IPO Math: How a promoter exits with ₹974 crore while 'honouring lock-in commitments’

The most common question I get after this month’s IPO article is:

“How can promoters make so much money if they’re only selling a small percentage of their stake?”

Here’s a simplified worked example to show you the maths.

Pre-IPO Setup:

• Total shares of the company: 10 crore

• Promoter holding: 7.5 crore shares (75%)

• Valuation: ₹1,000 crore (₹100 per share)

IPO (₹400 crore at ₹200 per share):

• Fresh issue: 1 crore new shares

  • Money received by the company: ₹200 crore

• Offer for Sale (OFS): 1 crore existing shares sold by the promoter

  • Money received by the promoter: ₹200 crore

Post‑IPO shareholding:

• Total shares after issue: 10 crore + 1 crore = 11 crore

• Promoter holding after selling 1 crore shares: 7.5 – 1 = 6.5 crore shares

• Promoter stake: 6.5 / 11 ≈ 59%

What This Means: Promoter sold "only" 13% of his original stake (1 cr out of 7.5 cr), but walked away with ₹200 crore and still owns 59% of the company.

After 6 months (when the shorter lock-in expires):

Promoters must hold at least 20% of post-issue shares for 18 months. But shares above that 20% can be sold after just 6 months.

·       Post‑issue capital: 11 crore shares

·       Minimum required holding: 20% of 11 crore = 2.2 crore shares

·       Shares available for sale after 6 months = 6.5 crore – 2.2 crore = 4.3 crore

Assuming a market price of Rs 180 after 6 months, if the promoter sells the entire 4.3 crore he will make Rs 774 crore from such sale.

Total Promoter Exit Potential:

·       Already got from IPO OFS: ₹200 crore

·       Can still sell post-lock-in: ₹774 crore

·       Total: ₹974 crore

In other words, it is possible for the promoter to pull out an amount close to the entire pre‑IPO valuation, while still technically complying with the minimum shareholding rule.

Scenario 1: Promoter keeps just over 40%

In reality, promoters may not sell the full 4.3 crore shares available to them. Here’s a more “reasonable‑looking” scenario, where they still appear committed.

Suppose the promoter sells 2 crore shares out of the 4.3 crore saleable pool at ₹180 per share:

·       Additional sale proceeds: 2 crore × ₹180 = ₹360 crore

Total cash taken out by the promoter:

·       From IPO OFS: ₹200 crore

·       From post‑lock‑in sale: ₹360 crore

·       Total liquidity: ₹560 crore

Promoter’s remaining holding:

·       Shares left: 6.5 – 2 = 4.5 crore shares

·       Stake: 4.5 / 11 ≈ 41%

Promoter has encashed about Rs 560 crore while continuing to hold 41% of the shares and remains the largest shareholder.

Conclusion: This is why the investor checklist matters. The information is in the prospectus—but you need to do the math to see what it really means.

If you missed the full article: read here