While the world shut down in the pandemic, some Indian companies witnessed tremendous growth. At least 15 companies launched their IPO in 2020 and received great subscription numbers. The IPO window is wide open this year as well with several big names such as LIC, Nykaa, Zomato, Go Air, etc. looking to go public.
This gives hope to the new SMEs and start-ups to consider putting themselves in the public eye. However, an IPO launch is both a milestone and a challenge for a company.
With the change in status from private to a public company, comes a whole lot of other changes and experiences from media publicity to accountability and scrutiny. The fund issue can make or break a company, depending on how it is executed.
Gaining the status of a public company can help a firm enhance its brand identity, facilitate mergers and acquisitions and provide liquidity to the company owners. At the same time, there are increased responsibilities and obligations. Nothing good comes easy right?
So, what does it take to launch a successful IPO in India? What should new companies consider and how cautious should they be? Let’s dive into the IPO window phase of a company and understand what every entrepreneur must consider before launching an IPO.
1.Is the IPO feasible?
The first and foremost question to consider is the feasibility of an Initial Public Offer. Keeping the legal guidelines aside, you must also consider the long-term implications of the move. Launching an IPO, by no means is the final step. It is the beginning of a whole new world for your business.
Here are three key factors to determine the feasibility of an Initial Public Offer in India:
- The Market Size:
It is essential to determine the size of the market in which your IPO is going to be launched. The bigger the market, the higher is the growth potential. Niren Shah, MD at Northwest Venture Partners explained in an interview with Money Control that the Indian IPO market is ripe for fresh IPOs right now with more than 20 small and big names going public by the end of 2021.
- A Unique Selling Proposition
Is your company solving an existing problem? Is it disruptive enough to stand out? The more unique and effective your brand is, the greater response it will receive from the retail investors.
- A Strong Leverage
It is not easy to launch a successful IPO. Having leverage of some kind can help move you up the consumer demand. This leverage can be a competitive advantage of your product, an influential backing, or a strategic partnership. If you have a real advantage in the market, an IPO can help boost your company.
2.How are your Financials Looking Like?
Once you have qualified an IPO as feasible, the next thing to consider is your company financials. They are not private documents anymore, and thus need to be carefully analyzed to form a strong financial report. It is these reports that make the public investor believe in your company.
A good cash flow and P/E ratio, low debt, increasing revenues, and growing demand influence how the public will react to your company IPO.
Sometimes, a company’s accounts need to be completely re-worked according to the Indian Accounting Standard (IND-AS). There needs to be an advanced accounting team set up to adhere to all the legal and public expectations.
Thus, it is advised for companies to take the due course of time to prepare for outing their financials to the world.
3.Are you Prepared for High Scrutiny?
Private companies fail to realize the level of scrutiny that a public company has to go through. SEBI has imposed strict legal guidelines for newly public companies wherein they conduct rigorous interviews and checks on every member of the company.
The financials are also analyzed by lawyers, auditors, and bankers to ensure the company has nothing to hide from its upcoming shareholders.
Before going public, it is ardent to determine if your company is ready for that level of inspection and scrutiny.
4.Brownie Points for Predictability
Another highly important factor for the success of an upcoming IPO is the level of predictability in its business model. This means having a growth plan and future strategy in place.
When you have set numbers to show the potential of your company to the public investors, a fund offer is deemed to attract high subscriptions.
This future strategy involves your short-term and long-term plans with the business. It could be merging, pivoting, or acquiring a larger share in the market. Apart from numbers, the predictability of your business can also be judged by the target market, industrial growth, and overall change in the economy.
5.Do you have a PR team?
Launching an IPO means coming into the direct public eye. Anything you say and do in your company can be questioned by the industry standards and humanitarian point of view.
An effective public relations team can ensure that all communications from your end are morally correct and that your company maintains a healthy relationship with the shareholders.
From issuing a notice to taking a stand on social issues, an effective PR team can help boost your brand image.
6.Is it the right IPO Window?
Timeliness is an essential element of launching an IPO. If you wait for long enough to close the fund offer, it will lose its relevance, and too early will also not be fruitful.
Choosing the right IPO window plays a big role in determining the future performance of the IPO.
Having considered all these options, a successful IPO will longer be a wish. The Indian corporate and start-up space is brimming with opportunities, the question is if your company is willing to grab it.