Unlocking Value in an Indian Subsidiary Through an IPO in India: A Deep Dive

published on 13 February 2025 | reading time approx. 5 minutes

India's stock market is experiencing remarkable growth, driven by a robust economy, a youthful population, and an expanding middle class. These factors create a thriving business environment, making India an attractive destination for companies looking to raise capital.

Why Consider an IPO in India?

For foreign subsidiaries, launching an IPO in India presents several strategic advantages:

Access to Capital: An IPO provides an opportunity for significant infusion of capital. For instance, in an SME IPO, companies can raise funds up to could raise INR 250 million (≈ EUR 2.80 million), while a Main Board IPO could raise substantially more,. This capital can be utilized to fund expansion plans, invest in cutting-edge technologies, and strengthen operational capabilities. India's financial markets are witnessing a transformative shift, driven by the theme of "Capital for India, From India." The post-COVID era has seen an unprecedented rise in retail participation, with a surge in demat accounts and first-time investors actively engaging in the equity markets. This shift has deepened liquidity, strengthened market resilience, and created a vibrant domestic investment ecosystem. At a time when higher interest rates globally are making foreign capital more expensive, India's strong retail and institutional investor base presents a unique opportunity for companies to raise capital domestically.

Enhanced Visibility and Brand Building: Going public significantly enhances brand visibility and credibility within the Indian market, positioning the subsidiary for future growth. This is particularly beneficial for German companies, as Germany enjoys a strong reputation in India for engineering excellence, reliability, and high-quality manufacturing. An IPO not only strengthens financial prospects but also deepens market trust, further cementing the company's status as a premium and preferred brand in India.
Unlocking Latent Value: The IPO process brings increased transparency and market scrutiny, often leading to a re-evaluation of the company's true worth. In private markets, businesses may be undervalued due to limited visibility, but going public allows for a broader investor assessment, unlocking latent value that may not have been fully realized earlier. A successful IPO can significantly enhance a company's valuation, positioning it for strategic partnerships and future growth opportunities.
Liquidity for Shareholders: An IPO provides an important liquidity event for founders, early investors, and key stakeholders. By listing on the stock exchange, shareholders can realize returns on their investments, diversify their portfolios, and reinvest capital into new ventures. This liquidity also makes the company more attractive to future investors, who value the option of exiting their investments through public markets.
Attracting and Retaining Top Talent: Publicly listed companies are often better positioned to attract high-caliber professionals by offering equity-based incentives such as stock options and employee stock ownership plans (ESOPs). These incentives align employee interests with long-term company growth, fostering innovation, commitment, and stability within the organization. For subsidiaries of multinational companies, this added advantage helps in building a strong leadership team in India while maintaining global corporate alignment.

SME IPO vs. Main Board IPO: Navigating the Choice

Feature	SME IPO	Main Board IPO
Ideal For	High-growth but smaller subsidiaries	Larger, established subsidiaries
Post-Issue Paid-Up Capital	≤ INR 250 million (≈ EUR 2.80 million)	≥ INR 100 million (≈ EUR 1.10 million)
Profitability Requirement	No specific requirement	Strong profitability track record preferred
Investor Base	HNIs, Institutional Investors	Institutional Investors, Mutual Funds, Foreign Investors
Regulatory Process	Simplified	More stringent
Market Liquidity	Lower in the short term	Higher, with deeper investor participation

Each option has its own advantages—choosing the right one depends on your growth stage, capital requirements, and long-term strategy.

Unlocking Value Through a Successful IPO: A Step-by-Step Guide

The journey towards a successful IPO involves several critical steps:

Comprehensive Due Diligence and Valuation: A meticulous valuation of the subsidiary is paramount. This involves analyzing financial statements, assessing market position, evaluating growth prospects, and conducting a thorough industry analysis. Key financial metrics such as revenue growth (year-over-year), profitability margins (gross, operating, and net), Return on Equity (ROE), Return on Assets (ROA), and debt-to-equity ratio are closely scrutinized.
Preparing for Regulatory Compliance: Ensuring financial transparency is crucial. Subsidiaries must prepare and audit their financial statements in accordance with Indian Accounting Standards (Ind-AS) or International Financial Reporting Standards (IFRS).
Engaging with Expert Advisors: Seeking guidance from legal, financial, and regulatory advisors is essential to navigate the complexities of the IPO process. These advisors assist in structuring the offering, preparing the prospectus, and liaising with regulatory authorities.
Securing Regulatory Approvals: Obtaining approval from the Securities and Exchange Board of India (SEBI) is a critical milestone. This involves submitting a draft prospectus and undergoing a rigorous review process.
Investor Relations and Roadshows: Conducting roadshows to engage with potential investors, including institutional investors, analysts, and the media, is crucial to generate interest and build demand for the shares.
Post-IPO Strategy: Maintaining strong investor relations, delivering on growth promises, and ensuring compliance with post-listing obligations are critical for long-term success.

Addressing Key Risks and Challenges

While an IPO presents significant opportunities, it also involves inherent risks:

Political and Economic Risks: Potential impacts of government policies, economic downturns, and geopolitical events.

Currency Fluctuations: Exchange rate fluctuations can significantly impact the subsidiary's financials and investor returns.

Competitive Landscape: Intense competition within the Indian market requires a robust competitive strategy.
Regulatory Changes: Changes in Indian regulations can impact the subsidiary's operations and financial performance.

Beyond IPOs: Alternative Value Unlocking Strategies

While an IPO is a prominent option, other strategic avenues for unlocking value include:

Private Equity Investment: Attracting private equity funding can provide capital for growth and strategic guidance.
Strategic Partnerships: Forming strategic alliances with Indian companies can provide access to new markets, enhance market share, and leverage complementary strengths.
Mergers and Acquisitions: Acquiring or merging with an Indian company can accelerate market penetration and enhance competitive advantage.

Conclusion

An IPO, whether through the SME platform or the Main Board, offers a powerful tool for foreign subsidiaries to unlock value, raise capital, and position themselves for sustainable growth within the dynamic Indian market. By carefully assessing their specific circumstances, conducting thorough due diligence, and implementing a robust strategy, foreign subsidiaries can navigate the IPO process successfully and unlock significant long-term value.

Given the effect of Russia Ukraine war, German companies and subsidiaries of other European companies may pursue an Indian IPO to capitalize on the burgeoning Indian market by accessing significant capital for expansion, strengthening its market position, and enhancing brand visibility. This move can also unlock latent value within the subsidiary, potentially attracting a broader investor base and increasing shareholder liquidity.

Rödl & Partner, with its deep understanding of both German and Indian business environments, can provide invaluable support to German subsidiaries navigating the complexities of an Indian IPO. Their services may encompass:

Regulatory Guidance: Rödl & Partner can provide in-depth guidance on Indian securities laws, SEBI regulations, and other relevant legal and regulatory requirements.
Due Diligence & Financial Advisory: They can conduct thorough due diligence on the subsidiary, assist in financial statement preparation conforming to Indian Accounting Standards (Ind-AS), and advise on appropriate valuation methodologies.
IPO Structuring & Documentation: Rödl & Partner can assist in structuring the IPO, preparing the draft prospectus, and ensuring compliance with all necessary documentation requirements.
Investor Relations: They can support investor relations activities, including roadshows, presentations to potential investors, and managing communication with the market.
Post-IPO Compliance: Rödl & Partner can continue to provide support with post-IPO compliance requirements, including corporate governance, investor relations, and ongoing regulatory filings.

An Indian IPO is more than just raising capital—it's about unlocking new growth avenues, elevating market presence, and creating lasting value. In a rapidly expanding economy, the right IPO strategy can transform a subsidiary into an industry leader. With Rödl & Partner's expertise, you gain a trusted partner to navigate complexities, mitigate risks, and maximize success. The future of your business in India starts here — seize the opportunity and lead the way.