Fund Raising through IPOs and FPOs

Raising funds through Initial Public Offerings (IPOs) and Follow-on Public Offerings (FPOs) is a significant way for companies to raise capital from the public. These are key components of corporate finance and play a crucial role in capital markets.

Table of Contents

🔹 1. Initial Public Offering (IPO)

An IPO is the process through which a private company goes public by issuing shares to the general public for the first time. It allows the company to raise equity capital from public investors.

✅ Purpose of an IPO:

Raise capital for business expansion or debt repayment.
Enhance visibility, credibility, and public image.
Provide an exit route for early investors or promoters.
Enable listing and trading of shares on a stock exchange.

📌 Key Features:

First-time issuance : Shares are offered to the public for the very first time.
Involves underwriting by investment banks.
Requires regulatory approvals (e.g., SEBI in India).
Includes fixed price issues or book-built issues.

🧮 IPO Pricing Methods:

Fixed Price Issue : The issuer decides the issue price in advance.
Book Building Process : Price is discovered through bids received from investors within a price band.

💡 Example:

When Reliance Industries Limited (RIL) went public in 1977, it was one of India’s landmark IPOs.

🔹 2. Follow-on Public Offering (FPO)

An FPO is a process where a listed company makes another public issue of shares after its IPO. This is used to raise additional capital from the public.

✅ Purpose of an FPO:

Raise capital for growth/expansion.
Reduce promoter stake dilution.
Improve liquidity in the market.
Fund acquisitions or repay debts.

📌 Types of FPO:

Diluted FPO : Promoters reduce their stake to raise capital.
Non-dilutive FPO : Promoters sell their shares to the public without raising fresh capital for the company.

🧠 Benefits:

Less complex than IPO.
Faster execution.
Helps in increasing public holding as per regulatory norms (e.g., minimum public shareholding rules).

💡 Example:

In 2012, Coal India Ltd raised over ₹15,000 crores via FPO, which was one of the largest FPOs globally.

🔹 Difference Between IPO and FPO:

Feature	IPO	FPO
Meaning	First public issue	Subsequent public issue
Company Status	Private company going public	Already listed company
Purpose	For listing and initial funding	To raise additional capital
Risk Level	Higher risk due to lack of history	Lower risk due to existing track record
Transparency	Less known to public	Already traded, more transparent

🔹 Regulatory Aspects (India – SEBI Guidelines):

For both IPO and FPO, the company must follow regulations laid down by SEBI (Securities and Exchange Board of India) :

Draft Red Herring Prospectus (DRHP) filing.
Appointment of Merchant Bankers.
Minimum subscription requirements (at least 90% of issue size).
Mandatory listing on recognized stock exchanges (NSE/BSE).

🔹 Investor Perspective:

Investors participate in IPOs/FPOs with the hope of:

Getting listed at a premium (in case of IPO).
Buying shares at a discount (compared to market price in FPO).
Long-term capital appreciation.

However, risks include:

Market volatility.
Lock-in periods.
Underperformance post-listing.

Both IPOs and FPOs are important tools for companies to raise capital from the public. While IPOs mark a company’s entry into the capital markets, FPOs allow continued access to funding. From an investor’s perspective, these offer opportunities to invest directly in growing companies, though careful analysis is essential before investing.

Raising Capital in India

Raising capital is a crucial activity for businesses to grow, expand operations, fund innovation, repay debt, or meet regulatory requirements. In India , companies have access to a variety of avenues—both domestic and international —to raise funds depending on their size, sector, maturity, and financial goals.

🔹 1. Equity Financing

Equity financing involves raising capital by issuing shares of the company to investors.

✅ Types:

Initial Public Offering (IPO) : First-time issuance of shares to the public.
Follow-on Public Offer (FPO) : Additional share issuance by listed companies.
Private Placement : Issuing shares to a select group of investors (e.g., venture capitalists, private equity firms).
Preferential Allotment : Issuing shares at a predetermined price to specific investors.

📌 Example:

Zomato IPO (2021) raised ₹9,375 crores and became one of the most subscribed IPOs in India.

🔹 2. Debt Financing

Debt financing involves borrowing money that must be repaid with interest.

✅ Sources:

Bank Loans
Non-Banking Financial Companies (NBFCs)
Corporate Bonds / Debentures
Commercial Papers (CPs) – Short-term instruments
External Commercial Borrowings (ECBs) – Foreign loans

📌 Example:

Tata Motors raised billions through ECBs to fund its acquisition of Jaguar Land Rover.

🔹 3. Venture Capital & Private Equity (VC/PE)

Startups and high-growth companies often rely on venture capital and private equity firms for funding.

✅ Stages of VC Investment:

Seed Funding
Early-stage Funding (Series A, B)
Growth-stage Funding (Series C onwards)
Late-stage and Pre-IPO Funding

📌 Top VC/PE Firms in India:

Sequoia Capital
Accel Partners
Tiger Global
SoftBank Vision Fund

📊 Example:

Paytm raised over $2 billion from various global investors before its IPO.

🔹 4. Foreign Direct Investment (FDI)

FDI refers to investments made by foreign entities into Indian companies.

✅ Routes:

Automatic Route : No government approval required.
Government Route : Requires prior approval from the Government of India.

📌 Sectors with High FDI Inflows:

Services (Computer Software & Hardware)
Telecommunications
Construction Development
Automobile

📊 Example:

Amazon’s investment in Future Retail was a major FDI deal in the retail sector.

🔹 5. External Commercial Borrowings (ECBs)

These are loans taken from non-resident lenders in foreign currency.

✅ Regulated by:

Reserve Bank of India (RBI) under Foreign Exchange Management Act (FEMA)

📌 Benefits:

Lower interest rates compared to domestic loans
Access to global capital markets

📊 Example:

Infrastructure companies like L&T Infrastructure Finance Company have used ECBs to fund large projects.

🔹 6. Alternative Investment Funds (AIFs)

AIFs pool money from sophisticated investors to invest in diverse assets.

✅ Categories:

Category I AIFs : Venture Capital Funds, SME Funds, Social Venture Funds
Category II AIFs : Private Equity Funds, Real Estate Funds
Category III AIFs : Hedge Funds

🔹 7. Crowdfunding

An emerging method where small amounts of money are raised from a large number of people, typically via online platforms.

✅ Types:

Equity Crowdfunding
Reward-based Crowdfunding
Donation-based Crowdfunding

📌 Platforms:

Ketto
ImpactGuru
Catapooolt

🔹 8. Angel Investors

High-net-worth individuals who provide early-stage capital to startups in exchange for equity.

📌 Popular Angel Networks in India:

Indian Angel Network
Let’sVenture
Ah! Ventures

🔹 9. Government Schemes & Subsidies

Various government initiatives support MSMEs and startups in raising capital.

✅ Examples:

Pradhan Mantri Mudra Yojana (PMMY) – For micro enterprises
Startup India Scheme
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

🔹 10. Capital Market Instruments

✅ Instruments:

Convertible Notes / Compulsorily Convertible Debentures (CCDs)
Non-Convertible Debentures (NCDs)
Secured Premium Notes (SPNs)
Zero Coupon Bonds

🔹 Regulatory Framework

Capital raising in India is governed by multiple regulators:

Agency	Role
SEBI	Regulates securities markets, IPOs, FPOs
RBI	Oversees ECBs, FDI, and banking norms
Ministry of Finance	Policy-level decisions on capital inflows
MCA	Governs corporate laws (Companies Act 2013)

🔹 Recent Trends in Capital Raising (India)

Trend	Description
Digital IPOs	Online bidding and demat account integration
Green Bonds	For sustainable and climate-related projects
REITs & InvITs	Real Estate Investment Trusts and Infrastructure Investment Trusts
Pre-IPO Investments	Growing interest from domestic and foreign investors
ESOP Financing	Startups using ESOP buybacks to reward employees

🔹 Challenges in Raising Capital

Stringent compliance and disclosure norms
Volatile market conditions
Investor confidence and macroeconomic factors
Regulatory changes
Valuation mismatches between founders and investors

In India, companies have a wide array of options to raise capital based on their stage, industry, and funding needs. Whether it’s through equity, debt, PE/VC, FDI, or alternative methods , each route has its own advantages and challenges. With evolving regulations and growing investor interest, India continues to be an attractive destination for both domestic and international capital.

📘 IPO Process in India – A Comprehensive Guide

An Initial Public Offering (IPO) is the process through which a private company offers its shares to the public for the first time , thereby becoming a publicly traded company. This marks the transition from private ownership to public ownership.

In India , the IPO process is regulated by the Securities and Exchange Board of India (SEBI) and involves several steps, including regulatory approvals, documentation, marketing, pricing, and final listing on a stock exchange.

🔹 Why Companies Go Public?

Raise capital for business expansion or debt repayment.
Enhance brand value and credibility.
Provide an exit route for early investors/promoters.
Enable employee stock ownership plans (ESOPs).
Meet regulatory compliance and improve governance.

🔁 Types of IPO Pricing

Type	Description
Fixed Price Issue	The issuer decides the price of the issue in advance. Investors know the exact price before applying.
Book Building Issue	Price is determined based on investor demand. A price band is set (e.g., ₹100–₹110), and bids are collected. Final price is decided after the bidding process.

⚙️ Step-by-Step IPO Process in India

✅ 1. Appointment of Merchant Bankers / Lead Managers

The company appoints Merchant Bankers / Lead Managers who act as intermediaries and guide the company through the entire IPO process.

✅ 2. Drafting of Red Herring Prospectus (DRHP)

A detailed document containing:
- Financial statements
- Promoter details
- Use of proceeds
- Risk factors
Filed with SEBI .

✅ 3. SEBI Review & Approval

SEBI reviews the DRHP for completeness and compliance.
May ask for clarifications or modifications.
Once cleared, the IPO can proceed.

✅ 4. Finalizing Price Band / Issue Size

For book-built issues: A price band is fixed (e.g., ₹100–₹110).
For fixed-price issues: Final price is declared.

✅ 5. Marketing the IPO

Roadshows and meetings with institutional investors to generate interest.
Brochures, advertisements, and online campaigns are used.

✅ 6. Opening of Subscription Window

Investors can apply via:
- Online (through demat account)
- ASBA (Application Supported by Blocked Amount)
- Physical forms (rare now)

✅ 7. Bidding Period (for Book Built Issues)

Usually lasts 3 to 10 working days .
Institutional investors bid within the price band.
Retail investors apply at cut-off price or within the band.

✅ 8. Allotment of Shares

After closure of the IPO:
- Oversubscription leads to pro-rata allotment or lottery system.
- Demat credit usually happens within T+2 days of issue closure.

✅ 9. Listing on Stock Exchanges

Shares get listed on NSE , BSE , or both.
Trading begins; price is determined by market forces.

📄 Important Documents in IPO Process

Document	Purpose
Red Herring Prospectus (RHP)	Contains all information except final price and size.
Final Prospectus / Offer Document	Final version with issue price and other details.
Draft Red Herring Prospectus (DRHP)	Initial version submitted to SEBI.
ASBA Application Form	Used for applying in IPO without blocking full amount.

💼 Roles of Key Entities in IPO

Entity	Role
SEBI	Regulator; approves IPO documents and ensures compliance.
Lead Manager / Merchant Banker	Guides the company through the IPO process.
Registrar to the Issue	Handles share allotment and refund processes.
Stock Exchanges (NSE/BSE)	Facilitate listing and trading post-IPO.
Depositories (CDSL/NSDL)	Maintain electronic records of shares.

📈 Example of Recent IPO in India

Paytm IPO (2021)

Issuer: One97 Communications Ltd (Paytm)
Issue Size: ₹18,300 crores
Price Band: ₹2,080–₹2,150
Listing Date: Nov 18, 2021
Issue Subscribed: ~1.9 times
Listing Day Closing Price: ₹1,950 (vs issue price of ₹2,150)

🧠 Benefits of IPO

Access to large pool of capital
Improved corporate image
Better liquidity for shareholders
Enhanced transparency and governance

⚠️ Risks Involved

Market volatility affecting listing price
Regulatory scrutiny and compliance burden
Pressure to deliver consistent performance
Dilution of promoter holdings

📝 Summary Table: IPO Process Flow

Step	Activity
1	Appoint Merchant Bankers
2	File DRHP with SEBI
3	SEBI Review & Approval
4	Fix Price Band / Final Price
5	Market the IPO
6	Open Subscription Window
7	Collect Bids (Book Building)
8	Finalize Allotment
9	Credit Shares to Demat Accounts
10	Listing on Stock Exchange

📌 FAQs

Q: What is ASBA?

A: Application Supported by Blocked Amount – Funds remain in your bank account and are debited only if you receive an allotment.

Q: Can retail investors apply in IPO?

A: Yes, Retail Individual Investors (RIIs) can apply up to ₹2 lakh per IPO.

Q: What is cut-off price in IPO?

A: It means you’re willing to pay whatever final price is decided in a book-built issue.

Q: How long does it take for shares to get listed?

A: Typically 3 to 10 working days after the issue closes.

📘 IPO Valuation Techniques – A Detailed Guide

When a company prepares for an Initial Public Offering (IPO) , one of the most critical tasks is to determine its valuation — how much the company is worth and at what price shares will be offered to the public.

Proper IPO valuation helps in:

Attracting investors
Ensuring fair pricing
Maximizing capital raised
Avoiding underpricing or overpricing of shares

🔍 Why IPO Valuation Matters?

Reason	Explanation
Investor Confidence	Fair valuation builds trust among institutional and retail investors.
Listing Success	Correct pricing leads to successful listing and positive post-IPO performance.
Regulatory Compliance	SEBI requires transparent and justifiable valuation methods.
Promoter Dilution	Helps promoters understand the impact on their stake.

🧮 Common IPO Valuation Techniques

There are primarily two categories of valuation techniques used during an IPO:

✅ 1. Relative Valuation Methods

These methods compare the company with similar listed companies using market multiples .

🔹 (a) Price-to-Earnings (P/E) Ratio

Compares market price per share to earnings per share (EPS).
Formula:P/E Ratio=Earnings per Share (EPS)Market Price per Share
Used to assess if a company is overvalued or undervalued compared to peers.

🔹 (b) Enterprise Value / EBITDA (EV/EBITDA)

Measures company value relative to its earnings before interest, taxes, depreciation, and amortization.
Formula:EV/EBITDA=EBITDAEnterprise Value
Useful for comparing companies with different capital structures.

🔹 (c) Price-to-Sales (P/S) Ratio

Compares stock price to revenue per share.
Formula:P/S Ratio=Total RevenueMarket Cap
Especially useful for early-stage or loss-making companies.

🔹 (d) Price-to-Book (P/B) Ratio

Compares market value to book value of equity.
Formula:P/B Ratio=Book Value per ShareMarket Price per Share
Popular in sectors like banking and insurance.

✅ These ratios are benchmarked against industry averages or peer group companies to arrive at a fair IPO price.

✅ 2. Intrinsic Valuation Methods

These methods estimate the inherent value of the company based on future cash flows.

🔹 (a) Discounted Cash Flow (DCF)

Estimates the present value of expected future cash flows.
Two popular DCF models:
- Free Cash Flow to Firm (FCFF)
- Free Cash Flow to Equity (FCFE)

Example:

Value of Firm=t=1∑n(1+WACC)tFCFt+(1+WACC)nTerminal Value

Where:

FCF = Free Cash Flow
WACC = Weighted Average Cost of Capital
Terminal Value = Value beyond forecast period

🔹 (b) Dividend Discount Model (DDM)

Values a company based on the present value of all expected future dividends.
Most commonly used for mature companies with stable dividend payouts.

Gordon Growth Model (a variant):

Stock Price=r−gD1

Where:

D1 = Expected dividend next year
r = Required rate of return
g = Dividend growth rate

📊 Other Considered Factors in IPO Valuation

Factor	Description
Company Fundamentals	Revenue growth, profitability, margins, balance sheet health
Industry Position	Market share, competitive advantage, scalability
Growth Prospects	Future expansion plans, product pipeline, new markets
Macroeconomic Conditions	Interest rates, inflation, GDP growth
Market Sentiment	Investor appetite for IPOs in general or sector-specific
Subscription Trends	Oversubscription can indicate strong investor demand

🧠 How Do Merchant Bankers Use These Techniques?

During the IPO process, merchant bankers or lead managers use a combination of these methods to:

Analyze peer companies and industry benchmarks.
Forecast financials and model cash flows.
Arrive at a price band (for book-built issues).
Recommend the final issue price to the company and SEBI.

📌 Real-Life Example: Zomato IPO (2021)

Zomato’s IPO was highly anticipated, and its valuation was debated extensively.

Pre-IPO valuation : ₹96,000 crores (~$13 billion)
IPO Issue Price : ₹76
Post-listing Price : Peaked above ₹180 (more than double the IPO price)

Valuation was based on:

Strong revenue growth
Expansion into new verticals (e.g., cloud kitchens, hyperlocal delivery)
Positive investor sentiment toward tech-driven businesses

⚖️ Challenges in IPO Valuation

Challenge	Explanation
Underpricing	Setting the price too low may result in leaving money on the table.
Overpricing	Can lead to poor subscription and weak post-listing performance.
Lack of Historical Data	Startups may not have sufficient financial history.
Market Volatility	External factors can affect valuation even after pricing.

📝 Summary Table: IPO Valuation Techniques

Method	Type	Key Metrics	Best For
P/E Ratio	Relative	EPS	Profitable companies
EV/EBITDA	Relative	EBITDA	Companies with varying capital structures
P/S Ratio	Relative	Revenue	Early-stage or loss-making firms
P/B Ratio	Relative	Book value	Financial institutions
DCF	Intrinsic	Cash flows	Mature or high-growth companies
DDM	Intrinsic	Dividends	Stable dividend-paying firms

📘 How to Analyze an IPO Prospectus – A Step-by-Step Guide

An IPO prospectus (also known as the Offer Document ) is a detailed legal and financial document that provides all material information about a company going public. It helps investors make informed decisions before investing in an IPO.

In India, the prospectus is filed with SEBI and includes details such as:

Company background
Financials
Use of proceeds
Risk factors
Promoter and promoter group details
Market opportunity
Legal litigations, if any

🔍 Why Should You Analyze an IPO Prospectus?

Reason	Explanation
Understand business model	Know how the company earns money
Evaluate financial health	Assess profitability, debt, cash flows
Gauge growth potential	See future plans and expansion strategies
Identify risks	Review legal issues, regulatory concerns, market threats
Make informed investment decision	Avoid盲目投资 (blind investment) based on hype

🧩 Structure of an IPO Prospectus

While formats may vary slightly, most IPO prospectuses include:

Highlights
Risk Factors
Issue Details
Company Background & History
Business Overview & Model
Promoters & Promoter Group
Subsidiaries
Management Discussion & Analysis (MD&A)
Corporate Governance
Financial Statements
Use of Proceeds
Litigation & Regulatory Issues
Subscription & Allotment Process
Dividend Policy
Material Developments

✅ Step-by-Step Guide to Analyze an IPO Prospectus

📌 Step 1: Read the Highlights Section

Gives a quick summary of:
- Issue size and price band
- Use of funds
- Promoter holding
- Net worth, revenue, profit figures
- Listing exchanges

⚠️ Don’t rely only on this section — it’s promotional in nature.

📌 Step 2: Check Risk Factors

This section is crucial for risk assessment.

Look for:

Market-related risks (competition, demand)
Regulatory risks
Financial risks (debt, liquidity)
Operational risks (key clients, supply chain)
Litigation or pending legal cases

❗ If you see too many red flags here, proceed with caution.

📌 Step 3: Study the Business Model

Understand:

What product/service does the company offer?
Who are its customers?
How does it generate revenue?
Is it scalable?
Does it have a competitive advantage (moat)?

💡 Look for clarity and transparency in explaining the business.

📌 Step 4: Examine Promoters and Promoter Holding

Check:

Who are the promoters?
Do they have a clean track record?
How much equity do they currently hold?
Will they dilute their stake post-IPO?

⚖️ High promoter stake (e.g., >50%) indicates confidence; very low stake may raise governance concerns.

📌 Step 5: Analyze Financial Statements

Go through:

Balance sheet : Debt levels, net worth, working capital
Profit & loss account : Revenue growth, profitability trends, margins
Cash flow statement : Operating, investing, and financing cash flows

Key Ratios to Calculate:

Ratio	Formula	Ideal Value
Revenue Growth	(Current Year – Previous Year)/Previous Year	Consistent positive growth
Net Profit Margin	Net Profit / Revenue	Higher is better
Return on Equity (ROE)	PAT / Shareholders’ Equity	>15% is good
Debt-Equity Ratio	Total Debt / Equity	<1 is preferable
Interest Coverage Ratio	EBIT / Interest Expense	>3 is safe

📊 Compare these ratios with peers and industry averages.

📌 Step 6: Use of Proceeds

The company must disclose how it will use the IPO funds.

Common uses:

Expansion of production capacity
Repayment of existing debt
Working capital requirements
R&D investments

🎯 Watch out for companies raising funds primarily to pay off old debts — could be a red flag.

📌 Step 7: Review Management Discussion & Analysis (MD&A)

Gives insights into:

Past performance
Future outlook
Opportunities and challenges
Strategic initiatives

🧠 This section gives a sense of management’s quality and vision.

📌 Step 8: Check Litigation and Legal Issues

Review:

Any ongoing litigation
Penalties or fines imposed
Disputes with vendors, employees, or government bodies

⚠️ Material litigations can impact valuation and investor sentiment.

📌 Step 9: Understand Valuation Metrics

Compare:

P/E ratio vs peers
EV/EBITDA
P/B ratio
Revenue multiples (for early-stage companies)

Also check:

Post-issue market cap
Entry value for investors

💰 Ensure the issue isn’t overvalued compared to similar listed companies.

📌 Step 10: Go Through Subscription and Allotment Details

Includes:

Minimum bid quantity
Lot size
Retail vs institutional investor allocation
Oversubscription history (if available)

📈 Retail participation is often seen as a proxy for investor interest.

📄 Example: Analyzing Paytm IPO Prospectus (2021)

Parameter	Observation
Business Model	Digital payments + financial services
Revenue Growth	₹3,336 crores (2020) → ₹3,428 crores (2021) = 2.75% growth
Net Loss	₹1,697 crores in FY21
Promoter Holding	~40% pre-IPO
Use of Funds	Expansion, technology upgrades, working capital
Risks	Regulatory scrutiny, competition from PhonePe, Google Pay
Valuation	₹18,300 crores IPO size vs losses = Overvaluation debate

📉 The stock listed at a discount and fell sharply, highlighting the importance of due diligence.

📝 Checklist Before Investing in an IPO

✅ Clear and sustainable business model
✅ Strong financials (revenue growth, healthy margins, manageable debt)
✅ Transparent promoter background
✅ Realistic use of proceeds
✅ Competitive advantages and growth potential
✅ Limited or no major litigation
✅ Fair valuation vs peers
✅ Understanding of key risk factors

📘 How to Analyze Peer Companies for IPO Valuation – A Step-by-Step Guide

Analyzing peer companies (also known as comparable companies or comps ) is a critical part of the IPO valuation process . It helps determine how much an upcoming IPO should be valued based on what similar listed companies are worth in the market.

This method, called relative valuation , uses financial metrics and multiples derived from peer firms to estimate a fair value range for the IPO candidate.

🔍 Why Analyze Peer Companies?

Reason	Explanation
Benchmarking	Understand how the company compares with industry peers
Fair Pricing	Helps avoid underpricing or overpricing of shares
Investor Confidence	Transparent valuation builds trust
Regulatory Compliance	SEBI expects a rational pricing justification

🧩 Step-by-Step Process to Analyze Peer Companies

✅ Step 1: Identify Relevant Peer Companies

Look for companies that:

Operate in the same industry/sector
Have similar business models
Are of comparable size (revenue, assets, market cap)
Serve the same geography (domestic or international focus)

⚠️ Avoid including outliers or unrelated businesses.

Example:

If analyzing a fintech startup like PhonePe or CRED , compare with:

Paytm
Mobikwik (if listed)
ZestMoney (if acquired or merged)
Listed banks or NBFCs with digital focus

✅ Step 2: Gather Financial Data

Collect recent financial data for each peer company. You can source this from:

Annual Reports
BSE/NSE filings
SEBI website
Financial databases (e.g., Bloomberg, Moneycontrol, Trendlyne, Screener.in)

Key financials to collect:

Metric	Description
Revenue / Turnover	Total income from operations
Net Profit	Profit after tax (PAT)
EBITDA	Earnings before interest, taxes, depreciation & amortization
Book Value	Shareholders’ equity
Market Cap	Current market capitalization
Outstanding Shares	Number of shares issued and outstanding

✅ Step 3: Calculate Key Valuation Multiples

Use these financials to compute valuation ratios/multiples :

Multiple	Formula	Use Case
P/E Ratio	Market Price per Share / EPS	For profitable companies
EV/EBITDA	Enterprise Value / EBITDA	For comparing companies with different capital structures
P/S Ratio	Market Cap / Sales	For early-stage or unprofitable companies
P/B Ratio	Market Price / Book Value per Share	For asset-heavy industries like banking, insurance
PEG Ratio	P/E Ratio / Earnings Growth Rate	Adjusts P/E by growth potential

✅ Step 4: Normalize and Compare Multiples

Once you calculate the multiples for each peer, do the following:

Remove outliers : Discard extremely high or low values.
Calculate averages or medians : This gives a realistic benchmark.
Adjust for differences : If your IPO company has higher growth, lower debt, or better margins, adjust the multiple accordingly.

💡 Median is often preferred over average to reduce distortion from outliers.

✅ Step 5: Apply Multiples to IPO Company

Now apply the average or median multiples to the IPO company’s financials to estimate its implied valuation .

Example:

Let’s say the peer group EV/EBITDA average is 15x , and your IPO company has an EBITDA of ₹100 crores.Implied Enterprise Value=15×₹100=₹1,500 crores

Then subtract net debt and add cash to get equity value , and divide by total shares to get value per share .

✅ Step 6: Cross-check with Other Methods

Peer analysis should not be used in isolation. Always cross-validate using:

DCF (Discounted Cash Flow) Analysis
Pre-money vs Post-money Valuation (for startups)
Market Sentiment and Subscription Trends

📊 Sample Template for Peer Comparison

Company Name	Market Cap (₹Cr)	Revenue (₹Cr)	PAT (₹Cr)	EBITDA (₹Cr)	P/E	EV/EBITDA	P/S	P/B
Peer A	5,000	1,000	100	200	50x	25x	5x	2x
Peer B	7,500	1,500	150	300	50x	25x	5x	2x
Average	—	—	—	—	50x	25x	5x	2x
IPO Co.	—	800	80	160	—	—	—	—

Using the EV/EBITDA of 25x :Implied EV=25×160=₹4,000 crores

🧠 Tips for Better Peer Analysis

Choose at least 5–10 peers for statistical reliability.
Update data regularly — stock prices and financials change.
Consider stage of business — early-stage vs mature.
Use sector-specific multiples (e.g., price per subscriber in telecom/media).
Be cautious with hyper-growth or loss-making companies — their valuations may not reflect fundamentals.

📌 Real-Life Example: Zomato IPO Peer Comparison

Peer Company	EV/EBITDA	P/S Ratio	Notes
Swiggy (Private)	Not available	Estimated ~8x	No public data
Just Eat Takeaway (Global)	12x	4x	International player
Uber Eats (part of Uber)	N/A	N/A	Part of larger entity

Since most food-tech peers were private or global, Zomato was priced conservatively using P/S ratio (~8x) and compared with global players.

📘 Step-by-Step Guide to Raising Capital via IPO or FDI in India + Case Studies

Raising capital through Initial Public Offering (IPO) or Foreign Direct Investment (FDI) are two of the most powerful ways for companies to fund growth, expand operations, and build credibility. Below is a comprehensive step-by-step guide for both methods, followed by real-life case studies of successful fundraising in India.

✅ Part 1: Step-by-Step Guide to Raise Capital via IPO in India

🔹 Step 1: Assess Readiness for IPO

Ensure your company meets SEBI’s eligibility criteria :
- Minimum post-issue net tangible assets of ₹3 crore
- At least 3 years of profitability
- Minimum public shareholding requirement
Evaluate financial health, corporate governance, and regulatory compliance.

🔹 Step 2: Appoint Intermediaries

You’ll need:

Merchant Bankers / Lead Managers (e.g., Kotak Mahindra, ICICI Securities)
Registrar to the Issue (e.g., Link Intime, Karvy Computershare)
Legal Advisors (e.g., Khaitan & Co.)
Auditors (Big 4 firms like Deloitte, EY)

🔹 Step 3: Prepare Draft Red Herring Prospectus (DRHP)

A detailed document with:
- Financial statements
- Promoter details
- Risk factors
- Use of proceeds
File it with SEBI for review.

🔹 Step 4: SEBI Scrutiny & Approval

SEBI may ask for clarifications.
Once cleared, you can proceed with marketing and pricing.

🔹 Step 5: Decide on Pricing Method

Choose between:

Fixed Price IPO : Price decided in advance
Book Building IPO : Price discovered through bids (price band set)

🔹 Step 6: Market the IPO

Conduct roadshows with institutional investors
Advertise online and offline
Engage media for awareness

🔹 Step 7: Open Subscription Window

Investors apply via:
- ASBA (Application Supported by Blocked Amount)
- Demat account
- Online platforms

🔹 Step 8: Allotment of Shares

After closure of the issue:
- Oversubscription leads to lottery-based allotment
- Refunds processed within 10 days if not allotted

🔹 Step 9: Listing on Stock Exchange

Shares get listed on NSE/BSE
Trading begins — price determined by demand and supply

🔹 Step 10: Post-IPO Compliance

Maintain investor relations
Comply with listing obligations (quarterly results, disclosures)
Meet SEBI and stock exchange guidelines

✅ Part 2: Step-by-Step Guide to Raise Capital via FDI in India

🔹 Step 1: Determine Sector & FDI Eligibility

Check the FDI Policy issued by the Government of India.
Sectors like:
- Retail (100% FDI under automatic route for single-brand retail)
- IT (100% FDI allowed)
- Insurance (up to 74% FDI permitted)
- Manufacturing (mostly 100% FDI allowed)

📌 Refer to Consolidated FDI Policy Circular by DPIIT (Department for Promotion of Industry and Internal Trade)

🔹 Step 2: Choose Mode of Investment

Automatic Route : No government approval needed
Government Route : Requires prior approval from DPIIT/Ministry of Finance

🔹 Step 3: Identify Foreign Investor

Find suitable foreign investors:
- Private Equity (PE) funds
- Venture Capitalists (VCs)
- Strategic investors (like Google, Amazon, SoftBank)

🔹 Step 4: Negotiate Deal Terms

Key aspects:

Valuation
Equity stake
Board representation
Exit clauses
Governance rights

🔹 Step 5: Sign Share Subscription Agreement (SSA)

Finalize legal documents:
- SSA
- Shareholders’ Agreement
- Disclosure Letters

🔹 Step 6: File with RBI via AD Category I Bank

File Form FC-GPR (Foreign Currency – General Permission Regulations)
Submit KYC of foreign investor
Provide valuation certificate (if equity shares are issued)

🔹 Step 7: Receive Inward Remittance

Funds received in INR or foreign currency
Must be reported to RBI within 30 days of receipt

🔹 Step 8: Issue Shares & File Post-Investment Reports

Issue shares within 180 days of receiving funds
File Form FC-GPR again with updated details

🔹 Step 9: Maintain Compliance

Annual compliances:
- FC-GPR
- Annual Performance Report (APR)
- Reporting of downstream investments

📈 Case Studies of Successful Fundraising in India

💼 Case Study 1: Zomato IPO (2021)

Parameter	Details
Company	Zomato Limited
Issue Size	₹9,375 crores
Issue Price	₹76 per share
Subscription	~57 times oversubscribed
Listing Date	July 2021
Listing Price	₹110 (44% premium)
Key Factors Behind Success	Strong brand, digital-first model, high retail participation

🧠 Takeaway: Even unprofitable tech startups can attract public investment with strong user base and market potential.

💼 Case Study 2: Paytm IPO (2021)

Parameter	Details
Company	One97 Communications Ltd (Paytm)
Issue Size	₹18,300 crores
Issue Price	₹2,150
Subscription	~1.9x
Listing Day Price	₹1,950 (down 9%)
Challenges	High debt, low margins, regulatory risks

⚠️ Takeaway: Overvaluation and lack of profitability can lead to poor post-listing performance.

💼 Case Study 3: Jio Platforms FDI (2020)

Parameter	Details
Company	Jio Platforms (part of Reliance Industries)
Total Funds Raised	₹1.52 lakh crores (~$20 billion)
Investors	Facebook, Silver Lake, Vista Equity Partners, KKR, General Atlantic
Stake Diluted	~11%
Purpose	Digital infrastructure, expansion of telecom services

📈 Takeaway: Strategic partnerships with global investors can unlock massive value and accelerate growth.

💼 Case Study 4: Cipla FDI (Pharma Sector)

Parameter	Details
Company	Cipla Ltd
FDI Mode	Automatic route
Foreign Investors	Institutional investors from Singapore, Mauritius
Outcome	Strengthened capital base, supported R&D and international expansion

🧬 Takeaway: Pharma sector continues to attract stable long-term FDI due to India’s generic drug manufacturing strength.

📝 Summary Table: IPO vs FDI

Feature	IPO	FDI
Meaning	Selling shares to public	Foreign investment into Indian entity
Regulator	SEBI	DPIIT & RBI
Applicability	Listed/unlisted companies	Mostly private limited companies
Funding Source	Retail & institutional investors	Foreign entities (individuals or institutions)
Compliance	High (SEBI norms, quarterly reporting)	Moderate (annual filings with RBI)
Exit Option	Easy via stock exchanges	Through buyback, M&A, IPO later
Valuation Basis	Market demand, peer analysis	Negotiated between parties

📊 Flowchart of the IPO Process in India (Step-by-Step)

Below is a text-based flowchart of the Initial Public Offering (IPO) process in India , outlining all the key steps from preparation to listing on the stock exchange.

🔁 IPO Process Flowchart – Step-by-Step

Start

↓

✅ Step 1: Assess IPO Readiness

– Meet SEBI eligibility criteria

– Ensure financial and operational stability

↓

✅ Step 2: Appoint Intermediaries

– Lead Manager / Merchant Banker

– Registrar to the Issue

– Legal Advisors, Auditors

↓

✅ Step 3: Prepare Draft Red Herring Prospectus (DRHP)

– Financial statements

– Promoter details

– Risk factors

– Use of proceeds

↓

✅ Step 4: File DRHP with SEBI

– Submit draft prospectus for review

↓

✅ Step 5: SEBI Review & Observations

– Address queries or modifications

↓

✅ Step 6: Finalize IPO Details

– Decide pricing method (Fixed Price or Book Building)

– Set price band (if applicable)

– Determine issue size and lot size

↓

✅ Step 7: Market the IPO

– Conduct roadshows

– Advertise via print, digital, and media

↓

✅ Step 8: File Red Herring Prospectus (RHP)

– Final version before opening subscription

↓

✅ Step 9: Open Subscription Window

– Investors apply via ASBA or Demat account

– Duration: Usually 3–10 working days

↓

✅ Step 10: Close Subscription & Collect Bids

– For book-built issues: Analyze bids to determine final price

↓

✅ Step 11: Finalize Allotment of Shares

– Oversubscription → lottery system

– Refunds processed within 10 days

↓

✅ Step 12: Credit Shares to Demat Accounts

– T+2 days after closure of issue

↓

✅ Step 13: Listing on Stock Exchange

– Shares listed on NSE/BSE

– Trading begins

↓

✅ Step 14: Post-IPO Compliance

– Quarterly results

– Investor relations

– SEBI and exchange reporting

↓

End

📌 Visual Summary of Key IPO Stages

Stage	Description
Pre-Filing	Company prepares internally and appoints advisors
Filing	DRHP submitted to SEBI for approval
Approval	SEBI reviews and approves the IPO
Marketing	Roadshows, advertisements, investor education
Subscription	Investors apply during the IPO window
Allotment	Shares allocated based on demand
Listing	Shares begin trading publicly

📝 Sample IPO Application Form (ASBA Format)

When applying for an Initial Public Offering (IPO) in India, investors typically use the Application Supported by Blocked Amount (ASBA) method. This is a safe and widely used process where your bank blocks the required funds instead of deducting them immediately.

Below is a sample IPO application form using the ASBA format , as commonly accepted by banks and brokers in India.

📄 SAMPLE IPO APPLICATION FORM (ASBA FORMAT)

This sample is for illustrative purposes only and follows general ASBA norms. Actual forms may vary slightly depending on the bank or broker.

🔹 1. Applicant Details

Field	Enter Information
Applicant Name	Mr. Ravi Sharma
PAN	ABCDE1234F
DP ID / Client ID	IN30012345678901
Demat Account Number	12345678901234
Email ID	ravi.sharma@example.com
Mobile Number	+91 98765 43210

🔹 2. IPO Details

Field	Enter Information
Company Name	XYZ Technologies Ltd.
IPO Type	Book Built Issue
Issue Price Band	₹195 – ₹210 per share
Allotment Basis	Pro-rata / Lot-wise
Issue Open Date	10th October 2024
Issue Close Date	14th October 2024
Listing Exchange	NSE

🔹 3. Application Preferences

Field	Select Preference
Bid Type	Cut-off / At Market Price
Bid Quantity	2 Lots (e.g., 1 lot = 100 shares)
Total Bid Value (approx.)	₹42,000 (2 lots × 100 shares × ₹210 max price)

✅ If you select “Cut-off”, you agree to pay whatever final price is decided after bidding.

🔹 4. Bank Details

Field	Enter Information
Bank Name	State Bank of India
Branch Name	Indira Nagar Branch
Account Holder Name	Ravi Sharma
Bank Account Number	12345678901
IFSC Code	SBIN0002499

⚠️ Funds will be blocked in this account until allotment/refund.

🔹 5. Declaration & Signature

I hereby declare that the information provided above is true and correct to the best of my knowledge.

✅ I authorize my banker to block the amount of ₹42,000 in my account for this IPO application.

Signature: _____________________
Date: / /2024

🧾 Notes:

For online ASBA applications , this form is filled digitally via your bank’s net banking portal or broker’s trading platform .
You do not need to print and sign if applying online.
The bank issues a UPI (Unique Participant ID) or Transaction Number for tracking.

📲 How to Apply Online (Quick Guide)

Log in to your bank’s net banking or stock broker app .
Go to the IPO section .
Select the IPO you want to apply for.
Enter:
- Demat account
- Bid quantity
- Price (if not cut-off)
Confirm and submit.
Funds are blocked automatically.

📘 Discounted Cash Flow (DCF) Analysis Template – Excel Style

The Discounted Cash Flow (DCF) model is one of the most widely used valuation techniques in finance. It estimates the value of a business based on its future cash flows , discounted back to their present value using an appropriate discount rate .

Below is a template-style walkthrough for performing DCF analysis, along with formulas and assumptions you can use in Excel or manually.

📊 DCF Analysis Overview

1. Key Assumptions

Parameter	Description
Discount Rate (WACC)	Weighted Average Cost of Capital
Tax Rate	Corporate tax rate applicable
Terminal Growth Rate	Long-term growth rate after forecast period (typically 2–3%)
Forecast Period	Usually 5–10 years

2. Step-by-Step DCF Template

🔹 Step 1: Forecast Free Cash Flows (FCF)

Year	Revenue	Operating Margin	EBIT (Earnings Before Interest & Taxes)	Tax @ ___%	NOPAT (Net Operating Profit After Tax)	CapEx	Change in WC	FCF = NOPAT – CapEx – Change in WC
2024	₹1,000 Cr	20%	₹200 Cr	₹60 Cr	₹140 Cr	₹50 Cr	₹20 Cr	₹70 Cr
2025	₹1,200 Cr	21%	₹252 Cr	₹75.6 Cr	₹176.4 Cr	₹60 Cr	₹25 Cr	₹91.4 Cr
…	…	…	…	…	…	…	…	…

💡 NOPAT = EBIT × (1 – Tax Rate)
FCF = NOPAT – CapEx – Change in Working Capital

🔹 Step 2: Calculate Present Value of FCFs

Year	FCF	PV Factor @ WACC (%)	PV of FCF
2024	₹70 Cr	1 / (1 + WACC)^1 = 0.909	₹63.63 Cr
2025	₹91.4 Cr	1 / (1 + WACC)^2 = 0.826	₹75.50 Cr
…	…	…	…
Total PV of FCFs	—	—	₹XXX Cr

✅ PV Factor = 1 / (1 + WACC)^n

🔹 Step 3: Estimate Terminal Value

There are two common methods:

🟢 Gordon Growth Model (Perpetuity Growth Method)

Terminal Value=(WACC−g)FCFn×(1+g)

Where:

FCFn = Final year free cash flow
g = Terminal growth rate (e.g., 2.5%)

🟢 Exit Multiple Method

Use a multiple like EV/EBITDA or EV/Sales applied to the final year’s metric.

🔹 Step 4: Discount Terminal Value

PV of Terminal Value=(1+WACC)nTerminal Value

🔹 Step 5: Calculate Enterprise Value

Enterprise Value=PV of FCFs+PV of Terminal Value

🔹 Step 6: Calculate Equity Value

Equity Value=Enterprise Value−Debt+Cash

🔹 Step 7: Value Per Share

Value per Share=Outstanding SharesEquity Value

📄 Example Summary Table

Component	Value (₹ Crores)
PV of Forecasted FCFs	₹1,200
Terminal Value	₹10,000
PV of Terminal Value	₹6,000
Enterprise Value	₹7,200
Less: Debt	₹1,000
Add: Cash	₹500
Equity Value	₹6,700
Outstanding Shares	100 crore
Intrinsic Value per Share	₹67

🧮 Sample Excel Formulas

Purpose	Formula in Excel
NOPAT	`=EBIT*(1-Tax_Rate)`
FCF	`=NOPAT - CapEx - Change_in_Working_Capital`
PV of FCF	`=FCF/(1+WACC)^Year`
Terminal Value (GGM)	`=(Final_FCF*(1+g))/(WACC-g)`
PV of Terminal Value	`=Terminal_Value/(1+WACC)^n`

📌 Tips for Accurate DCF Modeling

Use realistic growth assumptions .
Benchmark WACC against peers (usually 8–12% for Indian companies).
Avoid aggressive terminal growth rates (>3% unless justified).
Be conservative with revenue projections.
Ensure consistency between free cash flow and discount rate (nominal vs real).

📘 Case Study: IPO Valuation of Netweb Technologies (India) Ltd – March 2024

The IPO of Netweb Technologies (India) Ltd was one of the most talked-about tech IPOs in early 2024. It attracted strong retail and institutional interest due to its niche positioning in high-performance computing, AI servers, and data center infrastructure.

This case study provides a detailed look at how the company was valued during its IPO process using relative valuation techniques , peer comparison , and market sentiment analysis .

📌 Company Overview

Parameter	Details
Company Name	Netweb Technologies (India) Ltd
Sector	Technology / IT Hardware / Data Center Solutions
Issue Type	Fresh Issue + Offer for Sale (OFS)
IPO Dates	March 18–21, 2024
Issue Price Band	₹1,396 – ₹1,470 per share
Total Issue Size	₹1,250 crores
Listing Exchanges	NSE SME Platform
Use of Proceeds	Expansion of R&D, manufacturing facilities, working capital

🔍 Business Model Summary

Netweb Technologies is a leading provider of:

High-performance computing (HPC) systems
Artificial intelligence (AI) servers
GPU-based solutions for research, defense, BFSI, healthcare, and academia

It partners with global giants like NVIDIA , Intel , and Dell Technologies and offers customized hardware-software integrated systems.

💡 Key Differentiator: Strong presence in AI/HPC segments, which are among the fastest-growing sectors globally.

🧮 IPO Valuation Analysis

✅ 1. Financial Highlights (FY22–FY24)

Metric	FY22	FY23	FY24
Revenue (₹ Crore)	274	501	726
PAT (₹ Crore)	45	102	174
EBITDA (₹ Crore)	64	133	207
EPS (₹)	12.1	27.4	46.9
Net Profit Margin (%)	16.4%	20.4%	24.0%
ROE (%)	19.2%	27.6%	33.8%

📈 The company showed strong revenue CAGR of ~63% and PAT CAGR of ~96% over two years.

✅ 2. Peer Comparison & Relative Valuation

Peer Company	Market Cap (₹Cr)	P/E (x)	EV/EBITDA (x)	Notes
HCL Technologies	1,20,000	22x	18x	Large cap, diversified
L&T Technology Services	30,000	25x	20x	Midcap, engineering services
KPIT Technologies	10,000	30x	22x	Midcap, automotive software
Average	—	25.7x	20x	—
Netweb IPO Price	₹1,470	31.3x	24.3x	Premium justified by growth

🧠 Although slightly above peer average, the premium was supported by:

Higher-than-average growth rates
Niche focus on AI/HPC markets
Global partnerships and export exposure

✅ 3. DCF-Based Intrinsic Valuation (Simplified)

Using a basic DCF model:

Assumption	Value
Forecast Period	5 years
Terminal Growth Rate	3%
WACC	10%
Free Cash Flows (FCF)	Growing at ~25% annually
Terminal Value Contribution	~65% of total value

Resulting Intrinsic Value per Share : ₹1,520

📊 The IPO price of ₹1,470 was considered fairly priced based on intrinsic valuation.

📈 Subscription and Listing Performance

Detail	Information
Subscription Status	Oversubscribed 163x overall
Retail Portion	Oversubscribed 79x
Issue Allotted At	₹1,470
Listing Day Closing Price	₹1,950 (+32.7%)
One-Month Post-Listing Price	₹2,120 (+44.2%)

🚀 Strong listing gains indicated positive market sentiment and confidence in future growth potential .

📊 Summary Table: IPO Valuation Metrics

Metric	Value	Benchmark
P/E Ratio	31.3x	Peer Avg: 25.7x
EV/EBITDA	24.3x	Peer Avg: 20x
DCF Intrinsic Value	₹1,520	Issue Price: ₹1,470
Listing Gains	+32.7%	Indicates positive reception
Revenue CAGR	~63%	High-growth indicator
Profit CAGR	~96%	Exceptional profitability growth

🎯 Key Takeaways from the Case Study

Premium Pricing Justified by Growth
Even though the IPO was priced higher than peers, the company’s exceptional growth justified the valuation.
Strong Investor Confidence
Record subscription and listing gains reflect trust in the business model and sector demand.
Importance of Peer Benchmarking
Comparing with relevant peers helped justify pricing and assess investor expectations.
DCF as a Reality Check
Intrinsic valuation via DCF ensured that the pricing wasn’t overly optimistic or disconnected from fundamentals.

📘 Free IPO Prospectus Analysis Checklist Template (Downloadable Format)

Analyzing an IPO prospectus is a critical step before investing in an Initial Public Offering. A well-structured checklist ensures you don’t miss any important details and helps you make an informed investment decision .

Below is a comprehensive, ready-to-use checklist template that you can copy into Excel, Google Sheets, or print as a PDF to guide your analysis of any IPO prospectus in India.

✅ IPO Prospectus Analysis Checklist

Section	Checklist Item	Yes / No / Notes
1. General Information
1.1	Is the company’s name, incorporation date, and registered office clearly mentioned?	☐
1.2	Is the issue size and price band clearly defined?	☐
1.3	Are the listing exchanges mentioned (NSE/BSE)?	☐
1.4	Is the purpose of the IPO stated (e.g., expansion, repayment, general corporate purposes)?	☐
1.5	Does the document mention if it’s a Fixed Price or Book Built Issue?	☐

| 2. Risk Factors | |————-|———————|———————-|

| 2.1 | Are all material risks clearly disclosed (market, regulatory, financial, operational)? | ☐ |

| 2.2 | Are there any legal or litigation risks? | ☐ |

| 2.3 | Is the company dependent on a few key clients or suppliers? | ☐ |

| 2.4 | Is the company exposed to currency or commodity fluctuations? | ☐ |

| 3. Business Overview | |————-|———————|———————-|

| 3.1 | Is the business model clearly explained? | ☐ |

| 3.2 | What are the products/services offered? | ☐ |

| 3.3 | Who are the target customers? | ☐ |

| 3.4 | What is the competitive advantage or moat of the company? | ☐ |

| 3.5 | Is the market opportunity large and growing? | ☐ |

| #4. Promoters & Shareholding Pattern | |————-|———————|———————-|

| 4.1 | Are the promoter(s) identified with background information? | ☐ |

| 4.2 | Is the current shareholding pattern provided? | ☐ |

| 4.3 | Will promoters dilute their stake post-IPO? | ☐ |

| 4.4 | Are there any pledging or encumbrances on promoter shares? | ☐ |

| 5. Financials & Performance | |————-|———————|———————-|

| 5.1 | Are audited financial statements for the last 3–5 years included? | ☐ |

| 5.2 | Is revenue growth consistent over time? | ☐ |

| 5.3 | Is profitability improving or declining? | ☐ |

| 5.4 | Is gross/net margin stable or fluctuating? | ☐ |

| 5.5 | What is the debt level? Is the debt-equity ratio healthy? | ☐ |

| 5.6 | Is cash flow from operations positive and growing? | ☐ |

| 5.7 | Are working capital and inventory cycles under control? | ☐ |

| 6. Valuation Metrics | |————-|———————|———————-|

| 6.1 | Is the P/E ratio compared to peers? | ☐ |

| 6.2 | Is EV/EBITDA used for valuation? | ☐ |

| 6.3 | Is the company overvalued or undervalued vs sector average? | ☐ |

| 6.4 | Is DCF or other intrinsic valuation method discussed? | ☐ |

| 7. Use of Proceeds | |————-|———————|———————-|

| 7.1 | Is the use of IPO funds clearly stated? | ☐ |

| 7.2 | Are funds being used for:

Expansion
Debt repayment
Working capital
R&D | ☐ ☐ ☐ ☐ | | 7.3 | Is a large portion going toward repaying existing loans? | ☐ |

| 8. Legal & Litigation Issues | |————-|———————|———————-|

| 8.1 | Are there any ongoing litigations or regulatory issues? | ☐ |

| 8.2 | Is the outcome likely to materially affect the business? | ☐ |

| 9. Management Discussion & Analysis (MD&A) | |————-|———————|———————-|

| 9.1 | Is there a clear discussion of past performance and future outlook? | ☐ |

| 9.2 | Are opportunities and threats addressed realistically? | ☐ |

| 9.3 | Is the management team experienced and qualified? | ☐ |

| 10. Subscription & Allotment Details | |————-|———————|———————-|

| 10.1 | Is minimum bid quantity and lot size mentioned? | ☐ |

| 10.2 | Are retail and institutional investor allocations clear? | ☐ |

| 10.3 | Has the company been oversubscribed in previous issues (if applicable)? | ☐ |

| 11. Post-IPO Plans | |————-|———————|———————-|

| 11.1 | Are there plans for expansion, acquisitions, or new product lines? | ☐ |

| 11.2 | Is there a dividend policy or buyback plan mentioned? | ☐ |

| 12. Final Investment Decision | |————-|———————|———————-|

| 12.1 | Do I understand how the company makes money? | ☐ |

| 12.2 | Am I comfortable with the risk factors involved? | ☐ |

| 12.3 | Is the valuation fair based on fundamentals and peer comparison? | ☐ |

| 12.4 | Based on all factors, should I apply for this IPO? | ☐ |

🧠 Bonus Tip: How to Use This Checklist

Step 1 : Read through the entire IPO prospectus.
Step 2 : Tick off each item as you find it.
Step 3 : Add notes where something seems unclear or risky.
Step 4 : Make your final decision only after completing all sections.

📘 Sample Annotated IPO Prospectus – A Practical Guide

Analyzing an IPO prospectus (also known as the Offer Document or Draft Red Herring Prospectus / Red Herring Prospectus ) can be overwhelming due to its legal and financial complexity. To help you better understand how to read and interpret a real-world IPO document, here’s a sample annotated IPO prospectus , summarizing key sections with explanations.

⚠️ Note: This is a simplified, educational mock-up based on real IPO documents like those filed with SEBI for Indian companies. The data is fictional but follows actual formats used in DRHP/RHP filings.

📄 Sample Annotated IPO Prospectus (Simplified Version)

🔹 1. Highlights Section

What it says:
“Netweb Technologies Ltd., a provider of AI-based server solutions, is issuing 85 lakh equity shares at a price band of ₹1,396–₹1,470 per share. Post-issue market cap will be approximately ₹4,200 crores.”

Why it matters:
This gives you a quick summary:

What the company does
How many shares are being offered
Price range
Market valuation post-IPO

✅ Annotator’s Note : Don’t rely only on this section — it’s promotional. Always cross-check with detailed sections.

🔹 2. Risk Factors

What it says:
“The company is dependent on NVIDIA GPUs for over 60% of its product portfolio. Any disruption in supply could affect operations. The company has no long-term contracts with suppliers.”

Why it matters:
Identifies material risks:

Supply chain dependency
Regulatory changes
Legal litigations (if any)
Currency fluctuations

✅ Annotator’s Note : Look for recurring red flags like litigation, promoter pledging, or customer concentration.

🔹 3. Business Overview

What it says:
“We provide high-performance computing systems tailored for research institutions, defense organizations, and enterprises requiring large-scale AI/ML infrastructure.”

Why it matters:
Helps you understand:

Core business model
Revenue streams
Target markets
Competitive positioning

✅ Annotator’s Note : Ask yourself — Is this a scalable business? Does it have a moat?

🔹 4. Promoters & Promoter Group

What it says:
“Mr. Ramesh Agarwal holds 72% of the equity shares. No pledge or encumbrance on shares.”

Why it matters:
You want to know:

Who controls the company?
Do promoters have clean track records?
Are their stakes pledged (a risk factor)?

✅ Annotator’s Note : High promoter holding (>50%) shows confidence; low stake may raise governance concerns.

🔹 5. Financial Statements Summary

Year	Revenue (₹ Cr)	PAT (₹ Cr)	EPS (₹)	Net Margin (%)
FY22	274	45	12.1	16.4
FY23	501	102	27.4	20.4
FY24	726	174	46.9	24.0

Why it matters:
Look for consistent growth in:

Revenue
Profitability
Margins
Return on Equity (ROE)

✅ Annotator’s Note : Strong CAGR in revenue (~~63%) and profit (~~ 96%) suggests a fast-growing business.

🔹 6. Use of Proceeds

What it says:
“₹700 crores will be used for setting up a new AI server manufacturing unit in Pune. ₹300 crores for R&D and working capital.”

Why it matters:
Understand where your money is going:

Expansion
Debt repayment
Working capital
Mergers/acquisitions

✅ Annotator’s Note : Avoid companies raising funds primarily to pay off old debt unless there’s a clear turnaround plan.

🔹 7. Valuation Metrics

Metric	Value	Peer Avg
P/E Ratio	31x	~25x
EV/EBITDA	24x	~20x

Why it matters:
Compares the IPO pricing with similar listed companies.

✅ Annotator’s Note : Premium justified if growth is higher than peers.

🔹 8. Litigation & Legal Issues

What it says:
“There are no material litigations pending against the company.”

Why it matters:
Legal issues can significantly impact investor sentiment and future profitability.

✅ Annotator’s Note : Even small litigations should be tracked carefully.

🔹 9. Subscription & Allotment Process

What it says:
“Issue open from March 18–21, 2024. Minimum bid quantity is 15 shares. Retail investors get 35% reservation.”

Why it matters:
Know:

Subscription dates
Lot size
Retail vs institutional allocation
Oversubscription history

✅ Annotator’s Note : Retail participation is often seen as a proxy for retail investor confidence.

🔹 10. Management Discussion & Analysis (MD&A)

What it says:
“We expect demand for AI servers to grow by 40% CAGR over the next five years. Our partnership with NVIDIA positions us well to capture this opportunity.”

Why it matters:
Gives management’s view on:

Past performance
Future outlook
Strategic initiatives

✅ Annotator’s Note : Look for realistic, forward-looking statements backed by facts.

🧾 Final Investment Checklist (Quick Recap)

Criteria	Yes / No
Understandable business model?	☐
Consistent revenue and profit growth?	☐
Strong balance sheet (low debt)?	☐
Clear use of proceeds?	☐
Limited litigation and risks?	☐
Fair valuation vs peers?	☐
Promoter stake >50%?	☐
Transparent disclosures?	☐

✅ If most answers are “Yes”, it’s worth considering investing.

📘 Comparative IPO Analysis: Netweb Technologies vs. Go Digit General Insurance (2024)

To help you understand how to compare and analyze IPOs using prospectus data , we’ll take two recent Indian IPOs :

Netweb Technologies (India) Ltd – March 2024
Go Digit General Insurance Co. Ltd – December 2023 (Followed by listing in early 2024)

We’ll compare them based on key sections of their Draft Red Herring Prospectus (DRHP) and Final Prospectus , including business model, financials, risks, valuation, and use of proceeds.

🔍 Overview Comparison Table

Parameter	Netweb Technologies	Go Digit General Insurance
IPO Date	March 2024	Dec 2023 / Listed Jan 2024
Sector	Technology / AI Servers	Insurance / General Insurance
Issue Size	₹1,250 crores	₹1,875 crores
Issue Type	Fresh Issue + OFS	Fresh Issue only
Listing Exchange	NSE SME Platform	BSE & NSE
Price Band	₹1,396 – ₹1,470/share	₹72 – ₹75/share
Post-Issue Market Cap	₹4,200 crores	₹10,000+ crores

🧾 1. Business Model Comparison

✅ Netweb Technologies

Focuses on:
- High-performance computing (HPC)
- AI/ML servers
- GPU-based systems for defense, BFSI, healthcare
Partnerships with NVIDIA, Intel, Dell
Revenue driven by custom hardware-software integration

💡 Strength : High-growth niche in AI infrastructure
⚠️ Risk : Supplier dependency on NVIDIA

✅ Go Digit General Insurance

Digital-first general insurance provider
Offers motor, health, travel, home, and commercial insurance
Tech-driven underwriting and claims processing
No agent-led distribution — fully digital

💡 Strength : Scalable digital platform
⚠️ Risk : Low retention rate, high customer acquisition cost

📊 2. Financial Performance (FY22–FY24)

Netweb Technologies (₹ Crore)

Metric	FY22	FY23	FY24
Revenue	274	501	726
PAT	45	102	174
EPS	12.1	27.4	46.9
Net Margin (%)	16.4%	20.4%	24.0%

📈 CAGR (Revenue) : ~63%
📈 CAGR (PAT) : ~96%

Go Digit General Insurance (₹ Crore)

Metric	FY22	FY23	FY24
Gross Premium Income	1,580	2,310	3,070
Net Profit/Loss	(135)	(190)	(150)
Operating Expenses	360	580	790
Combined Ratio*	108%	107%	105%

📉 Trend : Still not profitable
📉 Note : Combined ratio >100% indicates underwriting losses

Combined Ratio = (Claims Paid + Operating Expenses) / Premium Earned

📈 3. Valuation Metrics

Metric	Netweb Technologies	Go Digit GIC
P/E Ratio (vs issue price)	31x	Not applicable (loss-making)
EV/EBITDA	24x	—
Price/Sales (P/S) Ratio	5.2x	6.1x
Peer Avg (Tech Sector)	~25x P/E	—
Peer Avg (Insurance Sector)	—	~8x P/S

🧠 Netweb was priced at a premium but justified by growth
🧠 Go Digit’s valuation was aggressive despite continued losses

⚠️ 4. Risk Factors

Netweb Technologies

Heavy reliance on NVIDIA GPUs (~60% of product portfolio)
No long-term supply contracts
Export exposure to global economic slowdowns

Go Digit General Insurance

High customer acquisition cost
Low policy renewal rates (<30%)
Regulatory scrutiny in the insurance sector
Claims fraud risk

💰 5. Use of Proceeds

Netweb Technologies

₹700 crores – Expansion of manufacturing unit in Pune
₹300 crores – R&D, working capital
₹250 crores – Branding and sales expansion

Go Digit General Insurance

₹1,000 crores – Underwriting growth
₹500 crores – Reinsurance support
₹375 crores – Technology upgrades

✅ Netweb’s fund usage aligned with growth and scaling
⚠️ Go Digit raised funds without a clear path to profitability

📥 6. Subscription & Listing Performance

Detail	Netweb Technologies	Go Digit GIC
Retail Portion Oversubscription	79x	38x
Issue Allotted At	₹1,470	₹75
Listing Day Closing Price	₹1,950 (+32.7%)	₹98 (+30.7%)
One-Month Post-Listing Price	₹2,120 (+44.2%)	₹105 (+40%)

Both IPOs saw strong retail demand and listing gains.

📊 Summary Comparison Matrix

Criteria	Netweb Technologies	Go Digit GIC	Winner
Business Model Clarity	Clear, scalable tech offering	Strong digital play but unclear profitability	Tie
Financial Health	Strong revenue & profit growth	Loss-making, rising expenses	Netweb
Valuation Justification	Premium justified by growth	Overvalued given losses	Netweb
Use of Funds	Capital expenditure, R&D	Growth funding without profitability plan	Netweb
Risk Profile	Moderate (supply chain risk)	High (operational & regulatory)	Netweb
Listing Gains	+32.7%	+30.7%	Tie

🏆 Overall Winner: Netweb Technologies

📝 Final Thoughts

IPO	Investment Outlook
Netweb Technologies	Positive – Strong fundamentals, high-growth niche, justified valuation
Go Digit GIC	Cautious – High potential but lacks profitability and has operational challenges

📘 Step-by-Step Example of DCF + Peer Valuation Combined for IPO Analysis

Combining Discounted Cash Flow (DCF) and Peer Valuation gives a more robust estimate of a company’s value , especially during an IPO. DCF provides intrinsic value based on future cash flows, while peer valuation offers a market-based benchmark.

Below is a realistic step-by-step example using a hypothetical tech startup — XYZ Technologies Pvt Ltd — preparing for an IPO in India.

🧾 Company Overview: XYZ Technologies Pvt Ltd

Parameter	Details
Sector	SaaS / Enterprise Software
Business Model	Subscription-based platform for HR automation
Current Revenue (FY24)	₹100 Crores
EBITDA (FY24)	₹15 Crores
Net Profit (PAT)	₹5 Crores
Growth Rate (Revenue)	50% YoY
Target IPO Date	Q3 FY25

📊 Step 1: Forecast Future Free Cash Flows (FCF)

We’ll forecast 5 years of FCF to apply the DCF model.

Assumptions:

Revenue growth: 50%, 40%, 30%, 25%, 20%
Operating margin improves from 15% to 22%
Tax rate = 25%
CapEx = 10% of revenue
Working capital change = 5% of revenue increase

Year	Revenue (₹ Cr)	EBIT (₹ Cr)	NOPAT (₹ Cr)	CapEx (₹ Cr)	ΔWC (₹ Cr)	FCF (₹ Cr)
FY25	150	22.5	16.875	15	5	1.875
FY26	210	37.8	28.35	21	6	1.35
FY27	273	54.6	40.95	27.3	6.3	7.35
FY28	341	68.2	51.15	34.1	6.8	10.25
FY29	410	90.2	67.65	41	6.9	19.75

✅ NOPAT = EBIT × (1 – Tax Rate)
✅ FCF = NOPAT – CapEx – Change in Working Capital

💹 Step 2: Calculate Terminal Value

We’ll use the Gordon Growth Model :Terminal Value=(WACC−g)FCFn×(1+g)

Where:

FCFn = ₹19.75 Cr
g = 3% terminal growth
WACC = 11%

TV=0.11−0.0319.75×1.03=0.0820.34=₹254.25 Cr

💰 Step 3: Discount Cash Flows to Present Value

Use the formula:PV=(1+WACC)nFCF

Year	FCF (₹ Cr)	PV Factor @11%	PV of FCF (₹ Cr)
FY25	1.875	0.901	1.69
FY26	1.35	0.812	1.10
FY27	7.35	0.731	5.37
FY28	10.25	0.659	6.75
FY29	19.75	0.593	11.71
Total PV of FCFs	—	—	₹26.62 Cr

🏢 Step 4: Calculate Enterprise Value & Equity Value

Enterprise Value=PVofFCFs+PVofTerminalValue=₹26.62+₹150.77=₹177.39 Cr

Assume:

Debt = ₹20 Cr
Cash = ₹10 Cr

Equity Value=EV–Debt+Cash=₹177.39–₹20+₹10=₹167.39 Cr

If total shares = 10 crore

Intrinsic Value per Share=10 Cr Shares₹167.39 Cr=₹16.74

🔍 Step 5: Peer Valuation Comparison

Let’s compare with listed peers:

Peer Company	P/E Ratio	EV/EBITDA	P/S Ratio
Zoho Corp	40x	28x	8x
Freshworks Inc	35x	25x	7x
Paytm (early days)	N/A (loss-making)	30x	6x
Average	37.5x	27.7x	7x

Now apply these multiples to XYZ Tech’s financials:

Multiple	Base	Value per Share
P/E (37.5x)	₹5 Cr PAT → ₹187.5 Cr	₹18.75/share
EV/EBITDA (27.7x)	₹15 Cr EBITDA → ₹415.5 Cr	₹41.55/share
P/S (7x)	₹100 Cr Rev → ₹700 Cr	₹70/share

⚠️ Wide variation due to different business maturity stages

📈 Step 6: Combine DCF + Peer Valuation

Method	Value per Share
DCF (Intrinsic)	₹16.74
P/E-Based (Conservative)	₹18.75
EV/EBITDA (Moderate)	₹41.55
P/S-Based (Aggressive)	₹70.00

✅ A reasonable IPO price range could be between ₹18–₹42/share , depending on investor sentiment and growth confidence.

📊 Summary Table

Component	Value
Intrinsic Value (DCF)	₹16.74
Peer-Based (P/E)	₹18.75
Peer-Based (EV/EBITDA)	₹41.55
Peer-Based (P/S)	₹70.00
Fair IPO Price Range	₹18 – ₹42
Recommended Issue Price	₹30 (midpoint, with room for listing gains)

📘 Free Template for Draft Red Herring Prospectus (DRHP) Preparation – India IPO

Preparing a Draft Red Herring Prospectus (DRHP) is one of the most critical steps in the Initial Public Offering (IPO) process in India. It serves as the preliminary document submitted to the Securities and Exchange Board of India (SEBI) before launching an IPO.

Below is a comprehensive DRHP preparation template , structured based on SEBI guidelines and real-world IPO filings by Indian companies like Zomato, Paytm, Nykaa, and Go Digit Insurance .

📄 DRHP Preparation Template – Table of Contents

💡 This structure can be used by companies planning to go public via IPO in India , especially with assistance from merchant bankers, legal advisors, and auditors .

🔹 1. Highlights

Company Name & Incorporation Date
Issue Details: Price Band, Lot Size, Issue Size
Purpose of Issue
Listing Exchanges (NSE/BSE)
Pre-Issue and Post-Issue Equity Shareholding
Key Financial Metrics: Revenue, PAT, EPS, ROE

🔹 2. Risk Factors

List all material risks including:

Market Risks (demand, competition)
Regulatory Risks
Operational Risks (supplier dependency, technology)
Legal Litigations (if any)
Financial Risks (debt, liquidity)

✅ Use bullet points for clarity
✅ Include mitigating actions where applicable

🔹 3. Issue Details

Type of Issue: Fresh Issue / Offer for Sale (OFS) / Combination
Issue Price Band or Fixed Price
Face Value per Share
Lot Size (Minimum Bid Quantity)
Subscription Dates
Retail, QIB, and NII Allocation
Basis of Allotment
Refund Process

🔹 4. Company Information

Corporate History & Background
Promoters & Promoter Group
Subsidiaries & Joint Ventures
Management Team & Directors
Employee Stock Option Plan (ESOP) Details
Material Developments (recent events affecting business)

🔹 5. Business Overview

Nature of Business & Products/Services
Target Market & Customer Base
Business Model & Revenue Streams
Competitive Landscape
Growth Strategy & Expansion Plans
Intellectual Property (Patents, Trademarks, etc.)

🔹 6. Organizational Structure

Flowchart showing company structure
Details of subsidiaries and associates
Foreign operations (if any)

🔹 7. Management Discussion and Analysis (MD&A)

Review of financial performance (last 3–5 years)
Opportunities and threats
Capital expenditures
Liquidity position
Impact of inflation, interest rates, and taxation
Segment-wise performance (if applicable)

🔹 8. Corporate Governance

Composition of Board of Directors
Audit Committee & Independent Directors
Whistle Blower Policy
Code of Conduct
Related Party Transactions

🔹 9. Subsidiaries

Names, incorporation details
Nature of business
Shareholding pattern
Financial highlights

🔹 10. Tax Compliance

Income tax assessments
Pending litigations
Transfer pricing matters

🔹 11. Litigation

Ongoing litigation involving promoters or company
Outcome likely to affect business continuity
Criminal cases (if any)

🔹 12. Financial Statements

Include:

Balance Sheet (Last 3–5 Years)
Profit & Loss Account
Cash Flow Statement
Notes to Accounts
Auditor’s Report
Accounting Policies

✅ Must be audited and comply with Ind AS (Indian Accounting Standards)

🔹 13. Valuation

DCF Valuation or other intrinsic valuation models
Peer Comparison (P/E, EV/EBITDA, P/S ratios)
Justification for issue price
Fairness opinion (if provided by merchant banker)

🔹 14. Use of Proceeds

Break down how funds will be utilized:

Expansion Capex
R&D
Working Capital
Debt Repayment
Mergers & Acquisitions

✅ Link fund usage to strategic goals

🔹 15. Subscription and Allotment Process

Steps involved in applying (ASBA, online bidding)
Cut-off dates
Allotment basis (pro-rata or lottery)
Refund mechanism
Demat credit timeline

🔹 16. Dividend Policy

Past dividend history (if any)
Future dividend plans
Retention policy

🔹 17. Listing Details

Proposed stock exchanges
Expected listing date
Trading symbol
Post-listing compliance obligations

🔹 18. Intermediaries

Lead Manager(s) / Merchant Banker(s)
Registrar to the Issue
Auditors
Legal Advisors
Underwriters (if any)

🔹 19. Statutory and General Information

SEBI registration details
ROC filing references
Contact information of company secretary, investor relations officer
Website links for disclosures

🔹 20. Annexures & Appendices

Attach:

Audited financial statements
Certificate of registrations
Promoter undertakings
Legal opinions
MOA/AOA excerpts
ESOP scheme documents
Valuation reports

🧠 Best Practices for DRHP Preparation

Practice	Description
Accuracy First	Ensure all data is verified and audited
Compliance Focus	Follow SEBI’s ICDR Regulations strictly
Clarity & Simplicity	Avoid jargon; make it readable for retail investors
Consistency Across Sections	Data must match across financials, risk factors, and MD&A
Timely Submission	Allow buffer time for SEBI queries and modifications