How to analyse an IPO?

Last Updated: 22 Sep 2025

Every business that wants to fund its operations or scale in the future has one thing in common: they all need cash. The cash is required to fund its current operations and fulfil the need to expand and increase profitability. A company can use the revenue to fund its day-to-day operations. But what about growing the business and achieving expansion goals? Expanding the business requires a large amount of funds as the company may need to invest in infrastructure, human resources, or acquire new businesses.

The first alternative for a company to get cash is to take a bank loan. However, companies feel that bank loans are tough as they require collateral and are limited to a certain amount. The second and the most widely used way for companies to raise capital is through an Initial Public Offering.

What is an Initial Public Offering?

An IPO, or Initial Public Offering, is when a company sells its shares to the general public for the first time. The shares, previously held by the company executives, are offered to the common people in exchange for money or capital, which the business may use for expansion purposes or to pay off debt. Once the IPO process is complete, the company is declared publicly listed, and its shares can be traded in the open market.

Once a company becomes publicly traded, a part of its ownership is sold to investors. Typically, a company initiates an IPO for the following purposes:

• To infuse fresh equity capital.
• To facilitate the trading of its assets.
• To raise capital for various requirements.
• To monetise the investment of its private stakeholders.

How can you analyse an IPO Stock?

Applying to IPOs can be tricky. Some may open at a premium, or some may open at a discount. Professional investors use various indicators to analyse and ensure the company is fundamentally strong and good for investing. The factors to analyse before applying to an IPO are as follows:

• Financials: The first thing you should look at is the financials of the company. Analyse the past five years’ performance of the company to ensure that it has been profitable. Furthermore, the company should not have a huge amount of debt.
• The Purpose: While analysing, you should read the Draft Red Herring Prospectus (DRHP) of the IPO issue. The RHP contains information about how the company will use the money raised in the IPO. Preferably, it should be used for expansion and not to pay off debt.
• Demand: For any IPO, news about its subscription status comes daily. It defines how many investors have applied to the IPO. You can avoid an IPO if you see that the IPO is undersubscribed, meaning that investors do not find the company good for investing in.
• Future Prospects: One of the most important factors while analysing an IPO is the company’s plans. You should ensure that the company wants to use the profits to expand and is at par with its competitors with its plans for new products and services.

Critical Factors for Assessing an IPO

Investing in an Initial Public Offering (IPO) can be exciting. It allows investors to own shares of a company that is entering the stock market for the first time. But every IPO carries both risks and rewards. Before investing, it is essential to check some key factors for IPO analysis. Careful review helps investors make better choices and avoid losses.

1. Company Fundamentals

Look at the company’s business model. Understand what products or services it offers. Check if the business has stable revenues and profits. A company with strong fundamentals is more likely to grow.

2. Financial Performance

Read the financial statements. Look at sales, profits, and debt levels. Consistent growth is a good sign. High debt or frequent losses can be a warning.

3. Industry Outlook

Check the sector in which the company operates. Is the industry growing? Are there many competitors? Companies in growing industries usually have better chances of success.

4. Management Team

Strong leadership is very important. Look at the background of the promoters and key executives. Experienced and ethical managers build investor confidence.

5. Valuation of Shares

See if the IPO is priced fairly. Compare the valuation with other companies in the same industry. An overpriced IPO may reduce returns, while a fair price offers better scope for growth.

6. Use of Funds

Check how the company plans to use the money raised. Funds used for expansion, debt reduction, or new projects can be positive. If the money is mainly for paying old investors, be cautious.

7. Risks Disclosed

Every IPO prospectus lists risks. These may include market risks, regulatory changes, or industry challenges. Read these carefully before investing.

8. Investor Demand

Subscription numbers show investor interest. High demand often signals confidence, but investors should still check fundamentals.

Conclusion

Now that you know how to analyse an IPO, the next step is to open a Demat and trading account. These two accounts are mandatory for you to apply to an IPO. You can open a free Demat and trading account by visiting IIFL’s website or downloading the IIFL Markets app. After the accounts are opened, you can apply to IPOs online through IIFL’s proprietary trading software, Trader Terminal. This online facility brings the bidding process to your fingertips, enabling you to avoid the hassles of filling out forms and thus minimising paperwork. IIFL also provides news and in-depth analysis of the upcoming IPOs on the Trader Terminal and the website.

Frequently Asked Questions

Who decides the date of the issue of the IPO?

After the Securities and Exchange Board of India (SEBI) approves the company’s Draft Prospectus, it is entirely up to the company to choose the date of the issue. The company consults with Lead Managers, Stock Exchanges and the Registrar of the issue to finalise the IPO date.

How many days does an IPO remain open to the public?

As per Clause 8.8.1, public IPO issues are to be kept alive for a minimum of 3 and a maximum of 10 working days. In case the IPO is a book-built issue, the IPO can remain alive for 3–7 working days. However, the issue can be extended by 3 days in case the price band is revised. Furthermore, an IPO by an infrastructure company can be kept open for a maximum of 21 working days. The minimum and maximum limits for a Rights Issue are 30 and 60 days, respectively.