BAJAJ BROKING
March 24, 2025
9 mins read
Understanding stock market basics is critical before you can proceed to investment. FPO is one such common term you must understand before investing in the stock market. A Follow-On Public Offer (FPO) is a process through which a publicly listed company issues additional shares to investors after its initial public offering (IPO) to raise capital for various business needs, such as expansion, debt reduction, or operational growth. Unlike an IPO, where a company enters the stock market for the first time, an FPO involves selling additional shares to the public after the company is already listed. To invest in an FPO, you need to open a Demat account.
A Follow-On Public Offer (FPO) is a process by which a company that is already listed on a stock exchange issues new shares to the public or existing shareholders. Unlike an Initial Public Offer (IPO) which marks a company's debut on the stock exchange, an FPO is undertaken by companies that are already trading on the exchange. Companies opt for an FPO when they need additional capital for various purposes such as debt reduction, expansion plans, working capital requirements, or acquisitions. Since the issuing company is already publicly traded, investors have access to its financial performance and historical data, making it easier to evaluate the investment opportunity.
An FPO is generally considered beneficial for companies with a proven track record, as it allows them to leverage their market position to raise additional capital. However, issuing more shares can dilute existing shareholders' ownership and reduce earnings per share (EPS), impacting their overall returns. Investors should evaluate the company’s financial health and purpose behind the FPO before investing.
Now that we have covered FPO full form and meaning, let’s focus on how companies can actually issue Follow-On Public Offers in the market:
Companies turn to Follow-On Public Offers (FPOs) for various strategic and financial reasons, making it an important tool in corporate finance. The primary motivation behind an FPO is to raise additional capital without incurring high-interest debt. This capital infusion can serve multiple purposes, such as funding expansion plans, entering new markets, or investing in research and development. For many companies, FPOs represent an opportunity to reduce existing debt burdens, thereby improving their debt-to-equity ratios and overall financial health.
Additionally, companies might opt for an FPO to increase their public shareholding to meet regulatory requirements, particularly if they need to comply with SEBI's minimum public shareholding norms of 25%. FPOs also enhance market liquidity for the company's shares and can potentially broaden the shareholder base.
In some cases, FPOs are conducted when promoters wish to dilute their stakes while ensuring the company receives fresh capital. With the Indian markets witnessing robust participation from both retail and institutional investors in 2025, FPOs have emerged as a preferred route for listed companies to capitalise on favorable market sentiments and valuations.
Now that you know what is FPO, here’s a rundown of the two types of Follow-On Public Offer formats companies can leverage:
1. Dilutive FPO: In a dilutive FPO, a company issues new shares to the public, which increases the total number of outstanding shares. This type of FPO leads to a dilution of earnings per share (EPS) as the company's profits are distributed among a larger number of shares. However, it brings fresh capital into the company that can be used for various purposes.
2. Non-Dilutive FPO: A non-dilutive FPO, also known as a secondary offering, occurs when existing shareholders, typically promoters or early investors, sell their shares to the public. In this case, no new shares are created, and the total number of outstanding shares remains the same. The company does not receive any proceeds from this type of offering as the money goes directly to the selling shareholders.
The choice between dilutive and non-dilutive Follow-On Public Offers depends on the company's objectives. If the goal is to raise fresh capital for business purposes, a dilutive FPO is appropriate. On the other hand, if existing shareholders want to liquidate their holdings while potentially broadening the investor base, a non-dilutive FPO would be the preferred option. Companies may also opt for a combination of both types, where new shares are issued while existing shareholders partially sell their holdings.
Over the past few years, several Indian companies have successfully raised capital through Follow-On Public Offers (FPOs) to meet strategic needs. Yes Bank, for instance, launched a ₹15,000 Crore FPO[1] in July 2020 as part of a post-crisis restructuring to restore its capital adequacy and stability. The issue was priced at ₹12 per share[2] and was largely subscribed by institutional investors, bolstering the bank’s capital base (though its stock initially traded below the offer price).
Similarly, in 2022, Ruchi Soya Industries (now Patanjali Foods) opened a ₹4,300 Crore FPO to meet SEBI’s minimum public shareholding norm – reducing the promoters’ holding from 98.9%[3] to about 81% – and to pay down debt. The offer was fully subscribed and new investors saw upside, as Ruchi Soya’s shares listed roughly 36% [4] above the FPO issue price.
The Vodafone Idea FPO remains one of the largest ever FPOs in India. In 2024, Vodafone Idea’s ₹18,000 Crore Follow-On Public Offer was oversubscribed about 6.4 times, r[5] eflecting investor confidence in giving a lifeline to the debt-laden telecom operator and supporting its turnaround efforts. For investors considering an FPO, it is important to analyze the company’s past performance, current market trends, and the IPO allotment status of recent offerings to make informed investment decisions.
The following table sums up the FPO vs. IPO comparison in detail:
Feature | Follow-On Public Offer (FPO) | Initial Public Offer (IPO) |
Definition | Issuance of shares by an already listed company | First-time issuance of shares to the public |
Company Status | Already trading on stock exchanges | Unlisted, becoming public for the first time |
Track Record | Has established trading history and financial performance | Limited public financial history available |
Pricing | Usually priced relative to current market price | Priced based on valuation methodologies |
Risk Level | Generally considered lower risk due to market history | Higher risk due to lack of trading history |
Purpose | Expansion, debt reduction, or liquidity enhancement | Initial capital raising and public listing |
Market Awareness | Company already known to investors | Company building market awareness |
Regulatory Requirements | Less stringent compared to IPOs | More comprehensive disclosure requirements |
Timeline | Generally faster process than IPOs | Longer process with more regulatory scrutiny |
Aspect | FPO (Follow-On Public Offer) | Listed Shares |
Issuance | Newly issued or existing shares sold by shareholders | Shares already trading on the stock exchange |
Pricing | Offered at a discount or market-driven rates | Determined by daily market fluctuations |
Impact on Shareholders | May dilute existing shareholding in dilutive FPOs | No dilution, regular buying and selling |
When a company decides to proceed with a Follow-On Public Offer (FPO), it initiates a structured process that involves multiple stakeholders and follows regulatory guidelines. This starts with the company's board approving the FPO proposal, after which the company appoints investment bankers and other advisors to manage the offering. These advisors help prepare the Draft Red Herring Prospectus (DRHP), which contains detailed information about the company's financials, the purpose of raising funds, risk factors, and other relevant disclosures.
Once the DRHP is filed with SEBI, it undergoes scrutiny, and after incorporating any suggested changes, the company receives regulatory approval. The company then announces the FPO date and price band, followed by roadshows to generate investor interest. During the subscription period, investors can apply for shares through their demat accounts or by submitting physical forms. After the closure of the subscription period, shares are allocated based on demand and predefined quotas for different investor categories.
If the FPO is oversubscribed, investors may receive fewer shares than applied for, while in case of under-subscription, they might receive the full allocation. Finally, the new shares are listed on the stock exchanges, usually within a week after the allocation process is completed, allowing investors to trade these shares in the secondary market.
The chief benefits of a Follow-On Public Offer are listed below:
Follow-On Public Offers play a crucial role in corporate fundraising strategies, allowing listed companies to secure capital for various financial needs. Investors must evaluate factors like the company's performance, financial stability, and market conditions before participating in an FPO. While it offers advantages such as increased liquidity and reduced financial burden, investors should assess potential dilution risks and pricing mechanisms before making investment decisions. Investors can also compare FPO listings with current IPO and upcoming IPO listings to make an informed choice.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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FPO full form is Follow-On Public Offer. It refers to the issuance of shares to the public by a company that is already listed on a stock exchange. This is different from an IPO, which is the first time a company offers its shares to the public. The FPO full form accurately describes its nature as a subsequent share offering.
Any Indian resident, NRI, FII, or QIB can apply for a Follow-On Public Offer. Retail individual investors, high net-worth individuals, institutional investors, and employees of the issuing company (if there's a reserved portion) are all eligible to participate. Investors must have a valid demat account and PAN card to apply for an FPO.
The FPO price is calculated based on multiple factors including the company's current market price, financial performance, growth prospects, and overall market conditions. Companies typically set a price band that may be at a premium, discount, or at par with the current market price. The final price is determined through a book-building process considering demand from various investor categories.
A Follow-On Public Offer provides companies with fresh capital for expansion, debt reduction, or other strategic initiatives. It enhances market liquidity, broadens the investor base, and improves the debt-to-equity ratio. For investors, FPOs offer opportunities to invest in established companies with known track records, often at attractive valuations compared to current market prices.
An FPO is neither inherently good nor bad—its merits depend on the company's circumstances and investor perspectives. For companies, it's beneficial when additional capital is needed without increasing debt. For investors, it can be good if the company has strong fundamentals and the pricing is attractive. However, dilution of earnings per share and potential short-term price pressure are considerations to evaluate.
There are primarily two types of IPOs: Fixed Price IPOs and Book Built IPOs. In Fixed Price IPOs, the company determines a specific price at which shares are offered. In Book Built IPOs, a price band is provided, and investors bid within this range. Additionally, there are variants like SME IPOs for small and medium enterprises and QIP (Qualified Institutional Placement) for listed companies raising capital from qualified institutional buyers.
When a company issues a non-dilutive FPO, its existing shareholders sell their shares to the public. In this case, the company does not issue new shares. In this type of FPO, the total number of outstanding shares remains unchanged, and the company's earnings per share is not diluted. The proceeds from a non-dilutive FPO go to the selling shareholders rather than to the company's treasury.
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