NITIN B. JAIN MBA-COR-FIN-(Roll No: 0801093) INTIAL PUBLIC OFFERING (IPO) in INDIA CERTIFICATE this is to certify that the dissertation entitled "IPO" in INDIA is my original work and the dissertation has not formed the basis for the award of any degree, associate ship, fellowship or any other similar titles.
NITIN B. JAIN MBA-COR-FIN-(Roll No: 0801093) INTIAL PUBLIC OFFERING (IPO) in INDIA CERTIFICATE this is to certify that the dissertation entitled "IPO" in INDIA is my original work and the dissertation has not formed the basis for the award of any degree, associate ship, fellowship or any other similar titles.
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NITIN B. JAIN MBA-COR-FIN-(Roll No: 0801093) INTIAL PUBLIC OFFERING (IPO) in INDIA CERTIFICATE this is to certify that the dissertation entitled "IPO" in INDIA is my original work and the dissertation has not formed the basis for the award of any degree, associate ship, fellowship or any other similar titles.
Copyright:
Attribution Non-Commercial (BY-NC)
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Download as TXT, PDF, TXT or read online from Scribd
Dissertation Submitted to the Padmashree Dr. D.Y. Patil University in partial fu lfillment of the requirements for the award of the Degree of MASTERS IN BUSINESS ADMINISTRATION Submitted by: NITIN B. JAIN MBA-COR-FIN-(Roll No: 0801093) Research Guide: Ms. Mamta Dhankute Lecturer Department of Business Management Pa dmashree Dr. D.Y. Patil University CBD Belapur, Navi Mumbai March 2010 DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 1 INTIAL PUBLIC OFFERING IN INDIA DECLARATION I hereby declare that the dissertation “INITIAL PUBLIC OFFERING (IPO) IN INDIA” subm itted for the MBA Degree at Padmashree Dr. D.Y. Patil University’s Department of B usiness Management is my original work and the dissertation has not formed the b asis for the award of any degree, associate ship, fellowship or any other simila r titles. Place: Mumbai Date: NITIN B. JAIN MBA-COR-FIN-(Roll No: 0801093) DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 2 INTIAL PUBLIC OFFERING IN INDIA CERTIFICATE This is to certify that the dissertation entitled “INITIAL PUBLIC OFFERING (IPO) IN INDIA” is the bona fide research work carried out by Mr. NITIN B . JAIN student of MBA, at Padmashree Dr. D.Y. Patil University’s Department of Bus iness Management during the year 2008 -2010, in partial fulfillment of the requi rements for the award of the Degree of Master in Business Management and that th e dissertation has not formed the basis for the award previously of any degree, diploma, associate ship, fellowship or any other similar title. (Ms. Mamta Dhankute) Lecturer (Dr. R. Gopal) Director, Department of Business Mgt, Padmashree Dr. D.Y. Patil U niversity Place: Mumbai Date: DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 3 INTIAL PUBLIC OFFERING IN INDIA ACKNOWLEDGEMENTS In the first place, I thank Ms. Mamta Dhankute, Lecturer, Department of Business Management, Padmashree Dr. D.Y. Patil University, and Navi Mumbai for having gi ven me her valuable guidance for the project. Without her help it would have bee n impossible for me to complete the project. I would also like to thank the vari ous people from the Capital Market industry who have provided me with a lot of i nformation and in fact even sharing some of the confidential company documents a nd data – many of which I have used in this report and without which this project could not have been completed. I would be failing in my duty if I do not acknowl edge with a deep sense of gratitude the sacrifices made by my parents and thus h ave helped me in completing the project work successfully. Place: Mumbai Date: NITIN B. JAIN MBA-COR-FIN-(Roll No: 0801093) DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 4 INTIAL PUBLIC OFFERING IN INDIA TABLE OF CONTENT Chapter No A B C D E F G Title List of tables List of figures List of abbreviations Executive summary Objective of the study Research methodology Review of literature Page No 7 8 9 10 11 12 1 3 1 2 4 5 6 7 8 9 10 11 12 15 13 14 Financial markets and IPO Short terms in IPO IPO - features Trends Pricing of is sue Book building Cost of issue Brief note on intermediaries Sebi and IPO Market ing of IPO IPO grading Guide to understand an offer document Case study analysis IPO scam 16 25 38 33 51 52 56 58 62 72 76 87 91 136 DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 5 INTIAL PUBLIC OFFERING IN INDIA 16 17 18 19 Survey report Conclusion and Recomme ndations Bibliography Reference 139 148 151 152 DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 6 INTIAL PUBLIC OFFERING IN INDIA LIST OF TABLES PARTICULARS IPO In Recent Past Year Recent IPO Data With Break-Up PAGE NO. 50 50 Difference In Fixed Price Process And Book 54 Building Process Guidelines For Le ad Managers By Sebi 58 Underwriting Commission Table Future Capital Subscription Detail 60 93 Reliance Power Subscription Detail 98 Bang Overseas Ltd Subscription Detail 104 J. Kumar Infraprojects Ltd. Subscription Detail 110 Cords Cable Industries Ltd Subscription Detail 116 K.N.R. Construction Ltd Subscription Detail 122 On mobile Global Ltd Subscription Detail 128 DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 7 INTIAL PUBLIC OFFERING IN INDIA LIST OF FIGURES PARTICULARS Diagram On Overview Of Primary And secondary 18 Market Types Of Issu es 22 PAGE NO DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 8 INTIAL PUBLIC OFFERING IN INDIA LIST OF ABBREVIATIONS ASBA Application Amount Supported by Blocked BSE BRLM Bombay stock exchange Book Running Lead Manager to the Issue CRISIL Credit Rating and Information Services of India Ltd. DMAT DPO E-IPO FII FPO ICRA IPO IRDA Dematerialized trading Direct Public Offering Electronic -IPO Foreign institutio nal investor Further public offering Industrial Credit Rating Agency Initial pub lic offering Insurance Regulator and Development Authority NIBs OTCEI POP QIBs QIP RHP RI ROC SEBI SEBI (DIP) SCSB No n-Institutional Buyers Over the Counter Exchange of India Public Offering Price Qualified Institutional Buyers Qualified Institutions Placement Red Herring Pros pectus Rights Issue Registrar of Companies Security and Exchange Board of India SEBI(Disclosure and Investor Protection) Self Certified Syndicate Bank 9 DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT INTIAL PUBLIC OFFERING IN INDIA EXECUTIVE SUMMARY When a business entity needs money the general course of action that it follows is that it goes to the bank. However banks may not be ready to provide huge fina nce for a long time especially if the returns are not fixed. The best way to rai se money is through offer of shares. The securities which the companies issue fo r the first time to the public and other financial institutions either after inc orporation or on conversion from private to public company is called “INITIAL PUBL IC OFFERING” or “IPO”. Raising equity gives boost to economical development of the cou ntry. Raising money through IPO is a very complex process. It requires analysis and im plementation of various commercial laws applicable to IPO-Prospectus. These laws are Companies Act, Income Tax Act, FEMA, Securities Contract Act and SEBI Guide lines on “Disclosure and Investor Protection”. It is also necessary to implement cir culars from time to time by SEBI. The introduction of SEBI attracted Foreign Ins titutional Investors to invest money in stock market in India. It has also helpe d Indian Companies to offer securities in most scientific method to Indian and F oreign investors Therefore to understand this complex subject, I decided to unde rtake studies by this Project Report. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 10 INTIAL PUBLIC OFFERING IN INDIA OBJECTIVES OF THE STUDY To analyze and evaluate the complex IPO process To study and incorporate the legal requirements of an IPO SEBI Norms and Guidelines Various aspects of IPO like cost, Involvement of intermediaries, pricing of an I PO. Pricing of an issue through the Book-Building Method DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 11 INTIAL PUBLIC OFFERING IN INDIA RESEARCH METHODOLOGY Primary data consist of the Survey done by meeting people who are either Custome rs in Share Market or have idea about it. The data can be collected by laymen to find out their needs. The sample size was taken was 50 responded. It also inclu des case analysis of some corporate houses IPO’s. Secondary data would consist of widely available resources like 1. Newspapers 2. Magazines 3. Journals 4. Websites 5. Books etc. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 12 INTIAL PUBLIC OFFERING IN INDIA LITERATURE REVIEW 1. “INITIAL PUBLIC OFFERINGS” BY RICHARD P. KLEEBURG 3RD EDITION IN YEAR 2005, WHICH PUBLISHED BY SOUTH WESTERN EDUCATIONAL PUBLISHING.” This valuable resource is for the executives and advisers of any firm considerin g making the transition from a private to public company. An IPO is not just a s hort-term financial transaction. It often marks the turning point in the life of a company, enabling it to launch new products, enter new markets, accelerate it s growth, and attract valuable employees. If an IPO is the way to grow, then a " balanced scorecard" approach needs to be used - an honest evaluation of the proc ess and consideration of whether an IPO, despite its glamour, will or will not p roduce the desired results. Initial Public Offerings uncovers many of the succes sful approaches and common pitfalls to going public. It helps officials decide w hether an IPO or other financing alternatives is the right strategy, determine w hich stock market to use, plan and execute the IPO, and stay on track following the IPO - helping companies reach their true potential for success. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 13 INTIAL PUBLIC OFFERING IN INDIA 2. “DALAL STREET JOURNAL’S “STOCK MARKET BOOK” -PUBLISHED BY RAMDEO MEDIA LTD WITH DALALSTREETJORNAL.COM” This book provides an insight into some of the aspects of secondary market and p rovides with concept clearing on some of the fundamental aspects of IPO. 3. “IPO: CONCEPTS AND EXPERIENCES - BY ARINDAM BANERJEE PUBLISHED; BY-ICFAI UNIVERSITY PRESS” One of the striking features that makes any capital market an attractive investm ent avenue is its liquidity. In this regard, the importance and relevance of Ini tial Public Offers (IPOs) go beyond explanation. Simply speaking, IPOs serve the purpose of companies going public; the process by which the business owned by o ne or several individuals is converted into a business owned by many. Several ex perts are of the opinion that, IPOs strengthen the financial architecture of the entire capital market by enhancing liquidity, while others say, that they bring along with it an array of fraudulent practices that have a strong potential of eroding the investors’ confidence. From the company’s point of view, an IPO can even mark the turning point in an organization’s life. Following an IPO, a company can increase its growth potential, launch its new products as well as enter new mar kets. IPOs are a general feature of any DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 14 INTIAL PUBLIC OFFERING IN INDIA booming capital market that increases the overal l market capitalization. Of late, the global capital markets have performed considerably well and one primary reason attributed to the same is the surge of public offers that have flooded the markets. This book titled “IPOs: CONCEPTS AND EXPERIENCES” de als with various conceptual parameters of IPOs such as their pricing mechanisms, valuation methods, timing of the offers, technology impact on IPOs and various other related issues. In its entirety, the book itself is a comprehensive guide to the various trends witnessed in the IPO market amidst the volatile environmen t. 4. “IPO MARKETS: PERSPECTIVES AND EXPERIENCES BY VANDANA SHAJAN PUBLISHED BY-IC FAI” This book provides detailed analysis by focusing majorly on IPOs rating, IPOs ra ting, IPOs rating and IPO scams. 5. “NCFM MODULE: FINANCIAL MARKET’S” A VALUABLE INPUT HAS BEEN TAKEN FROM THE BOOKS AVAILABLE THROUGH NCFM MODULE LIK E CAPITAL MARKET MODULE ETC. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 15 INTIAL PUBLIC OFFERING IN INDIA FINANCIAL MARKETS AND THE IPO The Financial Market is an amorphous set of players who come together to trade i n financial assets. Financial Markets in any economic system that acts as a cond uit between the organizations who need funds and the investors who wish to inves t their money into profitable opportunity. Thus, it helps institutions and organ izations that need money to have an access to it and on the other hand, it helps the public in general to earn savings. Thus they perform the crucial function o f bringing together the entries who are either financially scarce or who are fin ancially slush. This helps generally in a smoother economic functioning in the s ense that economic resources go to the actual productive purposes. In modern eco nomic systems Stock Exchanges are the epicenter of the financial activities in a ny economy as this is the place where actual trading in securities takes place. Modern day Stock Exchanges are most of the centers to trade in the existing fina ncial assets. In this respect, they have come a long way in the sense that these days, they act as a platform to launch new securities as well as act as most au thentic and real time indicator of the general economic sentiment. The zone of a ctivities in the capital market is dependent partly on the savings and investmen t in the economy and partly on the performance of the industry and economy in ge neral. In other words capital market constitutes the channel through which the c apital resources generated in the society and made available for economic develo pment of the nation. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 16 INTIAL PUBLIC OFFERING IN INDIA As such, Financial Markets are functionally classified as having two parts, name ly, The Primary Market The Secondary Market Primary Market comprises of the new securities which are offered to the public b y new companies. It is the mechanism through which the resources of the communit y are mobilized and invested in various types of industrial securities. Whenever a new company wants to enter the market it has to first enter the primary marke t. Secondary Market comprises of further issues which are floated by the existin g companies to enhance their liquidity position. Once the new issues are floated and subscribed by the public then these are traded in the secondary market. It provides easy liquidity, transferability and continuous price formation of secur ities to enable investors to buy and sell them with ease. The volume of activity in the Secondary Market is much higher compared to the Primary Market When an i nvestor buys shares from another investor at an agreed prevailing market price, it is called as buying from the secondary market. The secondary market involves the stock exchanges and it is regulated by a regulatory authority. In India, the secondary and primary markets are governed by the Security and Exchange Board o f India (SEBI). DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 17 INTIAL PUBLIC OFFERING IN INDIA “DIAGRAM ON OVERVIEW OF PRIMARY AND SECONDARY MARKET” DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 18 INTIAL PUBLIC OFFERING IN INDIA PRIMARY MARKET-GENESIS AND GROWTH When a business entity needs money the general course of action that it follows is that it goes to the bank. However banks may not be ready to provide huge fina nce for a long time especially if the returns are not fixed. The best way to rai se money is through offer of shares and for this: PRIMARY MARKET is the answer T he Primary Market deals with the new securities which were previously not trade able to the public. The main function is to facilitate the transfer of resources from savers to entrepreneurs seeking to establish or to expand and diversify ex isting events. The mobilization of funds through the Primary Market is adopted b y the state government and corporate sector. In other words the Primary Market i s an integral part of the capital market of a country and together with the secu rities market. The development of security as well as the scope for higher produ ctive capacity and social welfare depends upon the efficiency of the Primary Mar ket. WHAT IS AN IPO? The securities which the companies issue for the first time to the public either after incorporation or on conversion from private to public company is called “IN ITIAL PUBLIC OFFERING” or “IPO” DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 19 INTIAL PUBLIC OFFERING IN INDIA GROWTH OF IPO’S IN INDIA HISTORY OF PRIMARY MARKET Indian capital market was initiated with establishing the Bombay stock exchange in the year 1875.at that time the main function of stock exchange was to provide place for trading in the stocks. Now the exchange has completed more than 25 ye ars. It has undergone several changes. Initially the IPO was called ‘New Issue’ and the issues in the Primary Market were c ontrolled by CCI (Controller of capital issue). It was working as a department o f MOF (ministry of finance). There were very few issues every year. CCI was high ly conservative and hardly allowed any premium issues. Also, the regulatory fram ework was inadequate to control several issues relating to Primary Market. There fore, in the year 1992 it was abolished. There was no awareness of new issues among the investing public. In fact, during 1950s-1960s, the investment in stock market was considered to be gambling. It w as prerogative to highly elite business community to participate in new issues. More than 99% of Indian population never participated in any issue during CCI re gime. There was tremendous growth in capital market in U.S.A. and Western Europe. In t hese markets they had established Security DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 20 INTIAL PUBLIC OFFERING IN INDIA Exchange Commission (SEC). It is most powerful a utonomous body. The Government of India realized the importance of a similar bod y in India for healthy and fast growth of Capital Market. Thus Security Exchange Board of India (SEBI) was established with headquarters in Mumbai in 1992.SEBI is the most powerful body in India. SEBI has come up with the guidelines for disclosures and investors protection. S EBI has framed rules for various intermediaries like Merchant Bankers, Underwrit ers, Brokers, Bankers, Registrars and Transfer Agents, Depositories, Stock Excha nges etc. These rules are on the line of similar rules in western world. This ha s attracted foreign institutional and individual investors to invest money in In dia. This has resulted in exponential growth of Capital Market in this last deca de. POPULARISING THE NEW ISSUE. Late Shri, Dhirubhai Ambani can be considered as ‘Bhishmapita’ of new issues, though initially he also had to struggle to get subscribers but he always used innovat ive ideas for marketing IPOs. It is said that investor never lost money in his p ricing methods. There are several incidences of the common man participated in h is issues, got allotment, sold shares and created fabulous wealth for themselves . As on 31-12-2003, Reliance Group has more than 3.5 million shareholders. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 21 INTIAL PUBLIC OFFERING IN INDIA TYPES OF ISSUES Public issues can be further classified into Initial Public offerings and furthe r public offerings. In a public offering, the issuer makes an offer for new inve stors to enter its shareholding family. The issuer company makes detailed disclo sures as per the DIP guidelines in its offer document and offers it for subscrip tion. The significant features are illustrated below: DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 22 INTIAL PUBLIC OFFERING IN INDIA INITIAL PUBLIC OFFERING (IPO) It is when an unlisted company makes either a fres h issue of securities or an offer for sale of its existing securities or both fo r the first time to the public. This paves way for listing and trading of the is suer’s securities. FURTHER PUBLIC OFFERING (FPO) It is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, th rough an offer document. An offer for sale in such scenario is allowed only if i t is made to satisfy listing or continuous listing obligations. RIGHTS ISSUE (RI) It is when a listed company which proposes to issue fresh secu rities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the iss ue. This route is best suited for companies who would like to raise capital with out diluting stake of its existing shareholders unless they do not intend to sub scribe to their entitlements. PRIVATE PLACEMENT It is an issue of shares or of convertible securities by a com pany to a select group of persons under Section 81 of the Companies Act, 1956 wh ich is neither a rights issue nor a public issue. This is a faster way for a com pany to raise equity capital. A private placement of shares DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 23 INTIAL PUBLIC OFFERING IN INDIA or of convertible securities by a listed company is generally known by name of preferential allotment. A listed company going fo r preferential allotment has to comply with the requirements contained in Chapte r XIII of SEBI (DIP) Guidelines pertaining to preferential allotment in SEBI (DI P) guidelines include pricing, disclosures in notice etc, in addition to the req uirements specified in the Companies Act. QUALIFIED INSTITUTIONS PLACEMENT It is a private placement of equity shares or s ecurities convertible in to equity shares by a listed company to Qualified Insti tutions Buyers only in terms of provisions of Chapter XIIIA of SEBI (DIP) guidel ines. The Chapter contains provisions relating to pricing, disclosures, Currency of instruments etc. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 24 INTIAL PUBLIC OFFERING IN INDIA SOME TERMS IN IPO INDUSTRY : OFFER DOCUMENT Means Prospectus in case of a public issue or offer for sale and Letter of Offer in case of a rights issue which is filed Registrar of Companies (ROC) and Stock Exchanges. An offer document covers all the relevant information to help an investor to make his/her investment decision. DRAFT OFFER DOCUMENT Means the offer document in draft stage. The draft offer do cuments are filed with SEBI, at least 21 days prior to the filing of the Offer D ocument with ROC/ SEs. SEBI may specifies changes, if any, in the draft Offer Do cument and the issuer or the Lead Merchant banker shall carry out such changes i n the draft offer document before filing the Offer Document with ROC/SEs. The Dr aft Offer document is available on the SEBI website for public comments for a pe riod of 21 days from the filing of the Draft Offer Document with SEBI. RED HERRING PROSPECTUS It is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower pri ce bands are disclosed. On the other hand, an issuer can state the issue size an d the number of shares are DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 25 INTIAL PUBLIC OFFERING IN INDIA determined later. An RHP for and FPO can be file d with the ROC without the price band and the issuer, in such a case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. In the case of book-built issues, it is a process of pric e discovery and the price cannot be determined until the bidding process is comp leted. Hence, such details are not shown in the Red Herring prospectus filed wit h ROC in terms of the provisions of the Companies Act. Only on completion of the bidding process, the details of the final price are included in the offer docum ent. The offer document filed thereafter with ROC is called a prospectus. ABRIDGED PROSPECTUS Means the memorandum as prescribed in Form 2A under sub-sect ion (3) of section 56 of the Companies Act, 1956. It contains all the salient fe atures of a prospectus. It accompanies the application form of public issues. LETTER OF OFFER Means the offer document prepared by company for its rights issu e and which is filed with the Stock Exchanges. The letter of offer contains all the disclosures as required in term of SEBI (DIP) guidelines and enable sharehol der in making an informed decision. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 26 INTIAL PUBLIC OFFERING IN INDIA ABRIDGED LETTER OF OFFER Means the abridged vers ion of the letter of offer. Listed company is required to send the abridged lett er of offer to each and every shareholder who is eligible for participating in t he rights issue along with the application form. A company is also required to s end detailed letter of offer upon request by any Shareholder. PLACEMENT DOCUMENT Means document prepared by Merchant Banker for the purpose of Qualified Institutions placement and contains all the relevant and material dis closures to enable QIBs to make an informed decision LOCK-IN “Lock-in” indicates a freeze on the shares. SEBI (DIP) Guidelines have stipu lated lock-in requirements on shares of promoters mainly to ensure that the prom oters or main persons who are controlling the company, shall continue to hold so me minimum percentage in the company after the public issue. The requirements ar e detailed in Chapter IV of DIP guidelines. There is lock-in on the shares held before IPO and also on shares acquired through preferential allotment route. How ever there is no lock- in on shares/ securities allotted through QIP route. The requirements are detailed in Chapter IV, Chapter XIII and Chapter XIIIA of DIP g uidelines. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 27 INTIAL PUBLIC OFFERING IN INDIA PROMOTER The promoter has been defined as a person or persons who are in over-al l control of the company, who are instrumental in the formulation of a plan or p rogramme pursuant to which the securities are offered to the public and those na med in the prospectus as promoters(s). It may be noted that a director / officer of the issuer company or person, if they are acting as such merely in their pro fessional capacity are not be included in the definition of a promoter. Promote r Group includes the promoter, an immediate relative of the promoter (i.e. any spouse of that person, or any parent, brother, sister or child of the person or of the spouse). In case promoter is a company, a subsidiary or holding company o f that company; any company in which the promoter holds 10% or more of the equit y capital or which holds 10% Or more of the equity capital of the Promoter; any company in which a group of individuals or companies or combinations thereof who holds 20% or more of the equity capital in that company also holds 20% or more of the equity capital of the issuer company. In case the promoter is an individu al, any company in which 10% or more of the share capital is held by the promote r or an immediate relative of the promoter or a firm or HUF in which the Promo ter or any one or more of his immediate relative is a member; any company in wh ich a company specified in, holds 10% or more, of the share capital; any HUF or firm in which the aggregate share of the promoter and his DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 28 INTIAL PUBLIC OFFERING IN INDIA immediate relatives is equal to or more than10% of the total, and all persons whose shareholding is aggregated for the purpose o f disclosing in the prospectus "shareholding of the promoter group". GREEN-SHOE OPTION A Green Shoe option means an option of allocating shares in ex cess of the shares included in the public issue and operating a post-listing pri ce stabilizing mechanism for a period not exceeding 30 days in accordance with t he provisions of Chapter VIIIA of DIP Guidelines, Which is granted to a company to be exercised through a Stabilizing Agent? This is an arrangement wherein the issue would be over allotted to the extent of a maximum of 15% of the issue size . From an investor’s perspective, an issue with green shoe option provides more pr obability of getting shares and also that post listing price may show relatively more stability as compared to market. E-IPO A company proposing to issue capital to public through the on-line system of the stockexchange for offer of securities can do so if it complies with the r equirements under Chapter 11A of DIP Guidelines. The appointment of various inte rmediaries by the issuer includes a prerequisite that such members/registrars ha ve the required facilities to accommodate such an online issue process. SAFETY NET Any safety net scheme or buy-back arrangements of the shares proposed in any public issue shall be finalized by an issuer company DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 29 INTIAL PUBLIC OFFERING IN INDIA with the lead merchant banker in advance and dis closed in the prospect us. Such buy back or safety net arrangements shall be mad e available only to all original resident individual allottees limited up to a m aximum of 1000 shares per allottee and the offer is kept open for a period of 6 months from the last date of dispatch of securities. The details regarding Safet y Net are covered under Clause 8.18 of DIP Guidelines SYNDICATE MEMBER The Book Runner(s) may appoint those intermediaries who are reg istered with the Board and who are permitted to carry on activity as an ‘Underwrit er’ as syndicate members. The syndicate members are mainly appointed to collect an d entre the bid forms in a book built issue. FLIPPING Flipping is reselling a hot IPO stock in the first few days to earn a q uick profit. This isn t easy to do, and you ll be strongly discouraged by your b rokerage. The reason behind this is that companies want long-term investors who hold their stock, not traders. There are no laws that prevent flipping, but your broker may blacklist you from future offerings. Institutional investors flip st ocks all the time and make big money. The double standard exists and there is no thing we can do about it because they have the buying power. Because of flipping , it s a good rule not to buy shares of an IPO if you don t get in on the initia l offering. Many IPOs that have big gains on the first day will come back to ear th as the institutions take their profits. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 30 INTIAL PUBLIC OFFERING IN INDIA OPEN BOOK/CLOSED BOOK Presently, in issues made through book building, Issuers and merchant bankers are required to ensure onlin e display of the demand and bids during the bidding period. This is the Open boo k system of book building. Here, the investor can be guided by the movements of the bids during the period in which the bid is kept open. Under closed book buil ding, the book is not made public and the bidders will have to take a call on th e price at which they intend to make a bid without having any information on the bids submitted by other bidders. HARD UNDERWRITING Hard underwriting is when an underwriter agrees to buy his com mitment at its earliest stage. The underwriter guarantees a fixed amount to the issuer from the issue. Thus, in case the shares are not subscribed by investors, the issue is devolved on underwriters and they have to bring in the amount by s ubscribing to the shares. The underwriter bears a risk which is much higher in s oft underwriting. SOFT UNDERWRITING Soft underwriting is when an underwriter agrees to buy the sha res at later stages as soon as the pricing process is complete. He then, immedia tely places those shares with institutional players. The risk faced by the under writer as such is reduced to a small window of time. Also, the soft underwriter has the option to invoke a force Majeure (acts of God) clause in case there are certain factors beyond DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 31 INTIAL PUBLIC OFFERING IN INDIA the control that can affect the underwriter’s abil ity to place the shares with the buyers. CUT OFF PRICE In Book building issue, the issuer is required to indicate either the price band or a floor price in the red herring prospectus. The actual discov ered issue price can be any price in the price band or any price above the floor price. This issue price is called “Cut off price”. This is decided by the issuer an d LM after considering the book and investors’ appetite for the stock. SEBI (DIP) guidelines permit only retail individual investors to have an option of applying at cut off price. DIFFERENTIAL PRICING Pricing of an issue where one category is offered shares at a price different from the other category is called differential pricing. In DI P Guidelines differential pricing is allowed only if the security to applicants in the firm allotment category is at a price higher than the price at which the net offer to the public is made. The net offer to the public means the offer mad e to the Indian public and does not include firm allotments or reservations or p romoters’ contributions. BASIS OF ALLOCATION/BASIS OF ALLOTMENT After the closure of the issue, the bids received are aggregated under different categories i.e., firm allotment, Qualifi ed Institutional Buyers (QIBs), Non-Institutional Buyers (NIBs), Retail, etc. Th e oversubscription ratios are then calculated for each of the categories as agains t the shares reserved for each of the categories in the offer DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 32 INTIAL PUBLIC OFFERING IN INDIA document. Within each of these categories, the b ids are then segregated into different buckets based on the number of shares app lied for. The oversubscription ratio is then applied to the number of shares app lied for and the number of shares to be allotted for applicants in each of the b uckets is determined. Then, the number of successful allottees is determined. Th is process is followed in case of proportionate allotment. In case of allotment for QIBs, it is subject to the discretion of the post issue lead manager. QUALIFIED INSTITUTIONAL BUYER (QIBS) Qualified Institutional Buyers are those in stitutional investors who are generally perceived to possess expertise and the f inancial muscle to evaluate and invest in the capital markets. In terms of claus e 2.2.2B (v) of DIP Guidelines, a ‘Qualified Institutional Buyer’ shall mean: A. Public financial institution as defined in section 4A of the Companies Act, 1956; B. scheduled commercial banks; C. mutual funds; D. foreign institutional investor registered with SEBI; E. multilateral and bilateral deve lopment financial institutions; F. venture capital funds registered with SEBI. G . foreign Venture capital investors registered with SEBI. H. State Industrial De velopment Corporations. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 33 INTIAL PUBLIC OFFERING IN INDIA I. insurance Companies registered with the Insur ance Regulator and Development Authority (IRDA). J. provident Funds with minimum corpus of Rs. 25 crores K. pension Funds with minimum corpus of Rs. 25 crores) These entities are not required to be registered with SEBI as QIBs. Any entities falling under the categories specified above are considered as QIBs for the pur pose of participating in primary issuance process. APPLICATION SUPPORTED BY BLOCKED AMOUNT (ASBA) Means an application for subscrib ing to an issue containing an authorization to block the application money in a bank account. ASBA INVESTOR Means an Investor who intends to apply through ASBA process and A. is a “Resident Retail Individual Investor” B. is bidding at cut-off, with single op tion as to the number of shares bid for; C. is applying through blocking of fund s in a bank account with the SCSB; D. has agreed not to revise his/her bid; E. i s not bidding under any of the reserved categories. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 34 INTIAL PUBLIC OFFERING IN INDIA SELF CERTIFIED SYNDICATE BANK (SCSB) It is a Banker to an Issue registered under SEBI (Bankers to an Issue) Regulations; 1994which offers the service of making an Applications Supported by Blocked Amount and recognized as such by the Board) MINORITY IPO An initial public offering in which a parent company spins off one of its subsidiaries or divisions, but retains a majority stake in the company af ter issuance. This means that after the public offering, the parent company will still have a controlling stake of the new public company. The parent company ma y retain this majority stake forever or may slowly dissolve their ownership over time. This type of IPO allows the company to raise funds, accessing the value o f the subsidiary, to fund its own operation or return value to shareholders. PUBLIC OFFERING PRICE - POP The price at which new issues are offered to the pub lic by an underwriter. When underwriters determine the public offering price, th ey look at a number of factors. Some of these include the company s financial st atements (how profitable it is), public trends, growth rates and even investor c onfidence. UNDERPRICING The pricing of an initial public offering (IPO) below its market va lue. When the offer price is lower than the price of the first trade, the stock DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 35 INTIAL PUBLIC OFFERING IN INDIA is considered to be underpriced. A stock is usua lly only underpriced temporarily because the laws of supply and demand will even tually drive it toward its intrinsic value. It is believed that IPOs are often u nderpriced because of concerns relating to liquidity and uncertainty about the l evel at which the stock will trade. The less liquid and less predictable the sha res are, the more underpriced they will have to be in order to compensate invest ors for the risk they are taking. Because an IPO s issuer tends to know more abo ut the value of the shares than the investor, a company must under price its sto ck to encourage investors to participate in the IPO. DIRECT PUBLIC OFFERING - DPO When a company raises capital by marketing its shar es directly to its own customers, employees, suppliers, distributors and friends in the community. DPOs are an alternative to underwritten public offerings by s ecurities broker-dealer firms where a company s shares are sold to the broker s customers and prospects. Direct public offerings are considerably less expensive than traditional underwritten offerings. Additionally, they don t have the rest rictions that are usually associated with bank and venture capital financing. On the other hand, a DPO will typically raise much less than a traditional offerin g. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 36 INTIAL PUBLIC OFFERING IN INDIA QUIET PERIOD In terms of an IPO, the period wher e an issuer is subject to a SEC ban on promotional publicity. The quiet period u sually lasts either 40 or 90 days from the IPO. In other words, If you take your company public, you can t talk about your stock to anybody for 3 months. There are two time windows commonly referred to as "quiet periods" during an IPO s his tory. The first and the one linked above is the period of time following the fil ing of the company s registration statement, but before SEC staff declare the re gistration statement effective. During this time, issuers, company insiders, ana lysts, and other parties are legally restricted in their ability to discuss or p romote the upcoming IPO. The other "quiet period" refers to a period of 40 calen dar days following an IPO s first day of public trading. During this time, insid ers and any underwriters involved in the IPO, are restricted from issuing any ea rnings forecasts or research reports for the company. Regulatory changes enacted by the SEC as part of the Global Settlement, enlarged the "quiet period" from 2 5 days to 40 days on July 9, 2002. When the quiet period is over, generally the lead underwriters will initiate research coverage on the firm. Further to this, the NASD and NYSE have approved a rule mandating a 10-day quiet period after a s econdary offering and a 15-day quiet period both before and after expiration of a "lock-up agreement" for a securities offering. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 37 INTIAL PUBLIC OFFERING IN INDIA The first public offer of securities by a company after its inception is known a s Initial Public Offering (IPO). Going public (or participating in an “initial pub lic offering” or IPO) is a process by which a business owned by one or several individuals is converted in to a business owned by many. It involves the offerin g of part ownership of the company to the public through the sale of equity secu rities (stock). IPO dilutes the ownership stake and diffuses corporate control a s it provides ownership to investors in the form of equity shares. It can be use d as exit strategy and finance strategy. As a financing strategy, its main purpo se is to raise funds for the company. When used as an exit strategy, existing in vestors can offload equity holdings to the public. REASONS FOR GOING PUBLIC To raise funds for financing capital expenditure needs like expansion diversific ation etc. To finance increased working capital requirement As an exit route for existing investors For debt financing. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 38 INTIAL PUBLIC OFFERING IN INDIA ADVANTAGES OF GOING PUBLIC Stock holder Diversification Easier to raise new capital Enhances liquidity Esta blishes value for the firm Image Other advantages DISADVANTAGES OF GOING PUBLIC Cost of Reporting Disclosure Self dealings Inactive market low price Control DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 39 INTIAL PUBLIC OFFERING IN INDIA THE RISK FACTOR Investing in IPO is often seen as an easy way of investing, but it is highly ris ky and many investment advisers advise against it unless you are particularly ex perienced and knowledgeable. The risk factor can be attributed to the following reasons: UNPREDICTABLE: The Unpredictable nature of the IPO’s is one of the major reasons t hat investors advise against investing in IPO’s. Shares are initially offered at a low price, but they see significant changes in their prices during the day. It might rise significantly during the day, but then it may fall steeply the next d ay. NO PAST TRACK RECORD OF THE COMPANY: No past track record of the company adds fu rther to the dilemma of the shareholders as to whether to invest in the IPO or n ot. With no past track record, it becomes a difficult choice for the investors t o decide whether to invest in a particular IPO or not, as there is basis to deci de whether the investment will be profitable or not. POTENTIAL OF STOCK MARKET: Returns from investing in IPO are not guaranteed. The Stock Market is highly volatile. Stock Market fluctuations widely affect not on ly the individuals and household, but the economy as a whole. The volatility of the stock market makes it difficult to predict how the shares will perform over a period of time as the profit and risk potential of the DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 40 INTIAL PUBLIC OFFERING IN INDIA IPO depends upon the state of the stock market a t that particular time. RISK ASSESSMENT: The possibility of buying stock in a promising start-up company and finding the next success story has intrigued many investors. But before tak ing the big step, it is essential to understand some of the challenges, basic ri sks and potential rewards associated with investing in an IPO. This has made Ris k Assessment an important part of Investment Analysis. Higher the desired return s, higher would be the risk involved. Therefore, a thorough analysis of risk ass ociated with the investment should be done before any consideration. For investi ng in an IPO, it is essential not only to know about the working of an IPO, but we also need to know about the company in which we are planning to invest. Hence , it is imperative to know: The fundamentals of the business The policies and th e objectives of the business Their products and services Their competitors Their share in the current market The scope of their issue being successful It would be highly risky to invest without having this basic knowledge about the company. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 41 INTIAL PUBLIC OFFERING IN INDIA There are 3 kinds of risks involved in investing in IPO: BUSINESS RISK: It is important to note whether the company has sound bu siness and management policies, which are consistent with the standard norms. Re searching business risk involves examining the business model of the company. FINANCIAL RISK: Is this company solvent with sufficient capital to suffer short- term business setbacks? The liquidity position of the company also needs to be c onsidered. Researching financial risk involves examining the corporation s finan cial statements, capital structure, and other financial data. MARKET RISK: It would beneficial to check out the demand for the IPO in the mark et, i.e., the appeal of the IPO to other investors in the market. Hence, researc hing market risk involves examining the appeal of the corporation to current and future market conditions. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 42 INTIAL PUBLIC OFFERING IN INDIA TRENDS IN IPO PRIMARY REASONS FOR A COMPANY GOING PUBLIC. Most people label a public offering as a marketing event, which it typically is. For the majority of firms going pub lic, they need additional capital to execute long-range business models, increas e brand name, to finance possible acquisitions or to take up new projects. By co nverting to corporate status, a company can always dip back into the market and offer additional shares through a rights issue. PERFORMANCE IN 90s Let us have a look at the general development of the Primary Markets in the nineties. There have been many regulatory changes in the regulati on of primary market in order to save investors from fraudulent companies. The m ost path breaking development in the primary market regulation has been the abol ition of CCI (Controller of capital issues). The aim was to give the freedom to the companies to decide on the pricing of the issue and this was supposed to bri ng about a self-managing culture in the financial system. But the move was hopel essly misused in the years of 1994-1995 and many companies came up with issues a t sky-high prices and the investors lost heavily. That phase took a heavy toll o n the investor’s sentiment and the result was the amount of money raised through I PO route. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 43 INTIAL PUBLIC OFFERING IN INDIA 1993-96: SUNRISE, SUNSET. With controls over pri cing gone, companies rushed to tap the Primary Market and they did so, with rema rkable ease thanks to overly optimistic merchant bankers and gullible investors. Around Rs20000 crores were raised through 4053 i ssues during this period. Some of the prominent money mobilizes were the so call ed ‘sunrise sectors’-polyester, textiles, finance, aquaculture. The euphoria spilled over to the Secondary Market. But reality soon set in. Issuers soon failed to m eet projections, many disappeared or sank. Result: the small investor deserted b oth markets-till the next boom! 1998-2000: ICE ON A HOT STREAK As the great Indian software story played itself out, software stocks led a bull charge on the bourses. The Primary Market caught up, and issues from the software markets flooded the market. With big IPOs from companies in the ICE (Information Technology, Communication and Entertainment) sectors, the average issue price shot up from Rs.5 crore in 1994-96 to Rs.30 cro re. But gradually, hype took over and valuations reached absurd levels. Both mar kets tanked. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 44 INTIAL PUBLIC OFFERING IN INDIA 2001-2002-ALMOST CLOSED There were hardly any IP Os and those who ventured, got a lukewarm response. A depressed Secondary Market had ensured that the doors for the Primary Market remained closed for the entir e FY 20012002.There were hardly any IPOs in FY 2001-2002. 2002: QUALITY ON OFFER. The Primary Market boom promises to be different. To sta rt with, the cream of corporate India is queuing up, which ensures quality. In t his fragile market, issue pricing remains to be conservative, this could potenti ally mean listing gains. This could rekindle the interest of small investors in stocks and draw them back into the capital market. The taste of gains from the p rimary issues is expected to have a spillover effect on the secondary market, wh ere valuations today are very attractive. 2003: IPO-IMPROVED PERFORMANCE OVERALL ! Even as the secondary market moved into top gear in 2003 the primary market to o scripted its own revival story, buoyed largely by the Maruti IPO which was ove rsubscribed six and a half times. In 2003 almost all primary issues did well on domestic bourses after listing, prompting retail investors to flock to IPO’s. All IPO’s, including Indraprastha Gas and TV Today Network which was oversubscribed 51 times showed the growing appetite for primary issues. Divi Labs hit the market in February followed by Maruti. Initially, the Maruti share price was considered steep at Rs125 per share for a Rs5 paidup share. By the end of the year, the st ock had climbed to over DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 45 INTIAL PUBLIC OFFERING IN INDIA Rs355. Close on the heels of Maruti, came the Uc o Bank IPO, which attracted about 1mn applicants. The primary issue of Indian Ov erseas Bank attracted about 4.5mn applicants and Vijaya Bank over Rs40bn in subs criptions. The last one to get a huge response was Indraprastha Gas, which repor tedly garnered about Rs30bn. TV Today’s public offer was expected to draw in exces s of Rs30bn. In overseas listings, the only notable IPOs were Infosys Technology s secondary ADR offering and the dull debut of Sterlite Group company Vedanta o n the London Stock Exchange. It was really Maruti Udyog that took the lead with its new issue in June. The issue was heavily over-subscribed and by the middle o f December the share value appreciated 186 per cent. The near trebling of the in vestment in less than 6 months inspired the retail investor who is now back agai n in the market scouting for good scrips. After the phenomenal success of Maruti issue, a number of companies have approached the capital market and a lot more are waiting for SEBI approval. SEBI has taken enough care to force companies to make relevant disclosures for the investor to judge the quality of new issues. B esides, the companies themselves have been careful not to overprice the shares. On the contrary, some of the companies have deliberately under-priced them to le t the issue get over-subscribed and to let the investor share some of the capita l gain after listing. With DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 46 INTIAL PUBLIC OFFERING IN INDIA the care taken by SEBI and the companies it is u nlikely that the experience of 1995 will be repeated. 2007: INITIAL PUBLIC OUTBU RST In 2007, the Indian equity market was in full swing with the index gaining ~ 53% Y-o-Y and valuations edging beyond explanation. The total market capitalizat ion of the Indian stock market increased 8% (INR 5,230 bn) on the back of 96 new listings in 2007. 2007 stood out in the history of Indian capital markets with the highest funds raised through IPOs in any calendar year with maximum companie s from the construction (16) and IT sectors (11).• Almost 61 of the 96 IPOs (63%) debuted in premium in CY 07 as compared to 54 out of 75 IPOs (72% of total IPOs) in 2006. 2008: IPO IN DOWNTURN On January 15, 2008, Reliance Power attracted $27.5 billio n of bids on the first day of its IPO, equivalent to 10.5 times the stock on off er, thereby, creating India s IPO record. Its upper cut off price was Rs. 450. T he proposed IPO was to fund the development of its six power projects across the country. Emaar MGF’s IPO, at $1.6 billion is estimated to be the second largest I PO in the world so far this year, behind Reliance Power s $3 billion IPO. Thomso n Financial data reveals that India accounts for 49.1% of global IPO proceeds at the moment, compared to just 3.7% same time last year. Significant, given that global IPOs declined 36.1% over the last one year. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 47 INTIAL PUBLIC OFFERING IN INDIA 2009: IPO IN RECOVERY PERIOD The severe economic downturn in 2008 sent worldwide IPO markets plummeting by over 60% in both deal numbers and funds raised since 2007. With assets being revalued globally, no IP O market was insulated from the financial crisis. The spreading financial contag ion effectively shut down public markets worldwide, bringing to an abrupt end th e record-setting IPO boom years of 2006-07. Even so, some larger quality compani es with strong business plans still managed to access the public markets with po sitive results. Despite faltering economies and sinking stock markets in 2008, t he US and China led in IPO fundraising and deal numbers, respectively, while Sau di Arabia emerged as the third largest IPO market. Trends in IPO activity can be difficult to predict, especially in times of marke t volatility. Global markets will require a period of macroeconomic stability and confidence rebuilding for the window of IPO opportun ity to reopen. Nevertheless, the 2009 IPO pipeline contains many quality compani es from both developed and emerging markets, which continue to ready themselves to go public while waiting for market conditions to improve. After extensive interviews with some of the world’s top investment bank leaders an d stock exchange leaders, Ernst & Young’s Global IPO trends report 2009 reviews th e major developments in the worldwide IPO markets of 2008 and the first quarter of 2009. As the sixth global IPO report produced by Ernst & Young, this review o ffers DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 48 INTIAL PUBLIC OFFERING IN INDIA an in-depth examination of the key trends for co mpanies planning an IPO today, as well as perspectives on IPO readiness. As Jim Turley, Chairman and CEO, Ernst & Young, emphasizes in the report’s opening interview, “A crisis is a terrible thing to waste.” Indeed, many market-leading com panies were formed during challenging economic times. Companies that undergo an effective IPO readiness transformation during these tough times will be the firs t to go public when markets reopen. Early signs suggest a shift toward a new eco nomic landscape favoring companies that offer innovative and productive solution s for the changing environment. We look forward to working with these pioneering companies in their transformation from a private entity to a public enterprise. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 49 INTIAL PUBLIC OFFERING IN INDIA IPO’S IN PAST RECENT YEAR’S YEARS 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 NO. OF IPO’S 19 23 76 76 84 21 AMOUNT (CR. RS) 3191.10 14662.32 10797.88 23706.16 41323.45 2033.99 RECENT IPO DATA WITH BREAK-UP YEAR FRESH CAPITAL NO.OF AMOUNT IPOs (Rs.crore) OFFERS FOR SALE NO.OF IPOs AMOUN T (Rs.crore) NO.OF IPOs TOTAL AMOUNT (Rs.crore) 2003-04 16 2004-05 21 2005-06 76 2006-07 74 2007-08 82 2008-09 21 1813.42 8099.59 9130.21 5 9 11 1377.68 6562.73 1667.67 960.72 2688.81 48.92 19 23 76 76 84 21 3191.10 14662.32 10797.88 23706.16 41323.45 2033.99 22745.44 12 38634.65 9 1985.08 3 DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 50 INTIAL PUBLIC OFFERING IN INDIA PRICING OF ISSUE CONTROLLER OF CAPITAL ISSUE During the Controller of Capital Issue (CCI) regime the issues were priced by the company and approved by CCI. Generally the CCI was very conservative and hardly allowed premium issues. ARRIVAL OF SEBI After the Arrival of SEBI free market policy is followed for pri cing of issue. Merchant Bankers are responsible for justifying the premium. The company was allowed to give future profit projections. A company can issue share s to applicants in the firm allotment category at higher price than the price at which securities are offered to public. Further, an eligible company is free to make public/rights issue in any denomination determined by it in accordance wit h the Companies Act, 1956 and SEBI norms. DECIDING PREMIUM BY BID SYSTEM Since year 2000 SEBI has changed pricing formula. The promoters cannot give future projections and merchant banker alone cannot d ecide the pricing of IPO. At present, 50%of the IPO is reserved for the wholesal e investors and 50% is for the small investor. The LeadManager starts road show in consultation with Institutional Investors. Then they call for bid at recommen ded prices. Once, bids are received pricing is open for discussion. The mean bid price is accepted and allocation is done. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 51 INTIAL PUBLIC OFFERING IN INDIA BOOK BUILDING THE LATEST AVTAAR OF PRICE DISOVERY WHAT IS BOOK BUILDING? Book Building is basically a capital issuance process use d in Initial Public Offering (IPO), which aids price and demand discovery. IT is a process used for marketing a public offer of equity shares of a company and i s a common practice in most developed countries. Book Building is so-called beca use the collection of bids from investors is entered in a "book". These bids are based on an indicative price range. The issue price is fixed after the bid clos ing date. PERSONS INVOLVED IN THE BOOK-BUILDING PROCESS The principal intermediaries invol ved in the Book Building process are the company; Book Running Lead Managers (BR LM) and syndicate members who are intermediaries registered with SEBI and are el igible to act as underwriters. Syndicate members are appointed by the BRLM. HOW IS THE BOOK BUILT? A company that is planning an initial public offer appoin ts a category-I Merchant Banker as a book runner. Initially, the company issues a draft prospectus which does not mention the price, but gives other details abo ut the company with regards to issue size, past history and future plans among o ther mandatory disclosures. After the draft prospectus is filed with the SEBI, a particular period is fixed as the bid DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 52 INTIAL PUBLIC OFFERING IN INDIA period and the details of the issue are advertis ed. The book runner builds an order book, that is, collates the bids from variou s investors, which shows the demand for the shares of the company at various pri ces. For instance, a bidder may quote that he wants 50,000 shares at Rs.500 whil e another may bid for 25,000 shares at Rs.600. Prospective investors can revise their bids at anytime during the bid period that is, the quantity of shares or t he bid price or any of the bid options. BASIS OF DECIDING THE FINAL PRICE On closure of the book, the quantum of shares ordered and the respective prices offered are known. The price discovery is a fu nction of demand at various prices, and involves negotiations between those invo lved in the issue. The book runner and the company conclude the pricing and deci de the allocation to each syndicate member. PAYMENT FOR THE SHARES The bidder has to pay the maximum bid price at the time o f bidding based on the highest bidding option of the bidder. The bidder has the option to make different bids like quoting a lower price for higher number of sh ares or a higher price for lower number of shares. The syndicate member may waiv e the payment of bid price at the time of bidding. In such cases, the issue pric e may be paid later to the syndicate member within four days of confirmation of allocation. Where a bidder has been allocated lesser number of shares than he or she had bid for, the excess amount paid on bidding, if any will be DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 53 INTIAL PUBLIC OFFERING IN INDIA refunded to such bidder. Advantage of the Book B uilding process versus the Normal IPO marketing process Unlike in Book Building, IPO’s are usually marketed at a fixed price. Here the demand cannot be anticipate d by the merchant banker and only after the issue is over the response is known. In book building, the demand for the share is known before the issue closes. Th e issue may be deferred if the demand is less. This process allows for price and demand discovery. Also, the cost of the public issue is reduced and so is the t ime taken to complete the entire process. DIFFERENCE IN FIXED PRICE PROCESS AND BOOK BUILDING PROCESS Features Pricing Fixed price process Book building process at which the Price at which the Security Price is offered /allotted is Security will be offered advance to the investor. Only an indicative price ra nge is known. known in advance to the /allotted is not known in investor. Demand Demand securities for offered the Demand for the is securities offered can be known only after the known everyday as the closure of the issue. book is built. 54 DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT INTIAL PUBLIC OFFERING IN INDIA Guidelines for Issues to be made through 100% Bo ok Building Route SEBI had issued guidelines in October 1997 for book building w hich were applicable for 100% of the issue size and for issues above Rs.100 Cror es. The guidelines were revised subsequently to reduce the limit to issues of Rs .25 crores to encourage the use of this facility. However, no issuer used this f acility. SEBI modified the framework for Book Building further in October 1999 t o make it more attractive. The modified framework does not replace the existing guidelines. The issuer would have option to issue securities using book building facility under the existing framework: 1. The present requirement of graphical display of demand at bidding terminals t o syndicate members as well as the investors has been made optional. 2. The 15% reservation for individual investors bidding for up to 10 marketable lots may be merged with the 10% fixed price offer. 3. Allotment for the book built portions shall be made in demat form only. 4. The issuer may be allowed to disclose eith er the issue size or the number of securities to be offered to the public. 5. Ad ditional disclosure with respect to the scheme for making up the deficit in the sources of financing and the pattern of deployment of excess funds shall be made in the offer document. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 55 INTIAL PUBLIC OFFERING IN INDIA COST OF PUBLIC ISSUE. The cost of public issue is normally between 8 and 12 percent depending on the s ize of the issue and on the level of marketing efforts. The important expenses i ncurred for a public issue are as follows: Underwriting expenses: The underwriting commission is fixed at 2.5 % of the nomi nal value (including premium, if any) of the equity capital being issued to publ ic. Brokerage: Brokerage applicable to all types of public issues of industrial secu rities are fixed at 1.5% whether the issue is underwritten or not. The managing brokers (if any) can be paid a maximum remuneration of 0.5% of the nominal value of the capital being issued to public. Fees to the Managers to the Issues: The aggregate amount payable as fees to the managers to the issue was previously subject to certain limits. Presently, howev er, there is no restriction on the fee payable to the managers of the issue. Fee s for Registrars to the Issue: The compensation to he registrars, typically base d on a piece rate system, depends on the number of applications received, number of allotters, and the number of unsuccessful applicants. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 56 INTIAL PUBLIC OFFERING IN INDIA Printing Expenses: These relate to the printing of the prospectus, application forms, broachers, share certificate, allotment/re fund letters, envelopes, etc. Postage Expenses: These pertain to the mailing of application forms, brochures, and prospectus to investors by ordinary post and the mailing of the allotment/re fund letters and share certificates by register posts. Advertising and Publicity Expenses: These are incurred primarily towards statuto ry announcements, other advertisements, press conferences, and investor’s conferen ces. Listing Fees: This is the concerned fee payable to concerned stock exchange wher e the securities are listed. It consists of two components: initial listing fees and annual listing fees. Stamp Duty: This is the duty payable on share certificates issued by the company . As this is the state subject, it tends to vary from state to state. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 57 INTIAL PUBLIC OFFERING IN INDIA BRIEF NOTE ON INTERMEDIARIES The following are the important intermediaries involved in the process- MERCHANT BANKERS Eligibility criteria-SEBI issues an authorization letter to the finance companies, which are eligible to work as merchant bankers. The eligibil ity criteria depend on network and infrastructure of the company. The company sh ould not be engaged in activities that are banned for merchant bankers by SEBI. SEBI issues authorization letter valid for 3 years and the company has to pay ne cessary fees. Such merchant banker can be appointed as lead manager for IPO. Res ponsibility-lead managers are fully responsible for the content and correctness of the prospectus. They must ensure the commencement to the completion of the IP O. Certain guidelines are laid down in section 30 of the SEBI act 1992 on the ma ximum limits of the intermediaries associated with the issue. GUIDELINES FOR LEA D MANAGERS BY SEBI Size of the Issue 50 cr. 50-100 cr. 100-200 cr. 200-400 cr. Above 400 cr. No of Lead Managers 2 3 4 5 1 or more as agreed by the board DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 58 INTIAL PUBLIC OFFERING IN INDIA The number of co managers should not exceed the number of lead managers. There can be only 1 adviser to the issue. There is no l imit on the number of underwriters. BROKERS All the recognized stock exchange members are called brokers and A broke r offer marketing support, underwriting support, disseminates information to inv estors about the issue and distributes issues stationary at retail investor leve l. The brokers are governed by rules of SEBI and the respective stock exchange. The brokers are key to the success of the issue. The brokers appoint sub brokers who are in direct contact with the investors. UNDERWRITERS The underwriter is the principle player in the IPO providing the fi rm with- Reputation-as the underwriter is legally liable and because he has ongo ing dealing with the customers to whom he sells shares. The underwriter puts his reputation on the line. Underwriting involves a commitment from the underwriter to subscribe to the shares of a particular company to the extent it is under su bscribed by the public or existing shareholders of the corporate. An underwriter should have a minimum net worth of 20 lacs and his total obligation at any time should not exceed 20 times his net worth. A commission is paid to the writers o n the issue price for undertaking the risks of under subscription. The maximum r ate of underwriting commission paid is as follows. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 59 INTIAL PUBLIC OFFERING IN INDIA UNDERWRITING COMMISSION TABLE Nature of Issue On amount Devolving on On amounts subscribed Underwriters by the public 2.5% Equity shares 2.5% preference shares and Debentures Issue amount up to Rs5 2.5% lacs Issue exceedin g % amount 2.0% 1.0% 2.5% The fees for underwriter and broker are decided by the company within the maximu m possible limit as fixed by the SEBI. BANKERS TO THE ISSUE Any scheduled bank registered with SEBI can be appointed as the banker to the issue. They get fees on amount collected by them. There are n o restrictions on the number of bankers to the issue. The main function of banke r involves collection of duly filed application forms with money (cheque/drafts) maintains a daily report, transferring the proceeds to the share application money collected with the appl ication forms to the registrar. REGISTRAR AND TRANSFER AGENTS Registration with SEBI is mandatory to take on res ponsibilities as a registrar or share transfer agent. The registrar provides adm inistrative support to the issue process. Each agent is registered with SEBI. He y DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 60 INTIAL PUBLIC OFFERING IN INDIA have to maintain net worth and infrastructure cr iteria. They have to renew their License periodically. He collects all applicati on from the bank and ensures reconciliation of funds and of application amount a nd participates in process of basis of allotment. If the IPO is oversubscribed t hey provide computerized program for allotment. They manage refund orders and al lotment letters. They provide the final list of allotees to Lead Manager ROC and stock exchange. If the company wants they also manage post issue IPO functions relating to shareholders register for the company. DEPOSITORIES Since the year 2000 it’s compulsory that all fresh issue of shares mu st be made only in the dematerialized format (DMAT). The Depository institute is sues unique number of every IPO or company, when shares are allotted to the comp any/registrar provides shareholders register to depository in electronic form. T hus automatically all shareholders get allotment in their DMAT account. LEGAL ADVISOR. Normally the company for the purpose of IPO does this appointment . He is responsible legal compliance of IPO process. There are other intermediar ies like Advertising Agents etc. but the company governs their role. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 61 INTIAL PUBLIC OFFERING IN INDIA SEBI AND IPO ELIGIBILITY NORMS FOR UNLISTED COMPANIES It should have a pre issue network of a minimum amount of Rs1 crores in 3 out of the preceding 5 financial years. In ad dition the company should compulsorily need the minimum network level during the two immediately preceding years. It should have a track record distributable profits as given in section 205 of c ompanies act 1956 for at least 3 years in the preceding 5 years period. The issue size (i.e. Offer + Form allotment + Promoters contribution through the offer document) should not exceed an amount equal to 5 times its pre issue wort h. FOR LISTED COMPANIES It should have a track record distributable profits as g iven in section 205 of companies act 1956 for at least 3 years in the preceding 5 years period. It should have a pre issue network of a minimum amount of Rs1 crores in 3 out of the preceding 5 financial years with the minimum net Worth to be met during the immediately preceding 2 years. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 62 INTIAL PUBLIC OFFERING IN INDIA SEBI NORMS SEBI has come up with Investor Protection and Disclosure Norms for raising funds through IPO. These rules are amended from time to time to meet with the require ment of changing market conditions. DISCLOSURE NORMS. Risk Factor-The Company/Merchant Banker must specify the major risk factor in th e front page of the offer document. General Risk.-Attention of the investor must be drawn on these risk factors. Issuers Responsibility-It is the absolute respo nsibility of the issuer company about the true and correct information in the pr ospectus. Merchant Banker is also responsible for giving true and correct inform ation regarding all the documents such as material contracts, capital structure, appointment of intermediaries and other matters. Listing Arrangement- It must clearly state tha t once the issue is subscribed where the shares will be listed for trading. Disc losure Clause- It is compulsory to mention this clause to distinctly inform the investors that though the prospectus is submitted and approved by SEBI it is not responsible for the financial soundness of the IPO. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 63 INTIAL PUBLIC OFFERING IN INDIA Merchant Bankers Responsibility-Disclaimer Claus e the Lead Manager has to certify that disclosures made in the prospectus are ge nerally adequate and are in conformity with the SEBI Guidelines. Capital Structu reThe Company must give complete information about the Authorized capital, Subscribed Capital with top ten shareh olders holding pattern, Promoters interest and their subscription pattern etc. A lso about the reservation in the present issue for Promoters, FII s, Collaborato rs, NRI s etc. Then the net public offer must be stated very clearly. Auditors R eport- The Auditors have to clearly mention about the past performances, Cost of Project, Means of Finance, Receipt of Funds and its usage prior to the IPO. Aud itor must also give the tax-benefit note for the company and investors. INVESTOR PROTECTION NORMS. Pricing of Issue-The pricing of all the allocations for the present issue must f ollow the bid system. The reservation must be disclosed for different categories of investors and their pricing must be specified clearly. Minimum Subscription- If the company does not receive minimum subscription of 90% of subscription in each category of offer and if the issue is not underwritten or the underwriters are unable to meet their obligation, then fund so collected must be refunded bac k to all applicants. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 64 INTIAL PUBLIC OFFERING IN INDIA Basis of Allotment- In case of full subscription of the issue, the allotment must be made with the full consultation of the conc erned stock exchange and the company must be impartial in allotting the shares. Allotment/Refund- Once the allotment is finalized, the refund of the excess mone y must be made within the specified time limits otherwise the company must pay i nterest on delayed refund orders. Dematerialization of Shares-As per the provisi ons of the Depositories Act, 1996, And SEBI Rules, now all IPO will be in Demat form only. Listing of Shares- It is mandatory on the part of the promoters that once the IPO is fully subscribed, and then the underlying shares must be listed on the stock exchange. This provides market and exit routes to the investors. The above are the major Guidelines for the Investor Protection and Disclosure No rms. The SEBI has provided rules for every possible situation. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 65 INTIAL PUBLIC OFFERING IN INDIA SEBI GUIDELINES IPO of Small Companies Public issue of less than five crores has to be through O TCEI (Over the Counter Exchange of India) and separate guidelines apply for floa ting and listing of these issues. Public Offer of Small Unlisted Companies (Post-Issue Paid-Up Capital up to Rs.5 crores) Public issues of small ventures which are in operation for not more than two years and whose paid up capital after the issue is greater than 3 crores bu t less than 5 crores the following guidelines apply. 1. Securities can be listed where listing of securities is screen based. 2. If the paid up capital is less than 3 crores then they can be listed on the Over The Counter Exchange of India (OTCEI) 3. Appointment of market makers mandatory on all the stock exchanges whe re securities are proposed to be listed. SIZE OF THE PUBLIC ISSUE Issue of shares to general public cannot be less than 2 5%of the total issue. In case of IT, Media and Telecommunication sectors, this s tipulation is reduced subject to the conditions that 1. Offer to the public is n ot less than 10% of the securities issued. 2. A minimum number of 20 lakh securi ties is offered to the public 3. Size of the net offer to the public is not less than Rs.30 crores. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 66 INTIAL PUBLIC OFFERING IN INDIA PROMOTERS CONTRIBUTION 1. Promoters should bring in their contribution including premium fully before the issue 2. Minimum promo ter’s contribution is 20-25% of the public issue. 3. Minimum lock in period for pr omoter’s contribution is five years. 4. Minimum lock in period for firm allotment is three years. COLLECTION CENTERS FOR RECEIVING APPLICATIONS 1. There should be at least 30 man datory collection centers, which should include invariably the places where stoc k exchanges have been established. 2. For issues not exceeding Rs.10 crores the collection centers shall be situated at:The 4 metropolitan centers’ viz. Mumbai De lhi Calcutta Chennai All such centers where stock exchanges are located in the r egion in which the registered office of the company is situated. REGARDING ALLOTMENTS OF SHARES 1. Net Offer the general public has to be at leas t 25% of the total issue size for listing on a stock exchange 2. It is mandatory for a company to get its shares listed at the regional stock exchange where the registered office of the issuer is located. 3. In an issue of more than 25 cror es the issuer is allowed to place the whole issue by book-building. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 67 INTIAL PUBLIC OFFERING IN INDIA 4. Minimum of 50% of the Net Offer to the public has to be reserved for the investors applying for less than 1000 shares. 5. The re should be at least 5 investors for every 1 lakh equity offered. 6. Quoting of PAN or GIR No. in application for the allotment of securities is compulsory whe re monetary value of investment is Rs.50000/- or above. 7. Indian development fi nancial institutions and Mutual Fund can be allotted securities up to 75% of the issue amount. 8. A venture capital fund shall not be entitled to get its securi ties listed on any stock exchange till the expiry of 3 years from the date of is suance of securities. 9. Allotment to categories of FIIs and NRIs/OCBs is up to maximum of 24%, which can be further extended to 30% by an application to the RB I-supported by a resolution passed in the General Meeting. TIMEFRAMES FOR ISSUE AND POST-ISSUE FORMALITIES The minimum period for which the public issue is to be kept open is 3 working da ys and the maximum for which it can be kept open is 10 working days. The minimum period for right issue is 15 working days and the maximum is 60 working days. A public issue is affected if the issue is able to procure 90% of the total issue size within 60 days from the date of the earliest closure of the public issue. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 68 INTIAL PUBLIC OFFERING IN INDIA 1. In case of oversubscription the company may h ave he right to retain the excess application money and allot shares more than t he proposed issue, which is referred to as “greenshoe” option 2. Allotment has to be made within 30 days of the closure of the Public issue and 42 days in case of R ights issue 3. All the listing formalities of a Public Issue have to be complete d within 70 days from the date of closure of the subscription list. DISPATCH OF REFUND ORDERS. 1. Refund orders have to be dispatched within 30 days of the closure of the issue. 2. Refunds of excess application money i.e. non-al lotted shares have to be made within 30 days of the closure of the issue. OTHER REGULATIONS 1. Underwriting is not mandatory but 90% subscription is manda tory for each issue of capital to public unless it is disinvestment where it is not applicable. 2. If the issue is undersubscribed then the collected amount sho uld be returned back 3. If the issue size is more than Rs500 crores, voluntary d isclosures should be made regarding the deployment of funds and an adequate moni toring mechanism put in place to ensure compliance. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 69 INTIAL PUBLIC OFFERING IN INDIA 4. There should not be any outstanding warrants for financial instruments of any other nature, at the time of the IPO. 5. In the event of the initial public offer being at a premium and if the rights under wa rrants or other instruments have been exercised within 12 months prior to such o ffer, the resultant shares will be not taken into account for reckoning the mini mum promoters contribution further, the same will also be subject to lock-in. 6. Code of advertisement as specified by SEBI should be adhered to 7. Draft prospe ctus submitted to SEBI should also be submitted simultaneously to all stock exch anges where it is proposed to be listed. RESTRICTIONS ON ALLOTMENTS 1. Firm allotments to mutual funds, FII and employees are not subject to any lock-in period. 2. Within 12 months of the public issue no bonus issue should be made. 3. Maximum percentage of shares, which can be dis tributes to employees cannot be more than 5% and maximum shares to be allotted t o each employee cannot be more than 200. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 70 INTIAL PUBLIC OFFERING IN INDIA RELAXATION OF ENTRY NORMS FOR INFRASTRUCTURE COM PANIES With a view channelize greater flow of funds to infrastructure companies, SEBI g ranted a number of relaxations to infrastructure companies. These included: Exemption from the requirement of making a minimum public offer of 25 percent of securities and also from the requirement of 5shareholders per Rs.1 lakh of offe r made. Exemption from the minimum subscription of 90 per cent provided disclosu re is made about the alternate source of funding considered by the company, in t he event of undersubscription in the public issue. Permission to keep the issues opens for 21 days to enable the companies to mobilize funds. Exemption from req uirement to create and maintain a debenture redemption reserve in case of debent ure issues as provided in the SEBI Disclosure & Investor Protection Guidelines. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 71 INTIAL PUBLIC OFFERING IN INDIA MARKETING OF IPO The role of marketing, and particularly promotion, in the pricing and trading of Securities is fairly limited PRELIMINARY REQUIREMENTS The company has to complete all legal requirements, app oint all intermediaries and once they get SEBI card (approval), the process of m arketing of IPO can commence. TIMING OF IPO This the most important factor for the success of IPO. If, seconda ry market is depressed, if there is political unrest, if serious international p roblems are prevailing then it is considered to be negative factors for timing o f IPO’s. If these factors are favorable then the Company must find out about the t iming of other prestigious IPO’s. This year more than 29 companies are coming with IPO’s. Around Rs.25, 000-30,000crore of capital is going to be raised this year. Marketing initial public offers (IPO’s) through the secondary market SEBI approved a proposal of marketing IPO’s through the secondary market. It proposes to use th e existing infrastructure of stock exchanges (terminals, brokers and systems), p resently being used for secondary market transactions, for marketing IPO’s with a view to get DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 72 INTIAL PUBLIC OFFERING IN INDIA rid of certain inherent disadvantages faced by i ssuers and investors like tremendous load on banking and postal system and huge costs in terms of money and time associated with the issue process. THE EFFECTS OF MARKETING ON IPO’S An investment banker’s marketing campaign for an I PO is critical. This campaign, as much as anything that precedes or follows it, will determine the success or failure of the IPO. The key is to stimulate invest or demand for the stock so that, the demand will exceed the supply. Through the marketing effort, the underwriter attempts to create an imbalance in the supply/ demand equation for the issue, so that there are more buyers than sellers when t he stock is finally released for sale to the public. The reputation of an investment banker could expand a firm’s investor base at a lo wer cost than the firm can, since the promotional efforts of an investment banke r on behalf of the firm would be more creditable. The efforts of an investment b anker to promote an IPO through increased media coverage will increase retail in terest in that stock. The effects of an investment banker’s promotional efforts are not only important f or explaining the initial returns of some IPO’s, but also for explaining the ranki ngs of investment bankers DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 73 INTIAL PUBLIC OFFERING IN INDIA Promoting an issue sufficiently to insure a run up in its early run-up ear aftermarket prices attracts further investor interest catches the interest of analysts and helps to maintain or expand the investor b ase of the stock. If the sole motivation of a road show were to sell IPO’s to their regular institut ional investors and if those investors were to hold onto these and stocks, then there would be no motivation for an investment banker to do more than a minimal amount of promotion since there would be no need to attract retail investors in early aftermarket trading. MARKETING PRESS CONFERENCE Promoters and Lead Managers call for press conference in each m ajor investment center. Reporters are briefed about the issue. They carry it as news-item in their papers. item INVESTORS CONFERENCE The prospective investors are called by invitation. The Pro moters and Lead Managers give presentations. They reply to the questions of the investors to boo st their confidence. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 74 INTIAL PUBLIC OFFERING IN INDIA ROAD-SHOW This is like the investors conference but normally is done abroad for marketing ADR/GDR issues. It is an expensive process and requires a lot of legal compliances. The company has to observe the rules of the concerned country. How ever, road shows are becoming more and more popular in India. NEWSPAPER ADVERTISEMENT The company releases statutory advertisements advertisem ents in leading newspapers. The company has to publish abridges prospectus in leading newspapers . It is the responsibility of the promoters to ensure that the issuing company a nd their group companies should not release any commercial advertisement, which may influence the investor’s decision for investment. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 75 INTIAL PUBLIC OFFERING IN INDIA IPO GRADING GRADING OF IPOS Investment decisions in IPOs are becoming increasingly difficult , given the flurry of public offers that hit the market these days. Differentiat ing a good offer from a bad one, assessing the company fundamentals and verifyin g the credentials are becoming more complex. In this backdrop, the Securities an d Exchange Board of India s decision to make IPOs (initial public offers) gradin g by credit rating agencies mandatory, is likely to provide some respite to reta il investors. However, the rating is unlikely to throw much light for short-term investors or traders seeking to make a quick buck from the listing gains . We take a look at what the grading system proposes to do and what changes, if an y, it is likely to bring in. In a move, which does not appear to have any precedence elsewhere in the world o f capital markets, the SEBI has introduced compulsory grading of initial public offers that will hit the market from now on. Credit rating agencies such as the CRISIL and ICRA will grade the various forthcoming IPOs on a five-point scale fr om grade 5 (indicating strong fundamentals) to grade 1 (indicating poor fundamen tals). DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 76 INTIAL PUBLIC OFFERING IN INDIA This grading, which will be based on the agencie s assessment of company fundamentals, will consider the following five paramete rs — earnings per share, financial risks, accounting quality, corporate governance and management quality. Thus, the rating awarded to an IPO will mirror the comp any s general health in terms of these qualitative and quantitative factors. The IPO pricing, however, is not factored in for the purpose of rating. These ratings, apart from being available in the respective offer documents of t he companies, can also be viewed on the respective rating agency s Web site. For instance, a company X decides to tap the primary market for raising capital. The rating agencies will now be required to grade the company. This process wil l include market checks, plant visits and practice of due diligence apart from s tudying the other already-specified macro factors. At the end of the process, sa y, X is awarded grade 1 (indicating poor fundamentals). This would mean that the company is fundamentally weak and investments in that company could be risky. H owever, the rating does not go on to say whether such an offer is to be avoided or not. In a similar manner, if X gets a grade 5 (the highest one possible), it does not mean a blanket approval from the rating agency to invest in the public offer. I t only means that X is DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 77 INTIAL PUBLIC OFFERING IN INDIA fundamentally sound on the basis of metrics used by the rating agency. Thus, in general, the grading process that has been introduced is meant to make the retail investors aware of the health of the company s business. It cannot be interpreted as a recommendation to invest or avoid any offer that is so rated. ADVANTAGES OF IPO GRADING IPO grading, a hitherto optional exercise, has been made compulsory to encourage only serious companies. Over the long-term, it is likely to help SEBI regulate the IPO market by helping it protect the investors from cases of vanishing companies. The rating will als o facilitate the not-sowell known companies in tapping the primary market for ca pital. Retail investors, on the other hand, stand to benefit the most. The grading syst em that purports to give a professional perspective of the company s fundamental s is likely to help investors establish the credentials of the company they plan to invest in. Neutral agencies can be more objective in their evaluation of a public offer com pared to other market participants. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 78 INTIAL PUBLIC OFFERING IN INDIA This apart, it is likely to help investors weed out companies with poor fundamentals or those with a spurious background at the preliminary stage itself. DISADVANTAGES OF IPO GRADING More often than not, the pricing of any IPO is what influences the decision of a ny investor. The rating agencies, in this case, will not talk about what price and what time aspects of the offer. Given that the decision to invest or avoid investments in any IPO is most often a function of the pricing, the lack of this aspect in the present IPO grading sy stem could make the whole process an unfinished task. Rating agencies (experienced in debt rating) could face trouble with rating the equities, which, unlike debt rating, is more dynamic and cannot be standardized. Further, IPO grading mechanism is a globally-unique initiative; it could increa se the cost of raising capital in India and urge companies to seek capital overs eas. Markets, in the short term, can be price-driven and not purely motivated by comp any fundamentals. That is to say that, at times, even good companies at a higher price could be a bad DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 79 INTIAL PUBLIC OFFERING IN INDIA investment choice, while the not-as-good ones co uld be a steal at lower prices. Despite having disclaimers, a higher graded IPO may well tempt small investors i nto falsely believing that a high premium would come about on listing.
Investors may get deluded by a low-graded IPO, which could become a missed oppo rtunity in the future. The purpose of introducing grading, thus, might get defe ated if it leads to a false sense of buoyancy or alarm among investors. HIGHLIGHTS OF IPO GRADING: Till such time the utility of the IPO grading system is unraveled, it is advisab le for investors to use the grades only as an additional input to make an inform ed decision. Investors need to be convinced about the business potential, pricin g and valuations of an IPO, together with the grading, to make a final choice. IPO grading is a welcome move from the regulator of the capital market. It is go ing to bring better efficiency to the market. There is a challenge for the inves tors to arrive at an informed investment decision based on voluminous and comple x disclosure documents. Small investors will be the happier lot with this decisi on because an independent, reliable and DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 80 INTIAL PUBLIC OFFERING IN INDIA unbiased assessment of the fundamentals of the i ssuer company will facilitate an informed investment decision. The major parameters to be considered by a rating agency for the assessment incl ude management quality, business prospects, industry and company, financial performance, corporate governance, pr oject related factors, compliance track record, litigation history and capital h istory. The grading provides the investors an independent assessment of the disc losures in the offer documents to the extent that they affect the issuer’s fundame ntals to take an informed decision. The grading could be particularly useful for assessing the offerings of companies accessing the equity markets for the first time where there is no track record of their market performance. Needless to say, the rating is not intended to comment on the pricing of the iss ue nor would it purport to provide an assessment of the market risk associated w ith the investment. As in the case of rating of debt instruments, it is an addit ional tool available to the investors to take an informed investment decision. The Disclosure for Investor Protection (DIP) guidelines has come a long way from the initial days of Sebi, with the present set of disclosure norms coupled with the IPO grading a decidedly positive move. The disclosures in the offer documents are as per Sebi DIP guidelines and currently there DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 81 INTIAL PUBLIC OFFERING IN INDIA are no assessments of quality especially on the management bandwidth of the issuer. A proper assessment of the management qualit y is very critical for the long-term sustainability of a corporate entity in a highly competitive world. Rating agenc ies have the expertise to do this job. Issuers may be worried about a lower grading than expected and also the addition al cost and effort. However, this worry would not last long because the issuers will soon realize that the extra cost and effort put into grading is only going to benefit them. Getting listed is a long process; it could take up to a year or more depending upon the preparedness of the issuer. A listed company has huge r esponsibilities to fulfill. A better prepared issuer company could complete the IPO process faster and will be in a better position to the meet the expectations of the market. To become a successful listed company, an unlisted company shoul d act like a listed company much before the IPO. It is better to be fully prepar ed before the plunge than regretting after listing and exhibiting poor performan ce. The compulsory IPO grading will facilitate the issuer to become a mature corpora te citizen faster. Additionally, the grading will help better quality issuers to benchmark themselves and project their underlying strength better. A perception al change from the issuers is essential here. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 82 INTIAL PUBLIC OFFERING IN INDIA Though there has been criticism initially from t he intermediaries involved in the IPOs, it is a matter of time before the mercha nt bankers, brokers and investment advisors derive the benefits of grading. For the merchant bankers, it will give additional comfort to their due diligence res ponsibilities. IPO grading as an investment guidance tool is going to be accepte d sooner or later. It will widen and deepen market participation and facilitate the move towards a more mature equity IPO market. Moreover, private equity investors, strategic investors, institutional investors or any large investors can afford to conduct third party due diligence on the issuer company before taking an equity investment decision . The retail investor does not have the privilege and hence this gap could be fi lled up with compulsory IPO grading system. This is a beginning and if there is a continuous effort to improve the process o f grading, this new development could substantially benefit the retail investor. No SEBI proposal has met with the kind of criticism as the mandatory IPO grading one has. There is no body of research, no world experience, no concept paper an d no public debate to justify it. And even the pilot voluntary grading exercise — which did not see any company come forward and 19 small companies were then forc ed to do this — did not validate the DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 83 INTIAL PUBLIC OFFERING IN INDIA concept in any manner. Instead of a detailed rat ionale even now, there are only oral justifications. Small investors demanded it: Who in the world would not say yes to free actionab le investment advice from experts? But are investor associations even aware of t he pitfalls of IPO grading, and that what will be delivered is a subjective opin ion, and that too incomplete. In spite of disclaimers and education, most small investors will only look at the grade digit; history tells us so. As such, they will reject a low-grade IPO and invest in a high-grade one. But if subsequently low-grade IPOs do well after listing, they will complain about missed opportunit ies. The fundamentals of a company can change dramatically after its IPO. IPOs a re all about the future; IPO grading is all about the past. Incidentally, of the six graded IPOs that have hit the market, five low-graded ones were handsomely over- subscribed and have listed above their offer prices Rating agencies are supposed to assess only the fundamentals, but we know that even this is highly subjective. The rating agenci es themselves differ in skill sets. Worse, there is no uniform grading methodolo gy. Rating agencies would be learning on the job and the market would have to be ar the cost of this. To avoid being seen as mark givers, rating agencies have in vented the concept of relative grading. The grades are supposed to be a “relative comparison to the other listed companies”. This presumes that all the three rating agencies DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 84 INTIAL PUBLIC OFFERING IN INDIA have already graded all listed stocks (over 2,50 0 at the least) which they clearly have not. Are the rating agencies not misguid ing investors by calling absolute marks as relative grades? It is also interesting that grading will not get funded by the Investor Protecti on Fund but by the companies. If the conflict is now in-built, what use is the g rading? Vanishing companies scam: After a drought of nearly eight years, an aver age of seven IPOs a month in the last year is no deluge. A real potential flood has been avoided because we now have stringent entry norms, there is better vett ing of issues by two national stock exchanges and by Sebi and there is a provisi on for public comments. Most importantly, there is compulsory participation of 5 0 per cent in an issue by QIBs who are more discerning and better informed and w hose response to an issue holds cues for small investors. Rank bad IPOs, in any case, are rejected by stock exchanges and/or Sebi and as such cannot enter the m arket while overpriced IPOs are rejected by the QIBs; more than 15 IPOs have met such fate. The fear of another vanishing company scam is totally unfounded. Investors need crispier information: The real need is to revisit the contents an d format of the abridged prospectus. And redesign the risk factors, which were i ntroduced to highlight the DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 85 INTIAL PUBLIC OFFERING IN INDIA negatives, but have become a joke. Even after th is, a further condensed version of two to three pages would be welcome. And that , in fact, should have been the task assigned to the rating agencies, not that o f grading. Grades influences investment decision directly; a condensed summary d oes not. Rating agencies could also be asked to do a forensic audit and report i nstances of information gaps or wrong information (based upon which the concerne d merchant bankers should be punished.). The information gathered during the gra ding due diligence should also be included in the offer document. With grading, we are taking the small investor away from the stated objective of “informed decision making”. Equity is risk capital, and investors should know about the company they invest in. Protecting investor interests is also to ensure tha t they are not guided by subjective, incomplete advice. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 86 INTIAL PUBLIC OFFERING IN INDIA GUIDE TO UNDERSTAND AN OFFER DOCUMENT: This section basically tries to tell the reader about the structure of presentat ion of the content in the Offer Document. This is with a view to help the reader navigate through the content of an offer document. A. COVER PAGE The Cover Page of the offer document covers full contact details o f the issuer company, lead managers and registrars, the nature, number, price an d amount of instruments offered and issue size, and the particulars regarding li sting. Other details such as Credit Rating, IPO Grading, if opted for, risks in relation to the first issue, etc are disclosed if applicable. B. RISK FACTORS Here, the issuer’s management gives its view on the Internal and e xternal risks faced by the company. Here, the company also makes a note on the f orward looking statements. This information is disclosed in the initial pages of the document and it is also clearly disclosed in the abridged prospectus. It is generally advised that the investors should go through all the risk factors of the company before making an investment decision. C. INTRODUCTION The introduction covers a summary of the industry and business o f the issuer company, the offering details in brief, summary of consolidated fin ancial, operating and other data. General Information about the company, the mer chant bankers and their responsibilities, the details of brokers/syndicate membe rs to the Issue, DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 87 INTIAL PUBLIC OFFERING IN INDIA credit rating (in case of debt issue),debenture trustees (in case of debt issue), monitoring agency, book building process in br ief and details of underwriting Agreements are given here. Important details of capital structure, objects of the offering, funds requirement, funding plan, sch edule of implementation, funds deployed, sources of financing of funds already d eployed, sources of financing for the balance fund requirement, interim use of f unds, basic terms of issue, basis for issue price, tax benefits are covered. D. ABOUT US This presents a review of on the details of the business of the comp any, business strategy, competitive strengths, insurance, industry-regulation (i f applicable), history and corporate structure, main objects, subsidiary details , management and board of directors, compensation, corporate governance, related party transactions, exchange rates, currency of presentation dividend policy an d management s discussion and analysis of financial condition and results of ope rations are given. E. FINANCIAL STATEMENTS Financial statement, changes in accounting policies in t he last three years and differences between the accounting policies and the Indi an Accounting Policies (if the Company has presented its Financial Statements al so as per Either US GAAP/IAS are presented. F. LEGAL AND OTHER INFORMATION Outstanding litigations and material developments , litigations involving the company and its subsidiaries, promoters and group co mpanies are disclosed. Also material developments since the last balance sheet d ate, government approvals/licensing arrangements, investment approvals DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 88 INTIAL PUBLIC OFFERING IN INDIA (FIPB/RBI etc.), all government and other approv als, technical approvals, indebtedness, etc. are disclosed. G. OTHER REGULATORY AND STATUTORY DISCLOSURES Under this head, the following inf ormation is covered: authority for the Issue, prohibition by SEBI, eligibility o f the company to enter the capital market, disclaimer clause, disclaimer in resp ect of jurisdiction, distribution of information to investors, disclaimer clause of the stock exchanges, listing, impersonation, minimum subscription, letters o f allotment or refund orders, consents, expert opinion, changes in the auditors in the last 3 years, expenses of the issue, fees payable to the lead managers, f ees payable to the issue management team, fees payable to the registrars, underw riting commission, brokerage and selling commission, previous rights and public issues, previous issues for cash, issues otherwise than for cash, outstanding de bentures or bonds, outstanding preference shares, commission and brokerage on, p revious issues, capitalization of reserves or profits, option to subscribe in th e issue,purchase of property, revaluation of assets, classes of shares, stock ma rket data for equity, shares of the company, promise vis-à-vis performance in the past issues and mechanism for redressal of investor grievances. H. OFFERING INFORMATION Under this head, the following information is covered: T erms of the Issue, ranking of equity shares, mode of payment of dividend, face v alue and issue price, rights of the equity shareholder, market lot, nomination f acility to investor, issue procedure, book building procedure if applicable, bid form, who can bid, maximum and minimum bid size, bidding process, bidding bids at different price levels, escrow DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 89 INTIAL PUBLIC OFFERING IN INDIA mechanism, terms of payment and payment into the escrow collection account, electronic registration of bids, build up of the boo k and revision of bids, price discovery and allocation, signing of underwriting agreement and filing of prospectus with SEBI/ROC, announcement of statutory adve rtisement, issuance of confirmation of allocation note("can") and allotment in the issue, designated date, general instructions, i nstructions for completing the bid form, payment instructions, submission of bid form, other instructions, disposal of application and application moneys, inter est on refund of excess bid amount, basis of allotment or allocation, method of proportionate allotment, dispatch of refund orders, communications, undertaking by the company, utilization of issue proceeds, restrictions on foreign ownership of Indian securities, etc. I. OTHER INFORMATION This covers description of equity shares and terms of the A rticles of Association, material contracts and documents for inspection, declaration, definitions and abbreviations, etc. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 90 INTIAL PUBLIC OFFERING IN INDIA CASE STUDY ON IPO “FUTURE CAPITAL HOLDINGS LTD” SECTOR: Financial Retail / Advisory Services. ABOUT TH E COMPANY: Future Capital Holdings Ltd the financial arm of the Future Group, th e parent of India s largest listed retailer Pantaloon Retail India Ltd, deals in private equity and consumer finance - and is developing malls, and townships. I ts $850 million domestic Kshitij Fund is building 11 malls in tier II cities, an d the $350 million Horizon Fund is building at least four mixed-use townships. T he company s $400 million in division funds buy stakes in consumer businesses. F uture Capital also plans to launch a $350 million fund to build hotels. THREE PR IMARY LINES OF BUSINESS ARE: o Investment Advisory and Asset Management. o Retai l financial services. o Research. OBJECTS OF THE ISSUE : Achieve the benefits of listing on the Stock Exchanges. E xpansion of its retail financial services business. To meet the future capital r equirements. General corporate purposes. MERCHANT BANKER: Kotak Mahindra Capital Company Limited, Enam Securities, J.M.Financial Consultants & UBS Securities In dia Private Limited. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 91 INTIAL PUBLIC OFFERING IN INDIA ISSUE SIZE: Public Issue of 6,422,800 Equity Sha res of Rs.10 each of Future Capital Holdings Limited (The "Company" Or The "Issu er") for cash at a price of Rs.765 per equity share of Rs.10 each including a sh are premium of Rs.755 per Equity share aggregating Rs.49, 134.42 Lacs. The issue constitutes 10.16% of the post issue paid-up capital of the company. Issue Pric e Rs.765 Per Equity Share of Face value of Rs.10 each. The issue price is 76.50 times the face value. Date of listing: 01/02/2008. Price on Listing : 1044 on BSE/ 1081 on NSE. Other Information: • Open - 11 Jan. • Close - 16 Jan. • Issue Type -100% Book Building Issue. • Maximum Subscription Amount for Retail: Rs 100,000/• Listing - BSE, NSE. • R egistrar -In time Spectrum Registry Limited. • Minimum and maximum shares for reta il category - 1 lot - 8 shares and 16 lots - 128 shares. • Minimum and maximum amo unt for retail category - 1lot - Rs 6120 and 16 lot - Rs 97920 @ cut off. • Applic ation Multiple - 8 and in multiples there off starting with at least 8 shares • Ch eque In Favor Of - "Escrow Account - FCH Public Issue Resident" For Retail categ ory. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 92 INTIAL PUBLIC OFFERING IN INDIA Subscribe Statistics: The Issue received 1138493 applications for 846511648 equity shares resulting in 131.7979 times subscripti on. The details of the applications received in the Issue from Qualified Institu tional Buyers, Non-Institutional, Retail Individual Investors are as under (Befo re technical rejections): FUTURE CAPITAL SUBSCRIPTION DETAIL Category Retail Bidders Non Institutional Bidders Qualified institutional Bidder s TOTAL No. of Applications No. of Shares 1135843 2286 100327656 49995104 Subscr iption 52.0685 77.84 364 696188888 180.6556 1138493 846511648 131.7979 The Basis of Allocation to the categories namely Retail Individuals Bidders, Non -Institutional Bidders and QIB Bidders was finalized in consultation with the Bo mbay Stock Exchange Limited ("BSE") on January 28, 2008. ALLOCATION TO RETAIL IN VESTORS: The Basis of Allocation to the Retail Investors, who have bid at cut-of f or at the Issue Price of Rs 765 per Equity Share, was finalized in consultatio n with BSE. The category was over subscribed 50.759 times. The total number of s hares allotted in this category is 1926840 Equity Shares. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 93 INTIAL PUBLIC OFFERING IN INDIA ALLOCATION TO NON INSTITUTIONAL INVESTORS: The B asis of Allocation to the Non institutional, who have bid at the Issue Price of Rs.765 per Equity Share, was finalized in consultation with BSE. The category wa s subscribed 75.874734 times. The total number of shares allotted in this catego ry is 642280 Equity Shares. ALLOCATION TO QIB BIDDERS: Allocations to QIBs have been done on a proportionate basis in consultation with the BSE. As per the SEBI guidelines, Mutual Funds were initially allotted 5% of the quantum of shares av ailable 192684 and other QIBs and unsatisfied demands of Mutual Funds were allot ted the remaining available shares 3660996 on proportionate basis. The sectoral cap and other limits applicable to the holding of shares in company have been ta ken into account while allotting shares. Mutual Funds were allotted 5.00 % for Q IB segment and other QIB applicants were allotted 95.00 % of the shares for QIB segment. VALUATION: The company is addressing two major financial service busine sses with high growth potential — investment advisory services and consumer credit — with an experienced management team at the helm. While the business undoubtedly offers huge room for scalability, earnings visibility is extremely low at this juncture. Capital Market points out that the Future Capital Holdings’ major revenu e(76% of the total revenue) comes from the advisory business and the majority of the investment advice is in the real estate and hospitality sector. The risk co mes from the fact that these sectors are cyclical in nature. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 94 INTIAL PUBLIC OFFERING IN INDIA A nascent consumer credit business, untested bus iness model of offering unsecured credit at the point of consumption, high depen dence on group companies for business volumes and high competition from private banks and NBFCs peg up risks associated with this investment. The asking price f or the offer is stiff, offering little margin of safety on execution. At Rs 765, the higher end of the price band, the offer values the entire business at a pri ce-book value (P/BV) of about 6.6 times. Assuming an asset-based valuation for t he advisory business (at 15 per cent of expected assets), the consumer credit bu siness alone is being valued at 4.5-5 times book value post-IPO. Entrenched peer s in banking/financial services with similar opportunities for growth — India bull s Financial, ICICI Bank and IDFC — are available at comparable valuations. Future Capital reported a total income of Rs 31.3 crores and a net loss of Rs 12 crores on consolidated operations for the six months ended September 2007; the present financials do not offer scope for a meaningful PE computation. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 95 INTIAL PUBLIC OFFERING IN INDIA “RELIANCE POWER LTD “ Sector: Power About the Company: Reliance Power (RPL), part of the Reliance Anil Dhirubhai Ambani Group (R-ADAG) company, a unit of India s secondbiggest utilit y by market value, is engaged in the construction and development of various gas - and coal-based thermal power projects and hydroelectric power projects in vari ous parts of the country. Reliance Power won rights to develop a 4,000-MW mega p ower project at Sasan in the central state of Madhya Pradesh in June. Its parent , Reliance Energy, is building a 1,200-MW power plant at Rosa in northern Uttar Pradesh state. The 4,000-MW project is expected to be the largest pit-head coal- fired power project at a single location in the country and is scheduled to be c ommissioned during the XI Plan. At the same time, the company expects to complet e the Rosa Phase-I, 600-MW coal-fired project in Uttar Pradesh, now under constr uction, by March 2010. The Rosa Phase II (600-MW expansion project) is scheduled to be commissioned by September 2010. The other identified projects are located in Western Region (12,220 MW), Northern region (9,080 MW) and North-Eastern reg ion (2,900 MW). It is also making a big foray into the hydro power projects in A runachal Pradesh. The power projects include six coal-fired projects (10,620 MW) to be fuelled by reserves from captive mines and supplies from and abroad, two gas-fired projects (10,280 MW) to be fuelled primarily by reserves from the Kris hna Godavari Basin off the East Coast and four hydro power projects (3,300 MW), three of them in Arunachal Pradesh and one in Uttarakhand. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 96 INTIAL PUBLIC OFFERING IN INDIA Objects of the Issue: Achieve the benefits of li sting on the Stock Exchanges. Raise capital to fund subsidiaries to part-finance the construction and development costs of certain of 12 power generation projec ts currently under various stages of development. General corporate purposes. Me rchant Banker: Kotak, UBS, ABN AMRO, Deutsche, Enam, ICICI Securities, JM Financ ial and J.P. Morgan. Issue size: Public Issue of 260,000,000 Equity Shares of Rs .10 each of RELIANCE POWER LIMITED (("RELIANCE .POWER" OR THE "COMPANY" OR THE " ISSUER") for cash at a price of Rs. . 440* per equity share of Rs.10 each includ ing at a discount of Rs.20 per Equity share aggregating Rs. 115,632 MILLION. The issue constitutes 11.5% of the post issue paid-up capital of the company. Issue Price Rs.440 Per Equity Share of Face value of Rs.10 each. Date of listing: 11/02/2008. Price on Listing: 547.80 on BSE/ 530 on NSE. Other Information: • • • • • Open - 15 Jan Close - 18 Jan Issue Type -100% Book Building Issue Issue Size - 1 ,300,000,000 Equity Shares of Rs.10 each. Issue Price - Rs 405/- to Rs 450/- per Equity share 97 DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT INTIAL PUBLIC OFFERING IN INDIA • • • • Maximum Subscription Amount for Retail - Rs 100,000/Minimum and Maximum Order Qu antity Listing - BSE, NSE Application Multiple - 15 and in multiples there off s tarting with at least 15 shares. • Registrar - Karvy Computershare Pvt Ltd Subscribe Statistics: The Issue received 48, 02,930 applications for 1599, 71, 2 9,272 equity shares resulting in 61.52 times subscription. The details of the ap plications received in the Issue from Qualified Institutional Buyers, Non-Instit utional, Retail Individual Investors are as under (Before technical rejections): RELIANCE POWER SUBSCRIPTION DETAIL Category Qualified Institutional Buyers Non Institutional Investors Retail Individual Investors No. of Applications 446 No o f Shares 11299720185 Subscription 82.6 21592 . 3706983112 162.59 4780891 958425975 14.01 The Basis of Allocation to the categories namely Retail Individuals Bidders, Non -Institutional Bidders and QIB Bidders was finalized in consultation with the Bo mbay Stock Exchange Limited ("BSE") on January 28, 2008. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 98 INTIAL PUBLIC OFFERING IN INDIA A. Allocation to Retail Investors: The Basis of Allocation to the Retail Individual Investors, who have bid at cut-off or at the Issue Price of Rs.450 per Equity Share, was finalized in consultation with BSE. The category was oversubscribed 13.572340 times. The total number of shares all otted in this category is 6, 84, 00,000 Equity Shares to 41, 73,929 successful a pplicants. B. Allocation to Non Institutional Investors: The Basis of Allocation to the Non institutional Investors, who have bid at the Issue Price of Rs.450 per Equity S hare, was finalized in consultation with BSE. The category was subscribed 159.55 6149 times. The total number of shares allotted in this category is 2, 28, 00,00 0 Equity Shares to 11,862 successful applicants. C. Allocation to QIB Bidders: Allocation to QIBs has been done on a proportionat e basis in consultation with BSE. As per the SEBI guidelines, Mutual Funds were initially allotted 5% of the quantum of shares available (68, 40,000) and other QIBs and unsatisfied demands of Mutual Funds were allotted the remaining availab le shares (12, 99, 60,000) on proportionate basis. VALUATION: RPL is part of the Reliance Anil Dhirubhai Ambani (Reliance ADA) group and was established with th e purpose of developing, constructing and operating power projects domestically and internationally. The company is currently in the process of developing 13 me dium and large sized DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 99 INTIAL PUBLIC OFFERING IN INDIA power projects with a combined planned installed capacity of 28,200 MW. The identified project sites are located in western Indi a (12,220 MW), northern India (9,080 MW) and northeastern India (2,900 MW) and s outhern India (4,000 MW). They include 7 coal-fired projects (14,620 MW) to be f ueled by reserves from captive mines and supplies from India and abroad, 2 gas-f ired projects (10,280 MW) to be fueled primarily by reserves from the Krishna-Go davari Basin off the east coast of India, and 4 hydroelectric projects (3,300 MW ), three of them in Arunachal Pradesh and one in Uttarakhand. The Indian power s ector has robust growth prospects with a large demand and supply deficit. With v arious proactive reforms in the power sector encouraging private-sector particip ation in all the three core segments of generation, transmission and distributio n, players such as RPower, who will be the face of the group for power generatio n, will be able to capitalize on strong growth opportunities in the country. Pro ject portfolio and its customers are well diversified. The locations of all the 13 projects are either near the load centre or fuel source. Fuel required is als o diversified. Has no power project in operation and its first power generation unit, the Phase I of the 600-MW Rosa Power project, will go on stream only in De cember 2009. Unless there is any inorganic expansion, there will not be any oper ating revenue or cash flow from the core business of power generation. Ahead of the IPO, all the listed stocks in the power generation sector have been re-rated based on the expected price of RPower. The offer price band stands at Rs 405 to Rs 450. The discount of Rs 20 for retail DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 100 INTIAL PUBLIC OFFERING IN INDIA investors and part payment of the issue price (R s 115 on application and balance on call) is a sweetener. With no financial trac k record and no operational income expected to be generated till December 2009, when the first unit of Rosa I is expected to go on stream, the RPower scrip coul d end up with high volatility on news flow on the implementation of its various projects and winning of new projects.. At higher price band, RPower will have a market capitalization of Rs 101700 crores compared with NTPC s current market ca pitalization of Rs 221630 crores. While RPower has plans to implement 28,200-MW capacity with no assured returns in many projects and little experience in large project execution, NTPC already has 27,904-MW capacity with plans to set up add itional 22,100 MW. Most of NTPC’s projects enjoy assured returns and it has one of the best track records of power-project execution. In the long run, RPower has many execution risks to contend with. But in the short term, the market seems wi lling to ignore all that. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 101 INTIAL PUBLIC OFFERING IN INDIA “BANG-OVERSEAS LTD” Sector: Textiles and Garments. About the Company: Incorporated in the year 1992 Bang Overseas Limited is presently providing fashion fabrics and meeting ready t o wear requirements of our customers in apparel, textile and retail segment. Ban g Overseas Limited started business from trading in textile and since 1998. Bang Overseas Limited started ready-to-wear men’s segment in 2000 by outsourcing manuf acturing process with our experience in designing fabrics and in turn selling to various international brands. Bang Overseas Limited launched ready-to-wear men’s garments under its brand name Thomas Scott in 2002. Objects of the Issue : • Set ting up retail outlets across India and brand building. • Setting up a new apparel manufacturing unit. • Warehousing and Logistic facilities. • For general corporate purposes. Merchant Banker: Almondz Global Securities Limited (Formerly Allianz S ecurities Limited) Issue size: Public Issue of 3,500,000 Equity Shares of Rs.10 each of Bang Overseas Limited ("Bang Overseas” Or the "Company" Or The "Issuer") f or cash at a price of Rs. 207 per equity share of Rs.10 each including a share p remium of Rs. 197 per Equity share aggregating Rs. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 102 INTIAL PUBLIC OFFERING IN INDIA 724.5 Million. The issue constitutes 25.81% of t he post issue paid-up capital of the company. Issue Price Rs.207 per Equity Shar e of Face value of Rs.10 each. The issue price is 20.70 times the face value. Date of listing: 20/02/2008. Price on Listing : 207 BSE/ 250 on NSE. Other Information: • • • • • • • • • • Open - 28 Jan Close - 31 Jan Issue Type -100% Book Building Issue Issue Size - 3 ,500,000 Equity Shares Of Face Value Rs.10 Each Issue Size in Rs - 72 Crores Iss ue Price - Rs 200/- to Rs 207/- Per Equity Share Maximum Subscription Amount for Retail Investor: Rs 100,000/Listing - BSE, NSE Registrar - Karvy Computershare Private Limited Minimum and maximum shares for retail category - 1 lot -30 share s and 16 lot - 480 shares. • Minimum and Maximum amount for retail category - 1 lot - Rs 6210 and 16 lot - Rs 99360 @ cut off. • Application Multiple - 30 and in multiples there off starting with at least 30 s hares • Cheque In Favor Of - "Escrow Account - BOL Public Issue - R" For Retail category DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 103 INTIAL PUBLIC OFFERING IN INDIA Subscribe Statistics: The Issue received 4780 ap plications for 3,966,170 equity shares resulting in 1.13 times subscription. The details of the applications received in the Issue from Qualified Institutional Buyers, NonInstitutional, Retail Individual Investors are as under (Before techn ical rejections): BANG OVERSEAS LTD SUBSCRIPTION DETAIL Category Qualified Insti tutional Buyers Non Institutional Investors Retail Individual Investors Employee s Total No. of No. of Subscription (No. of Applications Shares Times) 3 1939980 1.14 15 666720 1.3 4733 1257260 1.05 29 4780 102210 3966170 1.02 1.13 The Basis of Allocation to the categories namely Retail Individuals Bidders, Non -Institutional Bidders and QIB Bidders was finalized in consultation with the Bo mbay Stock Exchange Limited ("BSE") on February 12, 2008. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 104 INTIAL PUBLIC OFFERING IN INDIA A. Allocation to Employees: The Basis of Allocat ion to the Employees, who have bid at cut-off or at the Issue Price of Rs. 207/- per Equity Share, was finalized in consultation with BSE. The category was over subscribed 1.0221 times. The total number of shares allotted in this category is 100,000 Equity Shares to 29 successful applicants. B. Allocation to Retail Inve stors: The Basis of Allocation to the Retail Individual Investors, who have bid at cut-off or at the Issue Price of Rs.207/- per Equity Share, was finalized in consultation with BSE. The category was oversubscribed 1.040748 times. The total number of shares allotted in this category is 1190000 Equity Shares to 4612 suc cessful applicants. C. Allocation to Non-Institutional Investors: The Basis of Allocation to the Ret ail Individual Investors, who have bid at cut-off or at the Issue Price of Rs. 2 07/- per Equity Share, was finalized in consultation with BSE. The category was under-subscribed 1.307294 times. The total number of shares allotted in this cat egory is 510000 Equity Shares to 15 successful applicants. D. Allocation to QIB’S: Allocation to QIBs has been done on a proportionate basis in consultation with BSE. As per the SEBI guidelines, there were 85,000 equity shares reserved for Mu tual Funds category. Since no applications were received from Mutual funds, the spillover portion has been added DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 105 INTIAL PUBLIC OFFERING IN INDIA to all other QIBs and other QIBs were allotted t he remaining available shares (1,700,000) on proportionate basis. VALUATION: BOL has a domestic market bias and is, therefore, relatively less exposed to rupee fluctuations and export slowdown, problems that are plaguing most other textile companies. The company started its garments business in 2002. Till then, it was predominantly a trader in imported fabric. The company sells men’s clothing under the brand “Thomas Scott” through a network of multibrand outlets, departmental store s such as Shoppers’ Stop and Globus and 12 exclusive outlets. A growing share of g arments in the revenue mix has significantly improved profitability. Revenues an d profits have grown at a stupendous pace since 2005. The company ended fiscal 2 007 with revenues of close to Rs 100 crores. Garments currently account for abou t 40 per cent of revenues. Through the proceeds of the offer, the company will e xpand its garments capacity six-fold to more than 7 million pieces a year and ex pand its retail chain to 100 stores. The fresh capacity is expected to come on s tream by September 2008. The company expects to add an additional 88 stores by J une 2009; 41 will be company-operated and the remaining franchisee-run. The addi tional garment capacity will likely feed its expanding retail operations. and wi ll also help it cater to increasing demand from apparel DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 106 INTIAL PUBLIC OFFERING IN INDIA retailers. BOL is also to foray into women’s wear with a line of clothing — Miss Scott. While these moves can help boost margins and profits in the long-term, there are execution risks, especially when it comes t o the retail business. At the upper end of the price band of Rs 200-Rs 207, the offer is valued at close to 20 times the company’s annualized FY 08 per-share earn ings, on a fully expanded equity base. The company is in its infancy, and with a n insufficient track record in the branded retail business, there could be execu tion risks to its expansion plans. If it manages to execute its capacity additio n and retail expansion plans successfully, the valuation is likely to be at more attractive levels on a forward basis. Given the turbulence in the markets, howe ver, staying invested with better-established players may be a more appropriate strategy. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 107 INTIAL PUBLIC OFFERING IN INDIA “ J.KUMAR INFRAPROJECTS LIMITED” Sector: Constructio n/Infrastructure. About the Company: J Kumar Infraprojects is a civil engineerin g and infrastructure development company with primary focus on development of ro ads, flyovers, bridges, railway over bridges, irrigation projects, commercial an d residential buildings, railway buildings, sports complexes and airport runways. It deals in transportation, engineering, civil co nstruction, irrigation projects and piling work using hydraulic piling rigs. The company also undertakes the design and construction of flyover projects to the client s specified requirements on turnkey basis. J. Kumar Infraprojects has bee n most active in Mumbai, Pune, Aurangabad and Vidharbha region of Maharashtra. O bjects of the Issue : • Purchase of Capital Equipments. • Funding Working Capital Re quirement. • General Corporate Purposes. Merchant Banker: Anand Rathi Securities L imited Issue size: Public Issue of 65,00,000 Equity Shares of Rs.10 each of J. K UMAR INFRAPROJECTS LIMITED (THE "COMPANY" OR THE "ISSUER") for cash at a price o f Rs.110 per equity share of Rs.10 each including a share premium of Rs.100 per Equity share aggregating Rs. 7,150,00 LACS. The issue constitutes 30.40% of the post issue paid-up capital of the company. Issue Price Rs.110 Per Equity Share o f Face value of Rs.10 each. The issue price is 11 times the face value. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 108 INTIAL PUBLIC OFFERING IN INDIA Date of listing: 12/02/2008. Price on Listing: 100 on BSE / 109 on NSE. Other Information: • • • • • • • • • Open - 18 Jan Close - 23 Jan Issue Type -100% Book Building Issue Issue Size - 6 5,00,000 Equity Shares Of Rs. 10/- Each Issue Price - Rs 110/- to Rs 120/- Per E quity Share Maximum Subscription Amount for Retail Investor: Rs 100,000/Listing - BSE, NSE Registrar - Karvy Computershare Private Limited Minimum and maximum s hares for retail category - 1 lot - 55 shares and 15 lot - 825 shares. • Minimum and Maximum amount for retail category - 1 lot - Rs 6600 and 15 lot - Rs 99000 @ cut off. • Application Multiple - 55 and in multiples there off starting with at least 55 s hares. Subscribe Statistics: The Issue received 12,238 applications for 1, 30, 96,660 e quity shares resulting in 2.01 times subscription. The details of the applicatio ns received in the Issue from Qualified Institutional Buyers, NonInstitutional, Retail Individual Investors are as under (Before technical rejections): DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 109 INTIAL PUBLIC OFFERING IN INDIA J.KUMAR INFRAPROJECTS LTD. SUBSCRIPTION DETAIL Category Qualified Institutional Buyers No. of Applications No. Shares 11 883399 0 of Subscription 2.8 Non 40 institutional Investors Retail Individual 12134 Investors Employees 53 848980 0.9 3210190 203500 1.46 1.01 The Basis of Allocation to the categories namely Retail Individuals Bidders, Non -Institutional Bidders and QIB Bidders was finalized in consultation with the Bo mbay Stock Exchange Limited ("BSE") on January 28, 2008. A. Allocation to Employ ees: The Basis of Allocation to the Employees, who have bid at cut-off or at the Issue Price of Rs.110/- per Equity Share, was finalized in consultation with BS E. The category was oversubscribed 1.017500 times. The total number of shares al lotted in this category is 2, 00,000 Equity Shares to 53 successful applicants. B. Allocation to Retail Individual Investors: The Basis of Allocation to the Ret ail Individual Investors, who have bid at cut-off or at the Issue Price of Rs.11 0/- per Equity Share, was finalized in consultation with BSE. The category was o versubscribed 1.354675 times. The spillover portion to the extent of 99870 equit y shares has DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 110 INTIAL PUBLIC OFFERING IN INDIA been added to this category. The total number of shares allotted in this category is 2304870 Equity Shares to 10954 successful a pplicants. B. Allocation to Non Institutional Investors: The Basis of Allocation to the Retail Individual Investors, who have bid at cut-off or at the Issue Pri ce of Rs.110/- per Equity Share, was finalized in consultation with BSE. The cat egory was under- subscribed 0.894317 times. As per the Red Herring Prospectus, t he spillover portion to the extent of 99870 equity shares has been added to the Retail Individual Investors category. The total number of shares allotted in thi s category is 845130 Equity Shares to 38 successful applicants. C. Allocation to QIB Bidders: Allocation to QIBs has been done on a proportionat e basis in consultation with NSE. As per the SEBI guidelines, Mutual Funds were initially allotted 5% of the quantum of shares available (1, 57,500) and other Q IBs and unsatisfied demands of Mutual Funds were allotted the remaining availabl e shares (29, 92,500) on proportionate basis. VALUATION: JKI, a construction com pany with operations in Maharashtra, focuses on building roads, flyovers, buildi ngs and piling works. The offer proceeds (Rs 72-78 crores) are to be utilized fo r purchasing capital equipment and for working capital requirements. At the offe r price band, the market capitalization of the company’s stock would be Rs 228-248 crores. JKI, although incorporated in 1999, started operations in 2005 and saw a huge jump in revenues in 2006. This was after one of the promoter DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 111 INTIAL PUBLIC OFFERING IN INDIA group companies — J. Kumar & Co. — transferred certa in assets as well as a contract license for public works department. JKI’s revenue grew from Rs 3 crores in FY-05 to Rs 112 crores in FY-07. The company’s current o rder-book of Rs 461 crores provides earnings visibility over the next couple of years. However, the annual growth over 2006 and 2007, afforded by a low base, is unlikely to repeat itself. The present infrastructure boom in the country provi des ample room for small players such as JKI to share a part of the order flow p ie. However, JKI’s current business model depends more on the local municipal and metropolitan development authority’s (in Maharashtra) than on the ‘infrastructure sp ending’ in the country. While this strategy is likely to fetch steady revenues in the medium term, the growth opportunity appears relatively less as infrastructur e players moving to high-end segments could be better options from an investment perspective. The company’s valuation can, therefore, at best be at a discount to other infrastructure players. Concentration of work in a single State also poses the risk of slowdown if the State spending declines. The company has also not s tated any plans of moving to locations outside of Maharashtra. The asking price of Rs 110-120 appears stiff, given the present size of the company and the large number of unorganized players in the contracting space. Limited geographical pr esence, significant expansion in equity and low visibility for growth over the l ong term are also limiting factors for this company. However, given that the ove rall prospects for the company’s business appear good, investors can take a second look at the stock post-listing, if its valuation dips due to broad market facto rs. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 112 INTIAL PUBLIC OFFERING IN INDIA At the offer band, the IPO is priced at 19-21 ti mes it’s per share earnings of FY 2007 on a pre-issue equity base. Post-issue, the price-earnings multiple is 14-16 times the annualized earnings for FY-08. Simil ar sized peers are at a discount to this valuation. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 113 INTIAL PUBLIC OFFERING IN INDIA “CORDS CABLE INDUSTRIES LTD” Sector Cables (Power). About the Company: Cords Cable Industries Limited is in the business of providin g cost-effective and quality solutions for various electrical connectivity requi rements. Established in 1987 Cords has developed a wide range of specialized cab les to address the specific requirements of industries involving modern process technologies, instrumentation and communication demanding the highest standards of precision and reliability, and household users seeking products with assured quality and safety. Some of its products include: LT control cables, LT power ca bles, instrumentation cables, thermocouple extension cables, compensating cables , coaxial cables, telephone cables, panel wires / household wires & networking c ables. CCIL currently manufactures cables up to 1.1 kv at their manufacturing fa cility in Chopanki, Rajasthan for various applications and caters to the require ments of industries in steel, power, chemical, cement, fertilizer, refineries. T he main raw materials used are copper, aluminium, PVC resin, XLPE, GI wire, alum inium tapes, and thermo couple. Objects of the Issue: • • • Setting up of production facilities. Working capital requirements. General Corpo rate Purposes. Merchant Banker: Collins Stewart Inga Private Limited DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 114 INTIAL PUBLIC OFFERING IN INDIA Issue size: Public Issue of 30, 85,000 Equity Sh ares of Rs.10 each of CORDS CABLE INDUSTRIES LIMITED (THE "COMPANY" OR THE "ISSU ER") for cash at a price of Rs.135 per equity share of Rs.10 each including a sh are premium of Rs.125 per Equity share aggregating Rs. 4164.75 LACS. The issue c onstitutes 26.38% of the post issue paid-up capital of the company. Issue Price Rs.135 per Equity Share of Face value of Rs.10 each. The issue price is 13.50 ti mes the face value. Date of listing: 13/02/2008. Price on Listing: 130 on BSE Other Information: • • • • • • • • • Open - 21 Jan Close - 24 Jan Issue Type -100% Book Building Issue Issue Size - 3 5,00,000 Equity Shares Of Rs. 10/- Each Issue Price - Rs 125/- to Rs 135/- Per E quity Share Maximum Subscription Amount for Retail Investor: Rs 100,000/Listing - BSE, NSE Registrar - Intime Spectrum Registry Ltd Minimum and maximum shares f or retail category - 1 lot - 50 shares and 14 lot - 700 shares. • Minimum and Maximum amount for retail category - 1 lot - Rs 6750 and 14 lot - Rs 94500 @ cut off. • Application Multiple - 50 and in multiples there off starting with at least 50 s hares DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 115 INTIAL PUBLIC OFFERING IN INDIA • Cheque In Favor Of - "Escrow Account - CCIL Public Issue - R" For Retail categor y. Subscribe Statistics: The Issue received 10564 applications for 14278550 equity shares resulting in 4.6284 times subscription. The details of the applications r eceived in the Issue from Qualified Institutional Buyers, NonInstitutional, Reta il Individual Investors are as under (Before technical rejections): CORDS CABLE INDUSTRIES LTD SUBSCRIPTION DETAIL Category Qualified Institutional Buyers No. o f Applications No. Shares 30 10291900 of Subscription 6.8271 Non65 Institutional Investors Retail Individual 10456 Investors Employees 13 1435450 3.174 2480300 70900 2.3504 1.0129 The Basis of Allocation to the categories namely Retail Individuals Bidders, Non -Institutional Bidders and QIB Bidders was finalized in consultation with the Bo mbay Stock Exchange Limited ("BSE") on February 5, 2008. A. Allocation to Employ ees: The Basis of Allocation to the Employees, who have bid at cut-off or at the Issue Price of Rs. 135/- per Equity Share was finalized in consultation with BS E. The category was oversubscribed 1.0129 times. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 116 INTIAL PUBLIC OFFERING IN INDIA The total number of Equity Shares allotted in th is category is 70000 Equity Shares to 13 successful applicants. B. Allocation to Retail Investors: The Basis of Allocation to Retail Individual Investors, who h ave bid at cut-off or at the Issue Price of Rs. 135/- per Equity Share, was fina lized in consultation with BSE. The category was oversubscribed 2.3019 times. Th e total number of Equity Shares allotted in this category is 1055252 Equity Shar es to 8232 successful applicants. C. Allocation to Non Institutional Investors: The Basis of Allocation to Non-ins titutional Investors, who have bid at the Issue Price of Rs. 135/- per Equity Sh are, was finalized in consultation with BSE. The category was oversubscribed 2.9 849 times. The total number ol Equity Shares allotted in this category is 452248 Equity Shares to 57 successful applicants. D. Allocation to QIB Bidders: Allocation to QIBs has been done on a proportionat e basis in consultation with BSE. As per the SEBI (Disclosure and Investor Prote ction) Guidelines, 2000, Mutual Funds were initially allotted 5% of the quantum of shares available (75375) and other QIBs and unsatisfied demands of Mutual Fun ds were allotted the remaining available shares (1432125) on proportionate basis . DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 117 INTIAL PUBLIC OFFERING IN INDIA VALUATION: In the business of manufacturing cabl es, CCIL offers a proxy exposure to the ongoing infrastructure and power growth story. Robust growth in sales and bottom-line, diverse revenue mix, established clientele and the proposed entry into HT (high tension) power, rubber and specia lty cables segment, suggest good prospects for the company. CCIL has a diversifi ed clientele and product portfolio. Its current orderbook, with the major portio n leaning towards power sector (about 48 per cent), is spread across sectors suc h as cement, refineries and petrochemicals and steel. The company may be able to further extend its reach to sectors such as railways, shipping and wind power a fter the proposed expansion of its capacity and the addition of new products. On the product front, it offers an extensive range of high quality control and ins trumentation cables, power cables and special cables for oil wells. The company plans to utilize proceeds from the issue towards setting up of production facili ties. About Rs 6 crores from the proceeds will be diverted towards working capit al requirements. The demand for cables is set to increase significantly, given t he ongoing capex in power and infrastructure and strong growth in industries suc h as metro rail, shipping and aviation. In the price band of Rs 125-135, the sto ck would be valued at about 12-13 times its likely FY-08 per share earnings on a diluted equity base. The stock is currently available at a P/E of 11x to 12x on the lower and upper price bands respectively of its FY 08E EPS of Rs.11.72. The DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 118 INTIAL PUBLIC OFFERING IN INDIA margins shown by CCIL is one on the higher side while comparing it to its peer group with OPM being at 15% & NPM at 8%. The comp any has shown excellent growth rate in the last few years & with the upward tren d in its user industries, we expect the growth to continue. One of the key conce rns is that currently the user industry is on uptrend. A slowdown can hit CCIL’s f ortunes. The industry is currently trading at a P/E of 22x, which leaves enough room for upside potential. The company has plans of introducing new products in the product line which will boost the revenues. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 119 INTIAL PUBLIC OFFERING IN INDIA “K N R Constructions Limited” Sector: Construction – Medium/Small. About the Company: Incorporated in 1995, KNR Constructions Ltd an infrastructure project development company providing engine ering, procurement and construction services across various fast growing sectors ; viz., roads & highways, irrigation and urban water infrastructure management. KNR Constructions Ltd. has in the past executed infrastructure projects independ ently as well as through joint ventures. Currently, most of the road projects un der execution are with its joint venture partner, Patel Engineering Limited with whom it has business association for the past 7 years. As on June 30, 2007, it has 24 projects on hand across various states in India covering Uttar Pradesh, M adhya Pradesh, Assam, Andhra Pradesh, Karnataka, and Tamil Nadu. Objects of the Issue: • • • • Further Equity investment in BOT projects Purchase of capital equipment. For mee ting working capital requirement. For general corporate purposes. Merchant Banker: AXIS BANK Limited. Issue size: Public Issue of 7,874,570 Equity Shares of Rs.10 each of KNR CONSTRUCTIONS LIMITED (THE "COMPANY" OR THE "ISSUER ") for cash at a price of Rs.130 per equity share of Rs.10 each including a shar e premium of Rs.120 per Equity share aggregating Rs. 1338.68 MILLION. The issue constitutes 28.00% of the post issue paid- DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 120 INTIAL PUBLIC OFFERING IN INDIA up capital of the company. Issue Price Rs.130 pe r Equity Share of Face value of Rs.10 each. The issue price is 17 times the face value. Date of listing: 18/02/2008. Price on Listing: 180 on BSE / 210 on NSE. Other Information: • • • • • • • • • • Open - 24 Jan Close - 29 Jan Issue Type -100% Book Building Issue Issue Size - 7 ,874,570 Equity Shares Of Face Value Rs.10 Each Issue Size in Rs - 142 Crores Is sue Price - Rs 170/- to Rs 180/- Per Equity Share Maximum Subscription Amount fo r Retail Investor: Rs 100,000/Listing - BSE, NSE Registrar - Intime Spectrum Reg istry Limited Minimum and maximum shares for retail category - 1 lot - 35 shares and 15 lot - 525 shares. • Minimum and Maximum amount for retail category - 1 lot - Rs 6300 and 15 lot - Rs 94500 @ cut off. • Application Multiple - 35 and in multiples there off starting with at least 35 s hares • Cheque In Favor Of - "ESCROW ACCOUNT - KNR IPO RESIDENT" For Retail category DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 121 INTIAL PUBLIC OFFERING IN INDIA Subscribe Statistics: The Issue received 5948 ap plications for 9729195 equity shares resulting in 1.2355 times subscription. The details of the applications received in the Issue from Qualified Institutional Buyers, NonInstitutional, Retail Individual Investors are as under (Before techn ical rejections): K.N.R. CONSTRUCTION LTD SUBSCRIPTION DETAIL Category No. of No . of Equity Subscription Bids/Applications Shares (no. of times) 644910 3683995 0.2382 3.1754 Retail Individual 5847 bidders NonInstitutional bidders Qualified Institutional Buyers Employee bidders 28 22 5317445 1.375 51 82845 0.5918 The Basis of Allocation to the categories namely Retail Individuals Bidders, Non -Institutional Bidders and QIB Bidders was finalized in consultation with the Bo mbay Stock Exchange Limited ("BSE") on February 08, 2008. A. Allocation to Retai l Investors: The Basis of Allocation to the Retail Investors, who have bid at cu t-off or at and above the Issue price of Rs.170/- Equity Share, was finalized in consultation with BSE. The category was subscribed 0.234841 times. The total nu mber of equity shares allotted in this category is 635740. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 122 INTIAL PUBLIC OFFERING IN INDIA B. Allocation to Non Institutional Investors: Th e Basis of Allocation to the Non-Institutional Investors, who have bid at cut-of f or at the Issue Price of Rs.170/- per Equity Share, was finalized in consultat ion with BSE. The category was subscribed1.430179 times. The total number of equity shares allotted in this cat egory is 2561340 including Spill over from Employee Category (37620 Equity Share s) and Retail Category (1363535 Equity Shares) to successful applicants. C. Allocation to Employees: The Basis of Allocation to the Employee Category, wh o have bid at cutoff or at and above the Issue price of Rs.170/- Equity Share, w as finalized in consultation with BSE. The category was subscribed 0.5917 times. The total number of equity shares allotted in this category is 82,845. The unsu bscribed portion (57,155 shares) of Employee Category is added to QIB and HNI Ca tegory Respectively. D. Allocation to QIB s: Allocation to QIBs has been done on a proportionate basis in consultation with BSE. As per the SEBI guidelines, Mut ual Funds were initially allotted 5% of the quantum of shares available (193,365 ) other QIBs and unsatisfied demands of Mutual Funds were allotted the remaining available shares (4401280) on proportionate basis. The total number of equity s hares allotted In this category is 4594645 including spill over from Employee Ca tegory (19535 Equity Shares) and Retail Category (707830 Equity Shares) to succe ssful applicants. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 123 INTIAL PUBLIC OFFERING IN INDIA VALUATION: The Company has strong execution of i nfrastructure development projects capabilities which requires significant amoun t of technical expertise and skill. It also has the requisite pre-qualification to bid for such projects, which is based on past experience of execution of simi lar projects and financial strength. The company has a team of qualified and exp erienced employees, who have qualities to meet requirements of the clients and t he technical skills of the various projects that we undertake. The management te am which is led by managing director, has over three decades of experience in th e construction industry, has expertise and experience in the road construction s ector. On a consolidated basis, its operating income, EBIDTA and PAT have grown at a CAGR of 58.38%, 111.88% and 108.22% over FY05 to FY07. The government is gi ving special importance to the industry so as to maintain 9% plus economic growt h rate, which required large investments in infrastructure segments. As outlined in approach paper to 11th plan, the investment in infrastructure will need to i ncrease by 6% points in average gross domestic investment rate from 29.1% to 35. 1% of GDP needed to accelerate GDP growth rate from 7% to 9%, about half should be in infrastructure. Shares of KNRCL are available at price to earnings (P/E) m ultiple of 16.76x at the floor price and 17.75x at the cap price based on earnin gs per share (EPS) for FY 2007. The valuation of KNECL seems to be attractive wh en compared with its peers, MSK Projects India, Madhucon Projects, Patel Enginee ring and Sadbhav Engineering which were trading at P/E multiple of 17.70x, 31.50 x, 39x, and 40.80 DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 124 INTIAL PUBLIC OFFERING IN INDIA “ONMOBILE GLOBAL LIMITED” Sector: Telecom Software. About the Company: In the Year 2000 OnMobile Global Li mited Incubated at Infosys. OnMobile Global Limited provides value-added telecommunica tions software products and services for telecommunications and media companies primarily in India. It offers a range of applications that are delivered by its carrier customers to their end-user subsc ribers. The company s products include ring back tones, voice portals, ring tone downloads, subscription manager, contests, music messaging, ondevice client sof tware, mobile radio, voice mail, voice short messaging service, and missed call alerts, which enable subscribers to personalize their mobile phones. It also del ivers interactive media solutions to media companies, such as tele-voting, inter active programming, and mobile auditioning; and to marketing companies for mobil e adverting and lead generation. In addition, the company provides a range of mo bile commerce solutions, which enable subscribers to buy movie tickets, railway tickets, top up their pre-paid mobile phone cards, and pay bills using their mob ile phones. Further, it offers MMP2500, a multi-model platform that combines spe ech, text, and touch input with graphics, text, and audio output to deliver enha nced applications and services. The company is based in Bangalore. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 125 INTIAL PUBLIC OFFERING IN INDIA Objects of the Issue : • • Achieve the benefits of listing on the Stock Exchanges. Purchase equipment for c ompany s office at Bangalore, Mumbai, Delhi and various customer sites. • To meet the long term working capital requirements of the Company. • For general corporate purposes Merchant Banker: ICICI Securities Limited & Deutsche Equities Private India Limi ted Issue size: Public Issue of 1, 09, 00,545 Equity Shares of Rs.10 each of ONM OBILE GLOBAL LIMITED (THE "COMPANY" OR THE "ISSUER") for cash at a price of Rs.4 40 per equity share of Rs.10 each including a share premium of Rs.430 per Equity share aggregating Rs. 47962.39 Lacs. The issue constitutes 18.99% of the post i ssue paid-up capital of the company. Issue Price Rs.440 Per Equity Share of Face value of Rs.10 each. The issue price is 44 times the face value. Date of listing: 19/02/2008. Price on Listing: 440 on BSE / 440 on NSE. Other Information: • Open - 24 Jan • Close - 29 Jan • Issue Type -100% Book Building I ssue DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 126 INTIAL PUBLIC OFFERING IN INDIA • Issue Size - 10,900,545 Equity Shares Of Face Va lue Rs.10 Each • Issue Size in Rs - 491 Crores • Issue Price - Rs 425/- to Rs 450/- Per Equity Share • Maximum Subscription Amount for Retail Investor: Rs 100,000/• Lis ting - BSE, NSE • Registrar - Karvy Computershare Private Limited • Minimum and maxi mum shares for retail category - 1 lot - 15 shares and 14 lot - 210 shares. • Mini mum and Maximum amount for retail category - 1 lot - Rs 6300 and 14 lot - Rs 945 00 @ cut off. • Application Multiple - 15 and in multiples there off starting with at least 15 shares • Cheque In Favor Of - "Escrow Account - OnMobile Public Issue - R" For Retail category. Subscribe Statistics: The Issue received 37,738 applications for11, 83, 43,547 e quity shares resulting in 10.85 times subscription. The details of the applicati ons received in the Issue from Qualified Institutional Buyers, NonInstitutional, Retail Individual Investors are as under (Before technical rejections): DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 127 INTIAL PUBLIC OFFERING IN INDIA ONMOBILE GLOBAL LTD SUBSCRIPTION DETAIL Category Qualified institutional Buyers No. of Applications No. of Subscription Shares 94 11,22,35,550 17.16 Non 128 Institutional Investors Retail Individual 37,516 Investors 24,20,830 2.21 36,87,167 1.12 The Basis of Allocation to the categories namely Retail Individuals Bidders, Non -Institutional Bidders and QIB Bidders was finalized in consultation with the Bo mbay Stock Exchange Limited ("BSE") on February 08, 2008. A. Allocation to Retai l Investors: The Basis of Allocation to the Retail Individual Investors, who hav e bid at cut-off or at the Issue Price of Rs.440/- per Equity Share, was finaliz ed in consultation with BSE. The category was oversubscribed 1.115325 times. The total number of shares allotted in this category is 32, 70,164 Equity Shares to 36,462 successful applicants. B. Allocation to Non Institutional Investors: The Basis of Allocation to the Retail Individual Investors, who have bid at cut-off or at the Issue Price of Rs.440/- per Equity Share, was finalized in consultati on with BSE. The category was over- subscribed 2.195630 DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 128 INTIAL PUBLIC OFFERING IN INDIA times. The total number of shares allotted in th is category is 10, 90,054 Equity Shares to 119 successful applicants. C. Allocat ion to QIB Bidders: Allocation to QIBs has been done on a proportionate basis in consultation with NSE. As per the SEBI guidelines, Mutual Funds were initially allotted 5% of the quantum of shares available (3, 27,016) and other QIBs and un satisfied demands of Mutual Funds were allotted the remaining available shares ( 62, 13,311) on proportionate basis. VALUATION: OnMobile Global (OnMobile) was pr omoted in September 2000 by OnMobile Systems, Inc (OMSI) and Arvind Rao, a B Tec h from IIT Mumbai and management graduate from Wharton school, University of Pen nsylvania, and Chandramouli Janakiraman, a B Tech and a former Infosys Technolog ies employee, to develop telecommunication software platforms and applications f or the mobile telecommunications industry. Initially, it was incorporated as Ons can Technologies India The name was changed to OnMobile Asia Pacific in April 20 01 and to OnMobile Global in August 2007. The customer base includes all the maj or telecom operators in India and more than 10 international telecom operators i n over eight countries including Optus in Australia, Banglalink in Bangladesh, M axis in Malaysia, and BTEL and Indosat in Indonesia. In addition, markets produc ts and services to media companies such as AOL, Disney, ESPN, India Today Group digital, Star India and Nokia. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 129 INTIAL PUBLIC OFFERING IN INDIA Due to competitive industry dynamics, mobile tar iffs have been falling and there has been pressure on the average revenue per su bscriber (ARPU) of telecom operators. Thus, telecom operators would be looking f or more VAS revenue at very little incremental capital expenditure. This is a po tential lever to counter the trend of falling ARPUs. It will result in decent gr owth opportunity for OnMobile as VAS will have higher growth trajectory on lower base and increasing acceptability Its weaknesses are More than 80% of the reven ue from just five largest customers (major telecom service providers), constitut ing less than 10% of total customers, in the six months ended September 2007. Th e loss of any major customer or decrease in the volume of work from them or dip in revenue sharing may adversely impact revenue and profitability. Revenue grew at a CAGR of 99% and net profit at a CAGR of over 100% over the three-year perio d ended March 2007. However, operating profit margin has been declining over the couple of years though is still decent at above 40%. Performance improved signi ficantly in the six months ended September 2007, achieving revenue of Rs 112.51 crores (82% of the revenue in FY 2007) and net profit of Rs 30.52 crores (87% of net profit realized in FY 2007). Share of revenue with telecom operators is abo ut 20% on an average ranging between 15%-40%. Overseas revenue was about 9.1% of total revenue in H1 of FY 2008 as against 5.1% in FY 2007. On annualized EPS of Rs 10.2 in the six months ended September 2007 on post-issue equity capital of Rs 60.09 crores, the P/E works out to 41.8 – 44.3 at the price band of Rs 425 – Rs 4 50. The trailing 12-month (TTM) P/E of Tanla Solutions (broadly providing simila r services outside India) is 20.5. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 130 INTIAL PUBLIC OFFERING IN INDIA “NATIONAL HYDROELECTRIC POWER CORPORATION LTD” Secto r: power sector About the Company: Incorporated in 1975, NHPC Limited (Formerly known as National Hydroelectric Power Corporation Ltd.) is a Govt. of India s En terprise. NHPC is a hydroelectric power generating company dedicated to the plan ning, development and implementation of an integrated and efficient network of h ydroelectric projects in India. They execute all aspects of the development of h ydroelectric projects, from concept to commissioning. NHPC have developed and co nstructed 13 hydroelectric power stations and their total installed capacity is currently 5,175 MW. This includes two power stations with a combined capacity of 1,520 MW, constructed and operated through our Subsidiary, NHDC. Company s powe r stations and hydroelectric projects are located in the North and North East of India, in the states of Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Arunach al Pradesh, Assam, Manipur, Sikkim and West Bengal. Company generated 14,813.16 MUs of electricity in Fiscal 2008. Presently, they are engaged in the constructi on of 11 additional hydroelectric projects, which are expected to increase total installed capacity by 4,622 MW. Further eight projects, including one joint ven ture project, with an anticipated capacity of 5,751 MW, are currently awaiting s anction from the CCEA. NHPC have obtained ISO 18001:2000, ISO 9001:2000 and ISO 14001:2004 certifications from the Bureau of Indian Standards. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 131 INTIAL PUBLIC OFFERING IN INDIA Objects of the Issue: a) Utilize the proceeds to part finance the construction and development cost of certain of Identified pro jects namely Subansiri Lower, Uri – II, Chamera – III, Parbati – III, Nimoo Bazgo, Chu tka and Teesta Low Dam – IV Use the proceeds for future growth opportunities. b) U se the proceeds for future growth opportunities. c) For General Corporate Purpos e. Merchant Banker: 1. Enam Securities Private Limited 2. Kotak Mahindra Capital Company Limited 3. SBI Capital Markets Limited Issue size: Public issue of 1,67 ,73,74,015 equity shares of Rs. 10 each (the “equity shares”) for cash at a price of Rs. [•] per equity share of NHPC limited (“NHPC”, “our company” or “the issuer”) aggregati Rs. [•] crores (the “issue”). The issue comprises a fresh issue of 1,11,82,49,343 equi ty shares by NHPC (the “fresh issue”) and an offer for sale of 55,91,24,672 equity s hares by the president of India acting through the ministry of power, government of India (the “selling shareholder”) (the “offer for sale”). The issue comprises a net issue to the public of 1,63,54,39,665 equity shares (the “net issue”) and a reservat ion of 4, 19, 34,350 equity shares for subscription by eligible employees. Date of listing: September 01, 2009 Price on Listing: Rs. 39.00(BSE) Rs. 42.00(NSE) DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 132 INTIAL PUBLIC OFFERING IN INDIA Other Information: »» Issue Open »» Issue Type: »» »» »» »» »» »» »» Issue Size: Issue Size: Face Value: Issue um Order Quantity: Listing At: Aug07,2009-Aug12,2009 100% Book Built Issue IPO 1,677,374,015 Equity Shares of R s. 10 Rs. 6,038.55 Crores Rs. 10 Per Equity Share Rs. 30 - Rs. 36 Per Equity Sha re 175 Shares 175 shares BSE, NSE Subscribe Statistics NATIONAL HYDROELECTRIC POWER CORPORATION LTD SUBSCRIPTION DETAIL VALUATION: NHPC Limited was incorporated by the Government o f India in the year 1975. NHPC is a hydroelectric power generating company commi tted to the planning, development and implementation of an integrated and effici ent network of hydroelectric projects in India. NHPC is involved in all the acti vities right from commencement to development of hydroelectric projects. The com pany has experience in the design, development, construction and operation of hy droelectric projects, executing and managing all aspects of projects, from front -end engineering design to commissioning, operation and maintenance. NHPC has se lective undertaken projects in alliance with state governments where there is hi gh hydro potential and thus tend to enjoy location and operational advantage. NH PC has constructed and developed 13 hydroelectric power stations with a capacity of 5,175 MW. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 133 INTIAL PUBLIC OFFERING IN INDIA The current total generation capacity of the com pany is 5,134.2 MW, taking into account total installed capacity of of the Lokta k and Tanakpur power stations (combined capacity of 1,520 MW) constructed and op erated through its subsidiary NHDC. The company’s power stations and hydroelectric projects are located predominantly in the North and North East of India. In FY0 9 the company and its subsidiary sold 14,587.88 MUs and 2,345.01 MUs of electric ity, respectively. Currently the company is involved in the construction of 11hy droelectric projects, which are expected to increase its total installed capacit y by 4,622 MW. The company is also awaiting the government approval of five proj ects with an anticipated capacity of 4,565 MW and for certain joint venture proj ects within anticipated capacity of 2,166 MW. NHPC is one of the largest hydro power generator in India account to 14% of tota l hydro capacity in India. 150bps increase in ROE from 14% to 15.5% under new CERC norms for FY2009-14. The Government has estimated the total investment potential of the sector at Rs 9,0 00 bn for a specified period up to fiscal year 2011. NHPC has strong operating efficiency as reflected in average capacity index of 9 3.61% for 2008-09. Being a mini ratna the company can enter into greater autonomy to undertake new projects without GoI approval subject to investment ceiling of Rs 500 cr. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 134 INTIAL PUBLIC OFFERING IN INDIA NHPC has got into long term power purchase agree ments for major portion of capacity under construction. NHPC has strong in-house design and engineering team. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 135 INTIAL PUBLIC OFFERING IN INDIA IPO SCAM IPO SCAMS – OVERVIEW IPO Scams are well structured game played by the absolute opportunists consistin g of intermediaries, financiers and bank employees, who make a lot of money by controlling shares\ meant for retail inves tors in Initial Public Offer (IPO), as the per the statement of th In the last f ew years, the capital market in India went through a rapid transformation. The i ncreased use of information technology and the integration of financial markets have stepped up the risk profile of the cap The two major IPO scams in the Indian Capital market were the Harshad Mehta scam in the year 1992 and the Ketan Parekh scam in loopholes in the Indian capital t he Securities Exchange Board of India. capital market. 2001. The IPO Scams opene d up the latent market. IPO SCAMS - CAUSES • Two of the most common factors of the major IPO scams in Indi a were the tacit consent of the banks and the poor surveillance techniques. • The Depository Participants must be provided the proof of identity and proof of addr ess as a routine check for the opening Demat accounts. This was not followed. • Nu merous dematerialized accounts and bank accounts had been opened under false nam es and the IPO applications were made in non existing names. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 136 INTIAL PUBLIC OFFERING IN INDIA IPO SCAMS - HOW IT WAS DONE At first bank accounts were opened up "benami" names, which allowed these fictit ious account holders to open demat accounts. The master account holders, the per son who had executed the planning acts as an intermediary on behalf of the finan ciers. The shares acquired at the of listing at a premium to get more than the a mount of money invested. Investing in fictitious or IPO’s were disposed on the dat e The banks played an important part by means of opening bank accounts and givin g loans to the fictitious entities for the purpose of earning fee incomes. IPO’s a re the key stone in the financial structure of the venture industries. But the r ecent paucity of IPO’s has caused alarm for the venture industry & has intensified a continuing shakeout among the venture capitalist firms. It is good times ahea d for early bird investors. If the current government has its way, we might go f rom a complete death Of IPO’s & follow on issues market with the government both i n listed and unlisted space the numbers are staggering. Dalal Street likes noise & India could stand apart with some very good paper hitting the market but the most important will be what this move does for the government. The performance o f Indian government goes ahead with reform plan. to a flood of new paper hitting the being a large owner of equities market depends upon a lot how the SEBI has agreed to dispose of pending proceedings against Mr Gautam Zhaveri for his invol vement in the IPO scam of 2003 04, following settlement of the Mr Zhaveri, who a pplied for the consent order, paid Rs 2.7 crores towards settlement, including a disgorgement amount of Rs 2.36 crores, settlement charges of Rs 23.6 lakh, comp ounding charges of Rs 9 lakh and legal charges of lakh. The applicant (Zhaveri) had been proceeded against for irregular dealings in shares issued through IPOs, and for DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 137 INTIAL PUBLIC OFFERING IN INDIA cornering shares meant for retail investors, mak ing unlawful profits from the shares upon their listing. Case through a consent order. 2003- Rs 1 SEBI had banned the apply market; initiated adjudication proce edings against him, prosecution proceedings in the ACMM court in Mumbai under th e Companies Act; and a protest petition before the CBI court for non-filing of c harge sheet against the SEBI’s consent order disposes of all these pending proceed ings. SEBI will file an application for withdrawal of its protest application at the CBI special court, and shall not oppose compounding of prosecution in the A CMM court, the Regulator said in its consent order. SEBI said it would also drop proceedings against Pratik Stock Vision Pvt Ltd in the matter of carry forward transactions in the shares of Global Tele applicant offered to settle the case, offering Rs 1.25 towards settlement charges applicant from dealing in the securi ties applicant. Tele-systems Ltd in 2000 charges. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 138 INTIAL PUBLIC OFFERING IN INDIA SURVEY ANALYSIS 1. What is your age? 25 years and below 25-40 years 40-60 years Retired PARTICULARS 25 years and below 25-40 years 40-60 years Retired Total RESPONSE 11 16 12 11 50 Below 25 25-40 40-60 Above 60 Out of the responded most of them almost 32% of them were from 25 25-40 age grou p. Fewer almost 22% were there from age group of below 25 22% and above 65 years almost on retirement age. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 139 INTIAL PUBLIC OFFERING IN INDIA 2. Which is your preferred area of investment? Share /equity Gold Real estate Mutual funds Banks Other PARTICULARS Share Gold Real estate Mutual Funds Banks Other Total RESPONSE 8 11 10 6 12 3 50 Share Gold Real Estate Mutual Funds Banks Others Most of the responded around 24% were preferring in traditional 24% investment a venue of banks and gold and fewer in share market DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 140 INTIAL PUBLIC OFFERING IN INDIA 3. Do you invest in Equity shares? PARTICULARS YES NO total RESPONSE 40 10 50 No No, 20% Yes Yes, 80% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% From the survey conducted of 50 people, about 80% of them invest in Equity share s. So there is a huge market available for targeting those 80% where the product s available DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 141 INTIAL PUBLIC OFFERING IN INDIA 4. For what term you invest your money? PARTICULARS Less than 1 year 2-5 year More than 5 year total RESPONSE 27 14 9 50 More than 5 years 18% 2 - 5 years 27% Less than 1 yes 55% 0% 10% 20% 30% 40% 50% 60% When asked about their investment period, 55% people invest for less than 1 year and 27% of them invest for 2 – 5 yrs, which means majority of them invest for a s hort term period and only 18% invest for a long term i.e., more than 5 yrs. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 142 INTIAL PUBLIC OFFERING IN INDIA 5. Approximately how much is your portfolio wort h? More than 10 lacs 14% 5 - 10 lacs 20% 2 - 5 lacs 25% Less than 2 lacs 41% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% PARTICULARS LESS THAN 2 LACS 2-5 LACS 5 TO 10 LACS MORE THAN 10 LACS total RESPONSE 20 13 10 7 50 As the response from the survey states that 41% holds less than 2 Lacs portfolio and only 14% shows more than 10 lacs portfolio which shows people are cautious about their investment in stock market considering the risk and volatility it ha s. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 143 INTIAL PUBLIC OFFERING IN INDIA 6. How can you describe your equity investment experience? Limited Moderate Extensive Particulars Limited Moderate Extensive Total Response 15 24 11 50 Limited Moderate Extensive Out of the surveyed almost 50% responded had moderate experience in stock market .30% of them had limited experience in stock market. .30% DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 144 INTIAL PUBLIC OFFERING IN INDIA 7. How much time do you give to Investment optio ns & related reading every day? Particulars LESS THAN 10 MINUTES 10-30 30-60 MORE THAN 1 HOUR TOTAL Response 20 15 9 6 50 More than 1 hour 12% 30 - 60 mins 18% 10 - 30 mins 30% Less than 10 mins 40% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Generally people spend less than 10 minutes on stock reading, may be because the y are not trader or having other business to do. 12% of responded spend more tha n 1 hour which indicate they might be regular investor in market. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 145 INTIAL PUBLIC OFFERING IN INDIA . 8. Do you know about IPO? Yes No PARTICULARS RESPONSE Yes 23 No 27 Total 50 Yes No Almost 46% responded knows about IPO and rest have no idea. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 146 INTIAL PUBLIC OFFERING IN INDIA 9. From where you got the knowledge of IPO and o ther investment options? PARTICULARS WEBSITES BROKER STUDY MARKET OTHERS TOTAL RESPONSE 7 15 8 17 3 50 Others Market Study Broker Websites 0% 5% 35% 16% 29% 15% 5% 10% 15% 20% 25% 30% 35% 40% Information investor and trader generally obtain from market about equity as 35% from surveys indicate it. 29% get news and information from their own broker. R est of them gets information from websites, study and other sources. Website may play major role in future as internet user are increasing in millions per year in India DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 147 INTIAL PUBLIC OFFERING IN INDIA CONCLUSION & RECOMMENDATIONS CONCLUSION: The Indian initial public offer (IPO) market has always had more tha n its fair share of doomsayers Right from the Maruti issue, which pundits decrie d as being overpriced, to the ONGC and TCS issues, where the huge sizes of the o fferings drew predictions of calamitous effects on the secondary markets, the op inions of the “experts” have proved to be wide off the mark. Not only did the mega i ssues sail through, but the secondary markets proved to be far more resilient th an anybody had anticipated. The data show that as much as Rs. 2033.99 Crores has been raised from the primary market in the current calendar year, making it obv ious that the Indian investor has far more appetite for equities than most peopl e realize. Most of the money has been raised by big companies with a long-term t rack record. A substantial number of issues—barring that of TCS—also happened during the early part of the year, before the markets got the shivers. The heavy overs ubscriptions in many cases can also be traced to the availability of bank financ e for IPO investment. Nevertheless, there is no denying the enormous interest re tail and other investors have shown in the primary market, perhaps even more so than in the secondary one. This interest has been sustained despite the lack of bounce in the secondary market and is not confined to the big issues; even small er issues have sailed through with large oversubscriptions. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 148 INTIAL PUBLIC OFFERING IN INDIA If investors are gung-ho about IPO’s, there are se veral reasons for it. Unlike earlier IPO booms, this one is being driven by a mu ch better quality of offering. Missing in action so far are the fly-by-night ope rators of the 1990s who made public offers only to collect the money and vanish. Next, most recent IPO’s have resulted in gains on listing for the investor. The l isting gains have probably initiated a kind of virtuous cycle, tempting investor s who have already made money to return to the primary market. There is also reason to believe that companies are pricing their issues less agg ressively this time, either due to general concerns about a volatile market, or because of a deliberate effort to leave something on the table for all investors . DQ Entertainment (International) Ltd and NMDC Limited are lining up issues. Ev en mutual funds have got into the act, and are tailoring their offerings to matc h current market fancies— mid-cap funds, dividend yield funds, and what-have-you. If the government wants to get some money into its kitty through disinvestment p rogrammers, this is the time to make a dash for it DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 149 INTIAL PUBLIC OFFERING IN INDIA RECOMMENDATIONS: After making the project, I wou ld like to say SEBI is playing very important role in regulating the risk and fi nancial aspects of the investors. Also the DIP guideline is framed in such a man ner, which can be understood by any individual. Overall the process and the vari ous intermediaries, which are involved in IPOs or initial public offering, are d oing very important task. I found the following points very important from the i nvestor point of view while doing this project: • The IPOs should be consumer frie ndly: Any investor should be able to analyze the IPO in its simplest form and sh ould be able to understand of whether to apply for it or not. • IPOs should be gra ded which is already started. But I think such kind of grading is not enough bec ause it doesn’t give enough information about the company; it only says what the l evel of grade that a company deserves is. • I would suggest shortening the time be tween application and allocation or listing. We know SEBI and other intermediari es has done great job in doing so in the past, but looking at the current scenar io we think it’s very important to do so. This would help investor in investing th e same money in other IPOs if he is not allotted shares in that particular compa ny. DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 150 INTIAL PUBLIC OFFERING IN INDIA BIBLIOGRAPHY: BOOKS AND MAGAZINE:- Indian Capital Markets Financial management –Prasanna Chandra Ncfm module: financi al market’s Initial public offerings- richard p. Kleeburg Dalal street journal’s “stoc k market book Ipo-conepts and experience-arindam banerjee Ipo markets-prospectiv es and experience-vandana shajan WEBSITES:- www.business.mapsofindia.com/ipo-india/ www.moneycontrol.com www.domain-b.com ww w.sebi.gov.in www.investopedia.com www.chittorgarh.com/ipo/ DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 151 INTIAL PUBLIC OFFERING IN INDIA REFERENCE PADMASHREE DR. D.Y.PATIL UNIVERSITY DEPARTMENT OF BUSINESS MANAGEMENT. “A survey on people preferences about Investment & IPO” This research is being done for academic purpose only. All the information provi ded shall be kept confidential. Name: 1. What is your age? 25 years and below 40-60 years 25-40 years Retired 2. Which is your preferred area of investment? Share /equity Mutual funds Gold Banks Real estate Other 3. Do you invest in Equity shares? Yes No DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 152 INTIAL PUBLIC OFFERING IN INDIA 4. For what term you invest your money? Less than 1 year 1-5 year For more than 5 year 5. Approximately how much is your portfolio worth? Less than 2 lacs 5-10 lacs 2-5 lacs more than 10 lacs 6. How can you describe your equity investment experience 7. Limited Moderate Ex tensive 7. How much time do you give to Investment options & related reading every day? less than 10 minutes 30-60 minutes 10-30 minutes more than 60 minutes 8. Do you know about IPO? Yes No 9. From where you got the knowledge of IPO and other investment options? Website s Broker Study Market Other DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 153