Difference between IPO and FPO

What is an IPO?

Initial Public Offering, a.k.a. IPO, helps companies move beyond high-interest debt financing and get money from common investors. They use the money to fuel their business growth, consolidate debt, or meet operational expenses. Since the company's owners or primary shareholders leave a part of their ownership, the process is known as 'Going public.'

A company willing to go public needs to approach a merchant banker that helps them understand the listing process. After determining the price of each share, the lot size, and the issue size, the company files an application with the Securities & Exchange Board of India (SEBI). After SEBI gives the approval, the company starts the money raising process and eventually lists on stock exchanges like NSE or BSE.

Difference Between IPO and FPO | IPO | FPO | IPO vs FPO - 5paisa

What Does An IPO Signify For a Company?

An Initial Public Offering (IPO) is considered a significant milestone for all companies. This is because it signifies the company is going public and offering its shares for sale to the general public.

Besides, an IPO provides a plethora of benefits to a company. Some of the most commendable ones include:

●    It allows the company to raise capital by selling shares to the public.
●    It can provide increased visibility and credibility to the company within the marketplace.
●    It offers liquidity to the existing shareholders of the company.
In a nutshell, an IPO plays a pivotal role in the growth and development of the company.
 

What are the Types of IPO?

Investors may invest in two types of IPOs:

A) Fixed Price Offering - In fixed price offering, the price of each share is pre-fixed, and investors have to pay the entire amount upfront.

B) Book Building Offering - In book building offering, the issuer declares a price band. The price is determined after gauging investor response.
 

What is an FPO?

An FPO or Follow on Public Offer is launched by an already listed company. An FPO can be exclusively for existing shareholders or new investors. The primary purpose of launching an FPO is to enhance the company's equity base.

The purpose of an FPO is similar to an IPO. A company uses the FPO money to expand its business or reduce debt.
 

What Does An FPO Signify For The Company?

In an FPO, the company sells additional shares of its stock to raise more capital. This is usually done when the company needs to fund new projects, expand its operations or pay off debts. Existing shareholders can also use it to sell their shares to the public.

As FPO indicates that the company has a strong financial position and looking forward to growth, it can be a positive sign. Meanwhile, it can also elevate the visibility and reputation of the company in the market. Furthermore, investors will have an excellent opportunity to purchase company shares.
 

IPO and FPO - The Key Differences

The following are some significant differences between an IPO and an FPO:
 

Primary Purpose

The primary purpose or objective of an IPO is different from an FPO. A company launches an IPO to get funds for expanding its business. As a company gets bigger, it needs capital to run its operations smoothly. Hence, they launch an IPO seeking money from investors.

Once the IPO is successful and the company receives the money, it may need more funds to become even bigger. This is where an FPO may come to their rescue. An FPO may serve two purposes. It can help a company increase its equity base or decrease promoter shareholding.
 

Company Profile and Quality

Analysing the company profile is vital for making profits in the market. When you have a lot of information about a company, you can invest sensibly. However, if the company is dubious, you might not get much information about it.

When a company launches an IPO, you have to check the Draft Red Herring Prospectus (DRHP) to find more details about its line of work, business prospects, financial results, and key risks. Besides these, you cannot find much information about the company. Investors investing in IPOs mostly rely on their good judgement and broker recommendations to pick the best IPO. As a fact, choosing the best company in an IPO requires an acute sense of judgement and an ability to sift through data.

An FPO is offered by companies with a stable track record in the stock market. Hence, it is easy for an investor to find information about the company's stock performance and track record. To estimate the valuation, you can quickly scan the stock's demand and supply over its lifetime. Also, you may check how the company performed after listing its IPO.

Hence, it is easy to find credible information about a company during the FPO process than during the IPO process.

Performance

Most investors consider IPOs more remunerative than FPOs. Since an IPO gives investors early-stage access to a company, it is considered more lucrative than FPOs. However, IPOs are generally riskier than FPOs. Since FPOs are usually launched by companies with a proven track record, they are more stable than IPOs. While IPOs are launched by companies in the expansion phase, FPOs are launched by companies in the stabilisation phase.

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