Article

How to apply for IPOs?

27 Dec 2019

An IPO or an Initial Public Offering is structured in different ways. It can be a New Offer meant to raise fresh capital from investors. It can also be an offer-for-sale (OFS) where the existing anchor investors / promoters take partial exit through the IPO. There are a lot of upcoming IPOs where this article will act as a guide for you.

IPO process: what does it entail?

While the IPO process for a company can be quite elaborate, it can be summarised into 7 key steps.

  1. The first step is to hire a merchant banker or investment banker (BRLM). The BRLM evaluates the strengths and challenges of the company and advice on execution plan based on a mix of internal analysis and market perception.

  2. The next step is to register all necessary documents with SEBI and get the requisite approvals. Basic details like quantum of funds needed, proposed utilisation of funds etc must be presented to SEBI to elicit comments.

  3. Now comes the drafting of the draft red herring prospectus (DRHP). The DRHP contains probable price estimate per share and other details regarding the IPO. This is not the final prospectus and is used to test demand.

  4. To attract FIIs, road shows are conducted out of New York, London, Singapore and Hong Kong. Domestically, there are one-on-one meetings with fund managers and CIOs. Broker meets are organised for retain investors and HNIs.

  5. Based on the demand and the fundamentals, the indicative price range is decided upon in case of book built issues and issue details filed with SEBI for approval.

  6. Logistically, the BRLM makes forms available to investors, organises collection centres, online and offline marketing etc. IPOs are kept open for up to 5 working days.

  7. The last step is finalising the allotment of shares in consultation with the stock exchanges, transferring shares to demat accounts and paying refunds. Only after that, the stock is listed.

How to maximise allotment as a retail investor?

As a retail investor (application up to Rs.2 lakhs), book built issues have a 35% allocation. Back in 2005, the infamous demat scam led to unscrupulous investors creating dummy demat accounts to corner IPO allotments. Now there is genuine way to improve allotment for retail investors; thanks to SEBI measures announced in 2012. The idea is to broaden the equity holder base with maximum small investors getting allotments. Every retail applicant first gets a minimum bid lot irrespective of size of application. This is of subject to technical validity of the bid. Here is how you can maximise your IPO allotment chances.

You can improve your chances of getting IPO allotment if all your family members apply for the IPO in their names. Open a demat account in the name of each of your family members. If you have HUF, you can also put in an application in the name of the HUF. More the applications you put in better the chances of getting a bigger allotment. You will see that in detail in this Narayana Hrudayalaya case study.

Case study of IPO allotment of Narayana Hrudayalaya

The Basis of Allotment to the Retail Individual Bidders, who have bid at cut-off or at the Offer Price of Rs 250 per Equity Share, was finalised in consultation with the BSE. This category was subscribed 1.82 times. The category-wise Basis of Allotment is as under:

No. of shares Category

No. of
Applications Received

% of
Total

Total No. of
Equity Shares Applied

% to
Total

No. of Equity
Shares Allotted
per Applicant

Ratio

Total No. of
Equity Shares Allotted

60

172,081

90.78

10,324,860

66.06

60

643:852

7,792,140

120

6,966

3.68

835,920

5.35

60

40:53

315,420

180

2,623

1.38

472,140

3.02

60

40:53

118,800

240

1,446

0.76

347,040

2.22

60

40:53

65,460

300

977

0.52

293,100

1.88

60

40:53

44,220

360

1,154

0.61

415,440

2.66

60

40:53

52,260

420

584

0.31

245,280

1.57

60

40:53

26,460

480

287

0.15

137,760

0.88

60

40:53

13,020

540

110

0.06

59,400

0.38

60

83:110

4,980

600

419

0.22

251,400

1.61

60

40:53

18,960

660

54

0.03

35,640

0.23

60

41:54

2,460

720

168

0.09

120,960

0.77

60

40:53

7,620

780

2,679

1.41

2,089,620

13.37

60

40:53

121,320

 

 

 

 

 

1

34:13183

34

TOTAL

189,548

100.00

15,628,560

100.00

 

 

8,583,154


Points to understand

  • At the IPO price of Rs.250, the minimum retail lot was 60 shares (Rs.15,000) and the maximum retail application lot was 780 shares (Rs.195,000).

  • SEBI Rules 2012 require priority allotment to as many eligible small shareholders as possible. In this case we could have 143,502 successful applications (85,83,154 / 60).

  • Since 189,548 applications were received and only 143,502 successful allocations possibly, 46,046 applications get rejected via random lottery system.

  • After allotment of 60 shares to each of the 143,502 (maximum allottees), there are no further shares left for higher application categories. So, even if you bid for 780 sharers, you get only 60 shares.

  • So, more the number of applications you make, the more your chances of allotment. Put legitimate applications in the names of all family members to improve chances of IPO allotment.

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Beginner's Corner

How to apply for IPOs?

27 Dec 2019

An IPO or an Initial Public Offering is structured in different ways. It can be a New Offer meant to raise fresh capital from investors. It can also be an offer-for-sale (OFS) where the existing anchor investors / promoters take partial exit through the IPO. There are a lot of upcoming IPOs where this article will act as a guide for you.

IPO process: what does it entail?

While the IPO process for a company can be quite elaborate, it can be summarised into 7 key steps.

  1. The first step is to hire a merchant banker or investment banker (BRLM). The BRLM evaluates the strengths and challenges of the company and advice on execution plan based on a mix of internal analysis and market perception.

  2. The next step is to register all necessary documents with SEBI and get the requisite approvals. Basic details like quantum of funds needed, proposed utilisation of funds etc must be presented to SEBI to elicit comments.

  3. Now comes the drafting of the draft red herring prospectus (DRHP). The DRHP contains probable price estimate per share and other details regarding the IPO. This is not the final prospectus and is used to test demand.

  4. To attract FIIs, road shows are conducted out of New York, London, Singapore and Hong Kong. Domestically, there are one-on-one meetings with fund managers and CIOs. Broker meets are organised for retain investors and HNIs.

  5. Based on the demand and the fundamentals, the indicative price range is decided upon in case of book built issues and issue details filed with SEBI for approval.

  6. Logistically, the BRLM makes forms available to investors, organises collection centres, online and offline marketing etc. IPOs are kept open for up to 5 working days.

  7. The last step is finalising the allotment of shares in consultation with the stock exchanges, transferring shares to demat accounts and paying refunds. Only after that, the stock is listed.

How to maximise allotment as a retail investor?

As a retail investor (application up to Rs.2 lakhs), book built issues have a 35% allocation. Back in 2005, the infamous demat scam led to unscrupulous investors creating dummy demat accounts to corner IPO allotments. Now there is genuine way to improve allotment for retail investors; thanks to SEBI measures announced in 2012. The idea is to broaden the equity holder base with maximum small investors getting allotments. Every retail applicant first gets a minimum bid lot irrespective of size of application. This is of subject to technical validity of the bid. Here is how you can maximise your IPO allotment chances.

You can improve your chances of getting IPO allotment if all your family members apply for the IPO in their names. Open a demat account in the name of each of your family members. If you have HUF, you can also put in an application in the name of the HUF. More the applications you put in better the chances of getting a bigger allotment. You will see that in detail in this Narayana Hrudayalaya case study.

Case study of IPO allotment of Narayana Hrudayalaya

The Basis of Allotment to the Retail Individual Bidders, who have bid at cut-off or at the Offer Price of Rs 250 per Equity Share, was finalised in consultation with the BSE. This category was subscribed 1.82 times. The category-wise Basis of Allotment is as under:

No. of shares Category

No. of
Applications Received

% of
Total

Total No. of
Equity Shares Applied

% to
Total

No. of Equity
Shares Allotted
per Applicant

Ratio

Total No. of
Equity Shares Allotted

60

172,081

90.78

10,324,860

66.06

60

643:852

7,792,140

120

6,966

3.68

835,920

5.35

60

40:53

315,420

180

2,623

1.38

472,140

3.02

60

40:53

118,800

240

1,446

0.76

347,040

2.22

60

40:53

65,460

300

977

0.52

293,100

1.88

60

40:53

44,220

360

1,154

0.61

415,440

2.66

60

40:53

52,260

420

584

0.31

245,280

1.57

60

40:53

26,460

480

287

0.15

137,760

0.88

60

40:53

13,020

540

110

0.06

59,400

0.38

60

83:110

4,980

600

419

0.22

251,400

1.61

60

40:53

18,960

660

54

0.03

35,640

0.23

60

41:54

2,460

720

168

0.09

120,960

0.77

60

40:53

7,620

780

2,679

1.41

2,089,620

13.37

60

40:53

121,320

 

 

 

 

 

1

34:13183

34

TOTAL

189,548

100.00

15,628,560

100.00

 

 

8,583,154


Points to understand

  • At the IPO price of Rs.250, the minimum retail lot was 60 shares (Rs.15,000) and the maximum retail application lot was 780 shares (Rs.195,000).

  • SEBI Rules 2012 require priority allotment to as many eligible small shareholders as possible. In this case we could have 143,502 successful applications (85,83,154 / 60).

  • Since 189,548 applications were received and only 143,502 successful allocations possibly, 46,046 applications get rejected via random lottery system.

  • After allotment of 60 shares to each of the 143,502 (maximum allottees), there are no further shares left for higher application categories. So, even if you bid for 780 sharers, you get only 60 shares.

  • So, more the number of applications you make, the more your chances of allotment. Put legitimate applications in the names of all family members to improve chances of IPO allotment.