FPO vs IPO

The common difference between FPO And IPO Is that IPO (Initial Public Offering) is when a company issues its shares for the first time to the public to raise funds whereas In FPO (Follow-up public offering) additional shares are issued by the company to raise funds after IPO.

FPO and IPO: Understanding the Terms

IPOs and FPOs are released by companies on The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The aim is to issue company shares to the public to acquire funds and address looming financial commitments.

What is an IPO?

A business takes its first step into the stock exchanges with what an IPO is.

As the name suggests, an initial public offering refers to the first time a company issues its shares to retail investors. IPOs are new batches of shares made available to non-institutional investors without decreasing the value of shares existing shareholders possess.

The last quarter of 2022 witnessed 18 IPOs entering the market. This marked a 350% increase in IPOs compared to the previous quarter. The trends look promising in the future, as IPOs of famous companies like Sula have emerged as profitable.

IPOs differ according to the allotted price. Here are the different types of IPOs:

• Fixed price issue: The company offers the IPO at a uniform price to all the subscribers or investors. Businesses may hire a financial expert to determine the share value to enable a fair price and minimize risks.
  
• Book building issue: In this type, the company defines a price range for the IPO without mentioning the actual value per share. It is a bidding system where the business invites investors to place bids to decide the price. Depending on the bid values, the final price of each share is confirmed.

Before issuing IPOs, most businesses have shares divided between capital investors and company personnel.

What is an FPO?

After issuing an IPO, an organisation gets officially listed on the stock exchange. However if the company plans to continue its expansion plans, it will need more funds. IPOs can only be issued once, which mandates an alternative method of securing funding.

Here’s where a follow-on public offering is valuable. It involves issuing additional shares or diluting existing shares in the stock exchanges to finance their activities.

A popular example of this is the recent FPO of Adani Wilmar, which attracted subscriptions from different groups of investors. Non-institutional buyers subscribed 3.32 times, while qualified institutions subscribed 1.26 times for a total worth of over 15,000 crores.

FPOs can be of two types:

• Dilutive FPOs: The business issues additional shares without increasing the company's valuation. Essentially, the price of each share and earnings per share are reduced.
  
• Non-dilutive FPOs: In this type, the existing company shareholders sell a significant portion of their shares privately. This increases the number of shares available to the public without affecting the share price.

FPO vs IPO: Looking at The Differences

IPO vs FPO helps businesses capitalise on their popularity to seek funds for further growth. Through early market analysis, they can measure the demand for their company shares and use this as a metric to decide the prices.

Here are the core points of difference between FPO vs IPO for better understanding:

Summing Up

the primary distinction between IPOs and FPOs lies in their timing. IPOs are used for a company's initial public debut, while FPOs are employed for subsequent fundraising needs. Both methods are crucial for companies seeking to raise capital and expand their operations. While angel investors can provide early-stage funding, public listings are essential for long-term growth. However, it's important to strategically utilize IPOs and FPOs to avoid diluting shareholder value.

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