An IPO is the most regulated capital-raising event in Indian corporate life. The ICDR Regulations decide who may come to market, how much the promoters must keep locked, who gets what share of the book, and how fast the stock has to list.
Main-board eligibility (Reg 6(1)): net tangible assets ≥ ₹3 crore, average operating profit ≥ ₹15 crore, and net worth ≥ ₹1 crore across the preceding three years — or take the Reg 6(2) route with at least 75% of the issue reserved for QIBs.
An Initial Public Offering is a company's first sale of shares to the public, turning a private or unlisted public company into a listed one. It can be a fresh issue, where new shares are created and the money goes to the company; an offer for sale, where existing holders exit and the money goes to them; or both together. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 govern every step, from eligibility and offer-document disclosure through promoter skin in the game, allocation between investor categories, and what happens after listing.
Missing a condition is not an academic problem. SEBI can keep a draft offer document in abeyance, direct refunds and restrain intermediaries, and a mis-statement in a prospectus carries civil and criminal liability under the Companies Act, 2013.
The bottom line
Two doors in: the profitability track under Regulation 6(1), or the QIB-heavy book-building track under Regulation 6(2), with at least 75% to QIBs.
Promoter contribution: a minimum of 20% of post-issue capital, locked in for 18 months, or 3 years where the majority of the fresh issue funds capital expenditure. Excess promoter holding locks for 6 months.
Allocation on the profit track: retail at least 35%, non-institutional at least 15%, QIBs up to 50%, with up to 60% of the QIB portion going to anchor investors.
Speed: listing on T+3, three working days from issue closure.
The two eligibility tracks
Regulation 6 of the ICDR Regulations, 2018 offers a choice.
Regulation 6(1), the profitability route. For the preceding three full years, the issuer must have:
- net tangible assets of at least ₹3 crore in each year, with restrictions on how much of that can sit in monetary assets where the issue includes an offer for sale;
- average operating profit of at least ₹15 crore over the preceding three years, and an operating profit in each of them;
- net worth of at least ₹1 crore in each of the preceding three years; and
- where the company changed its name in the last year, at least 50% of revenue coming from the activity the new name indicates.
Regulation 6(2), the alternative. A company failing any of those tests can still IPO through book building, provided it allots at least 75% of the net offer to qualified institutional buyers, and refunds the entire subscription if that floor is not met. This is the route the loss-making new-age companies have used.
Separately, Reg 5 sets general disqualifications. The issuer, its promoters, promoter group and directors must not be debarred by SEBI; promoters and directors must not be promoters or directors of another debarred company; no promoter or director may be a fugitive economic offender; and any outstanding convertible securities have to be dealt with before filing.
Promoter contribution and lock-in
Regulations 14–17 require promoters to hold at least 20% of the post-issue capital. It is the market's assurance that the people selling the story stay in it.
The lock-in on that 20% is 18 months from allotment where the issue is predominantly an offer for sale, or where the proceeds are not for capital expenditure. It stretches to 3 years where a majority of the fresh issue funds capex. Promoter holding above the 20% is locked for 6 months, and pre-IPO shares held by non-promoters are generally locked for 6 months as well.
One trap sits underneath all of this. Shares acquired in the preceding year at a price below the issue price, or against non-cash consideration, generally cannot count towards the minimum promoter contribution. Audit the promoter's share history before filing the DRHP, rather than while drafting a reply to SEBI's observations.
From DRHP to T+3
Regulations 25 and 32, with Schedule XIII, carry the process.
- Appoint intermediaries — merchant bankers, registrar, legal counsel — and run due diligence.
- File the Draft Red Herring Prospectus with SEBI and the exchanges, then respond to SEBI's observations. A confidential pre-filing route also exists.
- File the RHP, announce the price band for a book-built issue, and open the anchor book one day before the issue.
- Run the issue, typically over 3 working days, with all applications through ASBA, where funds are blocked rather than debited, and UPI for retail.
- Allocate. On a profit-track issue: QIBs up to 50%, of which up to 60% may go to anchor investors and one-third of that anchor portion is reserved for domestic mutual funds; non-institutional investors at least 15%; retail at least 35%. Under the Reg 6(2) route the split inverts, with QIBs at 75% or more, NII at 15% or less and retail at 10% or less.
- Finalise the basis of allotment, unblock or refund, and list within T+3 working days of closure.
- Post-issue: follow the minimum public shareholding trajectory under the SCRR, obtain monitoring-agency reports on the use of proceeds where the fresh issue exceeds ₹100 crore, and disclose deviations quarterly.
A worked example
A specialty-chemicals company has three years of audited operating profits averaging ₹22 crore, net worth of ₹80 crore, and net tangible assets comfortably above ₹3 crore. It plans a ₹900 crore IPO: ₹600 crore fresh, to build a new plant, and ₹300 crore as an offer for sale.
It qualifies under Reg 6(1). Because the majority of the fresh issue funds capex, the promoters' 20% post-issue contribution locks for 3 years, with the balance of their holding locked for 6 months.
The book allocates 50% to QIBs, with the anchor placement a day early and a third of it to mutual funds, 15% to non-institutional investors and 35% to retail through UPI-ASBA. The issue closes on a Thursday, allotment is finalised, funds are unblocked, and the stock lists the following Tuesday at T+3. A monitoring agency then reports quarterly on the ₹600 crore until the plant spend is complete.
Common mistakes
- Testing eligibility on standalone numbers where restated consolidated financials govern.
- Counting ineligible shares towards the 20% promoter contribution.
- Assuming the 3-year lock-in always applies. It is 18 months unless the majority of the fresh issue funds capex.
- Leaving outstanding convertibles unresolved at filing, which is a Reg 5 blocker.
- Treating the Reg 6(2) route as the easier option. The 75% QIB condition is a hard floor, and failing it means refunding the whole issue.
- Forgetting the monitoring agency on a fresh issue above ₹100 crore.
Frequently asked questions
Can a loss-making company do an IPO? Yes, through Regulation 6(2), by allotting at least 75% of the net offer to QIBs.
What is the minimum promoter contribution? 20% of post-issue paid-up capital, locked in for 18 months, or 3 years where the majority of the fresh issue is for capital expenditure.
How is an IPO different from an OFS within it? Fresh issue proceeds go to the company. Offer-for-sale proceeds go to the selling shareholders. Most large IPOs combine both.
How fast must the shares list? Within three working days of issue closure, which is T+3.
What quota do retail investors get? At least 35% on profitability-track issues, and up to 10% on Reg 6(2) issues.
Who watches how the money is spent? A monitoring agency, appointed where the fresh issue exceeds ₹100 crore, reporting on the use of proceeds against the stated objects.
Can a company that recently changed its name still list? Yes, provided at least 50% of its revenue in the last year came from the activity the new name indicates.
Primary sources
- Regulations 5, 6, 14–17, 25, 32 and Schedule XIII, SEBI (ICDR) Regulations, 2018
- Rule 19(2)(b), Securities Contracts (Regulation) Rules, 1957 — minimum public offer and shareholding
- SEBI circulars on T+3 listing and UPI-ASBA
- Sections 26, 34 and 35, Companies Act, 2013 — prospectus liability