An Initial Public Offering (IPO) is the first sale of shares to the public by a company. Governed by SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018 (SEBI ICDR), the IPO process in India is well-structured with specific timelines, disclosure requirements, and investor protections. This guide covers the complete process from decision to list.
Eligibility for IPO (SEBI ICDR Regulation 6)
- Net tangible assets > Rs. 3 crore in each of 3 preceding years
- Average consolidated pre-tax operating profits > Rs. 15 crore (3 out of 5 years), OR
- Net worth > Rs. 1 crore in each of 3 preceding years, OR
- Changed business: At least 75% proceeds used for specified purpose
- Alternative: QIB route (Regulation 6(2)) — no profit track record required if at least 75% of issue goes to QIBs
Key Participants
- Merchant Banker (BRLM): Lead Manager — coordinates entire IPO process, prepares DRHP, manages roadshow
- Registrar to Issue (RTI): Manages applications, allotment, refunds
- Underwriters: Guarantee subscription (if required)
- Auditors: Certify financial statements in DRHP
- SEBI: Regulates; issues observations on DRHP
- Stock Exchange: NSE/BSE — approves listing
IPO Process Steps
- Appoint BRLM and advisors: Select investment bank as lead manager
- Due diligence: BRLM conducts business, legal, financial, tax due diligence
- DRHP preparation: Draft Red Herring Prospectus — comprehensive disclosure document filed with SEBI
- SEBI filing and observations: SEBI issues comments within 30 days; company responds
- SEBI approval (observations letter): Valid for 12 months
- Exchange filing and approval
- Roadshow / Investor marketing: Pre-IPO presentations to institutions
- Price band announcement: Price band (floor and cap — max 20% range) announced
- Subscription: IPO open for 3 days; bids via ASBA/UPI
- Allotment and refund: Within 6 days of IPO close (T+6)
- Listing: Shares listed on exchange on T+6 (changed from T+10 in 2024)
Investor Categories and Reservation
| Category | Reservation |
|---|---|
| QIB (Qualified Institutional Buyers) | 50% (75% in QIB route) |
| Non-Institutional Investors (NII/HNI) | 15% |
| Retail Individual Investors (RII) | 35% |
Post-Listing Compliance
- SEBI LODR quarterly/annual disclosure obligations
- Minimum promoter lock-in: 18 months (50% of post-issue promoter holding); balance 6 months
- Anchor investor lock-in: 30 days
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Frequently Asked Questions
What is the SEBI ICDR eligibility for an IPO?
Company must have net tangible assets > Rs. 3 crore in 3 prior years, plus average pre-tax operating profits > Rs. 15 crore in 3 of 5 years, or use the QIB route with 75% allocation to QIBs.
What is a DRHP?
Draft Red Herring Prospectus — the comprehensive disclosure document filed with SEBI before an IPO, containing company financials, risks, objects of issue, and promoter details.
How long does SEBI take to issue observations on DRHP?
30 days from receipt of complete DRHP. SEBI's observations letter is valid for 12 months.
How many days is an IPO open for subscription?
3 working days. Bids are placed through ASBA (Application Supported by Blocked Amount) or UPI.
When are IPO shares listed after subscription?
T+6 days from IPO closing date (SEBI reduced from T+10 in 2024). Refunds are also processed within T+6.
What is the QIB reservation in an IPO?
50% of the IPO is reserved for QIBs (Qualified Institutional Buyers). In the QIB-route IPO (no profit track required), 75% goes to QIBs.
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