INVESTMENT BANKING · PRIMARY MARKET · VALUATION
How Companies Price
Shares for an IPO
From business value to offer price: a visual Q&A guide to DCF, market multiples, fresh capital, dilution and book building—with eight cases and complete solutions.
IPO PRICING at a Glance
Value the business. Understand the shares. Test investor demand.
What is it worth?
Cash flows, earnings, peers and assets provide a defensible range.
Who gets the cash?
Fresh issue funds the company. OFS pays selling shareholders.
What will buyers pay?
Demand and market conditions inform the final offer price.
8 solved cases · 10 static graphs · DCF sensitivity table · 2 live calculators · Primary sources
IPO VALUATION · QUESTION & ANSWER
1. What exactly is an IPO price?
An IPO price is the price at which investors buy shares in an initial public offering before exchange trading begins. Valuation estimates what the shares are worth; pricing decides what investors will pay for the offering.
| Number | Meaning | What determines it? |
|---|---|---|
| Face value | Nominal accounting value, e.g. ₹10 | Share capital structure |
| Estimated fair value | Modelled value, e.g. ₹200 | Cash flows, assets, growth and risk |
| IPO offer price | Subscription price, e.g. ₹190 | Valuation, investor demand and negotiation |
| Listing price | First traded price on the exchange | Buy and sell orders at listing |
A ₹200 share with ₹10 face value is not necessarily expensive. A ₹50 share is not necessarily cheap. Compare the valuation of the whole company and the economic claim represented by each share.
IPO VALUATION · QUESTION & ANSWER
2. Who sets the price—and what role does SEBI play?
In India, the issuer determines the price in consultation with its merchant bankers. In a book-built issue, investor bids inform the final pricing decision. SEBI does not fix the IPO price or certify that it is fair value. Its role concerns regulation and disclosure. [1]
Analyse the business, normalise accounts, forecast cash flows and compare listed peers.
Model fresh issue/OFS, shares, dilution and indicative valuation. Assess investor interest and choose a band.
Collect bids, assess demand, set the final price and allot under applicable rules.
Institutional feedback and roadshows test assumptions. They do not replace valuation or guarantee a successful listing.
IPO VALUATION · QUESTION & ANSWER
3. Which valuation methodology fits which company?
| Method | Main calculation | Suitable use | Key caution |
|---|---|---|---|
| DCF—FCFF | PV of operating free cash flows | Forecastable operating businesses | Terminal value and reinvestment assumptions |
| P/E | Normalised PAT × P/E | Profitable businesses | One-offs and peak-cycle earnings |
| EV/EBITDA | EBITDA × multiple | Operating businesses with peers | EBITDA is not cash flow |
| EV/revenue | Revenue × multiple | Some high-growth/loss-making companies | Growth must translate into margins |
| P/B or residual income | Book equity and sustainable ROE | Banks and financial firms | Asset quality and capital adequacy |
| Adjusted NAV | Market value of assets − liabilities | Property and investment businesses | Taxes, sale costs and encumbrances |
| SOTP | Value divisions separately, then reconcile | Diversified companies | Avoid double-counting common assets/debt |
| Prior funding/transactions | Adjust prices of comparable deals | Supporting reference | Rights, control and timing differ |
Use several methods to challenge the conclusion, but give greatest weight to those that fit the business. Averaging incompatible estimates does not create a reliable valuation. [3]
IPO VALUATION · QUESTION & ANSWER
4. Case 1: How does DCF convert future cash flows into an IPO value?
What is each existing share worth?
Five-year FCFF forecast: ₹70, ₹85, ₹100, ₹120 and ₹140 crore. WACC 12%; perpetual growth 4%; surplus cash ₹80 crore; debt ₹250 crore; 5 crore existing fully diluted shares. Value the existing equity before new IPO cash.
FCFF is cash available to all providers of operating capital after tax and reinvestment. Discount it at the weighted average cost of capital (WACC).
Enterprise value = Σ FCFFₜ / (1 + WACC)ᵗ + terminal value / (1 + WACC)ⁿ
Terminal value at year n = FCFFₙ₊₁ / (WACC − g)
| ₹ crore | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| FCFF | 70 | 85 | 100 | 120 | 140 |
| Discount factor | 0.8929 | 0.7972 | 0.7118 | 0.6355 | 0.5674 |
| Present value | 62.50 | 67.76 | 71.18 | 76.26 | 79.44 |
Worked solution
1. PV of five annual cash flows = ₹357.14 crore.
2. Year 6 FCFF = 140 × 1.04 = ₹145.60 crore.
3. Terminal value at year 5 = 145.60 ÷ (12% − 4%) = ₹1,820.00 crore.
4. PV of terminal value = 1,820.00 ÷ 1.12⁵ = ₹1,032.72 crore.
5. Enterprise value = 357.14 + 1,032.72 = ₹1,389.86 crore.
6. Equity value = 1,389.86 + 80 − 250 = ₹1,219.86 crore.
7. Value per share = 1,219.86 ÷ 5 = ₹243.97.
Why the terminal value matters: forecast growth must eventually settle at a sustainable rate, with sufficient reinvestment. WACC must exceed perpetual growth. The model assumes these cash flows are achievable; it does not establish certainty.
IPO VALUATION · QUESTION & ANSWER
5. How sensitive is DCF to the assumptions?
Keep Case 1 cash flows, cash, debt and shares unchanged. Vary only WACC and perpetual growth.
| WACC ↓ / perpetual g → | 3% | 4% | 5% |
|---|---|---|---|
| 10% | ₹297.40 | ₹342.94 | ₹406.68 |
| 12% | ₹219.26 | ₹243.97 | ₹275.75 |
| 14% | ₹169.78 | ₹184.85 | ₹203.27 |
Read across: higher perpetual growth increases value. Read down: a higher required return reduces value. The base case is 12% WACC and 4% growth.
Try it: change the cost of capital and long-term growth
Same five cash flows and capital structure as Case 1. Limits: WACC 6–25%; growth 0–6%; WACC must exceed growth. Rounded display; calculations use unrounded values.
IPO VALUATION · QUESTION & ANSWER
6. Case 2: How do P/E and EV/EBITDA price a profitable company?
Normalised PAT ₹60 crore; EBITDA ₹150 crore; 5 crore existing diluted shares; net debt ₹170 crore. Peer P/E range 16–20×, selected 18×. Peer EV/EBITDA range 7–9×, selected 8×. For this exercise all measures and peer multiples use the same historical annual period.
Worked solution
P/E: EPS = 60 ÷ 5 = ₹12. Value/share = 12 × 18 = ₹216. Equity value = ₹1,080 crore.
EV/EBITDA: enterprise value = 150 × 8 = ₹1,200 crore. Equity value = 1,200 − 170 = ₹1,030 crore. Value/share = 1,030 ÷ 5 = ₹206.
Why different? P/E reflects profit after interest, depreciation and tax. EV/EBITDA values operations before those charges. Different economic measures and selected multiples need not produce identical values.
| Check | Correct treatment |
|---|---|
| Enterprise vs equity | EV/EBITDA gives enterprise value: subtract net debt before dividing by shares. |
| Period | Do not compare an issuer’s forward earnings with peers’ trailing P/E without adjustment. |
| Normalisation | Remove non-recurring gains and assess sustainable cycle margins. |
| Leases | Align lease debt and EBITDA accounting across issuer and peers. |
| Dilution | Include options, warrants and conversions consistently; avoid double-counting their cost. |
IPO VALUATION · QUESTION & ANSWER
7. Case 3: Can a loss-making company still have a high IPO valuation?
Annual revenue ₹500 crore, negative PAT, surplus cash ₹100 crore, no debt, 10 crore existing diluted shares. Test EV/revenue of 2×, 3× and 4×.
| Scenario | EV/revenue | Enterprise value | Equity value incl. cash | Per share |
|---|---|---|---|---|
| Cautious | 2× | ₹1,000 crore | ₹1,100 crore | ₹110 |
| Base | 3× | ₹1,500 crore | ₹1,600 crore | ₹160 |
| Optimistic | 4× | ₹2,000 crore | ₹2,100 crore | ₹210 |
Worked solution
Base enterprise value = 500 × 3 = ₹1,500 crore. Equity value = 1,500 + 100 = ₹1,600 crore. Divide by 10 crore shares: ₹160 per share.
As a rough diagnostic—not a second valuation—assume a future steady EBITDA margin on today’s revenue. At a 10% margin EBITDA would be ₹50 crore and the base EV implies 30× EBITDA. At 20%, EBITDA would be ₹100 crore and the same EV implies 15×. A revenue multiple embeds major assumptions about future profitability.
Check gross margin, retention, unit economics, cash burn, reinvestment and funding runway. Forecast the capital needed before cash generation turns positive, including possible future dilution. Revenue is not profit; customer counts and GMV are not substitutes for net revenue. [4]
IPO VALUATION · QUESTION & ANSWER
8. How do banks, asset-heavy companies and diversified groups differ?
| Company type | Illustration | Interpretation |
|---|---|---|
| Bank—P/B | Adjusted book equity ₹800 crore × 1.5 P/B ÷ 10 crore shares = ₹120/share. | Assess sustainable ROE, asset quality, provisions and regulatory capital. |
| Property company—NAV | Assets at market value ₹1,800 crore − liabilities ₹600 crore = ₹1,200 crore; ÷ 6 crore shares = ₹200/share. | Adjust for tax, realisation costs, restrictions and timing. |
| Diversified group—SOTP | Division EVs ₹900 + ₹600 crore, plus non-operating property ₹200 crore, less central net debt ₹300 crore = ₹1,400 crore equity value. | Deduct other claims and central costs where relevant; do not subtract divisional debt twice. |
Equity value = current book equity + present value of future residual income
A dividend discount model values future shareholder distributions at the cost of equity. Residual income models help test whether a bank earns returns above shareholders’ required return. A high P/B needs support from sustainable excess returns. [3]
IPO VALUATION · QUESTION & ANSWER
9. Case 4: What happens to valuation when the IPO creates new shares?
Agreed pre-money equity valuation ₹1,000 crore; existing diluted shares 5 crore; fresh funds ₹200 crore; issue price ₹200. Ignore issue expenses. Assume the pre-money valuation excludes fresh IPO cash and does not already include the value of projects funded by that cash.
| Item | Working | Answer |
|---|---|---|
| Price per existing share | ₹1,000 crore ÷ 5 crore | ₹200 |
| New shares | ₹200 crore ÷ ₹200 | 1 crore |
| Post-issue shares | 5 + 1 | 6 crore |
| Post-money equity value | ₹1,000 + ₹200 crore | ₹1,200 crore |
| Post-money value/share | ₹1,200 crore ÷ 6 crore | ₹200 |
| New investors’ ownership | 1 ÷ 6 | 16.67% |
| Existing investors’ ownership | 5 ÷ 6 | 83.33% |
Worked solution
The old shareholders own a smaller percentage of a larger company. At a fair issue price and ignoring costs, the existing stake remains worth 83.33% × ₹1,200 crore = ₹1,000 crore. Percentage dilution does not automatically imply a loss in economic value.
Common mistake: ₹1,000 crore ÷ 6 crore = ₹166.67 mixes a pre-money numerator with a post-money denominator and omits the fresh cash. Conversely, do not add proceeds a second time to a valuation that already includes them.
IPO VALUATION · QUESTION & ANSWER
10. How does an OFS differ from a fresh issue?
An offer for sale (OFS) transfers existing shares from selling shareholders to IPO investors. It does not itself increase shares outstanding or provide cash to the company. [2]
Continue Case 4, but add an OFS of 0.5 crore existing shares at ₹200.
| Component | Shares sold | Gross amount | Recipient |
|---|---|---|---|
| Fresh issue | 1 crore new shares | ₹200 crore | Company |
| OFS | 0.5 crore existing shares | ₹100 crore | Selling shareholders |
| Total offer | 1.5 crore shares | ₹300 crore | Split as above |
Post-issue shares remain 6 crore. IPO buyers collectively hold 1.5 ÷ 6 = 25%, while pre-IPO holders retain 4.5 ÷ 6 = 75%. The company receives only ₹200 crore before costs.
IPO VALUATION · QUESTION & ANSWER
11. Case 5: How does book building discover the final offer price?
Under fixed pricing the offer price is known in advance. Under book building, bids are submitted within an announced price band and help determine the final offer price. [1,5]
Offer 1 crore shares. Price band ₹190–₹210. Each row below represents additional valid demand at that exact maximum bid price; no bid is counted twice.
| Bid price | Incremental demand (crore shares) | Cumulative demand at/above price |
|---|---|---|
| ₹210 | 0.30 | 0.30 |
| ₹205 | 0.45 | 0.75 |
| ₹200 | 0.55 | 1.30 |
| ₹195 | 0.40 | 1.70 |
| ₹190 | 0.30 | 2.00 |
Worked solution
At ₹205, only 0.75 crore shares are demanded—insufficient for 1 crore shares. At ₹200, demand is 1.30 crore—enough to cover the offering. ₹200 is the highest displayed price covering the offer in this simplified book. At that price the book is 1.30 times covered.
This is a teaching simplification, not an allotment algorithm. Actual pricing and allocation consider the issue structure, investor categories and applicable rules. A qualifying bid does not guarantee allotment in an oversubscribed category.
Retail cut-off bidding means accepting the final discovered price within the band; it is not a promise of the lowest price or guaranteed allocation. [5]
INDIA & UNITED STATES · OVER-ALLOTMENT
11A. Can an IPO accept more than its original size? What is a greenshoe?
Greenshoe option—also called an over-allotment option—allows a disclosed additional allocation and supports an organised mechanism for managing the resulting short position after listing. It is not an unrestricted right to retain every excess application.
Q. Why is the greenshoe option there?
An IPO moves from a negotiated offer price to continuous market trading. Early selling pressure, uncertain demand and a limited trading history can produce sharp price movements. The greenshoe creates a pre-arranged, disclosed way to manage extra allocations and permitted short covering.
Allocate an authorised additional quantity without an unlimited expansion of the offer.
Permitted market purchases can absorb some early selling pressure. Support is finite and discretionary within the rules.
Define how borrowed or over-sold shares will be restored, and disclose potential additional issuance and proceeds.
Its principal Indian regulatory purpose is post-listing price stabilisation. Additional capital is a possible outcome when new shares settle the unpurchased shortfall; it is not automatic. In the US, the contractual additional-share option provides a way to cover a covered short without having to buy all those shares at a potentially higher market price.
Q. Is oversubscription the same thing?
No. Oversubscription measures investor demand above the offer size. An IPO offering 100 lakh shares that receives valid demand for 500 lakh is five times subscribed. It does not automatically issue 500 lakh shares. A greenshoe is a separately authorised and disclosed facility for additional allocation and post-listing stabilisation.
| Feature | India: main-board IPO | US: conventional underwritten offering |
|---|---|---|
| Core framework | SEBI ICDR Regulation 57: a disclosed price-stabilisation arrangement. | Contractual option in the underwriting agreement; aftermarket activity is subject to Regulation M and other applicable rules. |
| Additional quantity | Over-allotment must not exceed 15% of the issue size. | Often 15% of base shares. Read the actual prospectus and agreement; do not treat customary terms as a universal requirement. |
| Timing | Stabilisation period: no more than 30 days from exchange trading permission. | Option often exercisable for 30 days, with the starting date defined in the agreement. This is not the Indian statutory stabilisation clock. |
| Initial mechanism | Stabilising agent borrows existing shares from eligible promoters/pre-issue shareholders and over-allots them. | Underwriters may sell more shares than their base purchase, creating a covered syndicate short. Share borrowing/settlement arrangements depend on the transaction. |
| If shares can be bought in the market | Agent may buy shares during stabilisation and return them to the lenders. | Underwriters may cover their short through market purchases. |
| If shares are not bought back | At the end of stabilisation, issuer allots new shares at issue price for the shortfall; agent returns those to the lenders. | Underwriters may exercise the additional-share option, in whole or part, under its terms. |
| Who receives extra proceeds? | Over-allotment money first goes into a special account. Money for the final new-share shortfall is remitted to the issuer. | Issuer receives proceeds for new shares; selling holders receive proceeds for their existing shares. Underwriting discounts and expenses reduce net proceeds. |
Sources: SEBI ICDR 2018, consolidated through 21 March 2026, Regulation 57; SEC Regulation M guidance; US underwriting-agreement examples. The contractual period and allocation source must be checked for each US offering.
Q. Why does the mechanism depend on whether the price falls or rises?
Base offer plus disclosed over-allotment. Extra shares create an obligation to restore borrowed shares or cover the syndicate short.
Buy shares in the market to cover the obligation, subject to the rules. Buying can support demand; it does not guarantee a price floor.
US: use the contractual option where appropriate. India: any unpurchased shortfall is settled through issuer allotment after stabilisation.
How much can be over-allotted—and where does the money go?
Assume a base fresh issue of 100 lakh shares at ₹200, with an authorised, fully used 15% greenshoe. Ignore expenses.
Worked solution: issue-size calculation
Base fresh proceeds = 100 lakh × ₹200 = ₹200 crore.
Maximum over-allotment = 100 lakh × 15% = 15 lakh shares.
Total allocated = 100 + 15 = 115 lakh shares.
Extra money = 15 lakh × ₹200 = ₹30 crore, held initially in the special greenshoe bank account—not automatically available for the company to spend.
| Indian outcome | Calculation | Capital/proceeds effect |
|---|---|---|
| A · All 15 lakh shares bought back at an illustrative average ₹190 | Market purchase cost = 15 lakh × ₹190 = ₹28.5 crore. Return all 15 lakh to lenders. | No additional greenshoe shares need be issued. Company keeps base ₹200 crore. Remaining ₹1.5 crore, after applicable stabilisation expenses, is transferred to SEBI’s Investor Protection and Education Fund; it is not company profit. |
| B · No shares bought back; illustrative market price ₹230 | Unpurchased shortfall = 15 lakh. Issuer allots 15 lakh at ₹200 after stabilisation; shares restore the lenders’ position. | ₹30 crore remitted to issuer for the new shares. Gross company proceeds become ₹230 crore; total new shares become 115 lakh. |
| C · Partial cover: 6 lakh bought at ₹190 | Market purchases cost ₹11.4 crore. Remaining shortfall = 9 lakh shares; new allotment at ₹200 = ₹18 crore. | Issuer receives ₹18 crore extra. ₹0.6 crore remains before expenses and applicable fund transfer. Additional new issuance is 9 lakh—not all 15 lakh. |
These are alternative paths for the same hypothetical IPO, not simultaneous outcomes. Actual market purchases depend on the agent’s decisions and applicable conditions.
How does a US underwriter cover an over-allotment?
Assume 10 million base new shares at $20 and an option for 1.5 million additional new shares, exercisable for 30 days under the agreement. Underwriters sell all 11.5 million shares. For the arithmetic only, ignore underwriting discounts and expenses.
Worked solution
Base gross company proceeds: 10m × $20 = $200m.
Covered short: 11.5m sold − 10m base shares = 1.5m shares.
If price is $18: buying 1.5m shares in the market costs $27m and covers the short. If the option is not exercised, there is no extra issuer share issuance or $30m of extra issuer proceeds from that option.
If price is $24: exercising the option obtains 1.5m shares at an assumed $20 cost = $30m, versus $36m to purchase them in the market. This covers the short and raises gross issuer proceeds to $230m.
In a real agreement, the underwriter’s purchase price is usually the public offer price less underwriting discounts. The simplified $3m difference in the $18 path is not the issuer’s gain; actual syndicate economics include fees, borrowing and execution costs.
Q. When does the greenshoe dilute existing shareholders?
Extend the Indian example: suppose 500 lakh shares existed before the IPO. The base fresh issue adds 100 lakh, taking total shares to 600 lakh.
| Settlement scenario | Extra new shares | Total shares | Pre-IPO holders’ ownership after settlement |
|---|---|---|---|
| Full market cover | 0 | 600 lakh | 500 ÷ 600 = 83.33% |
| Partial cover: 6 lakh bought, 9 lakh issued | 9 lakh | 609 lakh | 500 ÷ 609 = 82.10% |
| No market cover: full shortfall issued | 15 lakh | 615 lakh | 500 ÷ 615 = 81.30% |
These percentages refer to the original shareholders collectively after their lent shares are restored. Borrowing and returning existing shares does not itself create new shares. Further issuer allotment does. Similarly, a US option supplied entirely by selling shareholders changes ownership but does not increase total shares outstanding; an option supplied by newly issued shares does.
Q. Does a greenshoe guarantee listing gains or prevent losses?
No. It can facilitate short covering and permitted price support for a limited period. It does not remove business risk, establish intrinsic value or guarantee that the market price stays at or above the offer price.
What to look for in the prospectus: size of the additional allocation; whether shares are new or sold by existing holders; stabilising agent/underwriters; timing; borrowing and settlement arrangements; potential dilution; and proceeds with and without the option. Ordinary oversubscription alone is not permission to enlarge an IPO.
Further reading: SEBI ICDR Regulations, Regulation 57; SEC: Regulation M FAQs; SEC: covered shorts and greenshoe disclosure; US prospectus example: additional-share option terms. The US example is an illustration of contractual wording, not a recommendation or an IPO case valuation.
IPO VALUATION · QUESTION & ANSWER
12. How is the price band selected from a valuation range?
For Vayu, the DCF value is about ₹243.97, the selected EV/EBITDA estimate is ₹206 and P/E estimate is ₹216. These are references for judgement. If investors question earnings quality, a premium cannot be justified simply by selecting the highest number.
After checking comparability, market conditions, offer size and demand, the issuer and bankers choose a band. They may leave a margin for valuation uncertainty and execution risk. There is no universal mandatory IPO valuation discount. [2]
The issuer seeks sufficient capital at an acceptable ownership cost. Investors seek an attractive expected return. The final offer price is a negotiated market outcome subject to the issue’s rules—not a mathematical average of models.
IPO VALUATION · QUESTION & ANSWER
13. Case 6: Does a listing gain prove that the IPO was fairly priced?
A company issues 1 crore fresh shares at ₹200. The first traded price is ₹230. Ignore expenses.
Worked solution
Gross fresh proceeds = 1 crore × ₹200 = ₹200 crore.
Initial price change = (230 ÷ 200 − 1) × 100 = 15%.
Difference between first-trade value and issue proceeds = (230 − 200) × 1 crore = ₹30 crore.
The ₹30 crore is often described as “money left on the table” for the fresh issue. It is not an accounting loss or evidence that ₹230 could necessarily have cleared the whole offering. The first trade can reflect limited float, sentiment and short-term demand.
If the shares instead begin trading at ₹180, the initial change is −10%. Investors need to distinguish a listing outcome from long-term business value. [2]
IPO VALUATION · QUESTION & ANSWER
14. Try it: how do price, fresh capital and OFS change ownership?
IPO structure laboratory
Fix pre-money value and old shares to derive the issue price; then change fresh funds and OFS shares.
Ignores fees, taxes, option exercise proceeds and other capital changes. OFS cannot exceed the existing share count. Pre-money value excludes fresh cash and assumes no double-counted project value.
APPLY THE METHODS · TWO LIVE CASES
14A. How do Jio and SpaceX compare in real IPO and listing pricing?
Work through Jio’s ₹1,119 offer versus ₹1,358 opening, and SpaceX’s $135 offer versus $150 opening. The companion guide applies every major method, explains unsuitable approaches, and distinguishes actual disclosures from teaching forecasts and assumptions.
IPO VALUATION · QUESTION & ANSWER
15. Which prospectus disclosures should an investor examine?
| Read this | Ask this question |
|---|---|
| Basis for Offer/Issue Price | Which financial measures, peer multiples and KPIs support the price? |
| Restated financial statements | Are earnings recurring, and are profits turning into cash? |
| Objects of the offer | How much funds the business, repays debt or goes to sellers? |
| Capital structure and dilution | What is the post-issue share count, including potential dilution? |
| Risk factors | What could undermine growth, margins, cash flows or governance? |
| Selling shareholders and prior transactions | Who is exiting, and are historical prices comparable in rights and timing? |
| Business and KPIs | Are customer, retention and operating metrics consistently defined? |
Read the latest prospectus and price-band announcement. Do not treat oversubscription, anchor participation, a famous investor or grey-market premium as a substitute for business valuation.
IPO VALUATION · QUESTION & ANSWER
16. Quick questions students often ask
Does the amount the company wants to raise determine its value?
No. At an agreed price, the funding target determines the number of fresh shares issued. A capital requirement alone does not establish a fair valuation.
Can a company have positive operating cash flow and losses?
Yes. Non-cash expenses and working capital movements can separate accounting profit from operating cash flow. Assess recurring cash generation, capital expenditure and funding commitments.
Is a previous VC funding price the IPO floor?
No. Market conditions, performance and share rights can differ. Preference rights can make the earlier security economically different from ordinary equity.
Can we discount equity cash flows at WACC?
Use WACC for FCFF, and cost of equity for FCFE or dividends. Mixing the cash-flow claim and discount rate produces inconsistent values.
Should debt repayment from IPO money raise value twice?
No. Track fresh proceeds and their use consistently. When cash repays debt, do not both retain that cash in the valuation bridge and remove the debt.
Does a larger number of shares make the company more valuable?
No. A share split changes units, not the value of the business. Compare market capitalisation, cash flows and the ownership claim.
Can growth destroy value?
Yes. Growth that requires investment earning less than the relevant cost of capital can reduce value, even while revenue rises.
IPO VALUATION · QUESTION & ANSWER
17. Sources, scope and further reading
Regulatory explanations checked against the public sources below on 30 October 2026. These cases are original hypothetical teaching illustrations, not current company valuations. This guide focuses on valuation and pricing; eligibility, reservations and allotment requirements depend on the applicable offer framework.
- SEBI: FAQs on primary-market issues — who fixes price and fixed-price versus book-built offers.
- SEC Investor.gov: Investing in an IPO — offer-price negotiation, selling shareholders and trading-price risks.
- Aswath Damodaran, NYU Stern: valuation resources — DCF, relative valuation and equity claims.
- Damodaran: Valuing Young, Start-up and Growth Companies — growth, reinvestment, survival and comparable-company limitations.
- NSE: IPO FAQs and SEBI investor education: IPOs — book building and cut-off bids.
Educational material, not investment advice or a recommendation to subscribe to an IPO. All examples ignore costs unless specified. Values are rounded for presentation.