How to read IPO prospectus?

An IPO prospectus is a comprehensive document that contains all the information about the company. In order to read an IPO prospectus, it is important to understand the content and purpose of each component of the prospectus.

Guide to reading the prospectus

1. Title Page

   This page contains the contact details, address and email address of the issuing company, the registrar and the merchant bank. One should check the lead manager of the issue and analyse their history and performance, because in many cases the performance of the IPO depends on the skills of the lead manager.

   The cover sheet also includes information about the issue, size of the issue, price (in the case of a fixed-price issue), shares offered, type of offering, type of issue, IPO rating, risk of the initial offering, date of opening and closing of the issue.

2. About Issuer Company

   The prospectus contains details about the company's operations, issuer's competitive strengths, industry overview and regulations, history, information about group companies, corporate structure, information about the management and board of directors, corporate governance, etc. This gives an investor a fair idea of the company vision.

3. Financial Statements

   A prospectus contains all the details of financial information such as total assets, total liabilities, total revenue, profit after tax, net worth, PE Ratio, debt-to-equity ratio, earnings per share, consolidated or restated balance sheet, cash flow, and profit and loss. The financial statements give an idea on the track record of the company.

4. Risk Factors

   This section of the Prospectus includes all internal and external risks relating to the Company and its management. Investors are generally advised to review all risk factors associated with a company before making an investment decision.

5. Offer Structure or Terms of Issue

   Offer structure includes information like face value, issue price, number of fresh shares, offer for sale shares, net issue shares, employee reservation, market maker portion, QIB, NII, RII portion and Post and pre-paid up capital details. This section gives an idea of the extent of equity dilution.

6. Objects of the Issue

   The purpose of the offering includes details of the issuer's plans for using the proceeds or funds from the offering. The issuer may use the proceeds for a variety of purposes, such as business needs, including product development, general corporate purposes, equipment purchases, acquisitions, capital expenditures and debt repayment.

   Investors should note the use of the proceeds of the offering and whether the proceeds are used only for corporate purposes or also to meet business expenses.

7. Legal information, statutory and regulatory disclosures

   The prospectus includes information on ongoing legal disputes, significant developments, and lawsuits involving the company, its promoters, its management, its subsidiaries, and group companies. It also includes any prohibitions or restrictions from SEBI.

   Every company is involved in some or the other dispute. It is important to see whether the survival of the company is not impacted due any of the ongoing disputes.

8. Other Information

   This section is mainly for reference purposes and contains information about the description of the shares and the provisions of the Articles of Incorporation, as well as explanations, definitions, abbreviations and important contracts and documents for reference.