Why Companies Issue Their IPO

Initial Public Offerings

Initial Public Offerings (IPO)  is a process through which a company offers its private shares to the public for the first time. This helps the issuing company (issuer) to raise capital for the purpose of business expansion, debt repayment or other general purpose.

Which Are the Companies That Can Issue An IPO?

IPOs are issued by private companies that plan to go public. Private Companies, who aim to maintain their standing, do not make investments in their shares available to the public. Some bigger market players have still not issued their IPOs. 

For example, ‘McDonald’s and IKEA’ have still not gone public. A private company that intends to go public releases IPOs for the purpose. Government-owned companies divest a part of their stakes to the public. The largest-ever IPO issued in the Indian stock market was of Coal India Limited in the year 2010. National Highways Authority of India (NHAI) is the most recent IPO issue at National Stock Exchange. Recently in 2023, the largest IPO is LIC worth Rs.21000 crores.

Why Do Companies Issue Their IPOs?

• The financial benefit is the first and the most crucial direct benefit that a company derives from releasing an IPO.

• The company widens its possibility of earning as it broadens its sphere of financial investors.

• When the equity market experiences a financial boom, public companies experience increased profits during a bullish stock market.

• Such benefits attract a company to go public.

• The liquidity in the capital of the company increases. 

• Since the company has gone public, it faces a bilateral benefit where it enjoys increased market share. 

• More and more people get to know about the company and its offerings to raise awareness.

• The companies can also assist in their merger and acquisition activities in return for the sale of their stocks.

• A company increases its financial involvement in the market.

• Going public makes it mandatory for a company to share information. 

• All company details come hand in hand with the sale of IPOs, which can be risky.

•  It becomes a costly affair as the legal costs and management discrepancies due to the involvement of significant shareholders in the company's management become an expensive affair.

Why do Some Companies don't Issue IPOs?

Some companies choose not to issue IPOs for several reasons:

• Cost and Complexity: IPOs can be expensive and complex due to regulatory requirements, underwriting fees, legal and accounting fees, and ongoing compliance costs.

• Loss of Control: Going public often means relinquishing some degree of control over the company to shareholders and complying with regulatory requirements that may restrict certain business decisions.

• Market Conditions: Companies may opt to wait for more favourable market conditions to ensure they can achieve the desired valuation and raise the necessary capital.

• Access to Capital: Some companies may have sufficient access to capital through private investors, venture capital, or other funding sources, reducing the need for an IPO.

• Focus on Long-Term Growth: Private ownership allows companies to focus on long-term growth strategies without the pressure of meeting short-term quarterly earnings expectations from public shareholders.

• Increased Scrutiny: Public companies are subject to greater scrutiny from regulators, analysts, and the media, which can create additional challenges and distractions for management.

Ultimately, the decision to issue an IPO depends on the company's specific circumstances, growth objectives, and strategic priorities.

Frequently Asked Questions

What is an IPO in the share market?

An IPO, or Initial Public Offering, is the process by which a private company becomes a public company by offering its shares to the public for the first time. This allows the company to raise capital from public investors.

List the latest IPO launch?

The latest IPO launched in February 2024 are PLATINUM INDUSTRIES LIMITED, Purv Flexipack Limited, Owais Metal and Mineral Processing Limited, Sadhav Shipping Limited, GPT Healthcare Limited, Juniper Hotels Limited, Zenith Drugs Limited, Deem Roll-Tech Limited,Kalahridhaan Trendz Limited, Thaai Casting Limited,Atmastco Limited, Interiors & More Limited,Esconet Technologies Limited,Wise Travel India Limited,Polysil Irrigation Systems Limited,Entero Healthcare Solutions Limited,Alpex Solar Limited, Capital Small Finance Bank Limited, Jana Small Finance Bank Limited, Rashi Peripherals Limited, Italian Edibles Limited,Apeejay Surrendra Park Hotels Limited.

List the new IPO launch ?

As of March 2024, the new IPO launches are AVP Infracon Limited, Krystal Integrated Services Limited , KP Green Engineering Limited , Enfuse Solutions Limited , Enser Communications Limited, Chatha Foods Limited , Vishwas Agri Seeds Limited.

How do IPOs Affect the Economy of the Country?

IPOs can positively impact the economy by providing companies with access to capital for growth and expansion, stimulating job creation, and fostering innovation and competition. Successful IPOs can enhance investor confidence and attract foreign investment, contributing to overall economic growth. However, excessive IPO activity can lead to market volatility and speculation, which may pose risks to the economy.

List the upcoming IPOs as of March 2024?

The upcoming IPOs to be announced in March 2024 are Trust Fintech Limited ,GO Airlines (India) Ltd., Wellness Forever Medicare Limited, Bajaj Energy Ltd, Jasper infotech Pvt ltd.,Arohan Financial Services Limited, Lava International, One MobiKwik Systems Limited,ESAF Small Finance Bank Ltd.,Le Travenues Technology Limited,Studds Accessories Ltd., Fincare Small Finance Bank Limited, Penna Cement Industries Ltd,Aadhar Housing Finance Ltd.,Oravel Travels Ltd,PKH Ventures Limited.