You need to evaluate a few things before applying for any “IPO”. For that, check the company’s financial performance, compare its valuation with listed competitors, and understand how it plans to use the money. The offer document gives you most of this information. Subscription numbers and grey market premium can show market interest, but they don’t tell you whether the IPO is worth its price.

Here’s what I see every time an IPO gets popular. Somebody forwards a poster on WhatsApp. Somebody else quotes the grey market premium. By dinner, three people have applied, and not one has opened the offer document.

Sometimes it works. Often the stock lists, wobbles and spends a year drifting below the issue price while everyone goes quiet. I don’t think that’s bad luck. It’s mostly that nobody spent an hour reading.

I’m not recommending any issue here, and none of this is investment advice. It’s just how I’d spend that hour.

First, the Vocabulary

A company files a “Draft Red Herring Prospectus” (DRHP) with SEBI. It’s a draft, and SEBI’s comments can change it. After clearance, the company files the Red Herring Prospectus (RHP), which carries the price band and dates. That’s the document to read.

A few terms you’ll hit straight away. The issue size is the total being raised. The price band is the range you can bid in. The lot is the minimum number of shares you can apply for. For mainboard IPOs, this often costs around “₹14,000” to “₹15,000”. Retail investors can apply for up to “₹2 lakh”.

A UPI mandate blocks the application amount in your bank account until allotment. Once you apply, open your UPI app and then approve the request. If you miss it, your “IPO application” may not count.

Dates matter more than people think: opening, closing (bidding stays open for at least three working days), allotment and listing. Listing currently happens within three working days of closing, but check SEBI’s latest circular, since timelines get tweaked.

Finding What’s Coming, and Comparing

I keep a plain list. Name, sector, dates, price band, issue size. If you’d rather not build one, the upcoming IPO list on Malik Times shows openings and issue details in one place.

The more useful habit is comparing two or three companies from the same sector side by side before choosing anything. An auto-parts maker and a software firm can’t be judged with the same yardstick, but two auto-parts makers can. You can put margins, growth, debt and size in one table. Don’t judge a business by its ads. Check its financial results before deciding how well it is doing.

Reading the Financials

Skip to the restated financial statements in the RHP, usually three to five years. I check four things in this order.

Growth over time. One great year proves little. Steady growth over several years proves more. If profit suddenly jumped, find out why. A one-off gain or an accounting change can make a ordinary year look brilliant.

Cash. A company can show a profit with having little cash in the bank. For example: Its revenue may rise from “₹400 crore” to “₹520 crore” in two years, while customer dues jump from “₹60 crore” to “₹150 crore”. This means many sales are still unpaid. 

Debt. Compare borrowings with equity and with earnings. Then check how much of the IPO money goes to repaying loans. If clearing the balance sheet is the main purpose, that tells you something about the years before.

The business itself. Who buys from them? If one customer accounts for a third of sales, that’s a risk. What stops a competitor from copying them? The “Risk Factors” section is usually franker than the glossy business summary, so read it properly.

Valuation, where Most First-timers Slip

A good company at a silly price can still make you lose money.

Start with P/E. Say the upper end of the price band is ₹300 and last year’s earnings per share were ₹10. That’s a P/E of 30. Cheap or expensive? On its own, nobody can say. If listed peers trade near 20, you’re paying a premium of about half. A premium can be fair, if growth and margins are clearly better. It can also be plain enthusiasm.

The RHP includes a peer comparison table, but the company picks its own peers. See whether they chose a fair group or a flattering one. Check too whether the P/E is calculated on pre-issue or post-issue shares, because the second can look lower. And if the company is loss-making, P/E means nothing, so look at price to sales and, more importantly, at whether the path to profit is believable.

What I ask myself is simple. What does this price assume? If it needs earnings to double every year for five years, I’m being asked to buy a hope, and I’d rather skip it.

Where the Risks Hide

Who’s selling. A fresh issue puts money into the company. An offer for sale (OFS) puts money into the pockets of existing shareholders, such as promoters or funds, and the company gets nothing. Early investors exiting is normal, so an OFS isn’t automatically bad. But when most of an issue is OFS, ask why now.

Use of proceeds. Read “Objects of the Issue.” Money for a new plant is clear. “General corporate purposes” is vague by design.

Promoters. Look at their background, pending cases, related-party deals and how much they’ll still hold afterwards. Someone selling a big chunk while keeping little is telling you something.

Grey market premium. It’s an unofficial figure from unregulated dealings, it swings with mood, and issues have listed below what it suggested. I treat it as gossip.

Heavy oversubscription belongs in the same box. It shows demand, not a fair price.

Mainboard and SME Issues

Mainboard IPOs list on the main platforms of NSE and BSE and must meet SEBI’s eligibility conditions, which include profit track record and net worth tests, so these companies are generally larger and more established. You get more disclosure, longer financial history, analyst coverage after listing and usually better trading volumes.

SME IPOs sit on separate exchange platforms for smaller companies. Minimum application sizes tend to be larger, trading is thinner and prices can swing sharply, which means getting out can be harder. The cheaper-looking price per share doesn’t make it safer. For more on this side, here is a guide to mainboard IPOs in India on Malik Times.

What I’d do before Applying

Go through the RHP’s risk factors, use of funds, financials and peer table. First, check how revenue, profit, cash flow and debt have changed over the years, mainly [3-5]. Then, calculate the P/E ratio and compare it with similar listed companies. After that, you have to find out whether the issue is fresh, OFS or a mix. Look at the promoters. Decide your amount in advance and whether you’re hoping for a listing gain or planning to hold. Those are two different bets, and mixing them up is how people end up holding a stock they only wanted to flip.

Then check the dates, the lot size and your UPI mandate, and stop.

Conclusion

Most of the work in IPO investing happens before the issue opens, in a document nobody finds exciting. If you’ve read it, compared it and still like the price, you’re applying for a reason. If you haven’t, you’re applying on a feeling.

Note: Please keep a note that this article is for “education” only, and it shouldn’t be considered as an investment advice. “IPO investing” carries risk, including loss of capital. So, it would be better if you consult a SEBI-registered investment adviser before making decisions.