What Type of Companies Can Go Public in India?

In this blog, explore the eligibility criteria and regulatory requirements for companies looking to go public in India. Everything you need to know about the IPO landscape.

Going public is a significant milestone for any company. It is the process of offering shares of a private company to the public for the first time. This process is also known as an initial public offering (IPO). Know What Type of Companies Can Go Public in India?

Companies go public for various reasons, such as for raising capital, increasing visibility, and providing liquidity to shareholders. However, not all companies can go public. In this article, we will discuss the types of companies that can go public in India and provide some examples.

Checklist For Going Public in India 

In order to go public in India, a company should ideally create a strong foundation of the following requirements- 

• The most important requirement is profitability or grow potential. This requirement ensures that the company has a stable financial foundation and can withstand the scrutiny of public investors.
• Another requirement is size. A company must have a certain market capitalization to go public. 
• A company must also have a strong management team and a clear business plan. The management team must have a track record of success and be able to articulate the company’s vision and strategy to investors. 
• Finally, a company must have a strong brand and reputation. Public investors are more likely to invest in companies with a strong brand and reputation. A strong brand and reputation can also help a company attract customers and employees.

Eligibility Criteria For Listing Initial Public Offerings on NSE

The qualifications for listing Initial Public Offerings (IPO) on the stock exchange, along with relevant explanations and conditions, are as follows:

1. Paid-Up Capital:

• The paid-up equity capital of the applicant must be at least 10 crores
• The capitalization of the applicant’s equity must not be less than 25 crores

Explanation 1: The post-issue paid-up equity capital for which listing is sought shall be taken into account.

Explanation 2: Capitalization will be the product of the issue price and the post-issue number of equity shares. If the market capitalization requirement of the Exchange is not met, it must be disclosed in the offer document that the securities will not be listed.

2. Conditions Precedent to Listing:

The issuer must adhere to conditions precedent to listing as specified under various statutes and regulations, including the Securities Contracts (Regulations) Act 1956, Companies Act 1956/2013, Securities and Exchange Board of India Act 1992, and any rules and regulations framed under these statutes.

The issuer must also comply with any circulars, clarifications, and guidelines issued by the appropriate authorities under these statutes.

3. Three Years Track Record of:

For successfully IPO listing compile documentation showcasing the track record of –  

• The applicant seeking listing
• The promoters or promoting company (incorporated in or outside India)

A certificate must be provided to the Exchange confirming:

• No reference to the Board of Industrial & Financial Reconstruction (BIFR) or admission of proceedings under Insolvency and Bankruptcy Code against the issuer and promoting companies.
• No winding-up petition admitted by a NCLT.
• Positive net worth of the company (except for companies with a proposed issue size exceeding Rs. 500 crores).

Explanation 1 – A partnership firm subsequently converted into a Company (not in existence as a Company for three years) and approaching the Exchange for listing would be considered for listing only upon fulfilling conditions stipulated by SEBI in this regard.

Explanation 2 – The applicant or promoting company must submit annual reports of the three preceding financial years to NSE.

Explanation 3 – Promoters should have at least 20% of the post-issue equity share capital individually or severally, with a minimum of 3 years of experience in the same line of business.

Note: Net Worth is defined under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

 

4. Redressal Mechanism of Investor Grievance:

The applicant must provide details of pending investor grievances against the issuer, listed subsidiaries, and the top 5 listed group companies by Market Cap.

The arrangements or mechanisms for redressal of investor grievances, including the use of SEBI Complaints Redress System, must be disclosed.

5. Defaults in Payment:

Defaults in payment of interest and/or principal to debenture/bond/fixed deposit holders by the applicant, promoters/promoting company(ies), group companies, and subsidiary companies must be  disclosed.

The securities of the applicant company may not be listed until all pending obligations related to interest and/or principal payments are cleared.

6. Rejection Cooling Off Period:

The application of the applicant company should not have been rejected by the exchange in the last 6 complete months.

Examples of Successsful IPOs  in India

Now that we have discussed the general requirements for going public in India, let’s look at some specific examples of companies that have gone public.

Technology Companies

Technology companies are some of the most popular companies to go public in India. These companies often have innovative products or services and a large addressable market. Some examples of technology companies that have gone public in India include:

• Infosys: Infosys went public in 1993 and raised INR 95 million. The company had a market capitalization of INR 9.5 billion at the time of its IPO.
• Wipro: Wipro went public in 1946 and raised INR 1.2 million. The company had a market capitalization of INR 1.2 billion at the time of its IPO.
• Zomato: Zomato went public in 2021 and raised INR 93.75 billion. The company had a market capitalization of INR 1.13 trillion at the time of its IPO.

Consumer Goods Companies

Consumer goods companies are another popular category of companies that go public in India. These companies often have well-known brands and a loyal customer base. Some examples of consumer goods companies that have gone public in India include:

• Dabur: Dabur went public in 1986 and raised INR 70 million. The company had a market capitalization of INR 700 million at the time of its IPO.
• Marico: Marico went public in 1996 and raised INR 200 million. The company had a market capitalization of INR 2 billion at the time of its IPO.
• Titan: Titan went public in 1987 and raised INR 1.2 million. The company had a market capitalization of INR 1.2 billion at the time of its IPO.

Healthcare Companies

Healthcare companies are another category of companies that often go public in India. These companies often have innovative products or services that can improve patient outcomes. Some examples of healthcare companies that have gone public in India include:

• Dr. Lal PathLabs: Dr. Lal PathLabs went public in 2015 and raised INR 6.3 billion. The company had a market capitalization of INR 45.5 billion at the time of its IPO.
• Apollo Hospitals: Apollo Hospitals went public in 1983 and raised INR 45 million. The company had a market capitalization of INR 450 million at the time of its IPO.
• Biocon: Biocon went public in 2004 and raised INR 3.5 billion. The company had a market capitalization of INR 35 billion at the time of its IPO.

The Takeaway 

Going public is a significant milestone for any company in India. To go public, a company must meet certain requirements, including profitability, size, a strong management team, a clear business plan, and a strong brand and reputation. 

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