How to Analyse Any IPO Before Investing?

30 Jan 2026

JM Financial Services

IPO season can feel exciting. Headlines scream “Subscribed 50x!” and grey market premiums start floating around in WhatsApp groups. But smart investing isn’t about hype — it’s about analysis.

If you want to consistently make better IPO decisions, you need a structured approach.

Here’s a practical, step-by-step guide to analysing any IPO before applying.

Step 1: Understand the Business Model

Start with the basics.

Ask yourself:

What does the company actually do?
How does it make money?
Is it product-based, service-based, or platform-based?
Who are its customers?

Avoid companies you don’t understand. If you cannot explain the business in two simple sentences, you probably shouldn’t invest in it.

Pro Tip: Look at revenue segmentation in the DRHP/RHP — it shows where the company earns most of its income.

Step 2: Check Revenue and Profit Growth

Look at the last 3–5 years’ financials:

Revenue growth trend
Net profit trend
EBITDA margins
PAT margins

Healthy signs:

Consistent revenue growth
Improving margins
Stable or rising profits

Red flags:

Sudden jump in profits just before IPO
Declining margins
Inconsistent earnings

Growth without profitability can be acceptable — but only if the business model justifies it.

Step 3: Evaluate Valuation

Even a good company can be a bad investment if it’s overpriced.

Key metrics:

P/E Ratio
P/B Ratio
EV/EBITDA
Market Cap comparison with listed peers

Compare IPO valuation with:

Industry competitors
Company’s growth rate
Sector average multiples

If the IPO is priced at a huge premium without strong growth, be cautious.

Step 4: Analyse Promoter Background

Promoters matter.

Check:

Promoter shareholding
Past track record
Any legal issues or regulatory actions
Post-IPO holding percentage

High promoter holding after IPO generally indicates confidence.

Frequent pledging of shares? That’s a red flag.

Step 5: Look at the Object of the Issue

Why is the company raising money?

Common reasons:

Expansion
Debt repayment
Working capital
General corporate purposes
Offer for Sale (OFS)

Be careful if:

Large portion is Offer for Sale (existing investors exiting)
No clear growth plan
Heavy dependence on debt repayment

Fresh issue for expansion is usually a positive sign.

Step 6: Study Industry Outlook

Even strong companies struggle in weak industries.

Check:

Industry growth rate
Government regulations
Competition intensity
Entry barriers

High-growth sectors like renewable energy, fintech, or defense often attract strong subscription — but fundamentals still matter.

Step 7: Check IPO Subscription Data

Subscription trends reveal market sentiment.

Track:

RII subscription
NII subscription
QIB subscription

Strong QIB interest often signals institutional confidence.

But remember — subscription hype alone should not be your only decision factor.

Step 8: Grey Market Premium (GMP) – Use Carefully

GMP indicates expected listing demand.

But:

It’s unofficial.
It changes daily.
It can be manipulated.

Use it only as a sentiment indicator, not as the main reason to invest.

Step 9: Risk Factors Section (Most Ignored Part)

In the RHP document, read the “Risk Factors” section.

Look for:

High debt
Customer concentration
Legal cases
Dependency on few suppliers
Regulatory risks

This section often reveals hidden weaknesses.

Step 10: Decide Your Objective – Listing Gain or Long-Term?

Before applying, be clear:

Are you applying for:

Short-term listing gains?
Long-term investment?
Both?

For listing gains:

Focus on subscription data + GMP + market conditions.

For long-term:

Focus on fundamentals + valuation + growth potential.

IPO Analysis Checklist (Quick Summary)

Before applying, confirm:

✔ Strong business model
✔ Consistent financial growth
✔ Reasonable valuation
✔ Clean promoter background
✔ Clear usage of funds
✔ Healthy industry outlook
✔ Manageable risk factors