Through an Initial Public Offering (IPO), a company can raise capital from the public. Generally, companies initiate the IPO process to fund their existing operations and new ventures. As an investor, you can be part of this journey, and get involved as the company goes public.
However, to become publicly listed, a company must follow the IPO application process mandated by the Securities and Exchange Board of India (SEBI). Moreover, the company will also have to comply with the NSE regulations.
Similarly, to invest, you need to meet certain criteria set by SEBI. Read on to know more about how to apply for an IPO and the eligibility criteria for an IPO application in India.
The eligibility criteria for IPO investors are as follows:
You should be above the age of 18 years
You should have a valid PAN
You should have a Demat account and trading account (if you want to sell)
You should have a bank account with sufficient balance and internet banking
For the convenience of investors, SEBI has brought in the facility called the Applications Supported by Blocked Amounts (ASBA).
With ASBA IPOs, money is not debited from the investor’s amount till the time of allotment.
Under this facility, the designated amount is blocked in your account upon IPO application.
On the allotment date, the amount from your account will be debited based on the volume of shares allotted to you.
Additionally, like investors, companies issuing IPOs also need to meet certain eligibility criteria for IPO investment.
As mentioned above, SEBI is the regulatory body that sets the IPO requirements in India. To become publicly listed and raise funds from investors in the stock market, a company needs to fulfil the following eligibility criteria for an IPO application.
The company should be in existence for at least three years
The net tangible assets of the company should be ₹3 Crores or more in every year for the last three years
Out of these ₹3 Crores, cash or cash equivalent must not exceed 50% of total tangible assets, not applicable if it is ‘offer through sale’
In each of the previous three years, the applicant company must also have a net worth of over ₹1 Crore
During the previous five years, the company needs to have an average pre-tax operating profit of ₹15 Crores in at least three years
In case the company adopted a new name, 50% of the revenue in the previous year should be after assuming the new name
The total value of the issue size of the IPO must not exceed five times the net worth of the company before the IPO issue
SEBI also provides an alternative non-profitability method for legitimate companies to enter the primary market.
Such companies can issue IPO through the QIB route using the book-building approach.
The company needs to reserve 75% of the total offering for Qualified Institutional Buyers (QIB).
However, if the company does not attain this requirement, it will have to refund the entire subscription money.
The following are National Stock Exchange (NSE) regulations that a company will have to comply with to meet eligibility for the IPO application.
The paid-up capital of the company in the previous year must be over ₹10 Crores
The capitalisation of the company’s equity should at least be ₹25 Crores
The company should have adhered to the Securities Contracts (Regulations) Act 1956, Companies Act 1956/2013, and Securities and Exchange Board of India Act 1992
The company should submit financial proceedings for the previous 3 years
The company (applicant) must complete the cooling-off period of 6 months after rejection before reapplying
Retail and institutional investors can invest in IPOs through the primary market. Moreover, through the IPO process, investors can leverage the company's growth potential to earn better returns.
To find investment options as per your risk-tolerance, visit Bajaj Markets. The digital platform simplifies access to mutual funds, FDs, and various other investments.
The right time to make an IPO application is when a company has fulfilled all the SEBI-mandated IPO requirements in India. Moreover, they also have to comply with the NSE regulation to meet eligibility for IPO application.
Additionally, to attract and assure investors, the company must ensure that its financial health for the last few years promises accelerated growth.
It takes 4-6 months for a company to complete the IPO application process and issue an offering in the primary market.
The companies need to have minimum net tangible assets of ₹3 Crores for each of the previous 3 years to be eligible for IPO application.
If you are an investor and wondering how to apply for an IPO, you can easily do so through your Demat account. All you have to do is complete your online IPO application and make a bid for the number of units you want to purchase.