What is an IPO?

You must have heard of the term IPO! Curious what it stands for? Here’s decoding it for you. Take a
quick look below and find out!

What is an IPO?
An Initial Public Offering or IPO is a process via which a private company decides to go public by offering its stake or ownership in the business to the general public in exchange for capital. An IPO lets a company raise capital that can be used for repaying debt, growing business or giving promoters a partial exit from the business, etc.

E.g. JSW Infrastructure Limited came up with its IPO on 25th Sept, 2023 to raise ₹2,800 Cr by
offering ₹23.53 Cr shares to public investors. The objective of the IPO was to repay borrowings, fund capital expenditure and derive benefits of company listing on exchanges.

Why is a company coming up with its share offering?

Every company has a different reason to come up with its IPO. One company wants to repay its debt, another wants to pay back its investors, some just want to get the benefits of listing on the markets, etc. Below are real-case company examples and their objectives of coming up with an IPO.

In the Draft Red Herring Prospectus (DRHP) of JSW Infrastructure Limited, the company has highlighted its objectives. A snap of the same can be found below:

What is an IPO?

Source: DRHP JSW Infrastructure Limited

Below is the DRHP of Tata Technologies Limited. The company’s objective is to give its promoter some exit or selling of its stake without any capex in mind. 

What is an IPO?

Source: DRHP Tata Technologies Limited.

So, it’s very important to understand why the company is coming with an IPO and what they intend to do with the capital raised. One can go on to the company’s DRHP and do a search for ‘OBJECTS OF THE OFFER’ where the company will highlight its reasons that will help in enhancing one’s own due diligence.