When there is a public issue or a public offer, it can either be a fixed issue or a book-building issue. So let’s understand in detail what is fixed price and book building.
Fixed Price Issue
When a company brings an IPO in capital markets, it offers equity shares to the public. If the company decides the price of the shares during that time, it is called a fixed price issue. For example, in 2017, Salasar Techno Engineering Limited offered its equity shares to the general public 2017. It offered its shares to the public at Rs. 108 per share. The minimum price was Rs. 13,500.
When you apply for a public offer, you need to buy shares in lots. A lot is the minimum number of shares that you need to buy. Although when the company gets listed in the stock market, you can buy or sell even a single share.
Book Building Issue
A book-building issue happens when a company brings an IPO and offers equity shares with a price range. When a company asks for a price range, it asks its bidders to bid in a price range they offer.
For example, Bikaji Food International Limited recently went public and offered its shares to the public. It was an 881 Cr. IPO. The company did not tell the price of the share. Rather, it gave a price band of Rs. 285-300, also called a price range.
The floor price is the lowest value of the price band. The cap price is the highest value of the price band.
The lot size of Bikaji was 50 shares. Thus, the range was from Rs. 14,250 to 15,000.
When stock market investors send applications to the company, the company gets the idea of the bid. Then, it gives the company an idea of how to proceed with the price range. After that, the company decides on a cut-off price or final price.
Bikaji was 80 times more subscribed than its original demand. Thus, the company knew that it had a good demand. Thus, The cut-off price was Rs. 300. So, the bids below Rs. 300 did not receive company shares. Finally, the company was listed at Rs. 322.80, 7.60% more than its cap price.
Conclusion
Any public offering has two issues: fixed price issues and book-building issues. Companies opt for these issues as they give the company an idea of its position.
As an investor, you need to bid smartly in a book-building issue. To bid in a public offering, you also need a Demat account. If you are interested in opening a Demat account, Shoonya is your destination.
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Happy trading!