Last week, Patanjali Group-owned Ruchi Soya announced raising Rs 4,300 crore through a follow-up offer (FPO). The Ruchi Soya FPO will open on March 24 and close for bidding on March 28. The company is yet to announce the issue price of its FPO.
In the last two trading days since the announcement was made, the shares of Ruchi Soya have surged by 36 per cent. As on 1.45 pm on March 17, Ruchi Soya is down 4 per cent at Rs. 1,029, while the Sensex is Up 1.92 per cent at 57,900.
What Is An FPO?
Now, most people have heard of an initial public offering (IPO). There is always a buzz in the market when a company launches an IPO or even announces launching one. But that is not so in case of an FPO.
Put simply, an FPO is the process through which a listed company issues additional shares in the market after it has already come out with an IPO. This is why FPOs are also known as secondary offerings.
Companies typically come up with an FPO to raise funds from its shareholders and investors soon after the launch of an IPO. The FPO is usually launched when the company requires funds to expand and/or reduce debt. The company typically issues FPO to diversify its equity base.
But there are certain regulations that a company has to follow. First, it has to be a listed company. Second, the company has to submit a red herring prospect to the Securities and Exchange Board of India (Sebi) for approval. This process is similar to the process to be followed while applying for launching an IPO.
How To Apply For An FPO?
If you want to apply for the FPO, here’s how you can do it.
You can log in to the stock broking website in which you have an account through your login credentials. You can then go to your portfolio and click on the IPO link. Go to the Ruchi Soya FPO tab and click on the ‘Bid’ button. Enter details of your UPI ID, quantity and price, and submit the form. You will also need to log in to your UPI App through netbanking or BHIM to approve the purchase mandate.
Alternatively, you can log in to the app or website of your stock broking account, select the FPO you want to invest in, and create an FPO application. You will then need to add up to three bids within the price range indicated, and confirm your application. Lastly, you need to approve the UPI mandate and block the funds for the FPO purchase.
Should You Invest In An FPO?
Unlike an IPO, where the share price is based on the company’s performance, the share price for an FPO is market-dependent as the share is already trading on the market.
Thus, the investor has a better knowledge of the valuation of the company before investing in it. Besides, most FPOs are offered at a discount in comparison to the prevailing trading price.
But since companies usually raise FPOs either to expand and/or reduce or restructure their debt, one should closely scrutinise the reason for the FPO, and accordingly apply for it.
As for Ruchi Soya, the company is one of the leading FMCG brands in India, and is currently coming out with its FPO mainly to cut down on its promoter shareholding, while simultaneously increasing its public shareholding.