The Complete IPO Guide for Indian Investors · Chapter 6 of 15
IPO Valuation and Pricing
What the price band means
The price band is the range in which you may bid. The cap of the band cannot be more than 20% above the floor. Retail applicants usually bid at the cut-off price, which means they accept whatever final price is fixed within the band. The upper band is the price you should use when you value the company.
Basic valuation measures
Price-to-earnings (P/E) compares the price with profit per share. Price-to-book relates price to net worth. EV/EBITDA looks at the whole business including debt. Market capitalisation at the upper band tells you what the entire company is being valued at.
Worked example: if the upper band is ₹200, there are 10 crore shares after the issue and the latest annual profit is ₹40 crore, then market capitalisation is ₹2,000 crore and the P/E is 50 (₹2,000 crore ÷ ₹40 crore).
Compare with peers, with care
The offer document lists listed peers. A company priced at a much higher P/E than all of its peers needs a clear reason such as faster growth, better margins or a unique position. Check whether the peers are truly comparable in size and business mix, because the list is chosen by the company's bankers.
Growth and quality
A high P/E can be reasonable if profit is growing quickly and sustainably; a low P/E can be a trap if profit is falling. Look at return on capital employed, margins and cash conversion alongside the multiple.
Pre-IPO adjustments
Check recent share transfers, bonus issues and pre-IPO placements. A pre-IPO round at a lower price than the issue price shows how much earlier investors have already gained, and may hint at how much selling pressure could follow once their lock-in ends.
Valuation is not destiny
A fair price can still fall if markets turn, and an expensive one can rise in a strong market. Valuation helps you avoid overpaying; it does not time the listing.
Key takeaways
- The cap of the price band cannot exceed 120% of the floor.
- Use the upper band for market capitalisation and P/E.
- Compare with genuinely similar peers and look at growth and cash flow.
- Pre-IPO transactions show who has already profited.