What is the IPO Cycle?

The IPO cycle is a process where a company raises capital by offering its shares to the public on the stock market. It begins with hiring investment bankers to conduct market research and prepare a Draft Red Herring Prospectus (DRHP), which is then submitted to SEBI for approval. The company markets the shares, sets a price band, and launches the IPO, with investors bidding for shares and the shares listed on stock exchanges. We will learn more about the IPO cycle in depth, and how it works in the stock market. 

Understanding the IPO Cycle?

An initial public offering cycle is raising capital and allocating shares to investors. Different steps can be taken to list a company in the secondary market successfully. First, companies must submit a DRHP or red herring prospectus with SEBI. This brochure sets out the objective of the initial public offering and what the company intends to do with the funds raised.
They can continue with the next step once they've hired an investment banker who has successfully brought a DRHP to market and SEBI approves them. This involves contacting an investment bank that does all research-related work and advising on how a company should proceed with its initial public offering. These banks are acting as underwriters in the initial public offering. In addition, a corporate lawyer who can advise on legal compliance needs to be used by the company. 

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Different Stages of the IPO Cycle?

The following points will guide you through the various stages of an IPO cycle.

1. Hiring Investment Bankers

The IPO cycle begins when a firm employs investment bankers as underwriters to do extensive market research and analysis on the company's operations. They measure market sentiment for a forthcoming IPO by analysing financial variables such as total revenue, assets, and liabilities. The terms and conditions of the sale are outlined in an underwriter's agreement, and underwriters can intervene if IPO share values decline. Their primary responsibility is to keep share prices stable after the IPO.

2. Preparing a Draft Red Herring Prospectus

Underwriters work with a business to develop a draft prospectus, which includes critical information regarding the firm's IPO, offer, and net proceeds utilisation. The preliminary document also provides thorough information on the company's history, strengths, strategies, risks, finances, legal obligations, and promoter information, which helps investors decide whether to invest in the IPO.

3. Submission of DRHP to SEBI

The IPO issuing business sends its DRHP ( Draft Red Herring Prospectus) for clearance to SEBI, which extensively examines the document to verify information and assess if the company qualifies for listing. If required, SEBI may resend the DRHP to the firm with suggestions for changes. The business can move on with its IPO planning after receiving approval via an observation letter.

4. Advertisement

Companies must build excitement among retail investors after opting for an IPO by organising roadshows, releasing news in English and regional publications, and visiting business centres. These marketing strategies are designed to spark the interest of investors and increase awareness about their upcoming public offering. This is the next stage in the IPO process.

5. Setting a Price Band

In its Red Herring Prospectus, a firm establishes a preliminary price band for its IPO, which underwriters decide based on share face value and valuation. Following SEBI clearances, the final price band is determined. Following the subscription of shares or the conclusion of the IPO window, the business decides on the issue price and minimum lot size. The issue price in a book-building offering is determined after the IPO window ends.

6. IPO Launch

The firm determines the IPO price range and lot size and reports in the Red Herring Prospectus for investors. Bidding dates begin on the day of the IPO's debut and terminate on the closure date, allowing participants to bid for desired shares. Investors can engage in the bidding process either online or offline. The first filing, investor roadshows, IPO price setting, and the stock's first day of public trading are a few of the IPO cycle examples. 

7. Allotment of IPO shares

Following the conclusion of the IPO subscription window, the next phase in the IPO cycle is share allotment. Management and underwriters analyse investor applications and choose qualified bids in this process. These bidders will have their desired shares sent to their Demat account. After successful asset allocation, the remaining bidders will receive their bid amounts as refunds.

8. Listing in Stock Exchanges

This is the last stage of the IPO process. After receiving IPO shares in investors' Demat accounts, the business will list these shares on the relevant stock markets. These shares are now accessible for trading or holding by any investor.

Benefits of Going through an IPO Cycle?

Benefits include increased capital, visibility, and liquidity.

• An IPO's key benefit is that it raises funds. Companies can generate enormous quantities of money by selling stock to the general public to support operations and expansion. This capital influx may help a firm grow, produce new goods, and recruit new personnel.
• An IPO boosts a company's visibility. Going public helps a company's brand gain publicity and name recognition, which may entice new clients and partners.
• Finally, an IPO increases liquidity for stockholders. This liquidity enables shareholders to pay out their investments when needed or desired. After a corporation becomes public, its stock may be purchased and sold on the open market. 

Drawbacks of Going through an IPO Cycle? 

Despite the positives, there are several pitfalls that firms should be aware of before deciding to participate in the Indian IPO process. 

• One major drawback is the expense. Companies must spend significant money to list their shares on the stock market and on continuing expenses such as compliance and audit fees.
• Furthermore, corporations may need to recruit more employees to withstand the heightened public scrutiny of being publicly traded companies. 
• Another possible disadvantage is the time requirement. 
   

Conclusion
The IPO cycle is a process that enables companies to raise capital by offering their shares to the public. It involves stages like hiring investment bankers, preparing a Draft Red Herring Prospectus, marketing the IPO, setting a price band, and allotting shares. While it offers benefits like increased capital, visibility, and liquidity, it also has drawbacks like substantial costs, increased public scrutiny, and time-consuming regulatory requirements. Companies must carefully consider these factors to determine if an IPO aligns with their long-term strategic goals.