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EXECUTIVE SUMMARY:

As we all know IPO I N I T I A L P U B L I C O F F E R I N G i s t h e hottest topic in the current industry, mainly because of India being a developing country and lot of growth in various sectors which leads a country to ultimate success. And when we talk about countrys growth which is dependent on the kind of work and how much importance to which sector is given. And when we say or talk about industries growth wh i c h l e a d s t h e e c o n o my o f c o u n t r y h a s t o b e balanced and given proper finance so as to reach the levels to f u l f i l l t h e n e e d s o f t h e society. And industries which have massive outflow of work and a big portfolio then its very difficult for any co mpany to work with limited finance and this is where IPO plays an important role. Stock markets are barometers of the economy. It is expected that the markets and their indicators, in the form of indices, reflect the potential of the corporate listed on them and, in the process, the direction and health of the economy. If a countrys economy is performing well and expected to grow at a healthy rate, the market is usually expected to reflect that. Indian economy is increasingly exposed to global markets post liberalization in the early 90s. So before analyzing domestic markets one needs to analyze the Global economy. In India we have number of recognized stock exchanges which consists of a few at national level and majority at regional level. When an unlisted company makes either a fresh issue of securities or offers its existing securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuers securities in the Stock Exchanges. Many factors determine the price of an initial public offering (IPO), ranging from a company's marketing prowess to investor sentiment. The financial history of a company in addition to its profit-earning potential for the future also affects the price of an IPO. Pricing affects the performance of the IPO in the market as it leaves an impact on the investors and most of them are not much financially aware. Sometimes it may happen that there appears a huge demand for an IPO in the bidding process during the book building method, which in turn raises the issue price of the IPO, but when it comes into the market it does not perform as expected. Instead its price drops thus putting the investors at a loss and losing the confidence of the investors. Thus it is important for an IPO to be optimally priced so that it justifies with the issue price. In this report I have tried to

look into the matter that whether the 20 IPOs, which were taken as a sample out of the population of about 115 IPOs issued in the last three years, have justified their issue price or not. If yes, then why? And if not, then what are the reasons which lead to the drop in price. It is seen that the IPOs are generally overpriced during the issue. But some of them were not able to sustain at the price or above, instead they fell down. But few of them which found some reason to support them, sustained at the price or is trading at a price higher than the issue price. Thus this report throws some light over the post issue performance of the IPO and comparing the performance of the IPOs which are currently overvalued or undervalued. And it also gives an idea how to look at an IPO before investment so that an investor is not at loss after investing in the IPO or at least minimize the risk of investing in a weak IPO.

INTRODUCTION
After the liberalization of Indian economy in 1992 , the Indian financial market has seen numeral developments. Number of companies has adopted the way of ipo for raising funds due to availability of plenty of funds. An initial public offering (IPO) involves an interaction between the underwriter, the issuing firm, investors that buy shares at the subscription price and those that purchase or sell shares in the aftermarket. There is uncertainty surrounding the market price that results from the IPO. Some investors feel that IPOs are low execution fruits. If investors were to get allocations in IPOs and were to turn over these shares on the day of the listing of the firm, then on an average they would able to get returns higher than the market. There is however an element of risk here. The risk is in blocking ones money in IPOs and getting no allocations. IPO stands for Initial Public Offering and means the new offer of shares from a company which was previously unlisted. This is done by offering those shares to the public, which were held by the promoters or the private investors prior to the IPO. In the case when other investors or Promoter held the shares the stake holding comes down to the extent their shares are offered to the public. In other cases new shares are issued to the public and the shares, which are with the promoters stay with them. In both cases the share of the promoters in the total capital comes down. For example say there are 100 shares in a company and 50o f t h e s e a r e o f f e r e d t o t h e p u b l i c i n a n I P O t h e n i n s u c h a c a s e t h e promoters stake in the company comes down from 100% to 50%. In another case the company issues 50 additional shares to the public and the stake of the promoter comes down from 100% to 67%.Normally in an IPO the shares are issued at a discount to what is considered their intrinsic value and thats why investors keenly await IPOs and make money on most of them. IPO are generally priced a t a d i s c o u n t , wh i c h me a n s t h a t i f t h e i n t r i n s i c v a l u e o f a s h a r e i s perceived to be Rs.100 the shares will be offered at a price, which is lesser than Rs.100 say Rs.80 during the IPO. When the stock actually lists in the market it will list closer to Rs.100. The difference between t h e t wo p r i c e s i s k n o wn a s Li s t i n g G a i n s, wh i c h a n i n v e s t o r ma k e s when investing in IPO and making money at the listing of the IPO. A Bullish Market gives IPO investors a clear opportunity to achieve long term targets in a short term phase.

There are several benefits to being a public company, namely: *Diversifying equity base *Exposure, prestige and public image *Attracting and retaining better management and employees through liquid equity participation

There are several disadvantages to completing an initial public offering namely: *Significant legal, accounting and marketing costs *Ongoing requirement to disclose financial and business information * Meaningful time, effort and attention required of senior management *Public dissemination of information which may be useful to competitors, suppliers and customers.

What is an IPO?
An IPO is the first sale of stock by a company to the public .A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO.

Definition of 'Initial Public Offering - IPO'


The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded .

Why an IPO?
An initial public offering (IPO) of stocks is a share offering to the public by a small or medium-sized enterprise (SME) undertaken to raise additional cash for future growth or to enable existing stockholders to cash out by selling part of their holdings. Among other things, a successful IPO will provide a company with an objective valuation of its stock, create a good public image of the companythus lowering its cost of borrowingand provide it with a pool of publicly owned shares for future acquisitions of other companies. However, there are also drawbacks to being a public company, such as loss of freedom (including costly disclosure requirements and close monitoring by the public and government) and, if a takeover is threatened, potential loss of control. Initial Public Offerings or IPOs help companies in raising capital to fund their plans for business expansion. At the same time, the general public is given the opportunity of investing in promising companies by subscribing to the issued IPO.

Types of IPO
There are many types of IPO, illustrating the different management and owner compensation contracts in firms. 1. The plain vanilla IPO is undertaken by a privately held company, mostly owned by management, who want to secure additional funding and determine the companys fair market value. A venture capital-backed IPO refers to a company in which management has sold its shares to one or more groups of private investors in return for funding and advice. This provides an effective incentive scheme for venture capitalists to implement their exit strategy after they have successfully transformed a firm in which they invested so that it is financially viable in the market. In a reverse-leveraged buyout, the proceeds of the IPO are used to pay off the debt accumulated when a company was privatized after a previous listing on an exchange. This process enables owners who own majority shares to privatize their publicly trading firms, which are undervalued in the market, thus realizing financial gains after the public was informed of the high intrinsic value of the private firm. A spin-off IPO denotes the process whereby a large company carves out a stand-alone subsidiary and sells it to the public. A spin-off may also offer owners of the parent firm and hedge funds the opportunity to capitalize mispricing in both the subsidiary and parent if the market is not efficient enough. An interesting example in the United States was the spin-off of bid by Creative Computers in 1998, which enabled arbitragers to capitalize the mispricing between the two listed companies.

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The IPO Process


The first task of management is to select the underwriters who will be responsible for the new issue. This is done roughly three months before the IPO date. The underwriters provide the issuing firm with procedural and financial advice. Later they will buy the stock and then sell it to the public. The company, with the aid of lawyers, accountants, and underwriters, submits a registration statement to a regulatory body (such as the Securities and Exchange Commission (SEC) in the United States) for approval of the public offering. The registration statement is a detailed document about the companys history, business, and future plans. Specifically, the SEC requires information on the details of the company (form S1), its financial history (form S-2), and expected cash flows (form S-3). The company must be able to back up the information provided to the SEC.

Selection of Underwriters
The board of a firm planning to launch an IPO will first meet with potential candidates for underwriters among investment banks and then select the lead underwriter. The choice of underwriter is based on criteria that include: a preliminary valuation of the firm based on its financial information; and the characteristics of the underwriter, such as previous IPO experience, strengths and weaknesses, client network, research capabilities, and support for post-IPO issues. Discounted cash flow analysis and earnings multiples (such as the price/earnings ratio) are typically used to come up with the preliminary value of the company.

Types of Underwriting
The management of the IPO firm selects the underwriters and decides on the type of underwriting it wants. There are two types of underwriting: firm commitment, and best efforts. If the underwriter enters a firm commitment with the company, the underwriter is confident about the issue and is willing to buy all the shares if there is insufficient demand. In a firm commitment offering, the underwriters will buy the IPO shares at a discount in the range 3.57.0% and then sell them on to the public at the full offer price.

In a best efforts case, the investment bank will only do as much as it reasonably can to sell the shares and will return unsold equity to the firm. This practice is common for less liquid securities. However, if there is excess demand, the bank will ask for a green shoe option, allowing it to buy additional stock from the IPO firm.

Selection of an Exchange
Different exchanges have different listing requirements. In general, they require minimum levels of pretax income, net tangible assets, and number of stockholders. For example, a New York Stock Exchange listing requires an income of either US$2.5 million before federal income taxes for the most recent year or US$2 million pretax for the each of the preceding two years. The firm must have been profitable in the two years before a listing.

Subscription Procedure
IPO shares are distributed in different ways to investors. One approach is an open auction, where investors are invited to submit bids stating the number of shares they wish to purchase and the price they will pay for them. The highest bidders get the securities. The Google IPO of US$1.7 billion in 2004 and the Morningstar IPO of US$140 million in 2005 used this open auction method. The book building method is the most commonly used in the United States today and is gaining popularity and dominance across the globe . Each bid indicates the number to be purchased, and may include a limiting price. Such information is recorded in a book, from which the name book building is derived. These indications of interest provide valuable information, because all bids are compiled to ascertain the market demand for the security.

INTRODUCTION The Indian securities market considered as one of the most promising emerging markets and one of the top eight market of the world. The market comprises of equity, debt, and derivative segments and has a large investor base. The investor base comprises of individuals, corporate, and foreign institutional investors, and has been rapidly rising over the past decade after financial market deregulation and economic liberalization. Securities market is an economic institute within which takes place sale and purchase transactions of securities between subjects of economy on the base of demand and supply. Also we can say that securities market is a system of interconnection between all participants(Professional & Nonprofessional) that provides effective conditions to buy and sell securities and also : -to attract new capital by means of issuance new security. -to transfer real asset into financial asset. -to invest money for short or long term periods with the aim of deriving profit. TYPES OF SECURITIES: Securities are broadly categorized into: 1. 2. debt securities (such as banknotes, bonds and debentures), equity securities, e.g., common stocks; and, derivative contracts, such as forwards, futures, options and swaps

COMPONENTS OF SECURITIES MARKETS The major components of the securities markets are listed below: -brokers, Custodians, Share Transfer Depository Participants, Credit Rating Agencies, Merchant Bankers Institutions, Mutual Funds, Banks of Persons, Companies, Mutual Funds, Financial Institutions, Foreign Institutional Investors Agents,

(DEA), Department of Company Affairs (DCA)

Different kinds of issues


What are the different kinds of issues which can be made by an Indian company in India? Primarily, issues made by an Indian company can be classified as Public, Rights, Bonus and Private Placement. While right issues by a listed company and public issues involve a detailed procedure, bonus issues and private placements are relatively simpler. The classification of issues is as illustrated below: (a) Public issue (i) Initial Public offer (IPO) (ii) Further public offer (FPO) (b) Rights issue (c) Bonus issue (d) Private placement (i) Preferential issue (ii) Qualified institutional placement (a) Public issue: When an issue / offer of securities is made to new investors for becoming part of shareholders family of the issuer3 it is called a public issue. Public issue can be further classified into Initial public offer (IPO) and Further public offer (FPO). The significant features of each type of public issue are illustrated below: (i) Initial public offer (IPO): When an unlisted company makes either a fresh issue of securities or offers its existing securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuers securities in the Stock Exchanges. (ii) Further public offer (FPO) or Follow on offer: When an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, it is called a FPO. (b) Rights issue (RI): When an issue of securities is made by an issuer to its shareholders existing as on a particular date fixed by the issuer (i.e. record date), it

is called a rights issue. The rights are offered in a particular ratio to the number of securities held as on the record date. (c) Bonus issue: When an issuer makes an issue of securities to its existing shareholders as on a record date, without any consideration from them, it is called a bonus issue. The shares are issued out of the Companys free reserve or share premium account in a particular ratio to the number of securities held on a record date. (d) Private placement: When an issuer makes an issue of securities to a select group of persons not exceeding 49, and which is neither a rights issue nor a public issue, it is called a private placement. Private placement of shares or convertible securities by listed issuer can be of two types: (i) Preferential allotment: When a listed issuer issues shares or convertible securities, to a select group of persons in terms of provisions of Chapter XIII of SEBI (DIP) guidelines, it is called a preferential allotment. The issuer is required to comply with various provisions which interalia include pricing, disclosures in the notice, lockin etc, in addition to the requirements specified in the Companies Act. (ii) Qualified institutions placement (QIP): When a listed issuer issues equity shares or securities convertible in to equity shares to Qualified Institutions Buyers only in terms of provisions of Chapter XIIIA of SEBI (DIP) guidelines, it is called a QIP.

IPO- Advantages and Disadvantages


The following are the advantages of a public limited company. More Capital: A company can raise huge amount of funds to finance its capex programs like expansion, modernization, diversification, etc. as well as working capital requirements. No cost of capital: It does not need to pay interest on the capital raised from public. Even it does not need to repay the capital. Only in case of liquidation /bankruptcy it needs to pay the residual amount after paying bank loans, debentures, preferential shares etc. Huge amounts can be raised: It can raise huge amount of capital by going to public which maynt be possible otherwise. It is difficult for private companies to raise capital. Brand Value: Companys brand value will get increased because people come to know about the company very well. It increases the visibility and reputation of the company and thereby enhances the brand image of the company. Correct Valuation: Since the share price reflects the companys financial healthiness it would become easy to arrive at a price in case of mergers and acquisitions. Owner Diversification: Most of the funds of the founders are blocked in the firm till the firm grows and becomes more valuable. By means of IPO, they can sell some stake to diversify their holdings and can reduce the risk of their personal portfolios.

Increased Liquidity: The shares when get listed on the stock exchange, can be easily traded, providing more liquidity. Employee Prestige and Retention: Employee pride and confidence in the company may increase .company can attract as well as retain employees by offering them equity incentives like stock options/stock purchase plans.

The following are the disadvantages of public ltd company. Disclosure of information: Once a company becomes public it has to disclose so much information to public on regular interval .This includes share holding pattern, quarterly and annual financial statements directors report etc .Because of this restriction companies will always be under pressure to and show profits in every quarter. This some times doesnt allow the management to take bold steps which may yield long term benefits but less profits in short term. Decisions take time: Implementation of any key decisions is subjected to the approval by the board of directors elected by share holders .This process may take more time. Cost of IPO: The cost of the process is very high, though its one time expenditure .The investment banker/under writer charges heavily for doing this activity.

Intermediaries
The role of intermediary is very crucial for connecting with the public issue. But there are norms set by SEBI for the intermediaries. Merchant Bankers They play the most vital role among all intermediaries. They assist the company right from preparing prospectus to the listing of securities at the stock exchanges. Merchant Bankers have to satisfy themselves about the correctness and prosperity of all the information provided in the prospectus. It is mandatory for them to carry due diligence for all the information provided in the prospectus and they must issue a certificate to this effect to SEBI. Underwriters Underwriters are those intermediaries who underwrite the securities offered to the public. Registrar & Share Transfer Agents They are the person who processes and prepares the basis of allotment of shares to public based on the applications received from the public. Bankers to the Issue They are who accept application and application money from the public on behalf of the company. Stock Brokers & Sub-Brokers Brokers are the intermediaries who use their contact /sources to invite the public to subscribe for shares issued by the company. These brokers get a commission for inviting public. Depositories Depositories are persons who hold the share in the dematerialized form for the public. It also reduces the burden of carrying to deliver it after every transaction.

Financial Markets

The financial markets have two major components, the money market and the capital market.

Financial Markets | | Money Market | Securities Market | | | Capital Market | Other forms of Lending and borrowing

New issue Market (Primary Market)

Secondary Market

Capital Market The Capital Market is a market for financial investments that are direct or indirect claims to capital. It is wider than the Securities Market and includes all forms of lending and borrowing. The Capital Market comprises the complex of institutions and mechanisms through which intermediate term funds and long term funds are pooled and made available to business, Govt. and individuals.

Securities Market The Securities Market refers to the markets where financial instruments/claims/obligations that are commonly and readily transferable by sale. The Securities Market has two inter-dependant and inseparable segments, the new issues (primary) market and the stock (secondary) market. Primary and secondary market In the primary market securities are issued to the public and the proceeds go to the issuing company. Secondary market is term used for stock exchanges, where stocks are bought and sold after they are issued to the public. Primary market The first time that a companys shared are issued to the public, it is by a process called the initial public offering (IPO) .In an IPO the company offloads a certain percentage of its total shares to the public at a certain price. Private companies and public sector enterprises, in need of money, may issue securities such as shares, debentures, bonds, commercial paper etc. The market mechanism for the buying and selling of new issues of securities is known as primary market. This market is also termed as New Issue Market because it deals in new issues of securities. Most IPOs these days dont have a fixed offer price. Inste ad they follow a method called BOOK BUILDING PROCESS, where the offer price is placed in a band or a range with the highest and the lowest value.

Secondary Market Once the offer price is fixed and the shares are issued to the people, stock exchanges facilitate the trading of shares for the general public. Once a stock is listed on an exchange, people can start trading in its shares. In a stock exchange the existing shareholders sell their shares to anyone who is willing to buy them at a price agreeable to both parties. Individuals cannot buy or sell shares in stock exchange directly; they have to execute their transaction through authorized members of the stock exchange who are also called stock brokers.

MARKET REGULATORS Securities market is regulated by following governing bodies:

Stock exchanges

development and regulate securities market. All the powers under this act are exercised by SEBI. porate sector in relation to issue, allotment and transfer of securities, disclosures to be made in public issues and nonpayment of dividend. Powers under this Act are exercised by SEBI in case of listed public companies and public companies proposing to get their securities listed. of transaction in securities through control over stock exchanges. Most of the powers under this act are exercised by Department of Economic Affairs (DEA), some are concurrently exercised by DEA and SEBI and a few powers by SEBI. transfer of ownership of dematerialized securities. SEBI administers the rules and

regulation under this Act. The Securities and Exchange Board of India was established in 1988, as a government department. The passing of the SEBI Act in 1992 made SEBI the apex regulator of the Indian securities markets. It was established to regulate and develop the growth of the capital market. SEBI regulates the working of stock exchanges and intermediaries such as stock brokers and merchant bankers, accords approval for mutual funds, and BSE Training Institute Ltd. 18 registers Foreign Institutional Investors who wish to trade in Indian scrips. Section 11(1) of the SEBI Act provides that it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. SEBI regulates the business in stock exchanges and any other securities markets and the working of collective investment schemes, including mutual funds, registered by it. SEBI promotes investor's education and training of intermediaries of securities markets. It prohibits fraudulent and unfair trade practices relating to securities markets, and insider trading in securities, with the imposition of monetary penalties, on erring market intermediaries. It also regulates substantial acquisition of shares and takeover of companies and can call for information from, carry out inspection, conduct inquiries and audits of the stock exchanges and intermediaries and self regulatory organizations in the securities market. SEBI has introduced various reforms including improved transparency, computerization, enactments against insider trading, improved capital adequacy, imposed restrictions on forward trading, and enacted provisions to encourage corporate membership in the stock exchanges. Stock exchanges have also laid down strict compliance measures covering detection of irregular trading practices through sophisticated surveillance systems, margining, trading volume controls and set up investor protection funds. Stock exchanges ensure compliance of brokers on a continuous basis through inspection and other measures.

ACT & REGULATIONS: The Companies Act, 1956 The Companies Act deals with issue, allotment and transfer of securities and various aspects relating to company management. It provides for standard of disclosure in public issues of capital, particularly in the fields of company management and projects, information about other listed companies under the same management, and management perception of risk factors. It also regulates underwriting, the use of premium and discounts on issues, rights and bonus issues, payment of interest and dividends, supply of annual report and other information. The Companies Act, 1956 (Act) has over 600 sections, 14 schedules, various rules, which are read along with various circulars, notifications and clarifications issued by the Department of Company Affairs from time to time. The details of the relevant regulatory authority are provided for in each section of the Act. The Act also details the filing of various forms with the Registrar of companies (ROC), Central Government, and provides for maintenance of registers/records and access to outsiders. The Act also lays down penalty provisions through fine and/or imprisonment for noncompliance of the provisions of the Act and on whom the penalty is leviable. The enforcement of the provisions of the Act are carried out by the Central Government (through Dept. of Company Affairs), the company Law Board, (CLB) Regional Director of BSE Training Institute Ltd. 35 the CLB, Registrar of Companies. The Securities and Exchange Board of India is the concurrent authority of some matters relating to listed Companies. The administration body under the Companies Act is Company Law Board. The SEBI Act, 1992 Major part of the liberalization process was the repeal of the Capital Issues (Control) Act, 1947, in May 1992. With this, Governments control over issues of capital, pricing of the issues, fixing of premia and rates of interest on debentures etc. ceased, and the office which administered the Act was abolished and the market was allowed to allocate resources to competing uses. However, to ensure effective regulation of the market, SEBI Act, 1992 was enacted to establish SEBI with statutory powers for:

(a)Protecting the interests of investors in securities, (b)Promoting the development of the securities market, and (c) Regulating the securities market. Its regulatory jurisdiction extends over corporate in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. It can conduct enquiries, audits and inspection of all concerned and adjudicate offences under the Act. It has powers to register and regulate all market intermediaries and also to penalize them in case of violations of the provisions of the Act, Rules and Regulations made there under. SEBI has full autonomy and authority to regulate and develop an orderly securities market. . Securities Contracts (Regulation) Act (SCRA), 1956 SCRA provides for direct and indirect control of virtually all aspects of securities trading and the running of stock exchanges and aims to prevent undesirable transactions in securities. It gives SEBI regulatory jurisdiction over: (a) Stock exchanges through a process of recognition and continued supervision, (b) Contracts in securities, and (c) Listing of securities on stock exchanges. .

A PROJECT REPORT ON

PRICING AN IPO A Calculated Trick: Is it justified often?


WITH REFERENCE TO BHUBANESWAR STOCK EXCHANGE LTD. (BHSE) SUBMITTED TO

MAHENDRA
INSTITUTE OF MANAGEMENT AND TECHNICAL STUDIES IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF TWO YEAR FULL TIME POST GRADUATE DIPLOMA IN MANAGEMENT SUBMITTED BY

PRAVAT KUMAR BEHERA


ROLL NO:MFC/11-13/105 UNDER THE SUPERVISION OF

Name: Designation: (Company Supervisor)

Name: Designation: (Faculty Supervisor)

Certificate
Certified that Mr./Ms _________________________ has completed the Summer Internship Programme at (Company name)_____________________________ from _________ to _____________ and worked on the project titled ______________________. This is an original piece of work and has not been used for any other purpose. Signature (Company Supervisor) Name: Date _____________________________________________________________________________________________

(ii)
Certificate to be given by the Faculty Supervisor in Institutes letter head

Certificate
This is to certify that the project report entitled ________________________________ is a bona fide work of Ms. / Mr. _________________________________ , a student of Mahendra Institute of Management and Technical Studies (MIMTS) bearing Roll No._____________ and was successfully conducted at (companys Na me)_______ _____________________ under my supervision as a part of Summer Internship Programme (SIP) from ______________to _________ in partial fulfillment for the award of Post Graduate Diploma in Management. To the best of my knowledge this is an original piece of work and has not been submitted to any Institute/ University for award of any other degree or diploma. Signature (Faculty Supervisor) Name: Designation: Date

Declaration
I Mr./Ms __________________________ bearing enrolment number _____________ do hereby declare that this project report titled __________________________has been prepared on the basis of my learning through Summer Internship Programme at ___________(Company Name) from --------- to --------- under the joint supervision of Mr.//Ms ________________ and Prof. __________. The findings of the study are original and the study materials used have been duly recognized in the body of the report. This report has not been submitted to any Institute/University for the award of any degree or diploma in full or part. Signature of the Student Date:

Acknowledgements
With all humility I would like to express that I am very lucky to undergo summer training at ------------------------------------------ (Company Name). It was a golden opportunity for gaining practical experience and self development. Further, I am honoured to have so many wonderful people who helped me insistently in several ways for the completion of this project report. I am extremely thankful to Mr.. (Company Supervisor) who in spite of his/ her busy schedule of work spared his/ her invaluable time to listen and guide all through the project period. Without his/her active support and supervision it was not possible to complete the project work. I sincerely acknowledge my gratitude to Professor Mr./Ms./Mrs.____________________________ who was not only involved in the entire process but also shared his/her knowledge, encouraged me and gone through the report before it was submitted for evaluation. Thank you, Dear Sir/Madam. I would like to thank Dr.__________________________, Director, Dr. __________________, Dean, and Prof._______________________ for their active support and arrangements to make my learning and life easier at _________________ (Company Name).

All my friends deserve thanks for their cooperation and sharing of valuable information that helped me in the preparation of this report. Last but not least I owe my heartfelt gratitude to my parents for their constant help, encouragement and emotional support during the entire period of Summer Internship without which this report would not have been completed.

Name of the Student Date:

CONTENTS
Page No. Certificate from Company Supervisor Certificate from the Faculty Supervisor Declaration Acknowledgements List of Tables List of Figures Executive Summary Abbreviations used (i) (ii) (iv) (v) (vi) (vii) (viii) (ix)

Chapter I Chapter II Chapter III Chapter IV

Introduction Data Analysis Observation and Major Findings Conclusions and Suggestions

1-30 31-63 64-70 71-75

Appendices

76-81

References Bibliography

82-90 91-100

Executive Summary
Title - PRICING AN IPO, A Calculated Trick: Is it justified often? Objectives - The objective of the project is as follows: -To know about IPO and why companies issue IPO and other related factors. -To know about the parties involved in the issue and their work. -To analyze the performance of the IPOs in a post issue scenario and to draw a conclusion whether the IPOs were able to justify the issue price or not. And also to conclude that, does the companys pricing policy is towards the welfare of the investors or not. Methods and data sources - I have collected data only from secondary sources. Major findings Summary of Conclusions Suggestions -

CHAPTER 1 INTRODUCTION

1.1: Profile of the organization


Bhubaneswar Stock Exchange Ltd. Bhubaneswar Stock Exchange was incorporated as a company on 17th April 1989. It is a company limited by guarantee without having share capital. Subsequently pursuant to Securities Contracts Regulation (SCRA) Act 1956 by the Govt. of India in 2004 in order to provide for corporatization and demutualization of the Stock Exchange, BhSE was converted into a company limited by the shares by way of fresh incorporation on 9th Dec 2005. Further pursuant to requirement of demutualization in 2007 by diluting more than 51% of share capital to people other than its members-brokers, BhSE diluted its shares capital to comply with this requirement. The present share holding pattern of BhSE is represented up to 41% by its member-brokers and remaining 59% by public other than its memberbrokers. ObjectivesThe objective of BhSE is to facilitate, assist, regulate or control the business of buying, selling or dealing in stocks, shares, like securities in the interest of the securities market and that of investors in securities within the meaning of SCRA. In that line BhSE is a market infrastructure institution which has been facilitating and providing infrastructure for carrying out the business of buying, selling or dealing in shares and securities. Further BhSE is a public institution for discharging public utility services. In this contest BhSE has been working for protection of interest of the investors, increasing the level of financial literacy among the investors and providing assistance to the investors for redressal of grievance against any stock broker or listed company. BhSE is also now actively engaged in conducting seminars, workshop and investors awareness programmes

for the benefit of investors. BhSE also has been providing support and guidance to the management students in their Summer Internship Programme (SIP) assignment. Business OperationBusiness operation of BhSE commenced on 2nd January 1991 with a membership strength of around 160, which was increased to more than 200 in 1995. The present business volume of BhSE is of the order of Rs 5 crore. Advent of National Stock Exchange with interest of online trading and spreading of NWT (Nation Wide Terminus) across the country lead BhSE, like other small and regional stock exchange of the country, face a major setback in generating volume of business. Thus the business of local segments shifted to NWTT (Nation Wide Trading Terminus) of BSE and NSE. However presently BhSE has provided its member brokers the business platform of NSE and BSE through interconnected stock exchange of India.Further it is now actively working for revival of its own business platform in association with NSE and BSE in terms of sec-13 of the SCRA. BhSE has also been registered as depository participant (DP) of CDSL to provide DP services to the investors in securities under operation of DEMAT account with it. Activities of BhSE1- Clearing Settlement and Surveillance Operation: This is the most important activity of the stock exchange. The transaction in shares and securities which are carried out by the member of broker of the stock exchange are settled through the clearing house with the help of centralized banking system and depository system. Clearing house plays a major role in clearing and settlement function of a stock exchange how ever in case of major stock exchange like NSE and BSE the set operation is done through a clearing corporation which is a separate entity to facilitate these activities. Surveillance mechanism is a very vital function of a stock exchange. This function ensures fairness and transparency in the transaction by undertaking various safe guards. Which include maintenance of broker base minimum capital (BMC), collection of different types of margins, monitoring of

trading activities of brokers individually and as a whole, monitoring the gross exposure limit of outstanding position of brokers on any individual share etc. 2- Secretarial and Corporate affairs: Secretarial department deals with the matter relating to meetings of board of directors, various committees and general body. This department is also responsible to compile with the statutory requirement in terms of provisions of the companies act 1956. Corporate affairs department deals with the matter relating to formulation of policies, rules regulations, looking after certain risk management mechanism of BhSE such as Settlement Guarantee Fund, Investors Protection Fund etc. This department also deals with matters relating to other developmental activities of stock exchange . 3- Listing of Securities: Presently listing department is a part of secretarial and corporate affairs function of the BhSE. This department plays a very important role for listing of shares and securities on the stock exchange. This department facilitates to raise capital in the primary market through issue of shares and securities. This department monitors and ensures that the public Issue of shares and securities are done according to the Companies Act 1956. It monitors the whole issue process prior to the public issue and even in the post issue of securities, by a company, and makes sure it is made in fair and transparent manner. And it also ensures that allotment of shares and securities to various categories of investors is made in a proper manner as per the regulatory frame work. On being satisfied with the performance of various intermediary involved in the public issue process and complains made by concerned companies the listing department recommend to the authority of stock exchange. Another major responsibility of the listing department is to monitor the compliance or requirement by a listed company in terms of listing condition as prescribed in the listing agreement executed between such listed company and the stock exchange.

4- Membership: It deals with the matter relating to membership of the exchange. The responsibilities of the department include activities such as (a) Admission of individual and body corporate as the member brokers in terms of rules and regulations of the stock exchange. (b) Ensuring compliance of requirements by the member brokers in terms of rules and regulations of the SEBI Act 1992, and securities contract (regulations) rules 1957. (c) Ensuring and monitoring mentions of base minimum capital by the member brokers with the exchange in terms of its rules and regulations. (d) To conduct an inspection of books of accounts and other documents of the member brokers. (e) Providing membership service. 5- Investor Service: This department acts as an intermediary in redressing the grievance of the investor in securities against brokers and listed companies. It provides services to the investing public where there is any complaint against the stock brokers or a listed company. 6- Training and Education: It has been working for spreading of equity culture and for increase the level of financial literacy in the interest of investors. It also conducts investor awareness programme, seminar, workshop etc from time to time at different location. BhSE also runs few courses on Capital Market which includes three months course, one month course and 15 days training programme. BhSE is also engaged in providing guidance in support services to the students of various institutes and Business school.

7- Depositary Participant Service: BhSE is a registered depository participant of central depository services for providing depository participant service to the investors in securities. The department is responsible for: (a) Providing service to a person intending to open DEMAT account. (b) Dematerialization of shares and securities of a DEMAT account holder on his request. (c) Operation of DEMAT accounts of investors such as- Debit and Credit of shares and securities in the DEMAT account as per the instruction of the account holder.

Capital Structure and Financing

Particulars

As at 31st March,2011
(In Rs)

Sources of Funds OWN FUNDS Share Capital Reserve and Surplus LOAN FUNDS Secured Loan Unsecured Loan Deferred Tax Liability Total Application Of Funds FIXED ASSETS 21,03,766 Nil 36,783 6,29,93,271 57,98,980 5,50,53,742

Gross Block Less: Depreciation Net Block CAPITAL WORK IN PROGRESS

3,08,53,119 1,45,12,200 1,63,40,919 68,56,122

2,31,97,041 INVESTMENTS CURRENT ASSETS, LOANS & ADVANCES Cash and Bank Balances Loans & Advances (A) LESS: CURRANT LIABILITIES AND PROVISSIONS CURRANT LIABILITIES Provisions (B) (A-B) 2,74,74,033 13,81,413 2,88,55,446 3,12,87,400 12,38,829 Total 6,29,93,271 4,60,37,276 1,41,05,570 6,01,42,846 72,70,000

If we see the current Balance Sheet of the company we can see the sources and application of funds. We found that the company has taken a loan of Rs 21, 03,766. Thus the Debt /Equity ratio comes out to be 0.03. That means for every Re. 1 the company has a liability of Re. 0.03 which is not too much of debt. Working Capital Management Since the stock exchanges are service providing firms and that they do not manufacture any product thus they do not have any significant working capital. Dividend Policy and Practice The declaration and payment of dividend is recommended by the Board of Directors and approved by the shareholders of the Company at their discretion and depends on a number of factors, including the results of operations, earnings, capital requirements and surplus, general financial conditions, etc. As such the company has not paid any dividend till date.

Cost Revenue StructureMainly the revenue in BhSE is generated by Annual Listing Fee. Some other sources are - Members Subscription - Dividend received from ISE - Rent received - Income from training and education - Income from ISE Depositary Participant - Interest income on pre corporatized corpus. Share Performance-

BhSE is not a public company. It is a company limited by shares. Thus it is not listed and its shares are not traded. But as per unofficial sources the shares are being traded at a price of Rs 4 to 5. Pricing Although BhSE is a service providing company but moreover it is a public utility company. As such it does not have any tangible product like manufacturing companies. As far as it is concerned about the listing and the member subscription BhSE charges not much but a very notional fee. Challenges 1- Upon introduction of on-line trading in place of age old out-cry system and expansion o trading terminals by major stock exchanges such as NSE and BSE to the various parts of the country, like other RSEs in the country, BhSE is struggling for operation of a proper and independent business platform. This has exposed BhSE to a survival threat like other RSEs. 2- In the light of fast changing capital market scenario with the advent of new securities market technology and product lines, independent business platform has become expensive and required skill sets are difficult to procure for a smaller regional stock exchange like BhSE. This has doubled the concern of BhSE while battling for survival. 3- In the event of withdrawal mandatory provision by Ministry of Finance for listing of securities on RSEs and introduction of liberalization delisting norms by SEBI, BhSE has los listing support of most of the active corporate houses belong to their respective states with support of their State Government. This has badly narrowed one of the major revenue generation sources of BhSE.

Growth Plans1- BhSE is working for revival of a vibrant business platform in association with National Stock Exchange and Bombay Stock Exchange in terms of Sec. 13 of the SCRA.

2- Financial literacy is one of the thrust areas, which needs to be undertaken in a proper manner and in a massive way for the growth of securities market and for growth of economy of the country as a whole. BhSE has been working for it. 3- BhSE is active in providing short term courses in Capital Market as a part of its activities. It is also exploring the possibility to introduce diploma course in Capital Market.

1.2: Statement of the problem


In general we think that the price of IPO is based on a company name and goodwill or it can fix at a amount where company will get profit.. Here the problem is I want to find out who are the other factor affect the price of an IPO and whether the price is justified or not?

1.3: Need for and importance of the study


Many factors determine the price of an initial public offering (IPO), ranging from a company's marketing prowess to investor sentiment. The financial history of a company in addition to its profit-earning potential for the future also affects the price of an IPO. Pricing affects the performance of the IPO in the market as it leaves an impact on the investors and most of them are not much financially aware. Sometimes it may happen that there appears a huge demand for an IPO in the bidding process during the book building method, which in turn raises the issue price of the IPO, but when it comes into the market it does not perform as expected. Instead its price drops thus putting the investors at a loss and losing the confidence of the investors. Thus it is important for an IPO to be optimally priced so that it justifies with the issue price. So here I want to know whether the issue price is justified or not and which factor affect the pricing of IPO.

1.4: Review of literature 1.5: Scope


Here I have taken only last 3 years data about those company who had issued there share and again I have choose only 11 company and try to justified their issue price of share.

1.6: Objectives
The objective of the project is as follows: -To know about IPO and why companies issue IPO and other related factors. -To know about the parties involved in the issue and their work. -To analyze the performance of the IPOs in a post issue scenario and to draw a conclusion whether the IPOs were able to justify the issue price or not. And also to conclude that, does the companys pricing policy is towards the welfare of the investors or not.

1.7: Methodology
Here I have taken data from only secondary sources. I have taken 111 companies who were issued IPO in last 3 years and divide them to some group according to overvalued IPOs, undervalued IPOs and neutral IPOs and randomly choose some company from each of the group.

1.8: Limitations of the study


Here I have taken only last 3 years data about those company who had issued there share and again I have choose only 11 company and try to justified their issue price of share. And here I also used only secondary data.

Statistical Framework In the last three years about 111 IPOs have been issued. It has been observed that mostly all of them were overvalued at the time of the issue. And it has also been observed that currently about 71% of them are being traded at a price higher than their intrinsic value and about 20% are being traded at a price below the intrinsic value of the IPO and about 9% are being traded at a price near to the intrinsic value. Project Analysis A sample of 15 IPOs have been selected out 111 IPOs issued in the last three years, some of which are trading at a price higher than the issue price is called overvalued IPO,some of them are trading at a price lower than the issue price is called undervalued IPO, and very few of them are trading at a price equal or nearly equal to the issue price is known as neutral IPO. Then for each IPO an analysis has been done which includes the:

About the issue and their grading Risk factors Fundamental analysis (Pre and Post Issue) Price chart study Market sentiment study

After the analysis a generalized conclusion has been derived and few recommendations have been suggested for the pricing of an IPO.

UNDERVALUED IPOs 1. Adani Power: (Issued: August 2009)


Sector Power Generation About the Company-

The Company was incorporated as Adani Power Limited on August 22, 1996. The Company became a private limited company on June 3, 2002 and the name of the Company was subsequently changed to Adani Power Private Limited. The Company was, thereafter, converted into a public limited company on April 12, 2007 and the name of the Company was changed to Adani Power Limited. Further, upon ceasing to be a private limited company, the word private was deleted through a special resolution at the EGM of the Company held on March 28, 2007. Company Promoters: Gautam S Adani Rajesh S Adani Issue Detail: *Issue open: July 28,2009-July 31,2009 *Issue Size: 301,652,031 Equity Shares of Rs. 10 *Face Value: Rs. 10 per Equity Share *Price Range: Rs. 90-Rs. 100 Per Equity Share *Listing At: BSE, NSE *IPO Grading: ICRA has grade 3 out of 5 *last 52 weeks H/L:115.80/44.10

If we look at the fundamental of the company it looks above average which is also evident from the fact that ICRA has graded Adani power as 3out of 5. From the above table it is clear that the fundamental parameters has increased when pre and post issue figures are compared.Net worth of the company has increased 2.77 times which shows that profit is increasing year on year. But if we look at the P/E ratio it is very high if compared with the Industry average of 15.3. This may be because of very low post issue EPS of 0.78. Company has not paid any dividend in the last two years. If we see the technical chart of Adani power ltd. we can make out that the stock has been traded at a price lower than the issue price since 1 year which is also evident from the prices of last 52 weeks. Thus we see that although the company is not performing so well and it could not gain the investors confidence may be because there is hardly any increase in PAT of the company and it incurred loss. And since the stock is overpriced from the beginning, thus being overvalued, the demand was less and the supply was high so this may be one more reason why the price kept on decreasing.

2. ARSS Infra: (Issue: March 2010) Sector: Construction & Contracting About the Company:
The Company was incorporated as ARSS Stones Private Limited on May 17, 2000 under the Companies Act, 1956, with its registered office at N-1/93, IRC Village, Nayapalli, Bhubaneswar. On May 20, 2005, the name of the Company was changed to ARSS Infrastructure Projects Private Limited. The Company has been converted to a public limited company in pursuance of a special resolution passed by the members of the Company at the Extraordinary General Meeting held on November 15, 2005. About the Issue: Public issue of 22,88,888 equity shares of Rs. 10/- each of ARSS Infrastructure Projects Limited for cash at a price of Rs. 450 per equity share (including a share premium of Rs. 440 per equity share) aggregating upto Rs. 10300 lacs ("issue"). The issue will constitute 18.23 % of the pre issue and 15.42 % of the post issue fully diluted paid up equity capital of the company. The Issue has been graded by Credit Analysis and Research Limited ("CARE") and has been assigned "IPO Grade 2" indicating below average fundamental.

Risk Factors: 1- Our Company has defaulted on payment of interest and repayment of loan to various banks / financial institutions. 2- The power supply at one of our Units has been disconnected by the Central Electricity Supply Company of Orissa Limited (CESCO) due to default in payment of electricity bills and other related disputes and the complaint filed by our Company with concerned authority.

Analysis:

If we look at the fundamentals of the company it looks below average which is also evident from the fact that CARE has graded the company with 2 out of 5. From the above table it is clear that the fundamental parameters has increased when pre and post issue figures are compared.Net worth of the company has increased 2.26 times which shows that profit is increasing year on year. If we look at the P/E ratio it decreased to a value which is much less than the industry average of 14.16. Company has also paid dividend for the last two years. If we see the technical chart we see that just after the issue in 2010 the stock price has increased to a price double to the issue price but at the end of the year the price started decreasing and kept on decreasing till date. Thus we can say that although at the time of the issue the IPO was overvalued but subsequently its price decreased and it is currently trading at a price lower than the current book value. Thus it could be said that initially people took the IPO very positively may be because it bagged too many contracts but then it could not sustain.

3. Raj Oil Mills:


(Issued: Aug 2009)
Sector: Edible Oil & Solvent Extraction

About the Company: Raj Oil Mills Limited was incorporated on October 17, 2001. The Company has received Commencement of Business Certificate on November 6, 2001. The Company was formed to undertake the business of buying, selling, manufacturing, and processing of edible oils, edible oil seeds and other related products. The Company was promoted by Mr. Shaukat S. Tharadra. It acquired the running business of M/s. Raj Oil Mills, partnership firm (exclusive of Land & Building and intangible property in the form of Brands, Trademarks and Copyrights). M/s. Raj Oil Mills, partnership firm, founded in the year 1943 by late Mr. Haji Suleman Jamal. M/s. Raj Oil Mills, partnership firm have not carried out any valuation from any independent valuer. The mentioned transaction took place at a lump sum amount of Rs. 75 lacs as a consideration for assignment of the running business M/s. Raj Oil Mills, partnership firm through the mutual consent of the Company and M/s. Raj Oil Mills, partnership firm through entering the mentioned deed of assignment. About the Issue: Public issue of 95,00,000 equity shares of Rs. 10 each for cash at a price of Rs. 120 per equity share, including a share premium of Rs. 110 per equity share, aggregating Rs. 11400.00 lacs. This Issue has been graded by ICRA Limited as IPO Grade 2, indicating below average fundamentals through its letter dated April 20, 2009. Risk Factors: 1- Our inability to maintain distribution network can adversely affect our Revenues. 2- Our Company currently enjoys certain benefits in terms of Excise Duty exemptions, which may not be available to us in the future thereby affecting our profitability. 3- The shortage or non-availability of power and fuel may adversely affect the manufacturing processes and our performance may be affected adversely. 4- Our Company uses hazardous chemicals in its manufacturing processes; any failure to comply with statutory regulations may adversely affect our operations.

Analysis:
If we look at the fundamentals of the company it looks below average which is also evident from the fact that ICRA has graded Raj Oil Mills with 2 out of 5. From the above table it is clear that the fundamental parameters has increased when pre and post issue figures are compared.Net worth of the company has increased 2.52 times which shows that profit is increasing year on year. But if we look at the P/E ratio it decreased and is very low from the industry average of 13.4. Company has also not paid any dividend in the last two years.

If we see the technical chart we can make out that the stock price is continuously decreasing since the issue of the IPO which is also evident from its last 52 weeks low/high price. Thus we can say that although at the time of the issue the IPO was overvalued but subsequently it is now been traded at a price even lower than the current book value. Raj Oil Mills was a company with below average fundamentals and overvalued IPO and neither it has paid any dividend and thus could not gain confidence of the investors and as a result its price kept on dropping. Even if we look at the share holding pattern the promoter holding has decreased showing the loss of confidence among the promoters too which may also be one of the reason of declining price. Although at that time the market was not as volatile as is seen in case of Raj Oil Mills.

4. Aqua Logistics Ltd:


(Issued: Feb 2010)
Sector: Transport

About the Company: The Company was originally incorporated as Aqua Logistics Private Limited on September 20, 1999 under the Companies Act, 1956 vide Certificate of Incorporation issued by the Registrar of Companies, Mumbai. The Company was converted into a public limited company vide fresh Certificate of Incorporation dated March 05, 2009 and subsequently the name of the Company was changed to Aqua Logistics Limited.

About the Issue: Public issue of 68, 72,852 equity shares of Rs.10/- each for cash at a price of Rs. 220 per equity share (including a premium of Rs. 210 per equity share) for non institutional and QIB bidders and Rs. 215 per equity share (including a premium of Rs. 205 per equity share) for Retail Individual bidders aggregating upto Rs. 15,000 lacks (the issue), by aqua logistics limited. The

issue will constitute 33.53% of the fully diluted post issue paid-up capital of our company. The net issue to public will constitute 33.53% of the fully diluted post issue paid-up capital of our company. The Issue has been graded by Brickwork Ratings India Private Limited and has been assigned a grade of 3/5 indicating average fundamentals.

Risk Factors : 1- There has been a delay in the implementation schedule of the Project which is in the initial stages of implementation. Inability to complete the project as per the stated schedule of implementation may lead to cost/time overruns and may impact our future profitability. 2- We have not yet placed orders for specialised equipments aggregating Rs. 3,051.89 Lacs required by us. Any delay in placing the orders/ or supply of equipments may result in time and cost overruns, and may affect our profitability.

Analysis: If we look at the fundamentals of the company it looks average which is also evident from the fact that Brickworks Rating India Pvt. Ltd. has graded the company with 3 out of 5. From the above table it is clear that the fundamental parameters has increased when pre and post issue figures are compared.Net worth of the company has increased 2.52 times which shows that profit is increasing year on year. If we look at the P/E ratio it increased and is at par with the industry average of 36.09. Company has also not paid any dividend in the last two years. If we see the technical chart we can make out that the stock price has increased in 2010 but dropped in the beginning of 2011 and since then could not recover and is trading at a price below than the issue price which is also evident from its last 52 weeks low/high price.

Thus we can say that although at the time of the issue the IPO was overvalued but subsequently it is now been traded at a price near to the current book value. Aqua Logistics is a company with average fundamentals and overvalued IPO and neither it has paid any dividend and thus could not gain confidence of the investors and as a result its price kept on dropping in 2011. Even if we look at the share holding pattern the promoter holding has decreased showing the loss of confidence among the promoters too which may also be one of the reason of declining price.

5. DB Realty:
(Issued: Feb 2010)

Sector- Real Estate


About the Company: The Company was originally incorporated as a public limited company in the name of D B Realty Limited, under the Companies Act, on January 8, 2007 and received certificate for commencement of business on February 28, 2007. The Company was converted to a private company and the name was changed to D B Realty Private Limited, pursuant to a shareholders resolution dated May 14, 2007 and received a fresh certificate of incorporation on July 9, 2007. Subsequently, the Company was converted to a public company and the name was change to D B Realty Limited, pursuant to a shareholders resolution dated September 5, 2009 and received a fresh certificate of incorporation on September 23, 2009. The Company has been engaged in the business of real estate development and there has been no change in the activities being carried out by the Company since its incorporation. About the Issue : Public issue of 32,051,282 equity shares of face value of Rs. 10 each of D B Realty Limited for cash at a price of Rs. 468 per equity share (including a share premium of Rs. 458 per equity share), aggregating Rs. 15,000 million. The issue shall constitute 13.18% of the fully diluted post-issue capital of our company. This Issue has been graded by CRISIL and has been assigned the IPO Grade 2/5 indicating below average, through its letter dated Novmber 27, 2009. Risk Factors : 1- Our business is heavily dependent on the availability of real estate financing in India. Difficult conditions in the global financial markets and the economy may cause us to experience limited availability of funds. 2- We have not obtained certain approvals for some of our projects and some of our projects are in the preliminary stages of planning and require approvals or permits and we are required to fulfil certain conditions precedent, which may delay our projects and make us incur certain additional costs.

Analysis:

If we look at the fundamentals of the company it looks below average which is also evident from the fact that CRISIL has graded the company with 2 out of 5. From the above table it is clear that the fundamental parameters has increased when pre and post issue figures are compared.Net worth of the company has increased 2.22 times which shows that profit is increasing year on year. If we look at the P/E ratio

it decreased but still a bit on higher side than the industry average of 14.16. Company has also not paid any dividend in the last two years. If we see the technical chart we can make out that the stock price has a decreasing trend although it tried to recover in the mid 2010 but dropped drastically at the end of 2010 and since then could not recover and is trading at a price below than the issue price which is also evident from its last 52 weeks low/high price. Thus we can say that although at the time of the issue the IPO was overvalued but subsequently it is now been traded at a price much less than the current book value. DB Realty is a company with below average fundamentals and overvalued IPO and neither it has paid any dividend and thus could not gain confidence of the investors and as a result its price kept on dropping. The price has fallen sharply at the end of 2010 which is not just with the company but if we look at the comparison chart the whole realty sector has fallen very sharply at the same period which is evident by the chart of BSE Realty. OVERVALUED IPOs
6. Coal India : (Issued: Nov 2010) Sector: Mining

About the Company: In order to provide for a higher growth in coal sector to meet the growing energy needs of the country, the Government in 1973, nationalized the coal mines by enacting the Coal Nationalization Act. Pursuant to the nationalization of coal mines, the company was incorporated as a private limited company with the name of Coal Mines Authority Limited, under the Companies Act on June 14, 1973. Thereafter in 1975, Department of Coal, Ministry of Energy, GoI, with a view to integrate and streamline the structural set up in a manner which could be conducive to a more efficient administration, issued letter, providing for the re-organisation of Coal Mines Authority Limited as Coal India Limited, which was to be responsible for the entire coal mining sector owned and controlled by the Central Government. In compliance with the direction from the Ministry of Energy, Department of Coal, and pursuant to a resolution of

the shareholders dated October 15, 1975 and approval of the Ministry of Law, Justice and Company Affairs, the name of the Company was changed to Coal India Limited. About the Issue: Public offer of 631,636,440 equity shares of face value of Rs. 10 each of Coal India limited through an offer for sale by the President of India, acting through the Ministry of Coal, Government of India for cash at a price of Rs. 245 per equity share aggregating up to Rs. 154,750.93 million. The offer comprises a net offer to public of 568,472,796 equity shares (the net offer) and a reservation of 63,163,644 equity shares for subscription by eligible employees (the employee reservation portion). The offer shall constitute 10.00% of the post offer paid-up equity share capital of our company and the net offer shall constitute 9.00% of the post offer paid-up equity share capital of our company. This Offer has been graded by CRISIL Limited, ICRA Limited and Credit Analysis & Research Limited, and has been assigned the CRISIL IPO Grade 5/5, IPO Grade 5/5 and CARE IPO Grade 5/5, respectively, indicating that the fundamentals of the Offer are strong relative to the other listed equity securities in India.

Analysis:

If we look at the fundamentals of the company it looks to be very strong which is also evident from the fact that CRISIL, ICRA and CARE, all the three rating agencies has graded the company as 5 out of 5. From the above table it is clear fundamental parameters such as networth has increased when pre and post issue figures are compared.PAT is showing a growth of about 50% in just one year wich is a substantial growth rate. If we look at the P/E ratio it is lower than at the time of the issue and it may be because of increase in EPS but P/E is still high as compared to industry average may be because of high price as compared to its peers.

If we see the technical chart the stock was trading at a price which on an average was near to its issue price. Thus although being an overvalued stock it was able to gain the confidence of investors and has traded at a high price even though the market was showing a slight downturn. If we see the last 52 weeks low/high price then we observe that it has traded above the issue price and that the investors has well accepted thid overvalued stock as it has strong fundamentals, GoI as promoters and the company is paying handsome dividends too.

7. Jubilant foodworks: (Issued: Feb 2010) Sector- Miscellaneous

About the Company: The Company was incorporated on March 16, 1995 under the Companies Act as a private limited company under the name Dominos Pizza India Private Limited. The Company was converted into a Public Limited company pursuant to a special resolution of our shareholders, dated September 14, 1996, following which the name was changed to Dominos Pizza India Limited, and a fresh certificate of incorporation was issued consequent to the conversion into a public limited company, on December 11, 1996. Subsequently, the name of our Company was further changed to its present name Jubilant FoodWorks Limited and a fresh certificate of incorporation was issued on September 24, 2009. About the Issue : Public offer of 22,670,447 equity shares of Rs. 10 each (the "equity shares") for cash at a price of Rs. 145 per equity share of Jubilant Foodworks limited aggregating to Rs. 3,287,214,815. The offer comprises a fresh issue of 4,000,000 equity shares by the issuer and an offer for sale of 18,670,447 equity shares by the India Private Equity Fund (Mauritius) and Indocean Pizza Holding Limited. The offer comprises a net offer to the public of 20,403,403 equity shares and a reservation of 2,267,044 equity shares for subscription by eligible employees, at the offer price. The offer shall constitute 35.63% of the post-offer share capital of our company. The net offer shall constitute 32.07% of the post-offer share capital of our company. This Offer has been graded by Fitch Ratings India Private Limited and has been assigned a grade of 3, indicating average fundamentals.

Analysis:

If we look at the fundamentals of the company it looks average which is also evident from the fact that it has been rated 3 out of 5 by the rating agency. From the above table it is clear that the fundamental parameters has increased when pre and post issue figures are compared.Net worth of the company has increased 5.48 times which shows the company is flourishing and profit is increasing year on year. If we look at the current P/E ratio it is much higher than the Industry average of 35.79. But P/E post issue has decreased as EPS has increased about 12 times

thus masking the effect of increase in price. The company has never paid any dividend still the investors are optimistic about the firm which is reflected in the continuous increase of the stock price and high trading volume. If we see the technical chart of Jubilant Foodworks Limiited we can make out that since the day of listing the stock has been traded at a price above the issue price and the trading price has maintained a continuous uptrend. Thus we can say that being an overvalued stock it has succeeded in gaining the investors confidence and thus traded continuous at prices which is much beyond the issue price and even the book value per share of the firm. 8. JSW Energy: (Issued: Jan 2010) Sector- Power Generation About the Company: The Company was originally incorporated as Jindal Tractebel Power Company Limited on March 10, 1994 as a joint venture between JSW Steel Limited and Tractebel, S.A., Belgium. The name of the Company was changed to Jindal Thermal Power Company Limited on January 17, 2002 after Tractebel, S.A., Belgium sold their holding to JSW group companies and financial institutions. The name of the Company was further changed to JSW Energy Limited on December 7, 2005 and a fresh certificate of incorporation upon change of name was issued by the Registrar of Companies, Maharashtra on December 7, 2005. The aforesaid changes were made in the name to reflect the changing nature of the business or the constitution of the company and to clearly reflect the nature of the business. About the Issue : Public issue of 269,821,236 equity shares of Rs. 10 each of JSW Energy Limited for cash at a price of Rs. 100 per equity share (including a share premium of Rs. 90 per equity share) for non institutional and QIB bidders and Rs. 95 per equity share (including a share premium of Rs. 85 per equity share) for retail individual bidders aggregating to Rs. 27,000 million (the issue). The issue will constitute 16.43% of the post issue paid-up capital of the company. The face value of equity shares is Rs. 10 each. The issue price is Rs. 100 and is 10 times the face value. This Issue

has been graded by CARE as CARE IPO Grade 4, indicating above average fundamentals through its letter dated September 9, 2009.

Analysis:

If we look at the Fundamentals of the company it looks very strong which is also evident from the fact that CARE has graded JSW Energy Ltd. with 4 out of 5. From the above table it is clear that the fundamental parameters has increased when pre and post issue figures are compared.Net worth of the company has increased 2.66 times which shows the company is flourishing and profit is increasing year on year. If we look at the current P/E ratio it is much higher (about 3 times) than the Industry average of 16.79. Very high P/E may be attributed to the decrease in EPS of the stock. If we see the technical chart of JSW Energy Ltd. we can make out that the stock has always been traded at a price higher than the issue price in the last 52 weeks. Thus we can say that being an overvalued stock it has succeeded in gaining the investors confidence and thus traded continuous at prices which is much beyond the issue price and even the book value per share of the firm. 9. Godrej Properties: (Issued: Jan 2010) Sector- Real state About the Company: Our Company was originally incorporated as Sea Breeze Constructions and Investments Private Limited on February 8, 1985 by Mr. Mohan Khubchand Thakur and Mrs. Desiree Mohan Thakur. In the year 1987, we became a part of the Godrej group and in the year 1989 we became a subsidiary of Godrej Industries Limited (erstwhile Godrej Soaps Limited). The name of our Company was changed to Godrej Properties and Investments Private Limited pursuant to a special resolution of the shareholders dated July 2, 1990. In the year 1991, the status of our Company was changed to a deemed public company by deletion of the word Private from the name of the Company. Subsequently the status was changed to a public limited company pursuant to a special resolution of the members passed at the extraordinary general meeting on August 1, 2001. Our name was further changed to Godrej Properties Limited pursuant to a special resolution of the members passed at the extraordinary general meeting on November 23, 2004. We

are a real estate development company based in Mumbai, Maharashtra and have a presence in 10 cities in India. Currently, our business focuses on residential, commercial and township developments. We are a fully integrated real estate development company undertaking our projects through our in-house team of professionals and by partnering with companies with domestic and international operations. About the Issue : Public issue of 9,429,750 equity shares of Rs. 10 each of Godrej Properties Limited where 16,97,345 equity shares were issued for cash at a price of Rs. 530 per equity share (including a share premium of Rs.520 per equity share) and 77,32,405 equity shares were issued for cash at a price of Rs. 490 per equity share (including a share premium of Rs.480 per equity share) collectively aggregating to Rs. 468.85 crores (the issue). The issue will constitute 13.5% of the post issue paid-up capital of the company. The face value of each equity share is Rs. 10. The floor price is Rs 490 and the cap price was Rs. 530. the issue price is 49 times the face value at the lower end of the price band and 53 times the face value at the higher end of the price band. The minimum bid lot is 13 equity shares. This Issue has been graded by ICRA Limited and has been assigned the IPO Grade 4, indicating above average fundamentals.

Analysis:

If we look at the Fundamentals of the company it looks very strong which is also evident from the fact that the ICRA Limited has graded Godrej Properties with 4 out of 5. From the above table it is clear that the fundamental parameters has increased when pre and post issue figures are compared.Net worth of the company has increased 2.56 times which shows the company is flourishing and profit is increasing year on year. If we look at the current P/E ratio it is much higher (about 4 times) than the Industry average of 13.97. Very high P/E may be attributed to the increase in price of the stock. Company has also paid fair dividend (40% in 2010 & 45% in 2011). If we see the technical chart of Godrej Prop. we can make out that the stock has always been traded at a price higher than its issue price since its launch which is also evident from the 52 weeks low/high price. Another thing to be noticed is that although the realty sector was on a downturn in 2011 but still Godrej Prop stock maintained its consistency in terms of pricing and trading which shows that although the investors have negative sentiment for the realty sector but has some hope with this stock. The investors are optimistic with the stock as there was certain positive news too about the company starting few new projects and acquisition too.

One more thing to be noticed is that as the book value of the firm increased about 25% the market price of the stock also increased 25% thus reflecting that the overpricing of this stock is justified by the investors and the fundamentals of the company.

NEUTRAL IPOs
10. United Bank:
(Issued: Mar 2010)
Sector: Banks

About the Company:

United Bank of India was constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 on July 19, 1969. The Head Office of the Bank was set up at 4 Clive Ghat Street. United Bank of India is one of the 14 banks which were nationalised on July 19, 1969. On October 12, 1950, the name of Bengal Central Bank Limited (established in 1918 as Bengal Central Loan Company Limited) was changed to United Bank of India Limited for the purpose of amalgamation and on December 18, 1950, Comilla Banking Corporation Limited (established in 1914), the Comilla Union Bank Limited (established in 1922), the Hooghly Bank (established 1932) stood amalgamated with the Bank. Subsequently, other banks namely, Cuttack Bank Limited, Tezpur Industrial Bank Limited, Hindusthan Mercantile Bank Limited and Narang Bank of India Limited were merged with the Bank.
About the Issue :

Public issue of 5,00,00,000 equity shares of face value of Rs. 10 each of United Bank of India for cash at a price of Rs. 66 per equity share (including a share premium of Rs. 56 per equity share) for non institutional and QIB bidders and Rs. 63 per equity share (including a share premium of Rs. 53 per equity share) for Retail Individual Bidders and eligible employees, aggregating to Rs. 324.98 crore.

The issue comprises of net issue of 4,75,00,000 equity shares of face value of Rs. 10 each to the public (net issue) and a reservation of 25,00,000 equity shares for subscription by eligible employees. The issue would constitute 15.80% of the post issue paid-up capital of the bank and the net issue will constitute 15.01% of the post issue paid up capital of the bank. This Issue has been graded by CARE as CARE IPO grade 4 indicating above average fundamentals and by ICRA as ICRA IPO grade 3 indicating average fundamentals.
Risk Factors :

1- The Government of India has in the past and may in the future direct us to implement certain schemes that are aimed at serving the interest of farmers and/or a cross section of the public. Such schemes may not necessarily be aimed at maximizing our profits and may adversely affect our business, financial condition and results of operations. Analysis:

If we look at the fundamentals of the company it looks above average which is also evident from the fact that CARE has graded the company with 4 out of 5 but ICRA has graded it with 3 out of 5. From the above table it is clear that the fundamental parameters has increased when pre and post issue figures are compared.Net worth of the company has increased 1.81 times which shows that profit is increasing year on year. If we look at the P/E ratio it decreased and even is less than the industry average of 8.05. Company has not paid a high dividend but is consistent in dividend paying. If we see the technical chart of UBI we can make out that the stock has been traded at a price higher than the issue price since its launch but it is came near to the issue price which we can see from last 52 week trade. Thus we see that although the company is getting good profit and paying dividend but still it couldnt gain investors confidence may be because there is hardly any increase in PAT of the company and therefore investors acceptance is neutral.

11. NHPC : (Issued: Sep 2009) Sector- Power Generation/ Distribution About the Company:

The Company was incorporated on November 7, 1975 under the Companies Act as a private limited company under the name National Hydro Electric Power Corporation Private Limited. The word private was subsequently deleted on September 18, 1976. The Company was converted to a public limited company w.e.f. April 2, 1986. Pursuant to a shareholders resolution dated March 13, 2008, the name of our Company was changed to its present name NHPC Limited and a fresh certificate of incorporation consequent upon change of name was issued by the RoC, National Capital Territory of Delhi and Haryana, on March 28, 2008. About the Issue : Public issue of 1,67,73,74,015 equity shares of Rs. 10 each for cash at a price of Rs. 36 per equity share of NHPC Limited aggregating Rs. 6038.55 crore. The issue comprises a fresh issue of 1,11,82,49,343 equity shares by NHPC and an offer for sale of 55,91,24,672 equity shares by the President of India acting through the ministry of power, Government of India. The issue comprises a net issue to the public of 1,63,54,39,665 equity share and a reservation of 4,19,34,350 equity shares for subscription by eligible employees, at the issue price. The issue shall constitute 13.64% of the post-issue capital of NHPC. This Issue has been graded by ICRA Limited and has been assigned a grade of 3/5 indicating average fundamentals. Analysis:

If we look at the fundamentals of the company it looks average which is also evident from the fact that ICRA has graded the company 3 out of 5. From the above table it is clear that the fundamental parameters has increased when pre and post issue figures are compared.Net worth of the company has increased 1.37 times which shows that profit is increasing year on year. If we look at the P/E ratio it decreased may be because of increase in EPS and decrease in stock price and it is much lower than the industry average of 17.39. Company has also not paid good dividend in the last two years. If we see the technical chart we see that the stock has always traded at a price lower to its issue price and was never recovered back. If compared with the power sector, actually the whole power sector was on a downturn which is seen through the BSE Power Index. Thus we can say that although at the time of the issue the IPO was a bit overvalued but it could not convince the investors as it paid very low dividend being a large cap company. And currently it is been traded at a price near to its current book value.