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How an IPO is Valued?

An IPO is one of the preferred mediums for many companies who are willing to go public i.e. looking to raise funds from the general public in order to meet any upcoming expenses or any investments that are to be made. In many cases, investors opt for Pre-IPO shares in India as it saves them from the trouble of waiting for the IPO to go public. There are several consultants helping investors buy Pre-IPO shares in India.


In order to make sure that the IPO is subscribed as per the guidelines of the SEBI, the companies undertake strenuous efforts to make sure that the IPO is well advertised, and the interested investors are aware of the upcoming IPO. This process is very important because otherwise the IPO might remain unsubscribed and the company would be facing serious losses on account of the expenses incurred.


Before an IPO goes public, the company advertises all the terms and conditions governing the IPO, including the price of the shares. Usually, the value of the shares is the make or break deal for the investors. It, therefore, becomes very important for the companies to get their pricing right. A lot of efforts and calculation go into deciding the value of an IPO. Let’s have a look at the various factors that affect how an IPO is valued.


The process of IPO valuation:

A team of experts, including lawyers, underwriters, chartered accountants, SEBI experts sit together and analyse the finances of the company. The data are closely scrutinized to determine the assets, liabilities, capital, market performance, etc. Then the data for a given period is compiled and submitted to an official audit. After the audit is performed, a prospectus is developed and is submitted with the concerned stock exchange and SEBI along with the pricing of the shares. This entire process is to be completed months before the IPO goes public.


Factors affecting IPO valuations:

- Credentials of the management/promoters

- Past-performance of the company

- Number of shares being issued

- Competitor’s stock prices

- The revenue model of the company

- Global trends in the industry in which the company is operating

- Future prospects in the industry

- Company’s reputation in the sector

- Growth prospects of the company

- The overall situation of the economy