Chapter 5: IPO & Primary Market
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Day 25: IPO — The Company's Stock Market Debut
Private to public — and why it matters for you as an investor
3 min read
📖 Robert's Big Day
Ten years after starting his tea stall, Robert's company had 500+ outlets nationwide, a staff of 2,000, and revenue of ₹300 crore. He wanted to expand into cafés, launch a packaged tea brand, and open outlets in Dubai.
His financial advisor said: "Robert, it's time for your IPO."
Robert: "My what?"
Advisor: "Your Initial Public Offering. You invite the public to invest in your company by buying shares. You raise hundreds of crores in a day."
Robert: "The public? Like... strangers?"
Advisor: "Some of the best investors are strangers who believe in what you've built." 🎊
Ten years after starting his tea stall, Robert's company had 500+ outlets nationwide, a staff of 2,000, and revenue of ₹300 crore. He wanted to expand into cafés, launch a packaged tea brand, and open outlets in Dubai.
His financial advisor said: "Robert, it's time for your IPO."
Robert: "My what?"
Advisor: "Your Initial Public Offering. You invite the public to invest in your company by buying shares. You raise hundreds of crores in a day."
Robert: "The public? Like... strangers?"
Advisor: "Some of the best investors are strangers who believe in what you've built." 🎊
IPO — The Official Definition
IPO = Initial Public Offering — A private company offering its shares to the public for the first time, and getting listed on a stock exchange.
Before IPO: Company is private. Only founders, employees, and institutional investors own shares.
After IPO: Anyone in India can buy a share. The company is "publicly listed."
IPO = the company's entry into the big leagues.
Before IPO: Company is private. Only founders, employees, and institutional investors own shares.
After IPO: Anyone in India can buy a share. The company is "publicly listed."
IPO = the company's entry into the big leagues.
Why Do Companies Do IPOs?
💰 Fresh Capital Raise
New shares issued → public buys them → company gets money → expansion funded. The money goes to the COMPANY.
🚪 Offer For Sale (OFS)
Early investors or promoters sell their existing shares. Money goes to THEM, not the company. Promoter exit — check this ratio!
⭐ Brand Credibility
Listed company = media coverage, analyst research, institutional investors. Makes future fundraising easier and cheaper.
👥 Employee Stock Options
Employees with ESOPs (stock options) can finally convert them to cash after listing. Major talent retention tool for startups.
India's Famous IPOs — Winners and Disasters
| Company | IPO Year | IPO Price | Outcome |
|---|---|---|---|
| IRCTC | 2019 | ₹320 | Went to ₹1,900+ — 6x! 🏆 |
| Zomato | 2021 | ₹76 | Volatile ride — fell to ₹40, recovered to ₹200+ |
| Paytm | 2021 | ₹2,150 | Fell to ₹440 — a masterclass in overvaluation 😬 |
| LIC | 2022 | ₹949 | India's largest IPO ever — ₹21,000 crore raised |
⚠️ The OFS Warning!
If an IPO is mostly OFS (Offer For Sale), the founders and early investors are just cashing out. No fresh capital goes to the company for growth. This can be a red flag — the people who know the company best are selling. Always check the Fresh Issue vs OFS ratio before applying!
If an IPO is mostly OFS (Offer For Sale), the founders and early investors are just cashing out. No fresh capital goes to the company for growth. This can be a red flag — the people who know the company best are selling. Always check the Fresh Issue vs OFS ratio before applying!
🎯 Today's Takeaway:
IPO = company's first public share sale. Fresh Issue = money to company. OFS = money to existing shareholders. Check ratio! IPOs can be spectacular (IRCTC) or catastrophic (Paytm). Tomorrow: The complete IPO process from DRHP to listing!
IPO = company's first public share sale. Fresh Issue = money to company. OFS = money to existing shareholders. Check ratio! IPOs can be spectacular (IRCTC) or catastrophic (Paytm). Tomorrow: The complete IPO process from DRHP to listing!