offering (IPO) is a way for established companies to raise equity capital. In this article, we will understand what an IPO is, how it works, and its benefits & drawbacks to a company.
What is an IPO?
An Initial Public Offering (IPO) is the process by which a privately owned company issues its shares to the public for the first time. It transforms the company from being a privately owned entity to a publicly traded one. An IPO is one of the methods through which companies can raise required capital by issuing shares.
An IPO can have two parts: a fresh issue and an offer for sale (OFS).
A Fresh Issue refers to when a company sells new shares to the public for the first time. These shares have never been traded publicly before.
Through an Offer for Sale (OFS), existing shareholders like founders, early investors, or employees of a company sell their shares to the public. These shares were previously held by insiders and are now being sold to external investors during the IPO.
Thus, an IPO is also a method for early investors and founders to exit their investments.
Why Do Companies Go Public?
Companies decide to go public for various reasons:
Capital Generation: One of the primary reasons for an IPO is to raise capital. Going public allows a company to access a more extensive pool of investors and generate funds for various purposes, such as expansion, research and development, debt reduction, or acquisitions.
Liquidity for Existing Shareholders: An IPO provides an opportunity for existing shareholders, including founders and early investors, to sell their shares and realize the value of their investments.
Enhanced Visibility: Being a publicly traded company increases visibility and credibility, which can attract customers, partners, and additional investment opportunities.
How Does an IPO Work?
An IPO is a complex and time-intensive process. Here’s a basic outline of how an IPO works:
1. Deciding the Mode of Raising Capital
The primary step in an IPO process is to decide how a company (say, XYZ Private Ltd) wants to raise capital. It can raise funds through equity or debt. XYZ can borrow money from banks, venture capitalists, private equity firms, and other financial institutions to meet its financial needs. However, borrowing may be unfavourable for companies at times, especially when it’s in the initial stages and needs more cash flow to service the debt.
Once the company decides to raise capital through equity, it must decide whether to raise it privately or publicly. IPO is an option for raising capital publicly.
2. Appointment of Investment Bankers
Before a company files for an IPO, it needs to prepare its financial statements, undergo audits, ensure regulatory compliance and satisfy requirements. It will appoint investment banks and underwriters that perform various functions on behalf of the company. These entities act as intermediaries between the company and its investors. They also prepare the prospectus, decide how much money to raise and when, and help the company price its issues.
What is a Prospectus?
A company going public in an IPO issues a formal document known as a prospectus to the Securities & Exchange Board of India (SEBI). This document offers detailed information about the company, including its financials, operations, risks, and the number of shares it plans to offer. This data helps potential investors make informed decisions. It also explains how the company plans to use the proceeds of the issue.
SEBI regulates the entire IPO market in India. It ensures transparency and compliance in the IPO process. There are multiple types of prospectus such as Draft Red Herring Prospectus (DHRP), shelf registration prospectus, etc.
3. Registration for IPO
The company and an investment bank prepare a registration statement and a Red Herring Prospectus (RHP). It is the most important document that a retail investor has access to. You can use the RHP to evaluate the offer. The document contains all the information about the company and its IPO, except the price or quantity of shares that will be offered.
4. Cooling-Off Period
This is the time when SEBI verifies the facts disclosed by the company. It looks for errors, omissions, and discrepancies. The company can set a date for the IPO only after SEBI approves the application.
4. Application to Stock Exchanges
The company submits an application to the stock exchange where it plans to list its shares. In India, a company can list its shares on the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), or both.
5. Pricing
Two types of IPO pricing mechanisms exist – fixed price issues and book build issues. In a fixed price issue, the price at which shares will be sold and allocated is made known to the public in advance. Meanwhile, in a book-building issue, the issuer only reveals a range of prices (known as a price band). We will discuss more about both of these mechanisms.
6. Public Subscription
Once the company announces the IPO date, you can apply for it. Most brokers (like Zerodha, Groww, Fyers, etc.) offer the option to apply for IPOs from their terminals.
Additionally, you can apply for an IPO through the Application Supported by Blocked Amount (ASBA) option offered by banks. You can obtain IPO application forms from designated banks or brokers. Interested investors fill in the details in the form and submit it along with a cheque. SEBI has set five working days for the availability of IPO forms to the public.
7. Going Through With the IPO
After finalising the IPO, stakeholders and underwriters together determine the allocation of shares to investors. Typically, investors receive the entire requested amount of shares unless the IPO becomes oversubscribed. The allotted shares are then deposited into their Demat accounts, while refunds are issued in the event of oversubscription.
Following allocation, the company’s shares start trading in the stock market. The company must prevent insiders from trading to avoid manipulating IPO stock prices.
IPO shares are distributed to bidders within 10 days of the conclusion of the bidding period. In cases of oversubscription, shares are allocated proportionally among applicants. For instance, if the oversubscription is five times the available shares, an application for 10 lakh shares will only receive an allotment of 2 lakh shares.
Benefits & Drawbacks of IPO
The benefits and drawbacks of opting for an IPO are as follows:
Benefits
Drawbacks
IPOs offer a significant influx of capital for business expansion.
The IPO process involves huge expenses, including underwriting fees, legal costs, and compliance expenses.
Provide liquidity to early investors and employees, allowing them to cash out their shares.
Going public means giving up some control of the company as shareholders gain voting rights.
IPOs increase a company’s visibility and credibility in the market, attracting more investors and potential partners.
Public companies face rigorous reporting and compliance requirements, which can be time-consuming and expensive.
What is Oversubscription and Undersubscription?
Undersubscription occurs when the number of shares available for purchase exceeds the demand from investors. In this case, not all shares are allocated or sold, which means that the IPO may not achieve the intended capital-raising goal.
Oversubscription happens when the demand for shares surpasses the number of shares available. In such cases, shares are distributed based on predetermined criteria or proportion among applicants. Investors may receive fewer shares than they requested. Oversubscription can reflect high investor interest in the IPO and may lead to a successful capital raise for the company.
IPO Pricing Methods
There are two methods through which companies price their IPOs:
Fixed Price Issue
A Fixed Price Issue is a straightforward method for determining the initial share price in an IPO. In this approach, the company and its underwriters (entities that are responsible for assessing and assuming the risk of another party) decide a fixed price at which the IPO shares will be offered to the public. This predetermined price is typically based on various factors, including the company’s financial performance, market conditions, and valuation.
In a Fixed Price Issue, all shares are made available to the public at the same fixed price, irrespective of the level of demand from investors. This simplicity and predictability can be attractive to retail investors, as they know exactly what price they will pay for the shares in advance.
However, a drawback of this approach is that it might not effectively consider market dynamics, which could result in missed opportunities if the price is not set optimally. In cases of oversubscription, investors may receive a proportionate allotment based on their subscription amount.
Book Build Issue
A Book Build Issue offers a more flexible and demand-based approach to determining the IPO share price. Rather than fixing the price in advance, the company and its underwriters set a price range within which investors can bid for shares. This price range is known as a price band. It includes a floor (the minimum price) and a cap (the maximum price).
Institutional and retail investors then submit their bids, specifying both the number of shares and the price they are willing to pay within the defined range. The final offer price is determined by assessing the demand generated throughout the bidding process. It’s set in a way that ensures the sale of all available shares. This approach allows for real-time adjustments to the price, considering market demand and dynamics.
Investors who place bids at or above the final offer price usually receive the shares they requested, but those who bid below it may receive a partial allocation or none at all. Book Build Issues are generally seen as offering better price discovery because they take into account market feedback and adjust to investor sentiment and demand.
What is Lot Size in an IPO?
A “lot” refers to a specific quantity of shares that are offered for sale as a single unit in an IPO. The company going public and its underwriters determine the lot size. Investors who participate in the IPO can bid for and purchase shares in these predefined lots rather than selecting an arbitrary number of shares. The lot size may vary from one IPO to another. It ensures a fair distribution of the offering among investors.
Who are the Key Players in an IPO?
Various individuals and entities collaborate to ensure the successful execution of the IPO. The key players in an IPO are:
1. Company Management
The company’s top executives, including the CEO, CFO, and other key officers, are responsible for making strategic decisions regarding the IPO. They are actively involved in the planning, preparation, and execution of the offering.
2. Underwriters/Investment Banks
Investment banks serve as intermediaries between the company and the public markets. They help structure the IPO, conduct due diligence, market the shares to potential investors, and facilitate the pricing and distribution of the shares. They also underwrite the issue, which involves assuming the financial risk of purchasing the shares from the company and re-selling them to investors.
Investment banks help the company make strategic decisions related to the IPO, including the timing of the offering, the pricing of shares, and the overall financial strategy.
3. Legal Counsel
Legal advisors help the company navigate the complex regulatory and legal requirements associated with an IPO. They ensure compliance with securities laws and regulations, draft necessary legal documents, and provide guidance on disclosure obligations.
4. Accountants and Auditors
Accounting firms assist with financial reporting, auditing, and ensuring that the company’s financial statements comply with accounting standards. Independent auditors validate the company’s financial statements and ensure their accuracy. They offer confidence to potential investors regarding the company’s financial health.
5. Regulatory Agencies
In India, SEBI oversees the IPO process. SEBI reviews a company’s prospectus and other documents to ensure that the company discloses all necessary information accurately and meets regulatory requirements.
6. Investors
Institutional investors (e.g., mutual funds, pension funds) and retail investors participate in the IPO by purchasing shares. Their demand and interest in the offering play a significant role in determining the success of the IPO.
7. Stock Exchanges
The shares of a company are listed and traded on a stock exchange after the IPO. The exchange ensures that the company meets listing requirements and facilitates the trading process.
In conclusion, an IPO represents a significant milestone in a company’s journey, helping it raise capital, gain exposure, and become publicly traded. For investors, it offers opportunities to invest in exciting companies early in their public life. However, it’s essential to approach IPOs with careful consideration, conduct thorough research, and align your investment with your financial goals and risk tolerance!
