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Difference Between IPO And FPO PowerPoint Presentation

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Slide 1 - Difference between IPO & FPO Initial Public Offer In IPOs, a company divides a significant portion of its total value into small denominations of equal shares and lists those shares on the primary market for the public to subscribe to those shares whenever it wants to raise money from the public for the first time. As it is not listed yet and the company is issuing its shares for the first time, an IPO is not issued on the share market, but on the primary market. As soon as a company's shares are listed in the primary market and the IPO is initially subscribed to, they can be traded on the secondary market.
Slide 2 - Objectives of IPO Equity Financing is the primary reason companies go for IPOs. This company raised private equity from angel investors and venture capitalists until it was not listed. But it has now reached that stage where private equity investors cannot invest that much money as the company has now grown in size and its requirements have also increased.  Due to the larger number of investors, the company now goes public, and institutional investors, such as mutual funds, and pension funds, can also be tapped as investors. Hence, to avail the benefit of scalability IPO is brought by companies. Smaller companies with smaller capital requirements can also issue IPOs if they meet the legal requirements. Therefore, the ultimate objective of IPOs is to satisfy business entities' financial needs.
Slide 3 - Process of IPO 1.Selecting an Investment Bank: The first step in the process of IPO is that any company that wants to bring a public issue hires an investment bank called a merchant bank. When choosing an investment bank majority of the companies will have a past track record of the investment banks such as their reputation, track record in raising funds from IPO, quality of research, and their distribution i.e. how good marketing can they do to the non-institutional investors. Once an investment bank is hired by the company then that bank will do all the due diligence process and legal processes.   2.Underwriting: The second step in the process of issuing an IPO is the process of underwriting. There are three methods in the process of underwriting: Firm Commitment: In this method of underwriting, the Investment bank will give the commitment to firms that they will raise a certain amount from the IPO and any gain or loss upon the issuance will be the Investment bank’s gain or loss. Best Efforts Commitment: In this method, the investment bank will tell you the issue price, ascertain the value of the firm, will do the pricing of the IPO accordingly, and market the IPO but the subscription and response to the IPO will not be their responsibility. Syndicate Underwriting: If the IPO is very big, then it is possible that no one particular investment bank will carry out the underwriting process but they will form a syndicate of Investment Banks. They will hire multiple banks or managers and allocate some portion to them.
Slide 4 - 3.Red Herring Prospectus: The next step in the process of issuing the IPO is the filling of the Red Herring Prospectus. Red Herring Prospectus is a document in which all the details of a company are written such as its promoters and business, its competitive advantages, capital structure, growth plans, future business plans, and other important information related to the business. 4.Compliances and Filings: There are certain guidelines of SEBI, NSE, BSE, or wherever they are listed. There are other acts also such as the Securities Contract Act and other legal requirements which are very stringent and important to comply with. They take a lot of time and effort to get fulfilled. It is the responsibility of the investment bank to take care of all such requirements. 5.Pricing: Pricing is the next and very critical process in the IPO process which is also the responsibility of the Investment Bank assigned. In this process, the company’s valuation is ascertained by the bank and a percentage of the valuation is diluted by the bank in agreement with the company. Apart from ascertaining the valuation of the company and the percentage of stake that will be diluted the Investment bank will also decide the price of the shared issued and the lot size of shares that can be subscribed by the investors.Any investor interested cannot simply apply for one or two shares of the IPO, he will have to apply for the shares in lots as fixed by the issuer.
Slide 5 - 6. Distribution: Distribution is concerned with the selling of the IPO issued by the company. The Investment bank ensures it markets the IPO well and sells it to different investors such as mutual funds, pension funds, or retail investors to create a demand for that particular IPO. Types of IPO In pricing, there can be two types of issues:  Fixed Price Issue: In this kind of public issue the price is fixed and people apply for a lot of shares at the fixed price. Book Building Issue: This is a widely used type of public issue where the Investment Banks keep a price band of for example 60-100 Rs. per share. With this, the bank assesses the market response to the price band.All the investors who initially bid for the IPO have to be ready to apply for the IPO at the set price.
Slide 6 - What is FPO Follow-on Public Offering (FPO) is the process by which a company, which is already listed on an exchange, issues new shares to the public or existing shareholders. A company issues FPO in share market for various purposes such as acquiring fresh funds for a new project or for expanding the business. Following the IPO of a company, all subsequent public offerings made by the company to raise money will be referred to as FPOs. For example, Ruchi Soya came up with its FPO on March 24, 2022.
Slide 7 - of FPO There are two types of FPOs in the market: Dilutive FPO- An diluted FPO occurs when a company releases new shares in the market to raise funds from the public without diluting the existing shareholding of the existing shareholders.With more shares being added and the valuation of the company remaining the same, earnings per share decrease. “Hence the EPS of the company gets diluted and it is why it is known as Diluted FPO. Non -Dilutive FPO - In a non-dilutive FPO, the promoters or big shareholders of the company sell their shares. Here, no new shares are issued but the existing shares are transferred from one shareholder to the other. Hence, the earnings per share of the company remain the same.Here, the valuation of the company remains the same as well as the Earnings Per Share of the company. It is mainly done by the company to change the shareholding pattern. That is the main difference between ipo and fpo .
 

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