An IPO is a primary-market transaction; the listing is only the beginning
An IPO can combine new capital raised by the company with shares sold by existing shareholders. The investment question is not simply whether demand will be high on listing day, but what business you are buying and what price you are paying for it.
Fresh issue vs offer for sale
Fresh shares raise capital for the company. Offer-for-sale shares transfer ownership from existing holders. Read the offer document to understand who receives the proceeds.
Book building and price band
Investors submit bids within the stated price band under the issue process. The final issue price is determined through the applicable price-discovery mechanism. The price band itself is not proof of fair value.
What to read in the offer document
- Business model and revenue drivers
- Historical financial statements
- Promoters and ownership
- Related-party transactions
- Litigation and material risks
- Customer/supplier concentration
- Use of proceeds
Valuation before excitement
Estimate the post-issue share count and implied market capitalisation. Then compare P/E, EV/EBITDA or other relevant measures with genuinely comparable businesses, adjusting for growth, margins, returns on capital and balance-sheet risk.
Listing gain versus investment thesis
A listing price is another market price, not a validation of the original thesis. If the valuation changes sharply after listing, reassess the investment from scratch.
Checklist
- Prospectus read
- Fresh issue/OFS separated
- Post-issue share count calculated
- Use of proceeds understood
- Peer set justified
- Valuation tested under multiple assumptions