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Project report
Submitted in Partial Fulfillment of the
Requirements and for the award of Degree of
BY
First of all I would like to convey my sincere gratitude to Dr. S. Zarar and
Mrs. Ritu Zarar, Principal and chairman (Institute for Computers and
Business Management) for their unprecedented support and giving me an
opportunity to do my summer internship program at RELIGARE SECURITIES
LTD, which has been a pure learning experience and has enlightened my
knowledge and skills about financial aspect.
I hereby declare that the project on Study on Indian Initial Public Offering
(IPO) market and its Regulatory aspect with reference to Religare
Securities Ltd in Hyderabad is completely my work. It has been submitted to
ICBM-SCHOOL OF BUSINESS EXCELLENCE for partial fulfillment of the
educational session and allotment of marks.
2 INDUSTRY PROFILE 8
2.1 Initial Public Offer 8-10
2.2 SEBI (Regulatory Aspect) 11-12
2.3 NSE 13-14
2.4 BSE 15-16
3 COMPANY PROFILE 17
3.1 Name of the Organization 17
3.2 History and background 18
3.3 Group structure 19
3.4 About Religare Sec. limited 20-21
3.5 The Religare Edge 21-22
3.6 Company IPO 23
7 BIBLIOGRAPHY 69
8 ANNEXURE 70-77
INTRODUCTION
This report, as the title Public issue suggests, is an attempt to bring forth the
importance of the process of Issue of an Initial Public Offer (IPO).
Many Intermediaries are appointed for the purpose of managing the public
issue of an IPO of a company. They play a vital role by co-ordinating the
activities of the company, the Regulatory Bodies and Investors. The
following are the responsibilities:
This report will take the reader through the entire process of the
Issue of an IPO and will lay special emphasis on the dynamic role played
by them.
This report aims at highlighting the key points about an IPO issue by
separating the concrete points regarding an issue from the frills, and
focusing on these concrete points.
-2-
Objectives of the Project
To study and analysis the Indian initial public offering (IPO) market and
Role of its regulatory aspect.
-3-
Scope of the Project
detailed study on the Primary and secondary Market in India. A long with study
on IPO process and its regulatory aspect. This study takes into account Public
a) Industrials
The study analyses the behavior of public offerings of companies within each
sector and also attempts to make a comparative analysis among the sectors,
with the purpose of gauging investor preference. Over subscription and under
-4-
Research Methodology
Sources of Study
The data for the project has been collected from both primary and
secondary sources.
Also, IPO prospectus and all the necessary documents required for, and
furnished by, the companies for managing the issue of IPOs and IPO
process have been used as primary data.
Secondary data
It includes, information secured from web sites, magazines and the daily
experience, observations and through newspapers.
Books related to Financial Management.
-5-
Limitations of the project
Although Initial Public Offers are issued by many companies, this study
is confined to a few companies only. These are companies that fall within
limited company.
The scope of the study is very vast. It is very difficult to cover and focus
on all the areas. Therefore an attempt is made to cover as much as
possible.
-6-
Review of Literature
This report talks about how IPO helps in raising fund for the companies going
public, what are its pros and cons, and also it gives us detailed idea why
companies go public. How and what are the steps taken by the companies
before going for any IPO and also the role of (SEBI) Securities and Exchange
Board of India the BSE and NSE , what are primary and secondary markets and
also the important terms related to IPO. It gives us idea of how IPO is driven in
the market and what are various factors taken into consideration before going
for an IPO. And it also tells us how we can more or less judge a good IPO.
IPO has been one of the most important generators of funds for the small
companies making them big and given a new vision in past and it is still
continuing its work and also for many coming years.
-7-
INDUSTRY PROFILE
INDIAN IPO MARKET
HISTORY
The term initial public offering (IPO) slipped into everyday speech during the
tech bull market of the late 1990s. Back then, it seemed you couldn't go a day
without hearing about a dozen new dotcom millionaires in Silicon Valley who
were cashing in on their latest IPO. The phenomenon spawned the term
siliconaire, which described the dotcom entrepreneurs in their early 20s and 30s
who suddenly found themselves living large on the proceeds from their internet
companies' IPOs.
INVESTORS are still wary of equities in the 1990s, to blame are the excesses in
the primary market in the 1990s. Of the thousands of IPOs (initial public
offerings) and offers for sale made between 1994 and 1996, less than a hundred
were from companies with track record. Even in this shortlist, only a few
managed to complete planned projects and deliver value to investors. The rest
just frittered the money away.
The primary market of the mid-1990s was merely used as a channel to move
public funds into private hands. The Securities and Exchange Board of India
(SEBI) was late to wake up to the excesses, but when it did, it improved the
disclosure framework, tightened the prerequisites for an IPO, and towards the
end of the decade, introduced book-building.
-8-
CURRENT POSITION OF INDIAN IPO MARKET
India is being lauded as the savior of the ailing global IPO market with $3.3
billion worth of proceeds from eight deals. This makes India the largest IPO
market in the world so far this year.
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.
It was the real estate sector which took the maximum advantage of the bullish
stock market trends in 2007. According to the industry body Assocham, real
estate players raised the maximum amount of funds from the capital market
through IPOs last year. Realty firms picked up around 42.7% of the total funds
generated through IPOs. Of the Rs.34,119 crore raised in the primary market in
the period starting from January 1, 2007 to mid-December, about Rs.14,591
crore was raised by the realty firms.
Secondary markets out performed primary markets in 2009, but we expect 2010
will be exciting performance for both primary and secondary markets.
With more than 60 firms already in process for approval form SEBI to raise
approximate INR 400B, we expect the number of draft offer document filed
with SEBI will match the levels of 2007
The divestment programme is expected to gain the momentum in 2010, with
government expecting to raise INR 500 B by end of 2010.
-9-
2010 will see the IPOs of BSNL and RITES and FPO of SAIL.
With the handy increase in liquidity in market and stabilization in secondary
markets, the companies will raise money with ease in early in 2010.
PRIMARY MARKET AND SECONDARY MARKET
When shares are bought in an IPO it is termed primary market. The primary
market does not involve the stock exchanges. A company that plans an IPO
contacts an investment banker who will in turn called on securities dealers to
help sell the new stock issue.
This process of selling the new stock issues to prospective investors in the
primary market is called underwriting.
ADVANTAGES
Increased capital
Liquidity
Increased Prestige
Valuation
Increased wealth
DISADVANTAGES
The Securities and Exchange Board of India was established on April 12, 1992
in accordance with the provisions of the Securities and Exchange Board of
India Act,1992.
The PREAMBLE of the Securities and Exchange Board of India describes the
basic functions of the Securities and Exchange Board of India as
The mission of SEBI is to make India as one of the best securities market of the
world and SEBI as one of the most respected regulator in the world.
OBJECTIVE
SEBI is responsible for prohibiting fraudulent and unfair trade practices relating
to securities markets.
-12-
The National Stock Exchange (NSE) is India's leading stock exchange covering
various cities and towns across the country. NSE was set up by leading
institutions to provide a modern, fully automated screen-based trading system
with national reach. The Exchange has brought about unparalleled transparency,
speed & efficiency, safety and market integrity. It has set up facilities that serve
as a model for the securities industry in terms of systems, practices and
procedures.
The Organization
The National Stock Exchange of India Limited has genesis in the report of the
High Powered Study Group on Establishment of New Stock Exchanges, which
recommended promotion of a National Stock Exchange by financial institutions
(FIs) to provide access to investors from all across the country on an equal
footing. Based on the recommendations, NSE was promoted by leading
Financial Institutions at the behest of the Government of India and was
incorporated in November 1992 as a tax-paying company unlike other stock
exchanges in the country.
On its recognition as a stock exchange under the Securities Contracts
(Regulation) Act, 1956 in April 1993, NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994. The Capital Market
(Equities) segment commenced operations in November 1994 and operations in
Derivatives segment commenced in June 2000.
-13-
Market Segments and Products
NSE provides a trading platform for of all types of securities for investors under
one roof Equity, Corporate Debt, Central and State Government Securities, T-
Bills, Commercial Paper (CPs), Certificate of Deposits (CDs), Warrants, Mutual
Funds (MFs) units, Exchange Traded Funds (ETFs), Derivatives like Index
Futures, Index Options, Stock Futures, Stock Options and Currency Futures.
The above graph depicts the turnover of NSE from 2000 to 2007,the graph
shows from a mare turnover of above 1,000,000 crore in the year 2000 how it
has decreased and increased to more than 3,500,000 crore in the year 2007,
constant increase in turnover itself proves the growth and attractiveness of this
market.
-14-
Bombay Stock Exchange Limited (the Exchange) is the oldest stock exchange
in Asia with a rich heritage. Popularly known as "BSE", it was established as
"The Native Share & Stock Brokers Association" in 1875. It is the first stock
exchange in the country to obtain permanent recognition in 1956 from the
Government of India under the Securities Contracts (Regulation) Act, 1956.The
Exchange's pivotal and pre-eminent role in the development of the Indian
capital market is widely recognized and its index, SENSEX, is tracked
worldwide. Earlier an Association of Persons (AOP), the Exchange is now a
demutualised and corporatised entity incorporated under the provisions of the
Companies Act, 1956, pursuant to the BSE Scheme, 2005 notified by the
Securities and Exchange Board of India (SEBI).Bombay Stock Exchange
Limited received its Certificate of Incorporation on 8th August, 2005 and
Certificate of Commencement of Business on 12th August, 2005. The 'Due
Date' for taking over the business and operations of the BSE, by the Exchange
was fixed for 19th August, 2005, under the Scheme. The Exchange has
succeeded the business and operations of BSE on going concern basis and its
recognition as an Exchange has been continued by SEBI
The Exchange has a nation-wide reach with a presence in 417 cities and towns
of India. The systems and processes of the Exchange are designed to safeguard
market integrity and enhance transparency in operations. During the year 2004-
2005, the trading volumes on the Exchange showed robust growth.
-15-
Coverage:
The equity shares of 200 selected companies from the specified and non
specified lists of this Exchange have been considered for inclusion in the sample
for `BSE-200'. The selection of companies has primarily been done on the basis
of current market capitalization of the listed scripts on the exchange. Besides
market capitalization, the market activity of the companies as reflected by the
volumes of turnover and certain fundamental factors were considered for the
final selection of the 200 companies.
The financial year 1989-90 has been chosen as the base year for the price
stability exhibited during that year and due to its proximity to the current period.
The above graph shows the turnover in BSE from the year 2000 to the year
2007.
The graph easily shows that the turnover of BSE has increased in leaps and
bounds over the given period.
-16-
COMPANY PROFILE
Corporate Office:
19 Nehru Place, New Delhi 110019
Website: www.religare.in
Email: info@religare.in
SMS: RELIGARE to 5888
PUNE:
Ground Floor, Amar Caliber,
BMCC Road, Shivajinagar,
Pune 411004
AHMEDNAGAR:
5&6, Himalaya Tower,
Opp. Deepak Hospital,
Savedi Road,
Ahmednagar 414003
-17-
HISTORY AND BACKGROUND
REL operates from seven domestic regional offices, 43 sub-regional offices, and
has a presence in 498* cities and towns controlling 1,837* business locations all
over India.
To make a mark in the global arena, REL acquired UK-based Hichens, Harrison
& Co. in 2008 which was subsequently re-named as Religare Hichens Harrison
PLC ("RHH"). Hichens, Harrison & Co. was incorporated in London in the year
1803 and is believed to be one of the oldest firms of stockbrokers in the City of
London. Pursuant to expansion of REL's business, the company has grown from
largely an equity trading company into a diversified financial services company.
With the addition of RHH the REL group now operates out of multiple global
locations, other than India, (the UK, the USA, Brazil, South Africa, Dubai and
Singapore).
RELIGARE was founded with the vision of providing integrated financial care
driven by the relationship of trust. The bouquet of services offered by
RELIGARE includes Broking (Stocks and Commodities), Depository
Participant Service, Advisory on Mutual Fund Investments and Portfolio
Management Services.
LIMITED
Religare Insurance Religare finance
-19-
ABOUT RELIGARE SECURITIES LIMITED
BRND IDENTITY
Name
Religare is a Latin word that translates as 'to bind together'. This name has been
chosen to reflect the integrated nature of the financial services the company
offers.
Symbol
The Religare name is paired with the symbol of a four-leaf clover. Traditionally,
it is considered good fortune to find a four-leaf clover as there is only one four-
leaf clover for every 10,000 three-leaf clovers found.
For us, each leaf of the clover has a special meaning. It is a symbol of Hope.
Trust. Care. Good Fortune. For the world, it is the symbol of Religare.
The second leaf of the clover represents Trust, The ability to place
ones own faith in another. To have A relationship as partners in a team. To
accomplish a given goal with the balance that brings satisfaction to all, not in
the binding, but in the bond that is built.
-20-
The third leaf of the clover represents Care, The secret ingredient
that is the cement in every relationship. The truth of feeling that underlines
sincerity and the triumph of diligence in every aspect. From it springs true
warmth of service and the ability to adapt to evolving environments with
consideration to all.
The fourth and final leaf of the clover represents Good Fortune.
Signifying that rare ability to meld opportunity and planning with circumstance
to generate those often looked for remunerative moments of success.
Diverse offerings
Synergistic partnerships
Innovative Initiative
-21-
RELIGARE GLOBAL NETWORK
Religare operate across multiple locations & countries.
INDIA
DUBAI
QATAR
HONG KONG
MALAYSIA
SINGAPORE
TOKYO
INDONESIA
BRAZIL
NEW YORK
SAN FRANCISCO
UNITED KINGDOM
-22-
Companys IPO
Book Floor
Sr. Name Running Date No. of Price Exit
No of the Lead of No. of bidding Issue (in Price
issue Manager issue members centers Size Rs) (in
Rs
KAUSAR Religare Mar 23,
1 INDIA
capital
2009 to
13.00
LIMITED Mar 25, 1 30 9,74,268 50.54
markets 2009
limited
EMMBI KEYNOTE 01/02/ 95.74 40 TO
2 POLYARNS 2010 TO
84 51 45
CORPORATION 45
LIMITED 03/02/
SERVICE
2010
LIMITED
-23-
INITIAL PUBLIC OFFERING
-24-
A company's first sale of stock to the public. Securities offered in an IPO are
often, but not always, those of young, small companies seeking outside equity
capital and a public market for their stock. Investors purchasing stock in IPOs
generally must be prepared to accept very large risks for the possibility of large
gains. IPO's by investment companies (closed end funds) usually contain
underwriting fees which represent a load to buyers.
Corporate may raise capital in the primary market by way of an initial public
offer, rights issue or private placement. An Initial Public Offer (IPO) is the
selling of securities to the public in the primary market. This Initial Public
Offering can be made through the fixed price method, book building method or
a combination of both.
In case the issuer chooses to issue securities through the book building route
then as per SEBI guidelines, an issuer company can issue securities in the
following manner:
a) 100% of the net offer to the public through the book building route.
b) 75% of the net offer to the public through the book building process
-26-
PROCESS OF AN IPO
The Process:
The Issuer specifies the number of securities to be issued and the price
band for orders.
The Issuer also appoints syndicate members with whom orders can be
placed by the investors.
Investors place their order with a syndicate member who inputs the orders
into the 'electronic book'. This process is called 'bidding' and is similar to
open auction.
On the close of the book building period the 'book runner evaluates the
bids on the basis of the evaluation criteria which may include -
Price Aggression
Investor quality
-27-
The book runner and the company conclude the final price at which it is
willing to issue the stock and allocation of securities.
Generally, the number of shares are fixed, the issue size gets frozen based
on the price per share discovered through the book building process.
The red herring prospectus may contain either the floor price for the securities
or a price band within which the investors can bid. The spread between the floor
and the cap of the price band shall not be more than 20%. In other words, it
means that the cap should not be more than 120% of the floor price. The price
band can have a revision and such a revision in the price band shall be widely
disseminated by informing the stock exchanges, by issuing press release and
also indicating the change on the relevant website and the terminals of the
syndicate members. In case the price band is revised, the bidding period shall be
extended for a further period of three days, subject to the total bidding period
not exceeding thirteen days
Pricing is critical and the most important process in IPO. Pricing involves lot of
research and calculations. Pricing is done in such a way that investors are
benefited and also the companys objective is achieved that is its aim for an IPO
is achieved. Thus, pricing is the most important factor in IPO process generally
there are two methods of IPO pricing .-28-
Fixed Pricing
PROCEDURE
The sale (that is, the allocation and pricing) of shares in an IPO may take
several forms. Common methods include:
Dutch auction
Firm commitment
Best efforts
Bought deal
Self Distribution of Stock
A large IPO is usually underwritten by a "syndicate" of investment banks led by
one or more major investment banks (lead underwriter). Upon selling the
shares, the underwriters keep a commission based on a percentage of the value
of the shares sold. Usually, the lead underwriters, i.e. the underwriters selling
the largest proportions of the IPO, take the highest commissionsup to 8% in
some cases.
Multinational IPOs may have as many as three syndicates to deal with differing
legal requirements in both the issuer's domestic market and other regions. For
example, an issuer based in the E.U. may be represented by the main selling
syndicate in its domestic market, Europe, in addition to separate syndicates or
selling groups for US/Canada and for Asia. Usually, the lead underwriter in the
main selling group is also the lead bank in the other selling groups.
Because of the wide array of legal requirements, IPOs typically involve one or
more law firms with major practices in securities law, such as the Magic Circle
firms of London and the white shoe firms of New York City. -29-
Usually, the offering will include the issuance of new shares, intended to
raise new capital, as well the secondary sale of existing shares. However,
certain regulatory restrictions and restrictions imposed by the lead underwriter
are often placed on the sale of existing shares.
Public offerings are primarily sold to institutional investors, but some shares are
also allocated to the underwriters' retail investors. A broker selling shares of a
public offering to his clients is paid through a sales credit instead of a
commission. The client pays no commission to purchase the shares of a public
offering; the purchase price simply includes the built-in sales credit.
Fixed Pricing
An issuer company is allowed to freely price the issue. The basis of issue price
is disclosed in the offer document where the issuer discloses in detail about the
qualitative and quantitative factors justifying the issue price. Fixed price does
not allow an opportunity to the issuer or the merchant banker to do any
discretionary allotment, which is possible only in a book building issue. So
there is one factor that we should remember which drives book building issue
more.
Book Building is basically a capital issuance process used in Initial Public Offer
(IPO) which aids price and demand discovery. It is a process used for marketing
a public offer of equity shares of a company. It is a mechanism where, during
the period for which the book for the IPO is open, bids are collected from
investors at various prices, which are above or equal to the floor price. The
process aims at tapping both wholesale and retail investors. -30-
The offer/issue price is then determined after the bid closing date based on
certain evaluation criteria.
Difference between shares offered through book building and offer of shares
through normal public issue:
-32-
-33-
SEBI (DIP) Guidelines Given for Book Building
11.2 In an issue of securities to the public through a prospectus the option For
75% book building shall be available to the issuer company subject To the
following:
(I)
(ii)
(b) The issuer company shall have an option of either reserving the
Securities for firm allotment or issuing the securities through book building
Process.
(iii)
-34-
(iv)
(v)
(vi)
The draft prospectus containing all the information except the information
regarding the price at which the securities are offered shall be filed with the
Board.
(vii)
One of the lead merchant banker to the issue shall be nominated by the
issuer company as a Book Runner and his name shall be mentioned in the
prospectus.
(viii)
(a) The copy of the draft prospectus filed with the Board may be
circulated by the Book Runner to the institutional buyers who
are eligible for firm allotment and to the intermediaries eligible
to act as underwriters inviting offers for subscribing to the
securities.
-35-
(b) The draft prospectus to be circulated shall indicate the price band
within which the securities are being offered for subscription.
(ix)
The Book Runner on receipt of the offers shall maintain a record of the
names and number of securities ordered and the price at which the institutional
buyer or underwriter is willing to subscribe to securities under the placement
portion.
(x)
Subscription list for public issues shall be kept open for at least 3 working
days and not more than 10 working days. In case of Book built issues, the
minimum and maximum period for which bidding will be open is 37 working
days extendable by 3 days in case of a revision in the price band. The public
issue made by an infrastructure company, may be kept open for a maximum
period of 21 working days and Rights issues shall be kept open for at least 30
days and not more than 60 days.
-36-
B) 195(Offer to Public through Book Building Process)
11.3
a.100% of the net offer to the public through book building process, or
b.75% of the net offer to the public through book building process and
11.3.1
(I) 197(Deleted)
(iii) Book Building shall be for the portion other than the promoters
Contribution and the allocation made to:
(a) Permanent employees of the issuer company and in the case of a new
Company the permanent employees of the promoting companies';
-37-
198
((c) persons who, on the date of filing of the draft offer document with
the Board, have business association, as depositors, bondholders and
Subscribers to services, with the issuer making an initial public offering,
provided that allotment to such persons shall not exceed 5% of the issue
Provided further that no reservation shall be made for the issue management
team, syndicate members, their promoters, directors and employees and for the
group/associate companies of issue management team and syndicate members
and their promoters, directors and employees.)
(iv)
199
((iv) (a) The issuer company shall enter into an agreement with one or
more of the Stock Exchange(s) which have the requisite system of on-line offer
of securities. The agreement shall specify inter-alia, the rights, duties,
responsibilities and obligations of the company and stock exchange (s) inter se.
The agreement may also provide for a dispute resolution mechanism between
the company and the stock exchange.
(iv) (b) The company may apply for listing of its securities on an
exchange other than the exchange through which it offers its securities to public
through the on-line system.)
-38-
200
(V) The Lead Merchant Banker shall act as the Lead Book Runner.)
201
((v) (a) In case the issuer company appoints more than one 202(merchant
banker(s)), the names of all such (merchant bankers(s)) who have submitted the
due diligence certificate to SEBI, may be mentioned on the front cover page of
the prospectus. A disclosure to the effect that " the investors may contact any of
such (merchant bankers(s)), for any complaint pertaining to the issue" shall be
made in the prospectus, after the "risk factors.)
203
((v) (b) The lead book runner/issuer may designate, in any manner, the
other Merchant Banker(s), subject to the following;
-39-
The Merchant Bankers are free to set their criteria and mention the same in the
Red Herring Prospectus.
-40-
Book Building at NSE
The NSE has set up nation-wide network for trading whereby members can
trade remotely from their offices located all over the country. The NSE trading
network spans various cities and towns across India.
NSE decided to offer this infrastructure for conducting online IPOs through the
Book Building process. NSE operates a fully automated screen based bidding
system called NEAT IPO that enables trading members to enter bids directly
from their offices through a sophisticated telecommunication network.
Book
Building through the NSE system offers several advantages:
It provides a fair, efficient & transparent method for collecting bids using
latest electronic trading systems
Costs involved in the issue are far less than those in a normal IPO
Procedures
Issuers
Issuers desirous of using NSE's online IPO system are required to comply with
the following procedures:
The Book Running Lead Manager will give the list of trading members who are
eligible to participate in the Book Building process to the Exchange. Members
have to submit a one time undertaking to the Exchange. Eligible trading
members have to give in the prescribed format details of the user IDs that they
would like to use.
Subscribers
Subscribers can approach any of the approved trading members for submitting
bids in the NEAT IPO system. On line transaction registration slip are generated
automatically after entering the bids in to the system which acts as proof of the
registration of each Bid option.
-42-
BSE's Book Building System
BSE offers the book building services through the Book Building
software that runs on the BSE Private network.
The companies are classified into two categories: large cap and Small cap. A
company is treated as a large cap company if the issue size is greater than or
equal to Rs 10 crore and market capitalization of not less then Rs 25 crore.
-43-
A) In case of large cap companies
Authorized capital is the amount for which a company has got the authorization
from the regulatory body to raise through the issue. A company may or may not
want to raise the full amount of authorized capital. Issue size is the amount that
a company want to raise funds through the issue. Its always less than or equal
to authorized capital.
Part payment facility may be available for the investors who want to subscribe
to an issue. Post-issue paid-up capital is the value of subscriptions (including
promoters holding) paid at the end of issue date. This will be less than issue
size if the total subscriptions are less than the offered shares or when there is
part payment facility available for the issue.
In addition to this, the issuer company should have a post issue net worth
(equity capital + free reserve excluding revaluation reserve) of Rs 20 crore.
-45-
Listing Fees (BSE)
-46-
Role of Lead manager
In the pre-issue process, the Lead Manager (LM) takes up the due
diligence of companys operations/ management/ business plans/ legal etc.
Other activities of the LM include drafting and design of Offer documents,
Prospectus, statutory advertisements and memorandum containing salient
features of the Prospectus. The book running lead manager (BRLMs) shall
ensure compliance with stipulated requirements and completion of prescribed
formalities with the Stock Exchanges, RoC and SEBI including finalisation of
Prospectus and RoC filing. Appointment of other intermediaries viz.,
Registrar(s), Printers, Advertising Agency and Bankers to the Offer is also
included in the pre-issue processes.
The lead manager also draws up the various marketing strategies for the issue.
The post issue activities including management of escrow accounts, coordinate
non-institutional allocation, intimation of allocation and dispatch of refunds to
bidders etc are performed by the LM. The post Offer activities for the Offer will
involve essential follow-up steps, which include the finalization of trading and
dealing of instruments and dispatch of certificates and demat of delivery of
shares, with the various agencies connected with the work such as the
Registrar(s) to the Offer and Bankers to the Offer and the bank handling refund
business. The merchant banker shall be responsible for ensuring that these
agencies fulfill their functions and enable it to discharge this responsibility
through suitable agreements with the Company.
-47-
Role of registrar
The Registrar finalizes the list of eligible allottees after deleting the
invalid applications and ensures that the corporate action for crediting of shares
to the demat accounts of the applicants is done and the dispatch of refund orders
to those applicable are sent. The Lead manager coordinates with the Registrar to
ensure follow up so that that the flow of applications from collecting bank
branches, processing of the applications and other matters till the basis of
allotment is finalized, dispatch security certificates and refund orders completed
and securities listed.
Bankers to the issue, as the name suggests, carries out all the activities of
ensuring that the funds are collected and transferred to the Escrow accounts.
The Lead Merchant Banker shall ensure that Bankers to the Issue are appointed
in all the mandatory collection centers as specified in DIP Guidelines. The lead
manager also ensures follow-up with bankers to the issue to get quick estimates
of collection and advising the issuer about closure of the issue, based on the
correct figures.
Merchant Banking
Investment Banking
Private Equity
Acquisition
Acquisition is the process through which one company takes over the
controlling interest of another company. Acquisition includes obtaining supplies
or services by contract or purchase order with appropriated or non-appropriated
funds, for the use of Federal agencies through purchase or lease.
Venture Capital
-49-
Underwriter
FPO
FPO means following public offer when a company goes for an public
offer after going for an IPO it is known as Following Public Offer(FPO). It may
go for an public offer if it is again in requirement of funds for new projects, for
expansion or for dilution of holding of shares. -50-
IPO Grading
.2 Where an issuer opts to obtain IPO grading under clause 5.6B.1, it shall
disclose all grades so obtained by it, including unaccepted grades, in the
prospectus and abridged prospectus.
-51-
Data Analysis and interpretation
-52-
Analysis last six year (2004-2009) no. of issue and issue amount
2004 23 13,749
2005 76 10,936
2006 76 28,504
2007 84 42,595
2008 21 3582
2009 17 1978
-53-
Interpretation:
As shown in the table during the economic boom there were much more IPOs.
During 2007-2008 the share market witnessed its highest number of IPOs in
past one decade and highest issue amount. Due to inflation and slowdown in
economic it affect the Indian IPO market in year 2008, 2009.
-54-
Indias Largest IPOs in 2009
During 2009, there were 20 IPOs. Of which, 16 IPOs have listed and 4
IPOs are yet to be listed.
Of the 16 IPOs that have listed, 5 IPOs have received investment from
Anchor Investors; and 11 IPOs have not received investment from
Anchor Investors.
company Anchor Issue Size Current Issue Issue Price (INR) Return*
investor (INRM) Value Size Price 31 Dec09 (%)
INR M ($M) (INR)
Adani
Power Yes 30,165 29,200 621.7 36 34.0 -5.6%
Ltd.
Pipavav
Shipyard Yes 4,956 4,540 102.8 58 54.2 -6.6%
Ltd.
Indiabulls
Power Ltd Yes 15,291 11,350 332.0 45 34.9 -22.4
DEN
Networks Yes 3,900 3,760 82.4 195 196.0 0.5%
Ltd.
Cox and
Kings Yes 6,105 7,680 131.3 330 452.2 37.0%
(India)
Ltd
Total 60,417 56330 2.9
-55-
-56-
Interpretation
Of the 5 IPOs that have received investment from Anchor Investors, 3 IPOs are
trading below the issue price (that is 60% of such issues) and only 2 IPO is
trading above the issue price. On an aggregate basis, about Rs. 60417 Crores is
mobilized by such IPOs that have received anchor investors. However, the
current value of such IPOs is down to Rs. 5,6330 Crores, indicating a Mark-to-
Market loss of about Rs. 4087 Crores, indicating current Mark-to-Market profit
of 2.9 %.
0.00%
-10.00%
-20.00%
-30.00%
-50.00%
-60.00%
Excel NHPC ltd Euro
infoways multivision
ltd ltd
Interpretation
Outof the 11 IPOs that have not received investment from Anchor investors,
about 6 IPOs are trading above the issue price and 5 IPOs are trading below the
issue price. The total amount that is mobilized by such IPOs that have not
received investment from Anchor investors is about Rs. 9,6131 Crores. And, the
current value of such IPOs is increased to about Rs. 9,6900 Crores, indicating a
Mark-to-Market gain of about Rs. 769 Crores, indicating current Mark-to
Market gain of +0.81%.
Even though the IPO market has tried to stage a comeback during 2009, the
listing performances of several high profile companies has been disappointing,
raising the concerns about the recovery of the primary market. Further, even the
IPOs which could able to attract the anchor investors interest, couldn't able to
fare well. In fact, the IPOs which have received the investment from Anchor
Investors have underperformed in comparison to the IPOs which have not
received the investment from Anchor Investors.
-60-
Sector Wise Comparison (Volume)
-61-
Interpretation
(REI) Healthcare and BFSI sector didnt have any offering in 2009, but
contributed more than 25% (in total volume) in 2008
2IPOs from (REI) and 1 each from (TMT) and Energy & power made their
debut in 2009, but are to be listed in 2010
Interpretation
-64-
Findings
&
Conclusion
-65-
Major Findings
-66-
Conclusion
IPO is used by a company to raise its funds. The extra amount obtained from
public may be invested in the development o f the company, although it costs a
little to a company but it gives a way to get more money for long term
investments.
-67-
SUGGESTIONS
The investment in IPO can prove too risky because the investor does not
know anything about the company because it is listed first time in the
market so its performance cannot be measure.
On the other hand it can be said that the higher the risk higher the returns
earned. So we can say that the though risky if investment is done then it
can give higher returns as well.
Primary market is more volatile than the secondary market because all
the companies are listed for the first time in the market so nothing can be
said about its performance.
-68-
BIBLIOGRAPHY
Websites:
www. bseindia.com
www.religareonline.in
www. business-standard.com
www.moneycontrol.com
www.nseindia.com
www.bseindia.com
http://www.theinvestor.tv/money/thebrokerageindustry.htm
http://www.economywatch.com/market/share-market/share-market
trading.html
-69-
ANNEXURE
Reliance Power IPO has been issued by Reliance Power Limited. Reliance
Power IPO was issued on 15th January, 2008 and closed on 18th January, 2008.
Reliance Power Limited Company is planning to generate capital worth Rs. 11,
700 crores through the IPO. This makes it the largest IPO in the country as on
17th January, 2008. The price band of the equity shares of Reliance Power IPO
has been fixed at Rs. 405- 450 per equity share.
The total size of Reliance Power IPO is around 26 crores equity shares.
Reliance Power IPO will be listed on the National Stock Exchange (NSE) and
also on the Bombay Stock Exchange (BSE). The lead bankers of Reliance
Power IPO are Enam Securities, Kotak Mahindra Capital Co, ABN Amro
Rothschild, ICICI Securities, JP Morgan Chase & Co, UBS AG and Deutsche
Bank AG.
The main objective of Reliance Power IPO is that the proceeds from the issue
will be used to fund the power generation projects that the company plans to
carry out.
-70-
Kingfisher till date has not launched any IPO, but has expressed its wish to
launch one soon. This IPO would be used to fund its aggressive
expansion plans in India. The accumulated corpus would be utilized to fund its
airline business and to payoff debt for its acquired liquor company Shaw
Wallace & Company.
The brand Kingfisher is being owned by the business conglomerate United
Breweries Group. The brand is being used for two business entities Airlines
and Alcoholic Beverage. The Airlines operates under the name of "Kingfisher
Airlines" and the alcoholic beverage segment manufactures "Beer" and
"Mineral Water" under the same brand name. Till now the company has not
launched any IPO to fund its aggressive expansion plans, but plans to launch it
in near future to raise capital. Dr Vijay Mallya is the Chairman and CEO of both
the segments. The Chief of the United Breweries Holding Ltd (UBHL), Mr
Vijay Mallaya, said that the group would come up with an Initial Public
Offering in 2008 and would raise a total corpus of US$ 400 million. The Initial
Public Offering of the Kingfisher Airlines would target a corpus of US$ 200
million and the rest would be raised through the IPO of the liquor business.
Kingfisher Airline IPO, to be issued for the first time in the year 2008, to
finance the airline's expansion and funding of A380s air fleet.
-71
The Maruti IPO has set a price range of Rs. 125 per share above the Floor
price of Rs. 115. The subscription for Maruti IPO opened on June 12, 2003 and
closed on June 19, 2003. The response to Maruti IPO was overwhelming within
the subscription period, which led to an over-subscription of the public offerings
of Maruti by more than ten times.
-73-
IPO GLOSSARY
Allocation
This is the amount of stock in an initial public offering (IPO) granted by the
underwriter to an investor.
Aftermarket
Trading in the IPO subsequent to its offering is called the aftermarket.
Aftermarket Orders
Underwriters look favorably on investors who buy IPOs in the days after the
IPO first goes public. While underwriters cannot solicit aftermarket orders,
some expect investors to purchase two or three times their IPO allocation in the
aftermarket.
B
Board of Directors
The composition of the Board of Directors is particularly critical for an IPO.
Typically, a board is composed of inside and outside directors.
Broken IPOs
If an IPO trades below its IPO price in the aftermarket, it is said to be a broken
IPO.
C
Calendar
This refers to upcoming IPOs and secondary offerings. Brokerage houses have
equity calendars, bond calendars and municipal calendars.
Clearing Price
The price at which all shares of an IPO can be sold to investors in a Dutch
Auction. Sometimes referred to as the market clearing price.
-74-
F
First Day Close
The closing price at the end of the first day of trading reflects not only how well
the lead manager priced and placed the deal, but what the near-term trading is
likely to be.
Float
When a company is publicly traded, a distinction is made between the total
number of shares outstanding and the number of shares in circulation, referred
to as the float. The float consists of the company's shares held by the general
public.
G
Green Shoe
A typical underwriting agreement allows the underwriters to buy up to an
additional 15% of shares at the offering price for a period of several weeks after
the offering. This option is also called the overallotment and is exercised when
the IPO is oversubscribed and trading above its offer price. The term comes
from the Green Shoe Company, which was the first to have this option.
H
Hot Issue
When there is significantly more demand than supply for an IPO it is said to be
a hot
issue.
I
Initial Public Offering
This is the event of a company first selling its shares to the public.
Insiders
Management, directors and significant stockholders are regarded as insiders
because they are privy to information about the operations of a company not
known to the general public.
IPO Price
Individual investors often ask why the price at which an IPO starts trading is
different from its offer price. This occurs because the offer price is set by the
underwriters before the stock starts trading. Once the stock starts trading, the
price is determined by actual supply and demand and can be higher or lower.
-75-
IPO Research
Prior to the offering, the underwriters involved in the IPO are prohibited from
issuing research or recommendations for forty days. Following the IPO, the
underwriter is allowed to issue a research report
M-N
The total market value of a firm. It is defined as the product of the company's
stock price per share and the total number of shares outstanding
Market Value
The market value of a company is determined by multiplying the number of
shares outstanding by the current price of the stock.
O
Offering Price
This is the price at which the IPO is first sold to the public. It is set by the lead
manager, usually after the close of stock market trading the night before the
shares are distributed to IPO buyers. In the case of some foreign IPOs, the
pricing occurs over the weekend.
Oversubscribed
When a deal has more orders than there are shares available it is said to be
oversubscribed.
P
Preliminary Prospectus
This is the offering document printed by the company containing a description
of the business, discussion of strategy, presentation of historical financial
statements, explanation of recent financial results, management and their
backgrounds and ownership.
Proceeds
Companies go public to raise money. The money raised is referred to as
proceeds.
R
Red Herring
This is the term of art for the preliminary prospectus. It gets its name from the
printed red disclaimer on the left side of the prospectus.
-76-
U-V
Underwriter
This is a brokerage firm that raises money for companies using public equity
and debt markets. Underwriters are financial intermediaries that buy stock or
bonds from an issuer and then sell these securities to the public.
Venture Capital
Funding acquired during the pre-IPO process of raising money for companies. It
is done only by accredited investors.
-77-