International Journal of Scientific Research in Engineering and Management (IJSREM)

Volume: 07 Issue: 11 | November - 2023 SJIF Rating: 8.176 ISSN: 2582-3930

ROLE OF INVESTMENT BANKS IN IPO

Shreya Hegde
“2nd semester MBA” AIMS IBS B-School, Bangalore,

ABSTRACT:
An investment bank is financial intermediary which specializes in the field of selling securities and
underwriting the issuances of new equity shares to raise capital funds. With the intention of financial
expansion, growth perspective and to acquire financial resources company would like to go for public.
Initial Public Offering (IPO) is one of the excellent ways of raising reasonable amount of capital. If
company want to go for public it needs to give clear idea about entire valuation of a company to its
stakeholders. Company uses this valuation as acquisition currency. At the time of IPO company need to go
through several procedures and need to submit several documents and mainly it needs to find potential
investors. All these things are cannot be done by company alone because of lack of expertise and
knowledge. So, company will hire investment banker who will assist the company throughout the process
of IPO. This study reveals the role of investment banker during IPO and functions need to be performed by
him. The present study is descriptive in nature and used secondary data. It concludes that role of investment
banks in IPO is very significant.
KEY WORDS:
Initial Public Offer (IPO), Investment bank, Capital market, Promoter, Acquisition.

INTRODUCTION:
An investment bank is financial intermediary which specializes in the field of selling securities and
underwriting the issuance of new equity shares to raise capital funds. They act as intermediaries between
security issuers and investors and help new firms to go public. Investment provides various type of financial
services like., capital market, advisory, trading and brokerage and asset management.
In capital market related services, they assist the companies during IPO I.e., advise the issuers, prepare
presentations, find the potential investors etc.
In advisory related services they assist the company in merger and acquisition related matters.
Companies are in need of advisory because of the excellent knowledge and expertise, negotiation skills,
financial information of the investment banks.

© 2023, IJSREM | www.ijsrem.com DOI: 10.55041/IJSREM26868 | Page 1

 International Journal of Scientific Research in Engineering and Management (IJSREM)
Volume: 07 Issue: 11 | November - 2023 SJIF Rating: 8.176 ISSN: 2582-3930

In trading and brokerage related services they assist in buying and selling securities by using banks
money or conducting on behalf. They assist in two types of services I.e., proprietary trading and brokerage.
By this investment banking’s can have competitive advantage.
In asset management related services, they assist clients to achieve their financial goals. Asset
manager use client’s money to make more money. Asset manager study about client needs first then take
actionable investment strategy and implement them and monitoring them.
OBJECTIVES OF THE STUDY:
• To analyse the various functions performed by the investment banks.
• To understand the role and significance of investment banks in IPO process.
• To find out how investment banks roles and functions increase the resources of the company.
WHY COMPANIES GO FOR PUBLIC?
• Access to capital:
Company needs significant amount for various purposes like research and development, paying
off debt, expanding operations etc. By going public it can have access to capital.

• Liquidity for promoters:

By going public, promoters can sell their shares. it provides stock options to its employees and
thus create liquidity.

• Currency for acquisition:

Once the company list its shares in public market the stakeholders can have a clear idea of market
value of the entity. Once market participants start’s buying and selling securities they will establish
a market price. Therefore, company could use this valuation as acquisition currency. If they want
to acquire another business using stocks shareholders of the target entity have much better idea that
how much they offer.

• Sustainability and credibility:

Listing boosts sustainability and credibility of a company. Once company go for public then
stakeholders will have clear idea about entire valuation of the company.

These are the some of the reasons that company is going for public.

IPO TIME TABLE

• Pre- launch: Starts before 6 months of IPO
1. Hire advisor:
Legal advisor, financial assurance, tax advisors, commercial advisors for due diligence.
These people will prepare a document describes company’s situation. Answer all questions
arises during investors meeting.
Sometimes company have pre-existing relationship with investment bank they hire.
Bankers are company’s trusted advisors. They help the company to grow.

© 2023, IJSREM | www.ijsrem.com DOI: 10.55041/IJSREM26868 | Page 2

 International Journal of Scientific Research in Engineering and Management (IJSREM)
Volume: 07 Issue: 11 | November - 2023 SJIF Rating: 8.176 ISSN: 2582-3930

2. Advisors defining the key issues:

Advisors focusing on key issues like any legal problem to consider? What are the
concerning topics? How’s the company’s financial report? IFRS or GAAP adjustments etc.

3. Issue report on pre-IPO research:

Preliminary assessment of company’s business. Based on that report investors star
their journey.

4. Drafting of prospectus:
Drafting of prospectus is very exhaustive and tedious process. Prospectus are draft with
the intention of protecting investors interest and let them know everything about the
company. Investment banker and big four advisors together prepare and draft the prospectus
before three months of IPO.

5. Roadshow:
It is a series of presentations made in various locations to potential investors before
going public. It is like a promotion made by the underwriting firm and company’s
management.
It includes speakers, panel discussions, conversations, live demos and networking
opportunities.

6. Book building:
It is a process by which an underwriter determines the price at which the shares must be
sold in an initial public offer (IPO). By this process company can increase the interest of
potential investors, efficient utilization of capital and greater control over share prices.

7. Allocation:
In about 7 days’ time, the registrar of IPO finishes and confirms allotment to the
successful bidders. The IPO allotment status can be checked via the website of the registrar.

8. Listing:
In this process a privately held company offers its shares to the public for a first time.
When a company decides to go public, it lists its share on a stock exchange.

CASE STUDY:
METRO BRANDS LTD IPO

Metro brand ltd established in 1955, metro is a contemporary Indian fashion

footwear and accessories brand offering a wide range of products with latest designs and
styles for all occasions.

Metro brands bidding started from December 10,2021 and ended on December 14,
2021. The allotment for Metro Brands IPO was finalized on Friday, December 17, 2021.
The shares got listed on BSE, NSE on December 22, 2021.

© 2023, IJSREM | www.ijsrem.com DOI: 10.55041/IJSREM26868 | Page 3

 International Journal of Scientific Research in Engineering and Management (IJSREM)
Volume: 07 Issue: 11 | November - 2023 SJIF Rating: 8.176 ISSN: 2582-3930

Metro Brands IPO price band is set at ₹485 to ₹500 per share. The minimum lot size
for an application is 30 Shares. The minimum amount of investment required by retail
investors is ₹15,000.

Ambit Private Limited, Axis Capital Limited, Dam Capital Advisors Ltd, Equirus
Capital Private Limited, ICICI Securities Limited and Motilal Oswal Investment Advisors
Limited are the book running lead managers of the Metro Brands IPO, while Link Intime
India Private Ltd is the registrar for the issue.
Axis capital limited as a lead banker in this IPO, handheld the company throughout the IPO
process to ensure a smooth and successful closure.

ROLE OF AXIS CAPITAL:

• Brief financial details:
Bankers studied about company’s equity and debt ratios, revenue growth, profit margin,
ROE etc. they will study these things in a very deep manner so that they can give clear and accurate
information to the investors.

• Background details report:

What is company’s background, how it started, who are the promoters, who are the founders
etc are mentioned in this report.

• Objects of the issue:

Bankers will clearly state the reason or objects behind the IPO.

• Offer details:
How many fresh issues to be done, how many shares will be sold by particular promoter and
other price details about the shares. In this banker also give information about pre-IPO placements

• Business overview report:

Brands acquired by particular company, how many stores are there in worldwide, in how
many countries this company is operating, programs held by company etc.

• Intellectual property report:

Report is as follows
Registered Applications In the name of
made
Trademark- India 73 20 Various brands including metro, mochi,
walkway
Trademark- abroad 11 2
Copyrights 3 2

© 2023, IJSREM | www.ijsrem.com DOI: 10.55041/IJSREM26868 | Page 4

 International Journal of Scientific Research in Engineering and Management (IJSREM)
Volume: 07 Issue: 11 | November - 2023 SJIF Rating: 8.176 ISSN: 2582-3930

• Shareholding pattern report

Report is as follows:

SHAREHOLDING PATTERN

16.01%

15.56%

68.43%

PROMOTERS PROMOTERS GROUP PUBLIC

• Product distribution/ geographical reach

How is the product reach in each geographical area, is product reaching consumer or not these
things are included in this report

• Competitive strength:
Report is as follows figures represents Average Selling Price (ASP)

Players 2022 2021

Bata India Limited 534 620
Khadim India Limited 519 494
Metro Brands Limited 1328 1346
Liberty Shoes Limited 380-400 380-400
Relaxo Footwear Limited 124 134

Like this so many reports are created by Axis Capital (investment banker) during IPO of Metro
Brands Limited.
IMPORTANCE OF INVESTMENT BANKS IN IPO:
Investment bank plays a crucial role in the process of IPO. It is a process of taking a company to
public. Here are some of the key aspects of its importance:
1. Capital raising:
Investment banks help companies in raising significant amount of capital. Investment banks
evaluate the risks associated with an IPO and agrees to purchase shares of the offering at a set price.

© 2023, IJSREM | www.ijsrem.com DOI: 10.55041/IJSREM26868 | Page 5

 International Journal of Scientific Research in Engineering and Management (IJSREM)
Volume: 07 Issue: 11 | November - 2023 SJIF Rating: 8.176 ISSN: 2582-3930

It is a critical component of the Initial Public Offering (IPO). They sell the shares to investors by
ensuring them about companies’ growth.

2. Valuation expertise:
Investment banks have a proper knowledge about present market. They have expertise in many
fields like negotiation i.e., legal, technical and financial, communication, financial information etc.
This is a reason why companies appoint investment banks while valuation. Accurate valuation helps
attract investors and ensures the company raises the right amount of capital.

• Regulatory compliances:
IPO involves lot of complex regulatory requirements. Investment banks will look into the
matter that all compliances are met or not. Regulatory compliances includes both legal and financial
obligations. This process plays important role in maintaining companies’ reputation and thereby
avoiding legal issues that may arise in future.

• Marketing and investors relation:

Investment banks have huge network and relationships with institutional investors and
potential investors i.e., high net worth individuals. They will arrange various meeting to their
investors and receive feedback from investors and analyse how much they are willing to pay. This
process is called book - building. At the end investment banker suggest a price to the founders.

• Risk management:
Investment banks are representative of investors. They will take care of the money invested by
investors. They are the risk mitigators. They will conduct research about current market situation
and they will assist the investors whether to make a investment or not. By doing this they will do
the risk management tasks.

• Price stabilization:
Investment banks will arrange various meetings and presentations for investors and clear
their queries. Retail offering begins when pricing is decided. Retail offering indicates maximum
price that individual investor will spend on buying companies share. It won’t indicate the price
range. Institutional investors offer a price range.

• Research and due diligence:

Investment banks assessing companies’ financial health, business model and prospects. This
research boosts the investors trust and confidence. It is a comprehensive study of a potential
investment done by investment banks.

• Market insights:
Investment banks provide market insights to companies that will help companies to make
decision regarding timing, pricing and the overall IPO strategy.

© 2023, IJSREM | www.ijsrem.com DOI: 10.55041/IJSREM26868 | Page 6

 International Journal of Scientific Research in Engineering and Management (IJSREM)
Volume: 07 Issue: 11 | November - 2023 SJIF Rating: 8.176 ISSN: 2582-3930

Investment banking help companies in IPO process, accessing capital market, valuation, regulatory
compliances, investors relation, risk management, price stabilization, research and due diligence
and giving market insights. It gives excellent financial information, market knowledge and
relationship with investors. These things are very important for successful IPO.

POST IPO SCENARIO

The period after a company has completed its Initial Public Offering (IPO), which is when it
becomes a publicly traded company with shares available for purchase on stock exchanges. During this
phase, the company's financial performance, stock price, and overall operations are subject to market forces
and investor sentiment
ROLE OF INVESTMENT BANKS IN POST IPO
Investment banks continue to play important roles in the post-IPO (Initial Public Offering) phase
for companies. Some of their key roles include:
• Market Making:
Investment banks often serve as market makers for the newly public company's stock. They
facilitate the buying and selling of the company's shares in the secondary market, ensuring liquidity
and orderly trading.

• Analyst Coverage:
Investment banks may provide research coverage on the company, offering analysis and
recommendations to investors. This can help attract and retain investors' interest in the stock.

• Investor Relations:
Investment banks assist in managing relationships with shareholders and institutional
investors. They help the company communicate its financial performance and growth prospects to
the investment community.

• Capital Markets Advisory:

Investment banks can offer advice on capital structure optimization, share buybacks, and other
strategies to enhance shareholder value.

• Advisory Services:
Beyond the IPO, investment banks may continue to offer strategic advisory services,
helping the company with mergers and acquisitions, divestitures, and other corporate finance
transactions.

• Compliance and Reporting:

Investment banks can assist in compliance with regulatory requirements and reporting
obligations, ensuring the company remains in good standing with relevant authorities.

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 International Journal of Scientific Research in Engineering and Management (IJSREM)
Volume: 07 Issue: 11 | November - 2023 SJIF Rating: 8.176 ISSN: 2582-3930

• Corporate Access:
They can facilitate meetings and roadshows with potential investors, helping the company
expand its shareholder base and reach new markets.

FINDINGS AND CONCLUSION:

Investment banks serve as intermediaries that assist companies in going public, facilitating
access to the capital markets. Through underwriting, due diligence, pricing strategies, and market-making,
they ensure the success of IPOs. Moreover, investment banks offer valuable advisory services, aiding firms
in making informed decisions regarding timing, valuation, and overall IPO strategy. While investment
banks are indispensable in this process, it is essential for companies to choose their partners carefully, as
the choice of the right investment bank can significantly impact the outcome of an IPO. Ultimately,
investment banks remain integral to the dynamic landscape of IPOs, supporting the growth and
development of businesses in the financial markets.

REFERENCES:
http://www.udemy.com
chittorgarh.com
http://metrobrands.com
http://www.axiscapital.co.in
http://economictimes.indiatimes.com
http://365financialanalyst.com

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