Four stops to the stock exchange

Watch the road light up.

Our company has decided to raise **₹150 crore** in an IPO. It can't simply open the doors: every step follows **SEBI's** rules.

The key players

• Merchant banker also called the lead manager — The company's guide through the IPO. Checks the company's facts and legal standing, prepares the offer document, helps set the price range, runs the marketing, and may agree to buy unsold shares (**underwriting**).
• The offer document (DRHP) Draft Red Herring Prospectus — Tells the public how many shares are on offer, **why** the company wants the money and how it will spend it, how the business earns, its full financials, its **risks** and who runs it.
• SEBI the market regulator — Reviews the offer document and has the final word on whether the company can go public.

**Remember:** if you ever apply in an IPO, the DRHP is where the company tells you everything, including what could go wrong.

Watch the book build

Press play, or tap each day.

Some IPOs skip the band and fix one price in advance. That's a **fixed price IPO**.

Example bids.

Under or over-subscribed?

Slide the demand.

Subscription compares the shares people **bid for** with the shares **on offer**.

**Remember:** subscription = shares bid for ÷ shares on offer.

When demand is high, some IPOs can issue up to about 15% extra shares. This is the **green shoe** option.

Before and after listing day

The IPO splits a share's life in two.

• During the IPO the primary market — You bid inside the price band and, if you're allotted shares, you pay the **issue price** to the **company**. This is new money for its plans.
• From listing day the secondary market — The shares trade on the exchange. Buyers and sellers set the price every day, and it can move well above or below the issue price.

**Remember:** the IPO decides the issue price. After listing, the market decides the price.

Check — Question 3 of 4

Put each step in its stage.

What you now know

• Every step of an IPO follows SEBI's rules, and SEBI has the final word.
• A merchant banker guides the company and helps prepare the offer document (DRHP).
• The DRHP explains the business, why it needs the money, its finances and its risks.
• In book building, the public bids inside a price band, and the final price is usually where most bids came in.
• Subscription = shares bid for ÷ shares on offer; below 1× is under-subscribed.
• From listing day, the market sets the price.