IPO Issue Expenses: Who Pays the Bankers, Lawyers and Ads, and What It Costs

Every IPO has a bill that most investors never look at. Merchant bankers, lawyers, the registrar, the stock exchanges, newspaper ads, printing, even an architect in some cases. Together these are the IPO issue expenses, and in a mid-sized offer they can easily run into tens of crores. The money comes out of the offer before the company or the selling shareholders see a rupee of it.

Why should you care as a retail applicant? Because issue expenses decide how much of the fresh issue actually reaches the business, and they tell you something about how the deal was sold. The table sits quietly in the “Objects of the Offer” chapter of every red herring prospectus. Here’s how to read it.

What IPO Issue Expenses Include

The prospectus breaks the bill into fixed heads. The labels vary a little between documents, but a typical mainboard table carries these lines:

• Book running lead managers (BRLMs): fees and commissions for the investment banks running the deal, usually bundled with underwriting commission, brokerage and selling commission.
• Bank and bidding charges: processing fees to SCSBs (the self-certified syndicate banks that block your money under ASBA), the sponsor bank for UPI bids, and bidding charges paid to syndicate members, registered brokers, registrars and depository participants who upload bids.
• Registrar to the offer: the agency that processes applications and runs the allotment. We covered its job in detail in our piece on the registrar to an IPO.
• Regulatory costs: listing fees, SEBI filing fees, exchange processing fees and book-building software charges.
• Printing, stationery, advertising and marketing.
• Legal counsel and auditors.
• Miscellaneous: everything that doesn’t fit elsewhere.

Each line is shown three ways: the rupee amount, its share of total expenses, and its share of the offer size. That last column is the one to watch.

A Real Example: P N Gadgil Jewellers’ Expense Table

Let’s take an actual document instead of a made-up one. P N Gadgil Jewellers came out with an offer of ₹11,000 million at ₹480 a share in September 2024. That was a fresh issue of ₹8,500 million plus an offer for sale (OFS) of ₹2,500 million by SVG Business Trust, according to the company’s basis of allotment advertisement filed on NSE.

The same advertisement carries a corrigendum that is useful for us. It says the expense table on page 108 of the prospectus had “inadvertently” shown only the expenses for the fresh issue, and it replaced that with the full-offer numbers. Here’s the corrected table:

A few things jump out. The bankers took more than half the bill: ₹338 million, or 3.07% of the ₹11,000 million offer. Advertising and marketing came next at ₹118.44 million, close to a fifth of all expenses. The registrar, whose work every applicant depends on at allotment time, cost just ₹6 million.

Total expenses of 5.68% of the offer size means that for every ₹100 raised, about ₹5.68 went to the people who put the deal together and sold it.

And note the word “estimated”. These tables are prepared before the final numbers are known, so the actual spend can differ. The corrigendum itself is a reminder that even the estimates can be printed wrong the first time.

Who Pays: The Company or the Selling Shareholders?

This is where most people get confused. An IPO can have two parts, and the cost is shared between them. If you need a refresher on the difference, our explainer on fresh issue vs offer for sale covers it.

The usual arrangement is written into the offer agreement between the company, the selling shareholders and the bankers. A good public example is the addendum to IndiQube Spaces’ offer agreement, which spells out the split in plain legal terms:

• Listing fees, stamp duty on the fresh issue shares, and statutory audit fees not linked to the offer are borne by the company alone.
• Fees for the selling shareholders’ own legal counsel are borne by those shareholders alone.
• Everything else is shared pro rata, in proportion to the number of shares issued in the fresh issue and sold in the OFS. The agreement links this to section 28(3) of the Companies Act, 2013.
• Securities transaction tax on the sale is the selling shareholders’ cost.
• The company pays the bills first. After listing, the selling shareholders reimburse their share, and the company can deduct it from the OFS proceeds.
• Both sides remain liable for their portion even if the offer is withdrawn or fails.

That last point matters. A failed or pulled IPO still leaves a bill behind, and the company’s share of it hits its own books.

Worked Example: Splitting IPO Issue Expenses Pro Rata

Let’s run the pro-rata rule on the P N Gadgil numbers. This is an illustration of how the method works, not the company’s disclosed split, because the IndiQube-style carve-outs (listing fees, stamp duty and so on) would shift a part of the bill to the company.

Step 1: Count the shares in each part. The NSE filing shows 17,708,333 shares in the fresh issue and 5,208,333 in the OFS, a total of 22,916,666.

Step 2: Work out the fresh issue’s share. 17,708,333 ÷ 22,916,666 = about 77.3%. The OFS accounts for the remaining 22.7%.

Step 3: Apply that to the bill. On ₹624.78 million of total expenses, a pure pro-rata split would put about ₹482.8 million on the company and about ₹142.0 million on the selling shareholder.

Step 4: See what’s left for the business. Take the ₹8,500 million fresh issue, subtract the company’s roughly ₹482.8 million, and the net proceeds come to about ₹8,017 million. That is the number that funds whatever the objects chapter lists.

So a fresh issue headline of ₹8,500 million really means a bit over ₹8,000 million of usable cash in this illustration. For a company planning capex, a 5-6% leak is not a rounding error. This is why the “net proceeds” line in the objects chapter is always smaller than the fresh issue size, a point we also made in our guide to objects of the issue in an IPO.

How Issue Expenses Hit the Company’s Accounts

Here’s a detail that surprises many investors: the company’s share of issue expenses usually doesn’t flow through the profit and loss account as a regular expense. The Companies Act allows the cost of issuing shares to be set off against the money raised above face value.

Section 52 of the Companies Act, 2013 says the securities premium account may be applied “in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company”. In the P N Gadgil case, each ₹480 share carried a premium of ₹470 over its ₹10 face value, so there was a large premium pool to absorb the cost.

What this means for you: the IPO costs won’t usually show up as a one-off hit to earnings per share. They quietly shrink the reserves created by the issue. When you compare the company’s net worth right after listing with the fresh issue size, the gap is partly these expenses.

The fresh issue size is what the company raises. The net proceeds are what it can actually spend. Always read the second number.

What a High or Low Expense Ratio Tells You

There’s no fixed “right” number, but a few patterns are worth keeping in mind when you look at the table.

Size matters. Many costs, like legal fees, printing, auditors and regulatory charges, don’t scale neatly with the issue size. A smaller offer spreads them over less money, so its expense ratio tends to look heavier.

Banker fees are the big swing factor. In the P N Gadgil table, BRLM fees alone were more than half the bill. A larger syndicate, or a deal that needed a harder sell, can push this line up. Our piece on IPO underwriting in India explains what the underwriting part of that fee is supposed to buy.

Heavy advertising is a mild signal. Every IPO spends something on ads, since price bands and allotment notices go out in newspapers. But when the marketing line is unusually large relative to the offer, it’s fair to ask how much of the demand had to be manufactured.

Watch the “miscellaneous” line. In our example it was 6.37% of total expenses. When this bucket grows large, the disclosure becomes less useful.

A Quick Checklist for the Expense Table

1. Find the “Objects of the Offer” chapter in the RHP and locate the estimated offer expenses table.
2. Note total expenses as a percentage of the offer size.
3. Check the BRLM line and the advertising line as shares of total expenses.
4. Read the footnotes on how costs are split between the company and the selling shareholders.
5. Subtract the company’s share from the fresh issue to get the real net proceeds, and compare that with the planned objects.
6. Look for any corrigendum or addendum filed later, because tables do get corrected.

For the bigger picture of how to evaluate an offer from the price band to the listing day, our guide to IPO investing in India is the place to start.

Issue expenses won’t make or break your decision to apply for an IPO. But they’re one of the few places in a prospectus where you can see, in hard rupees, what it cost to bring the company to you. Two minutes with that table is time well spent.

Disclaimer: This article is for educational purposes only and is not investment advice. The pro-rata split in the worked example is an illustration of the method using publicly filed figures, not the company’s disclosed allocation. Please do your own research or consult a SEBI-registered investment adviser before making investment decisions.