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18 September

Taking your company to IPO

Posted By : Nishant Arora, CEO Setup Services India

140 Vote 1


The Indian public markets are projected to be worth $2.7 trillion. There is a sizable retail investor base, and the public awareness of listed companies is on the rise. Companies seeking to obtain funds are increasingly opting for an initial public offering (IPO).


The road to IPO, on the other hand, must be meticulously planned. There has been an influx of enterprises, particularly Micro, Small, and Medium Enterprises (MSMEs) and startups, seeking public listing in recent years. In fact, the Indian government is announcing policies that will aid these businesses in their endeavours.


IPO listings enable MSMEs and startups to gain access to finance, albeit they come with a lot of responsibilities. Former MSME Minister Nitin Gadkari stated in June 2020 that the government is considering establishing a specifically established "MSME Stock Exchange" on which such small enterprises will be listed. Businesses that list on the platform will receive a 15 percent equity injection from the government.


Unlike MSMEs, startups should only consider an IPO when they are completely prepared - ready for examination and with a new playbook that includes recruiting the correct board of directors and establishing communication lines with stakeholders.


Take a call


High governance and stable business (growth) performance or cycles are required in public markets. Going public for a business to consumer (B2C) brand would entail higher branding visibility, which could be used to boost income and (perhaps) increase consumer engagement. In comparison to a private raise, however, reaching public markets is difficult.


Going public would necessitate the rigour and discipline of quarterly meetings with major investors, large shareholders, and equity analysts. Depending on the days spent per quarter on this activity, this could entail time away from the primary business.


Companies considering an IPO should first decide whether to list on the NSE or the BSE.


Raise a team


The issuing business must first select an investment bank to advise it on its IPO, and provide underwriting services. The investment bank is chosen based on its reputation.


Quality of research, industry experience, and distribution (if the investment bank can supply issued securities to more institutional or individual investors) and prior relationship with the investment bank are all factors to consider.


Hire independent directors


Another important requirement would be to strengthen the talent pool. The company must appoint independent directors who are not family members and come from outside the market. It is suggested that people with past public market expertise be brought in.


The tick-mark hiring method of paying huge salaries to "trophy hires" should be avoided. If such hiring backfires, it may only benefit them in terms of being able to brag about “taking the company to IPO” on their CV, but it may leave the founder grappling with the perception of whether or not they can manage experienced personnel.


Analyse valuation


Following the approval of the IPO, the issuing business and underwriter should determine the offer price and quantity of shares to be sold. The offer price is significant because it is the price at which the issuing business raises funds for its own purposes.


IPOs are frequently under-priced to ensure that the issue is fully subscribed/oversubscribed by the general public, even if this means that the issuing firm does not receive the full value of its shares. If an IPO is under-priced, the IPO's investors expect the price of the shares to climb on the offer day. It raises interest in the subject.


The listing price depends on company’s valuation, existing shares, the company’s goal, and the condition of the market economy.


Check industry P/E


Before deciding on the share's value, it's critical to look at the price-to-earnings ratio (P/E), one of the most used metrics for determining a stock's value. The P/E of a firm can also be compared to other companies in the same industry. A specific P/E is assigned to all companies in the same industry.


Your P/E will be lower if your competitors have better advantages than you. It's a multiplier, and you'll need to calculate it to back up your estimate. The P/E ratio shows how much the market is ready to pay for a stock now based on its previous or projected earnings.


Time the market


Do not go when investors are withdrawing funds. You won't be able to do it unless the market is moving in your favour. The situation is critical, particularly when the entire world is impacted by the pandemic.


Some of the important variables that go into making a decision include when the management can demonstrate sufficient visibility in terms of its business strategy and positive cash flows, and the flavour of the market and investors' focus.


Create roadshows


Before an IPO goes public, firms generate interest in the market. The company's leaders and employees will market the approaching IPO around the country for two weeks. This is a marketing and advertising strategy used to entice potential investors.


The company's main accomplishments are shared with a variety of stakeholders, including business analysts and investment managers. Question & Answer sessions, multimedia presentations, group meetings, online virtual roadshows, and other user-friendly methods are used.


In general, an IPO is one of the most exciting events in a company's lifecycle. It takes a lot of time and effort on the part of the management team. It is a nearly irreversible decision; as a result, it is critical for management and the board of directors to consider all options and consult effectively when preparing this journey.

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Taking your company to IPO

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Taking your company to IPO