How a Company Can Apply for an IPO – Routes, Process, Challenges & Key Considerations
Applying for an IPO is a transformative step for any company, offering access to capital, enhanced visibility, and stronger market credibility, but the process is highly regulated and demands rigorous preparation. Companies in India can pursue a Main Board IPO, SME IPO, or a mix of Fresh Issue and Offer for Sale depending on their size, capital needs, and investor goals. The IPO journey involves extensive pre-IPO planning, including appointing key intermediaries, strengthening governance, restating financials, and determining valuation and issue structure. After drafting and filing the DRHP with SEBI, companies undergo detailed scrutiny, obtain stock exchange approvals, conduct roadshows, announce the price band, complete book building, and finalize allotment and listing. Common challenges include strict compliance requirements, governance upgrades, due diligence hurdles, market volatility, valuation disagreements, high costs, and increased management bandwidth demands. Ultimately, companies must ensure financial robustness, governance readiness, compliance culture, and strong market timing before going public.
This article explains the ways to apply for an IPO, the end-to-end procedure, challenges companies usually face, and the critical factors to consider before initiating an IPO journey.
1. Ways for a Company to Apply for an IPO in India
Indian companies can go public through the following three main routes:
i. Main Board IPO
For established companies meeting SEBI eligibility norms:
- Minimum net tangible assets: ₹3 crore
- Average operating profit: ₹15 crore (usually for last 3 years)
- Net worth: ₹1 crore
- Paid-up capital: ≥ ₹10 crore post IPO
Best suited for medium to large enterprises planning a full-scale public listing.
ii. SME IPO (NSE Emerge / BSE SME)
Designed for small and medium enterprises:
- Lower eligibility thresholds
- Relaxed compliance and disclosure norms
- Migration to main board possible after meeting criteria
Suitable for companies with smaller capital needs or early growth stage.
iii. Offer for Sale (OFS) + Fresh Issue Combination
A company may:
- Issue fresh shares for raising funds, and
- Allow promoters/investors to sell shares
This structure is common among private equity-backed companies.
2. Step-by-Step Procedure for Applying for an IPO
The IPO process can be divided into pre-IPO preparation, regulatory approvals, and post-approval activities.
3. Pre-IPO Preparation Stage
i . Appointing Key Intermediaries
- Merchant Banker (Lead Manager)
- Legal Counsel
- Registrar to Issue
- Auditors & Internal Control Consultants
- Underwriters (optional but common)
ii. Corporate Housekeeping
- Conversion into a public limited company
- Reconstitution of Board (Independent Directors, committees)
- Adoption of new articles of association
- Strengthening internal controls & governance
iii. Financial & Compliance Readiness
- Restatement of financials (last 3 years) as per SEBI guidelines
- Robust internal control systems
- Tax and legal due diligence
- Verification of litigations, contracts, IP, related-party transactions
iv. Valuation & Structuring the Issue
- Determine:
- Issue size
- Fresh issue / OFS mix
- Price band
- Shareholding pattern
4. Filing & Regulatory Process
5. Draft Red Herring Prospectus (DRHP) Preparation
A detailed disclosure document covering:
- Business model
- Financials
- Risks
- Management
- Industry overview
6. Filing DRHP with SEBI
- SEBI reviews the document
- Issues queries, asks clarifications
- Once satisfied → SEBI issues Observation Letter
This process typically takes 6–8 weeks.
7. Stock Exchange Approval
Apply to NSE/BSE for in-principle listing approval.
8. Pre-Issue & Issue Process
Roadshows & Marketing (IPO Roadshow)
- Investor presentations
- Analyst meets
- Institutional investor meetings
To generate demand and build confidence.
9. Price Band Announcement & Book Building
- Lead managers announce issue price band
- Investors bid during the issue window
10. Allotment, Refund, and Listing
- Registrar finalises allotment
- Shares credited to Demat accounts
- Refunds processed
- Shares get listed on exchange
3. Common Challenges Companies Face in an IPO Process
1. Extensive Compliance, Disclosure & Documentation Requirements
An IPO demands the highest level of compliance and transparency. SEBI’s guidelines require companies to prepare and disclose:
- Restated financial statements for last 3 years
- Detailed risk factors
- Corporate governance reports
- Material contracts and agreements
- Related-party transactions
- Litigation updates
Challenge:
Compiling this information requires coordination across departments, legal advisors, auditors, and bankers. Even small discrepancies or insufficient disclosures can delay approvals.
2. Corporate Governance Upgradation
Most private companies do not operate with the governance standards required for listed entities. Before the IPO, companies must:
- Appoint independent directors
- Form Audit, Nomination & Remuneration, Stakeholders’ committees
- Implement strong internal controls
- Adopt a new set of Articles (AoA)
- Improve transparency in decision-making
Challenge:
Upgrading governance within limited time frames, training teams, and shifting to more transparent practices is often culturally difficult.
3. Due Diligence Issues (Legal, Financial, Operational)
Merchant bankers and legal teams conduct rigorous due diligence covering:
- Financial records
- Tax filings
- Contracts
- Employee records
- Statutory compliances
- Environmental clearances
- IP rights and trademarks
- Pending litigations
Challenge:
Any non-compliance, missing document, unresolved case, or financial mismatch can lead to:
- Delays in DRHP filing
- Negative investor perception
- Lower valuation
- Extra disclosures and explanations
4. Market Volatility and Timing Constraints
Even if the company is fully prepared, market conditions may not be favorable at the time of launch.
The IPO may be affected by:
- Stock market corrections
- Global economic slowdown
- Geopolitical tensions
- RBI monetary policy shifts
- Sector-specific downturns
Challenge:
Management has little control over market sentiment. Poor timing can lead to:
- Undersubscription
- Reduction in price band
- Postponement of IPO
- Lower funds raised
Valuation Conflicts Between Promoters and Investors
Promoters often expect a higher valuation based on company growth potential, while institutional investors focus on:
- Profitability
- Market comparables
- Discounted cash flow
- Industry outlook
Challenge:
This mismatch leads to extended negotiations. Overvaluation may reduce subscription interest, while undervaluation reduces promoter confidence.
High Cost of IPO Process
The IPO process is expensive and includes costs such as:
- Merchant banker fees
- Legal advisory charges
- Statutory auditor fees
- Registrar fees
- Advertising & marketing (roadshows)
- Stock exchange fees
- Printing & documentation
Challenge:
For SMEs or mid-size companies, IPO costs can be prohibitive and need careful financial planning.
Management Bandwidth & Operational Distractions
Preparing for an IPO involves:
- Frequent meetings with bankers, lawyers, auditors
- Preparing detailed data and reports
- Responding to SEBI queries
- Conducting roadshows
- Aligning teams
Challenge:
Senior management gets heavily occupied with IPO tasks, which may distract from daily business operations, affecting performance.
Cultural Shift & Readiness for Public Scrutiny
Once listed, companies face:
- Shareholder expectations
- Analyst coverage
- Media scrutiny
- Quarterly results pressure
- Insider trading restrictions
- Continuous disclosure requirements
Challenge:
Many private companies find it difficult to shift from a closely held culture to a transparent, publicly accountable environment.
Internal Systems & Reporting Structure Upgradation
Public companies must maintain:
- Real-time financial reporting
- Statutory compliance tracking systems
- Internal audit and risk management frameworks
Challenge:
Most private companies need system upgrades (ERP, MIS, compliance tools) which take time and investment.
Coordination Among Multiple Intermediaries
The IPO process involves:
- Merchant bankers
- Legal advisors
- Registrars
- Auditors
- PR agencies
- Stock exchanges
- SEBI
Challenge:
Managing all stakeholders, meeting tight timelines, and coordinating documentation is a major operational challenge.
4. Key Factors a Company Should Consider Before Applying for an IPO
1. Financial Health & Track Record
Consistent revenue, profitability, and strong balance sheet.
2. Corporate Governance Standards
Presence of independent directors, committees, internal audit systems.
3. Use of IPO Proceeds
Clear business purpose:
- Expansion
- Debt repayment
- R&D
- New projects
4. Market Timing
IPO success heavily depends on favorable market conditions.
5. Promoter Credibility
Investors evaluate:
- Experience
- Past performance
- Stability & transparency
6. Compliance Culture
Companies must be SEBI-compliant post listing with quarterly and annual reporting obligations.
7. Post-Listing Expectations
Being a listed company requires:
- Transparency
- Public scrutiny
- Meeting investor expectations
Conclusion
Applying for an IPO is a strategic decision requiring careful planning, strong governance, financial discipline, and market readiness. While an IPO offers access to capital and enhances visibility, companies must prepare thoroughly—legally, operationally, and financially—to ensure a smooth and successful listing.
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