What is IPO?
An IPO or Initial Public Offering is a public issue of shares by an unlisted company for the first time to the general public in a primary market. The primary objective of selling shares to general public is to raise growth capital and get listed on an exchange.
How to invest in IPO?
Investment in IPO is done through ASBA (Application Supported by Blocked Amount) wherein the application amount is blocked till the allotment and hence an investor doesn’t lose interest in the interim period. Alternatively, physical application form can be submitted to broker or a bank branch.
What are the key things to look at in an IPO?
Key issue details (Opening & Closing Dates, Price Band, Lot size, Merchant bankers, etc)
Financials- How well the company is performing in recent financial reports (P&L, Balance sheet, Cash Flow, various ratios)
Who are promoters and their integrity, holding structure, the composition of the board, promoter qualifications, etc
Purpose of IPO- why promoter wants to raise money (business expansion, prepay debt, or existing investors want to encash).
The business model of the company- market share, its products, brands, pricing power, customer base
Industrial outlook- Structure of industry (can use porter’s model), at what stage the company is at? Is it growing? Is it declining? Is it at a mature stage?
Does the business has high related party transactions- please be careful in such a scenario
Risks associated with business and company
Read auditor's reports and their opinion etc
Dividend policy of the company post issue
Valuation
Pre-issue and post issue shareholding structure
Who are the intermediaries involved in an IPO process?
Merchant bankers, bankers to the issue, Registrars, Underwriters to the issue, Brokers, Legal Counsels, Stock Exchanges and SEBI