Вы находитесь на странице: 1из 154

INTIAL PUBLIC OFFERING IN INDIA

“INITIAL PUBLIC OFFERING (IPO) IN INDIA”


Dissertation Submitted to the Padmashree Dr. D.Y. Patil University in partial fu
lfillment of the requirements for the award of the Degree of MASTERS IN BUSINESS
ADMINISTRATION Submitted by: NITIN B. JAIN MBA-COR-FIN-(Roll No: 0801093)
Research Guide: Ms. Mamta Dhankute Lecturer Department of Business Management Pa
dmashree Dr. D.Y. Patil University CBD Belapur, Navi Mumbai March 2010
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 1
INTIAL PUBLIC OFFERING IN INDIA
DECLARATION
I hereby declare that the dissertation “INITIAL PUBLIC OFFERING (IPO) IN INDIA” subm
itted for the MBA Degree at Padmashree Dr. D.Y. Patil University’s Department of B
usiness Management is my original work and the dissertation has not formed the b
asis for the award of any degree, associate ship, fellowship or any other simila
r titles.
Place: Mumbai Date:
NITIN B. JAIN MBA-COR-FIN-(Roll No: 0801093)
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
2
INTIAL PUBLIC OFFERING IN INDIA
CERTIFICATE
This is to certify that the dissertation entitled
“INITIAL PUBLIC
OFFERING (IPO) IN INDIA” is the bona fide research work carried out by Mr. NITIN B
. JAIN student of MBA, at Padmashree Dr. D.Y. Patil University’s Department of Bus
iness Management during the year 2008 -2010, in partial fulfillment of the requi
rements for the award of the Degree of Master in Business Management and that th
e dissertation has not formed the basis for the award previously of any degree,
diploma, associate ship, fellowship or any other similar title.
(Ms. Mamta Dhankute) Lecturer
(Dr. R. Gopal) Director, Department of Business Mgt, Padmashree Dr. D.Y. Patil U
niversity
Place: Mumbai Date:
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 3
INTIAL PUBLIC OFFERING IN INDIA
ACKNOWLEDGEMENTS
In the first place, I thank Ms. Mamta Dhankute, Lecturer, Department of Business
Management, Padmashree Dr. D.Y. Patil University, and Navi Mumbai for having gi
ven me her valuable guidance for the project. Without her help it would have bee
n impossible for me to complete the project. I would also like to thank the vari
ous people from the Capital Market industry who have provided me with a lot of i
nformation and in fact even sharing some of the confidential company documents a
nd data – many of which I have used in this report and without which this project
could not have been completed. I would be failing in my duty if I do not acknowl
edge with a deep sense of gratitude the sacrifices made by my parents and thus h
ave helped me in completing the project work successfully.
Place: Mumbai Date: NITIN B. JAIN MBA-COR-FIN-(Roll No: 0801093)
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
4
INTIAL PUBLIC OFFERING IN INDIA TABLE OF CONTENT Chapter No A B C D E F G Title
List of tables List of figures List of abbreviations Executive summary Objective
of the study Research methodology Review of literature Page No 7 8 9 10 11 12 1
3
1 2 4 5 6 7 8 9 10 11 12 15 13 14
Financial markets and IPO Short terms in IPO IPO - features Trends Pricing of is
sue Book building Cost of issue Brief note on intermediaries Sebi and IPO Market
ing of IPO IPO grading Guide to understand an offer document Case study analysis
IPO scam
16 25 38 33 51 52 56 58 62 72 76 87 91 136
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
5
INTIAL PUBLIC OFFERING IN INDIA 16 17 18 19 Survey report Conclusion and Recomme
ndations Bibliography Reference 139 148 151 152
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
6
INTIAL PUBLIC OFFERING IN INDIA
LIST OF TABLES
PARTICULARS
IPO In Recent Past Year Recent IPO Data With Break-Up
PAGE NO.
50 50
Difference In Fixed Price Process And Book 54 Building Process Guidelines For Le
ad Managers By Sebi 58
Underwriting Commission Table Future Capital Subscription Detail
60 93
Reliance Power Subscription Detail
98
Bang Overseas Ltd Subscription Detail
104
J. Kumar Infraprojects Ltd. Subscription Detail
110
Cords Cable Industries Ltd Subscription Detail
116
K.N.R. Construction Ltd Subscription Detail
122
On mobile Global Ltd Subscription Detail
128
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
7
INTIAL PUBLIC OFFERING IN INDIA
LIST OF FIGURES
PARTICULARS Diagram On Overview Of Primary And secondary 18 Market Types Of Issu
es 22
PAGE NO
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
8
INTIAL PUBLIC OFFERING IN INDIA
LIST OF ABBREVIATIONS
ASBA
Application Amount
Supported
by
Blocked
BSE BRLM
Bombay stock exchange Book Running Lead Manager to the Issue
CRISIL
Credit Rating and Information Services of India Ltd.
DMAT DPO E-IPO FII FPO ICRA IPO IRDA
Dematerialized trading Direct Public Offering Electronic -IPO Foreign institutio
nal investor Further public offering Industrial Credit Rating Agency Initial pub
lic offering Insurance Regulator and
Development Authority NIBs OTCEI POP QIBs QIP RHP RI ROC SEBI SEBI (DIP) SCSB No
n-Institutional Buyers Over the Counter Exchange of India Public Offering Price
Qualified Institutional Buyers Qualified Institutions Placement Red Herring Pros
pectus Rights Issue Registrar of Companies Security and Exchange Board of India
SEBI(Disclosure and Investor Protection) Self Certified Syndicate Bank 9
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
INTIAL PUBLIC OFFERING IN INDIA
EXECUTIVE SUMMARY
When a business entity needs money the general course of action that it follows
is that it goes to the bank. However banks may not be ready to provide huge fina
nce for a long time especially if the returns are not fixed. The best way to rai
se money is through offer of shares. The securities which the companies issue fo
r the first time to the public and other financial institutions either after inc
orporation or on conversion from private to public company is called “INITIAL PUBL
IC OFFERING” or “IPO”. Raising equity gives boost to economical development of the cou
ntry.
Raising money through IPO is a very complex process. It requires analysis and im
plementation of various commercial laws applicable to IPO-Prospectus. These laws
are Companies Act, Income Tax Act, FEMA, Securities Contract Act and SEBI Guide
lines on “Disclosure and Investor Protection”. It is also necessary to implement cir
culars from time to time by SEBI. The introduction of SEBI attracted Foreign Ins
titutional Investors to invest money in stock market in India. It has also helpe
d Indian Companies to offer securities in most scientific method to Indian and F
oreign investors Therefore to understand this complex subject, I decided to unde
rtake studies by this Project Report.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
10
INTIAL PUBLIC OFFERING IN INDIA
OBJECTIVES OF THE STUDY
To analyze and evaluate the complex IPO process
To study and incorporate the legal requirements of an IPO
SEBI Norms and Guidelines
Various aspects of IPO like cost, Involvement of intermediaries, pricing of an I
PO.
Pricing of an issue through the Book-Building Method
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
11
INTIAL PUBLIC OFFERING IN INDIA
RESEARCH METHODOLOGY
Primary data consist of the Survey done by meeting people who are either Custome
rs in Share Market or have idea about it. The data can be collected by laymen to
find out their needs. The sample size was taken was 50 responded. It also inclu
des case analysis of some corporate houses IPO’s.
Secondary data would consist of widely available resources like 1. Newspapers 2.
Magazines 3. Journals 4. Websites 5. Books etc.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
12
INTIAL PUBLIC OFFERING IN INDIA
LITERATURE REVIEW
1. “INITIAL PUBLIC OFFERINGS” BY RICHARD P. KLEEBURG 3RD EDITION IN YEAR 2005, WHICH
PUBLISHED BY SOUTH WESTERN EDUCATIONAL PUBLISHING.”
This valuable resource is for the executives and advisers of any firm considerin
g making the transition from a private to public company. An IPO is not just a s
hort-term financial transaction. It often marks the turning point in the life of
a company, enabling it to launch new products, enter new markets, accelerate it
s growth, and attract valuable employees. If an IPO is the way to grow, then a "
balanced scorecard" approach needs to be used - an honest evaluation of the proc
ess and consideration of whether an IPO, despite its glamour, will or will not p
roduce the desired results. Initial Public Offerings uncovers many of the succes
sful approaches and common pitfalls to going public. It helps officials decide w
hether an IPO or other financing alternatives is the right strategy, determine w
hich stock market to use, plan and execute the IPO, and stay on track following
the IPO - helping companies reach their true potential for success.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
13
INTIAL PUBLIC OFFERING IN INDIA
2. “DALAL STREET JOURNAL’S “STOCK MARKET BOOK” -PUBLISHED BY RAMDEO MEDIA LTD WITH
DALALSTREETJORNAL.COM”
This book provides an insight into some of the aspects of secondary market and p
rovides with concept clearing on some of the fundamental aspects of IPO.
3. “IPO:
CONCEPTS
AND
EXPERIENCES
-
BY
ARINDAM
BANERJEE PUBLISHED; BY-ICFAI UNIVERSITY PRESS”
One of the striking features that makes any capital market an attractive investm
ent avenue is its liquidity. In this regard, the importance and relevance of Ini
tial Public Offers (IPOs) go beyond explanation. Simply speaking, IPOs serve the
purpose of companies going public; the process by which the business owned by o
ne or several individuals is converted into a business owned by many. Several ex
perts are of the opinion that, IPOs strengthen the financial architecture of the
entire capital market by enhancing liquidity, while others say, that they bring
along with it an array of fraudulent practices that have a strong potential of
eroding the investors’ confidence. From the company’s point of view, an IPO can even
mark the turning point in an organization’s life. Following an IPO, a company can
increase its growth potential, launch its new products as well as enter new mar
kets. IPOs are a general feature of any
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 14
INTIAL PUBLIC OFFERING IN INDIA booming capital market that increases the overal
l market
capitalization. Of late, the global capital markets have performed considerably
well and one primary reason attributed to the same is the surge of public offers
that have flooded the markets. This book titled “IPOs: CONCEPTS AND EXPERIENCES” de
als with various conceptual parameters of IPOs such as their pricing mechanisms,
valuation methods, timing of the offers, technology impact on IPOs and various
other related issues. In its entirety, the book itself is a comprehensive guide
to the various trends witnessed in the IPO market amidst the volatile environmen
t. 4. “IPO MARKETS: PERSPECTIVES AND EXPERIENCES BY VANDANA SHAJAN PUBLISHED BY-IC
FAI”
This book provides detailed analysis by focusing majorly on IPOs rating, IPOs ra
ting, IPOs rating and IPO scams.
5. “NCFM MODULE: FINANCIAL MARKET’S”
A VALUABLE INPUT HAS BEEN TAKEN FROM THE BOOKS AVAILABLE THROUGH NCFM MODULE LIK
E CAPITAL MARKET MODULE ETC.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
15
INTIAL PUBLIC OFFERING IN INDIA
FINANCIAL MARKETS AND THE IPO
The Financial Market is an amorphous set of players who come together to trade i
n financial assets. Financial Markets in any economic system that acts as a cond
uit between the organizations who need funds and the investors who wish to inves
t their money into profitable opportunity. Thus, it helps institutions and organ
izations that need money to have an access to it and on the other hand, it helps
the public in general to earn savings. Thus they perform the crucial function o
f bringing together the entries who are either financially scarce or who are fin
ancially slush. This helps generally in a smoother economic functioning in the s
ense that economic resources go to the actual productive purposes. In modern eco
nomic systems Stock Exchanges are the epicenter of the financial activities in a
ny economy as this is the place where actual trading in securities takes place.
Modern day Stock Exchanges are most of the centers to trade in the existing fina
ncial assets. In this respect, they have come a long way in the sense that these
days, they act as a platform to launch new securities as well as act as most au
thentic and real time indicator of the general economic sentiment. The zone of a
ctivities in the capital market is dependent partly on the savings and investmen
t in the economy and partly on the performance of the industry and economy in ge
neral. In other words capital market constitutes the channel through which the c
apital resources generated in the society and made available for economic develo
pment of the nation.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 16
INTIAL PUBLIC OFFERING IN INDIA
As such, Financial Markets are functionally classified as having two parts, name
ly,
The Primary Market The Secondary Market
Primary Market comprises of the new securities which are offered to the public b
y new companies. It is the mechanism through which the resources of the communit
y are mobilized and invested in various types of industrial securities. Whenever
a new company wants to enter the market it has to first enter the primary marke
t. Secondary Market comprises of further issues which are floated by the existin
g companies to enhance their liquidity position. Once the new issues are floated
and subscribed by the public then these are traded in the secondary market. It
provides easy liquidity, transferability and continuous price formation of secur
ities to enable investors to buy and sell them with ease. The volume of activity
in the Secondary Market is much higher compared to the Primary Market When an i
nvestor buys shares from another investor at an agreed prevailing market price,
it is called as buying from the secondary market. The secondary market involves
the stock exchanges and it is regulated by a regulatory authority. In India, the
secondary and primary markets are governed by the Security and Exchange Board o
f India (SEBI).
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
17
INTIAL PUBLIC OFFERING IN INDIA
“DIAGRAM ON OVERVIEW OF PRIMARY AND SECONDARY MARKET”
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
18
INTIAL PUBLIC OFFERING IN INDIA
PRIMARY MARKET-GENESIS AND GROWTH
When a business entity needs money the general course of action that it follows
is that it goes to the bank. However banks may not be ready to provide huge fina
nce for a long time especially if the returns are not fixed. The best way to rai
se money is through offer of shares and for this: PRIMARY MARKET is the answer T
he Primary Market deals with the new securities which were previously not trade
able to the public. The main function is to facilitate the transfer of resources
from savers to entrepreneurs seeking to establish or to expand and diversify ex
isting events. The mobilization of funds through the Primary Market is adopted b
y the state government and corporate sector. In other words the Primary Market i
s an integral part of the capital market of a country and together with the secu
rities market. The development of security as well as the scope for higher produ
ctive capacity and social welfare depends upon the efficiency of the Primary Mar
ket.
WHAT IS AN IPO?
The securities which the companies issue for the first time to the public either
after incorporation or on conversion from private to public company is called “IN
ITIAL PUBLIC OFFERING” or “IPO”
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 19
INTIAL PUBLIC OFFERING IN INDIA
GROWTH OF IPO’S IN INDIA
HISTORY OF PRIMARY MARKET
Indian capital market was initiated with establishing the Bombay stock exchange
in the year 1875.at that time the main function of stock exchange was to provide
place for trading in the stocks. Now the exchange has completed more than 25 ye
ars. It has undergone several changes.
Initially the IPO was called ‘New Issue’ and the issues in the Primary Market were c
ontrolled by CCI (Controller of capital issue). It was working as a department o
f MOF (ministry of finance). There were very few issues every year. CCI was high
ly conservative and hardly allowed any premium issues. Also, the regulatory fram
ework was inadequate to control several issues relating to Primary Market. There
fore, in the year 1992 it was abolished.
There was no awareness of new issues among the investing public. In fact, during
1950s-1960s, the investment in stock market was considered to be gambling. It w
as prerogative to highly elite business community to participate in new issues.
More than 99% of Indian population never participated in any issue during CCI re
gime.
There was tremendous growth in capital market in U.S.A. and Western Europe. In t
hese markets they had established Security
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 20
INTIAL PUBLIC OFFERING IN INDIA Exchange Commission (SEC). It is most powerful a
utonomous body. The Government of India realized the importance of a similar bod
y in India for healthy and fast growth of Capital Market. Thus Security Exchange
Board of India (SEBI) was established with headquarters in Mumbai in 1992.SEBI
is the most powerful body in India.
SEBI has come up with the guidelines for disclosures and investors protection. S
EBI has framed rules for various intermediaries like Merchant Bankers, Underwrit
ers, Brokers, Bankers, Registrars and Transfer Agents, Depositories, Stock Excha
nges etc. These rules are on the line of similar rules in western world. This ha
s attracted foreign institutional and individual investors to invest money in In
dia. This has resulted in exponential growth of Capital Market in this last deca
de. POPULARISING THE NEW ISSUE.
Late Shri, Dhirubhai Ambani can be considered as ‘Bhishmapita’ of new issues, though
initially he also had to struggle to get subscribers but he always used innovat
ive ideas for marketing IPOs. It is said that investor never lost money in his p
ricing methods. There are several incidences of the common man participated in h
is issues, got allotment, sold shares and created fabulous wealth for themselves
. As on 31-12-2003, Reliance Group has more than 3.5 million shareholders.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
21
INTIAL PUBLIC OFFERING IN INDIA
TYPES OF ISSUES
Public issues can be further classified into Initial Public offerings and furthe
r public offerings. In a public offering, the issuer makes an offer for new inve
stors to enter its shareholding family. The issuer company makes detailed disclo
sures as per the DIP guidelines in its offer document and offers it for subscrip
tion. The significant features are illustrated below:
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
22
INTIAL PUBLIC OFFERING IN INDIA
INITIAL PUBLIC OFFERING (IPO) It is when an unlisted company makes either a fres
h issue of securities or an offer for sale of its existing securities or both fo
r the first time to the public. This paves way for listing and trading of the is
suer’s securities.
FURTHER PUBLIC OFFERING (FPO) It is when an already listed company makes either
a fresh issue of securities to the public or an offer for sale to the public, th
rough an offer document. An offer for sale in such scenario is allowed only if i
t is made to satisfy listing or continuous listing obligations.
RIGHTS ISSUE (RI) It is when a listed company which proposes to issue fresh secu
rities to its existing shareholders as on a record date. The rights are normally
offered in a particular ratio to the number of securities held prior to the iss
ue. This route is best suited for companies who would like to raise capital with
out diluting stake of its existing shareholders unless they do not intend to sub
scribe to their entitlements.
PRIVATE PLACEMENT It is an issue of shares or of convertible securities by a com
pany to a select group of persons under Section 81 of the Companies Act, 1956 wh
ich is neither a rights issue nor a public issue. This is a faster way for a com
pany to raise equity capital. A private placement of shares
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 23
INTIAL PUBLIC OFFERING IN INDIA or of convertible securities by a listed company
is generally known by name of preferential allotment. A listed company going fo
r preferential allotment has to comply with the requirements contained in Chapte
r XIII of SEBI (DIP) Guidelines pertaining to preferential allotment in SEBI (DI
P) guidelines include pricing, disclosures in notice etc, in addition to the req
uirements specified in the Companies Act.
QUALIFIED INSTITUTIONS PLACEMENT It is a private placement of equity shares or s
ecurities convertible in to equity shares by a listed company to Qualified Insti
tutions Buyers only in terms of provisions of Chapter XIIIA of SEBI (DIP) guidel
ines. The Chapter contains provisions relating to pricing, disclosures, Currency
of instruments etc.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
24
INTIAL PUBLIC OFFERING IN INDIA
SOME TERMS IN IPO INDUSTRY :
OFFER DOCUMENT Means Prospectus in case of a public issue or offer for sale and
Letter of Offer in case of a rights issue which is filed Registrar of Companies
(ROC) and Stock Exchanges. An offer document covers all the relevant information
to help an investor to make his/her investment decision.
DRAFT OFFER DOCUMENT Means the offer document in draft stage. The draft offer do
cuments are filed with SEBI, at least 21 days prior to the filing of the Offer D
ocument with ROC/ SEs. SEBI may specifies changes, if any, in the draft Offer Do
cument and the issuer or the Lead Merchant banker shall carry out such changes i
n the draft offer document before filing the Offer Document with ROC/SEs. The Dr
aft Offer document is available on the SEBI website for public comments for a pe
riod of 21 days from the filing of the Draft Offer Document with SEBI.
RED HERRING PROSPECTUS It is a prospectus which does not have details of either
price or number of shares being offered or the amount of issue. This means that
in case price is not disclosed, the number of shares and the upper and lower pri
ce bands are disclosed. On the other hand, an issuer can state the issue size an
d the number of shares are
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
25
INTIAL PUBLIC OFFERING IN INDIA determined later. An RHP for and FPO can be file
d with the ROC without the price band and the issuer, in such a case will notify
the floor price or a price band by way of an advertisement one day prior to the
opening of the issue. In the case of book-built issues, it is a process of pric
e discovery and the price cannot be determined until the bidding process is comp
leted. Hence, such details are not shown in the Red Herring prospectus filed wit
h ROC in terms of the provisions of the Companies Act. Only on completion of the
bidding process, the details of the final price are included in the offer docum
ent. The offer document filed thereafter with ROC is called a prospectus.
ABRIDGED PROSPECTUS Means the memorandum as prescribed in Form 2A under sub-sect
ion (3) of section 56 of the Companies Act, 1956. It contains all the salient fe
atures of a prospectus. It accompanies the application form of public issues.
LETTER OF OFFER Means the offer document prepared by company for its rights issu
e and which is filed with the Stock Exchanges. The letter of offer contains all
the disclosures as required in term of SEBI (DIP) guidelines and enable sharehol
der in making an informed decision.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
26
INTIAL PUBLIC OFFERING IN INDIA ABRIDGED LETTER OF OFFER Means the abridged vers
ion of the letter of offer. Listed company is required to send the abridged lett
er of offer to each and every shareholder who is eligible for participating in t
he rights issue along with the application form. A company is also required to s
end detailed letter of offer upon request by any Shareholder.
PLACEMENT DOCUMENT Means document prepared by Merchant Banker for the purpose of
Qualified Institutions placement and contains all the relevant and material dis
closures to enable QIBs to make an informed decision
LOCK-IN “Lock-in” indicates a freeze on the shares. SEBI (DIP) Guidelines have stipu
lated lock-in requirements on shares of promoters mainly to ensure that the prom
oters or main persons who are controlling the company, shall continue to hold so
me minimum percentage in the company after the public issue. The requirements ar
e detailed in Chapter IV of DIP guidelines. There is lock-in on the shares held
before IPO and also on shares acquired through preferential allotment route. How
ever there is no lock- in on shares/ securities allotted through QIP route. The
requirements are detailed in Chapter IV, Chapter XIII and Chapter XIIIA of DIP g
uidelines.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
27
INTIAL PUBLIC OFFERING IN INDIA
PROMOTER The promoter has been defined as a person or persons who are in over-al
l control of the company, who are instrumental in the formulation of a plan or p
rogramme pursuant to which the securities are offered to the public and those na
med in the prospectus as promoters(s). It may be noted that a director / officer
of the issuer company or person, if they are acting as such merely in their pro
fessional capacity are not be included in the definition of a promoter. Promote
r Group includes the promoter, an immediate relative of the promoter (i.e. any
spouse of that person, or any parent, brother, sister or child of the person or
of the spouse). In case promoter is a company, a subsidiary or holding company o
f that company; any company in which the promoter holds 10% or more of the equit
y capital or which holds 10% Or more of the equity capital of the Promoter; any
company in which a group of individuals or companies or combinations thereof who
holds 20% or more of the equity capital in that company also holds 20% or more
of the equity capital of the issuer company. In case the promoter is an individu
al, any company in which 10% or more of the share capital is held by the promote
r or an immediate relative of the promoter or a firm or HUF in which the Promo
ter or any one or more of his immediate relative is a member; any company in wh
ich a company specified in, holds 10% or more, of the share capital; any HUF or
firm in which the aggregate share of the promoter and his
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
28
INTIAL PUBLIC OFFERING IN INDIA immediate relatives is equal to or more than10%
of the total, and all persons whose shareholding is aggregated for the purpose o
f disclosing in the prospectus "shareholding of the promoter group".
GREEN-SHOE OPTION A Green Shoe option means an option of allocating shares in ex
cess of the shares included in the public issue and operating a post-listing pri
ce stabilizing mechanism for a period not exceeding 30 days in accordance with t
he provisions of Chapter VIIIA of DIP Guidelines, Which is granted to a company
to be exercised through a Stabilizing Agent? This is an arrangement wherein the
issue would be over allotted to the extent of a maximum of 15% of the issue size
. From an investor’s perspective, an issue with green shoe option provides more pr
obability of getting shares and also that post listing price may show relatively
more stability as compared to market.
E-IPO A company proposing to issue capital to public through the on-line system
of the stockexchange for offer of securities can do so if it complies with the r
equirements under Chapter 11A of DIP Guidelines. The appointment of various inte
rmediaries by the issuer includes a prerequisite that such members/registrars ha
ve the required facilities to accommodate such an online issue process.
SAFETY NET Any safety net scheme or buy-back arrangements of the shares proposed
in any public issue shall be finalized by an issuer company
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 29
INTIAL PUBLIC OFFERING IN INDIA with the lead merchant banker in advance and dis
closed in the prospect us. Such buy back or safety net arrangements shall be mad
e available only to all original resident individual allottees limited up to a m
aximum of 1000 shares per allottee and the offer is kept open for a period of 6
months from the last date of dispatch of securities. The details regarding Safet
y Net are covered under Clause 8.18 of DIP Guidelines
SYNDICATE MEMBER The Book Runner(s) may appoint those intermediaries who are reg
istered with the Board and who are permitted to carry on activity as an ‘Underwrit
er’ as syndicate members. The syndicate members are mainly appointed to collect an
d entre the bid forms in a book built issue.
FLIPPING Flipping is reselling a hot IPO stock in the first few days to earn a q
uick profit. This isn t easy to do, and you ll be strongly discouraged by your b
rokerage. The reason behind this is that companies want long-term investors who
hold their stock, not traders. There are no laws that prevent flipping, but your
broker may blacklist you from future offerings. Institutional investors flip st
ocks all the time and make big money. The double standard exists and there is no
thing we can do about it because they have the buying power. Because of flipping
, it s a good rule not to buy shares of an IPO if you don t get in on the initia
l offering. Many IPOs that have big gains on the first day will come back to ear
th as the institutions take their profits.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 30
INTIAL PUBLIC OFFERING IN INDIA OPEN BOOK/CLOSED BOOK Presently, in issues made
through book building, Issuers and merchant bankers are required to ensure onlin
e display of the demand and bids during the bidding period. This is the Open boo
k system of book building. Here, the investor can be guided by the movements of
the bids during the period in which the bid is kept open. Under closed book buil
ding, the book is not made public and the bidders will have to take a call on th
e price at which they intend to make a bid without having any information on the
bids submitted by other bidders.
HARD UNDERWRITING Hard underwriting is when an underwriter agrees to buy his com
mitment at its earliest stage. The underwriter guarantees a fixed amount to the
issuer from the issue. Thus, in case the shares are not subscribed by investors,
the issue is devolved on underwriters and they have to bring in the amount by s
ubscribing to the shares. The underwriter bears a risk which is much higher in s
oft underwriting.
SOFT UNDERWRITING Soft underwriting is when an underwriter agrees to buy the sha
res at later stages as soon as the pricing process is complete. He then, immedia
tely places those shares with institutional players. The risk faced by the under
writer as such is reduced to a small window of time. Also, the soft underwriter
has the option to invoke a force Majeure (acts of God) clause in case there are
certain factors beyond
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
31
INTIAL PUBLIC OFFERING IN INDIA the control that can affect the underwriter’s abil
ity to place the shares with the buyers.
CUT OFF PRICE In Book building issue, the issuer is required to indicate either
the price band or a floor price in the red herring prospectus. The actual discov
ered issue price can be any price in the price band or any price above the floor
price. This issue price is called “Cut off price”. This is decided by the issuer an
d LM after considering the book and investors’ appetite for the stock. SEBI (DIP)
guidelines permit only retail individual investors to have an option of applying
at cut off price.
DIFFERENTIAL PRICING Pricing of an issue where one category is offered shares at
a price different from the other category is called differential pricing. In DI
P Guidelines differential pricing is allowed only if the security to applicants
in the firm allotment category is at a price higher than the price at which the
net offer to the public is made. The net offer to the public means the offer mad
e to the Indian public and does not include firm allotments or reservations or p
romoters’ contributions.
BASIS OF ALLOCATION/BASIS OF ALLOTMENT After the closure of the issue, the bids
received are aggregated under different categories i.e., firm allotment, Qualifi
ed Institutional Buyers (QIBs), Non-Institutional Buyers (NIBs), Retail, etc. Th
e
oversubscription ratios are then calculated for each of the categories as agains
t the shares reserved for each of the categories in the offer
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 32
INTIAL PUBLIC OFFERING IN INDIA document. Within each of these categories, the b
ids are then segregated into different buckets based on the number of shares app
lied for. The oversubscription ratio is then applied to the number of shares app
lied for and the number of shares to be allotted for applicants in each of the b
uckets is determined. Then, the number of successful allottees is determined. Th
is process is followed in case of proportionate allotment. In case of allotment
for QIBs, it is subject to the discretion of the post issue lead manager.
QUALIFIED INSTITUTIONAL BUYER (QIBS) Qualified Institutional Buyers are those in
stitutional investors who are generally perceived to possess expertise and the f
inancial muscle to evaluate and invest in the capital markets. In terms of claus
e 2.2.2B (v) of DIP Guidelines, a ‘Qualified Institutional
Buyer’ shall mean: A. Public financial institution as defined in section 4A of the
Companies Act, 1956; B. scheduled commercial banks; C. mutual funds; D. foreign
institutional investor registered with SEBI; E. multilateral and bilateral deve
lopment financial institutions; F. venture capital funds registered with SEBI. G
. foreign Venture capital investors registered with SEBI. H. State Industrial De
velopment Corporations.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
33
INTIAL PUBLIC OFFERING IN INDIA I. insurance Companies registered with the Insur
ance Regulator and Development Authority (IRDA). J. provident Funds with minimum
corpus of Rs. 25 crores K. pension Funds with minimum corpus of Rs. 25 crores)
These entities are not required to be registered with SEBI as QIBs. Any entities
falling under the categories specified above are considered as QIBs for the pur
pose of participating in primary issuance process.
APPLICATION SUPPORTED BY BLOCKED AMOUNT (ASBA) Means an application for subscrib
ing to an issue containing an authorization to block the application money in a
bank account.
ASBA INVESTOR Means an Investor who intends to apply through ASBA process and A.
is a “Resident Retail Individual Investor” B. is bidding at cut-off, with single op
tion as to the number of shares bid for; C. is applying through blocking of fund
s in a bank account with the SCSB; D. has agreed not to revise his/her bid; E. i
s not bidding under any of the reserved categories.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
34
INTIAL PUBLIC OFFERING IN INDIA
SELF CERTIFIED SYNDICATE BANK (SCSB) It is a Banker to an Issue registered under
SEBI (Bankers to an Issue) Regulations; 1994which offers the service of making
an Applications Supported by Blocked Amount and recognized as such by the Board)
MINORITY IPO An initial public offering in which a parent company spins off one
of its subsidiaries or divisions, but retains a majority stake in the company af
ter issuance. This means that after the public offering, the parent company will
still have a controlling stake of the new public company. The parent company ma
y retain this majority stake forever or may slowly dissolve their ownership over
time. This type of IPO allows the company to raise funds, accessing the value o
f the subsidiary, to fund its own operation or return value to shareholders.
PUBLIC OFFERING PRICE - POP The price at which new issues are offered to the pub
lic by an underwriter. When underwriters determine the public offering price, th
ey look at a number of factors. Some of these include the company s financial st
atements (how profitable it is), public trends, growth rates and even investor c
onfidence.
UNDERPRICING The pricing of an initial public offering (IPO) below its market va
lue. When the offer price is lower than the price of the first trade, the stock
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 35
INTIAL PUBLIC OFFERING IN INDIA is considered to be underpriced. A stock is usua
lly only underpriced temporarily because the laws of supply and demand will even
tually drive it toward its intrinsic value. It is believed that IPOs are often u
nderpriced because of concerns relating to liquidity and uncertainty about the l
evel at which the stock will trade. The less liquid and less predictable the sha
res are, the more underpriced they will have to be in order to compensate invest
ors for the risk they are taking. Because an IPO s issuer tends to know more abo
ut the value of the shares than the investor, a company must under price its sto
ck to encourage investors to participate in the IPO.
DIRECT PUBLIC OFFERING - DPO When a company raises capital by marketing its shar
es directly to its own customers, employees, suppliers, distributors and friends
in the community. DPOs are an alternative to underwritten public offerings by s
ecurities broker-dealer firms where a company s shares are sold to the broker s
customers and prospects. Direct public offerings are considerably less expensive
than traditional underwritten offerings. Additionally, they don t have the rest
rictions that are usually associated with bank and venture capital financing. On
the other hand, a DPO will typically raise much less than a traditional offerin
g.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
36
INTIAL PUBLIC OFFERING IN INDIA QUIET PERIOD In terms of an IPO, the period wher
e an issuer is subject to a SEC ban on promotional publicity. The quiet period u
sually lasts either 40 or 90 days from the IPO. In other words, If you take your
company public, you can t talk about your stock to anybody for 3 months. There
are two time windows commonly referred to as "quiet periods" during an IPO s his
tory. The first and the one linked above is the period of time following the fil
ing of the company s registration statement, but before SEC staff declare the re
gistration statement effective. During this time, issuers, company insiders, ana
lysts, and other parties are legally restricted in their ability to discuss or p
romote the upcoming IPO. The other "quiet period" refers to a period of 40 calen
dar days following an IPO s first day of public trading. During this time, insid
ers and any underwriters involved in the IPO, are restricted from issuing any ea
rnings forecasts or research reports for the company. Regulatory changes enacted
by the SEC as part of the Global Settlement, enlarged the "quiet period" from 2
5 days to 40 days on July 9, 2002. When the quiet period is over, generally the
lead underwriters will initiate research coverage on the firm. Further to this,
the NASD and NYSE have approved a rule mandating a 10-day quiet period after a s
econdary offering and a 15-day quiet period both before and after expiration of
a "lock-up agreement" for a securities offering.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
37
INTIAL PUBLIC OFFERING IN INDIA
The first public offer of securities by a company after its inception is known a
s Initial Public Offering (IPO). Going public (or participating in an “initial pub
lic offering” or IPO) is a process by which a business owned by one or several
individuals is converted in to a business owned by many. It involves the offerin
g of part ownership of the company to the public through the sale of equity secu
rities (stock). IPO dilutes the ownership stake and diffuses corporate control a
s it provides ownership to investors in the form of equity shares. It can be use
d as exit strategy and finance strategy. As a financing strategy, its main purpo
se is to raise funds for the company. When used as an exit strategy, existing in
vestors can offload equity holdings to the public.
REASONS FOR GOING PUBLIC
To raise funds for financing capital expenditure needs like expansion diversific
ation etc. To finance increased working capital requirement As an exit route for
existing investors For debt financing.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 38
INTIAL PUBLIC OFFERING IN INDIA ADVANTAGES OF GOING PUBLIC
Stock holder Diversification Easier to raise new capital Enhances liquidity Esta
blishes value for the firm Image Other advantages DISADVANTAGES OF GOING PUBLIC
Cost of Reporting Disclosure Self dealings Inactive market low price Control
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
39
INTIAL PUBLIC OFFERING IN INDIA THE RISK FACTOR
Investing in IPO is often seen as an easy way of investing, but it is highly ris
ky and many investment advisers advise against it unless you are particularly ex
perienced and knowledgeable. The risk factor can be attributed to the following
reasons:
UNPREDICTABLE: The Unpredictable nature of the IPO’s is one of the major reasons t
hat investors advise against investing in IPO’s. Shares are initially offered at a
low price, but they see significant changes in their prices during the day. It
might rise significantly during the day, but then it may fall steeply the next d
ay.
NO PAST TRACK RECORD OF THE COMPANY: No past track record of the company adds fu
rther to the dilemma of the shareholders as to whether to invest in the IPO or n
ot. With no past track record, it becomes a difficult choice for the investors t
o decide whether to invest in a particular IPO or not, as there is basis to deci
de whether the investment will be profitable or not.
POTENTIAL OF STOCK MARKET: Returns from investing in IPO are not guaranteed. The
Stock Market is highly volatile. Stock Market fluctuations widely affect not on
ly the individuals and household, but the economy as a whole. The volatility of
the stock market makes it difficult to predict how the shares will perform over
a period of time as the profit and risk potential of the
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 40
INTIAL PUBLIC OFFERING IN INDIA IPO depends upon the state of the stock market a
t that particular time.
RISK ASSESSMENT: The possibility of buying stock in a promising start-up company
and finding the next success story has intrigued many investors. But before tak
ing the big step, it is essential to understand some of the challenges, basic ri
sks and potential rewards associated with investing in an IPO. This has made Ris
k Assessment an important part of Investment Analysis. Higher the desired return
s, higher would be the risk involved. Therefore, a thorough analysis of risk ass
ociated with the investment should be done before any consideration. For investi
ng in an IPO, it is essential not only to know about the working of an IPO, but
we also need to know about the company in which we are planning to invest. Hence
, it is imperative to know: The fundamentals of the business The policies and th
e objectives of the business Their products and services Their competitors Their
share in the current market The scope of their issue being successful It would
be highly risky to invest without having this basic knowledge about the company.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
41
INTIAL PUBLIC OFFERING IN INDIA There are 3 kinds of risks involved in investing
in IPO: BUSINESS RISK: It is important to note whether the company has sound bu
siness and management policies, which are consistent with the standard norms. Re
searching business risk involves examining the business model of the company.
FINANCIAL RISK: Is this company solvent with sufficient capital to suffer short-
term business setbacks? The liquidity position of the company also needs to be c
onsidered. Researching financial risk involves examining the corporation s finan
cial statements, capital structure, and other financial data.
MARKET RISK: It would beneficial to check out the demand for the IPO in the mark
et, i.e., the appeal of the IPO to other investors in the market. Hence, researc
hing market risk involves examining the appeal of the corporation to current and
future market conditions.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
42
INTIAL PUBLIC OFFERING IN INDIA
TRENDS IN IPO
PRIMARY REASONS FOR A COMPANY GOING PUBLIC. Most people label a public offering
as a marketing event, which it typically is. For the majority of firms going pub
lic, they need additional capital to execute long-range business models, increas
e brand name, to finance possible acquisitions or to take up new projects. By co
nverting to corporate status, a company can always dip back into the market and
offer additional shares through a rights issue.
PERFORMANCE IN 90s Let us have a look at the general development of the Primary
Markets in the nineties. There have been many regulatory changes in the regulati
on of primary market in order to save investors from fraudulent companies. The m
ost path breaking development in the primary market regulation has been the abol
ition of CCI (Controller of capital issues). The aim was to give the freedom to
the companies to decide on the pricing of the issue and this was supposed to bri
ng about a self-managing culture in the financial system. But the move was hopel
essly misused in the years of 1994-1995 and many companies came up with issues a
t sky-high prices and the investors lost heavily. That phase took a heavy toll o
n the investor’s sentiment and the result was the amount of money raised through I
PO route.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
43
INTIAL PUBLIC OFFERING IN INDIA 1993-96: SUNRISE, SUNSET. With controls over pri
cing gone, companies rushed to tap the Primary Market and they did so, with rema
rkable ease thanks to overly optimistic merchant
bankers and gullible investors. Around Rs20000 crores were raised through 4053 i
ssues during this period. Some of the prominent money mobilizes were the so call
ed ‘sunrise sectors’-polyester, textiles, finance, aquaculture. The euphoria spilled
over to the Secondary Market. But reality soon set in. Issuers soon failed to m
eet projections, many disappeared or sank. Result: the small investor deserted b
oth markets-till the next boom!
1998-2000: ICE ON A HOT STREAK As the great Indian software story played itself
out, software stocks led a bull charge on the bourses. The Primary Market caught
up, and issues from the software markets flooded the market. With big IPOs from
companies in the ICE (Information Technology, Communication and Entertainment)
sectors, the average issue price shot up from Rs.5 crore in 1994-96 to Rs.30 cro
re. But gradually, hype took over and valuations reached absurd levels. Both mar
kets tanked.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
44
INTIAL PUBLIC OFFERING IN INDIA 2001-2002-ALMOST CLOSED There were hardly any IP
Os and those who ventured, got a lukewarm response. A depressed Secondary Market
had ensured that the doors for the Primary Market remained closed for the entir
e FY 20012002.There were hardly any IPOs in FY 2001-2002.
2002: QUALITY ON OFFER. The Primary Market boom promises to be different. To sta
rt with, the cream of corporate India is queuing up, which ensures quality. In t
his fragile market, issue pricing remains to be conservative, this could potenti
ally mean listing gains. This could rekindle the interest of small investors in
stocks and draw them back into the capital market. The taste of gains from the p
rimary issues is expected to have a spillover effect on the secondary market, wh
ere valuations today are very attractive. 2003: IPO-IMPROVED PERFORMANCE OVERALL
! Even as the secondary market moved into top gear in 2003 the primary market to
o scripted its own revival story, buoyed largely by the Maruti IPO which was ove
rsubscribed six and a half times. In 2003 almost all primary issues did well on
domestic bourses after listing, prompting retail investors to flock to IPO’s. All
IPO’s, including Indraprastha Gas and TV Today Network which was oversubscribed 51
times showed the growing appetite for primary issues. Divi Labs hit the market
in February followed by Maruti. Initially, the Maruti share price was considered
steep at Rs125 per share for a Rs5 paidup share. By the end of the year, the st
ock had climbed to over
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 45
INTIAL PUBLIC OFFERING IN INDIA Rs355. Close on the heels of Maruti, came the Uc
o Bank IPO, which attracted about 1mn applicants. The primary issue of Indian Ov
erseas Bank attracted about 4.5mn applicants and Vijaya Bank over Rs40bn in subs
criptions. The last one to get a huge response was Indraprastha Gas, which repor
tedly garnered about Rs30bn. TV Today’s public offer was expected to draw in exces
s of Rs30bn. In overseas listings, the only notable IPOs were Infosys Technology
s secondary ADR offering and the dull debut of Sterlite Group company Vedanta o
n the London Stock Exchange. It was really Maruti Udyog that took the lead with
its new issue in June. The issue was heavily over-subscribed and by the middle o
f December the share value appreciated 186 per cent. The near trebling of the in
vestment in less than 6 months inspired the retail investor who is now back agai
n in the market scouting for good scrips. After the phenomenal success of Maruti
issue, a number of companies have approached the capital market and a lot more
are waiting for SEBI approval. SEBI has taken enough care to force companies to
make relevant disclosures for the investor to judge the quality of new issues. B
esides, the companies themselves have been careful not to overprice the shares.
On the contrary, some of the companies have deliberately under-priced them to le
t the issue get over-subscribed and to let the investor share some of the capita
l gain after listing. With
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
46
INTIAL PUBLIC OFFERING IN INDIA the care taken by SEBI and the companies it is u
nlikely that the experience of 1995 will be repeated. 2007: INITIAL PUBLIC OUTBU
RST In 2007, the Indian equity market was in full swing with the index gaining ~
53% Y-o-Y and valuations edging beyond explanation. The total market capitalizat
ion of the Indian stock market increased 8% (INR 5,230 bn) on the back of 96 new
listings in 2007. 2007 stood out in the history of Indian capital markets with
the highest funds raised through IPOs in any calendar year with maximum companie
s from the construction (16) and IT sectors (11).• Almost 61 of the 96 IPOs (63%)
debuted in premium in CY 07 as compared to 54 out of 75 IPOs (72% of total IPOs)
in 2006.
2008: IPO IN DOWNTURN On January 15, 2008, Reliance Power attracted $27.5 billio
n of bids on the first day of its IPO, equivalent to 10.5 times the stock on off
er, thereby, creating India s IPO record. Its upper cut off price was Rs. 450. T
he proposed IPO was to fund the development of its six power projects across the
country. Emaar MGF’s IPO, at $1.6 billion is estimated to be the second largest I
PO in the world so far this year, behind Reliance Power s $3 billion IPO. Thomso
n Financial data reveals that India accounts for 49.1% of global IPO proceeds at
the moment, compared to just 3.7% same time last year. Significant, given that
global IPOs declined 36.1% over the last one year.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 47
INTIAL PUBLIC OFFERING IN INDIA 2009: IPO IN RECOVERY PERIOD The severe economic
downturn in 2008 sent worldwide IPO markets plummeting by over 60% in both deal
numbers and funds raised since 2007. With assets being revalued globally, no IP
O market was insulated from the financial crisis. The spreading financial contag
ion effectively shut down public markets worldwide, bringing to an abrupt end th
e record-setting IPO boom years of 2006-07. Even so, some larger quality compani
es with strong business plans still managed to access the public markets with po
sitive results. Despite faltering economies and sinking stock markets in 2008, t
he US and China led in IPO fundraising and deal numbers, respectively, while Sau
di Arabia emerged as the third largest IPO market.
Trends in IPO activity can be difficult to predict, especially in times of marke
t volatility. Global markets will require a period of
macroeconomic stability and confidence rebuilding for the window of IPO opportun
ity to reopen. Nevertheless, the 2009 IPO pipeline contains many quality compani
es from both developed and emerging markets, which continue to ready themselves
to go public while waiting for market conditions to improve.
After extensive interviews with some of the world’s top investment bank leaders an
d stock exchange leaders, Ernst & Young’s Global IPO trends report 2009 reviews th
e major developments in the worldwide IPO markets of 2008 and the first quarter
of 2009. As the sixth global IPO report produced by Ernst & Young, this review o
ffers
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
48
INTIAL PUBLIC OFFERING IN INDIA an in-depth examination of the key trends for co
mpanies planning an IPO today, as well as perspectives on IPO readiness.
As Jim Turley, Chairman and CEO, Ernst & Young, emphasizes in the report’s opening
interview, “A crisis is a terrible thing to waste.” Indeed, many market-leading com
panies were formed during challenging economic times. Companies that undergo an
effective IPO readiness transformation during these tough times will be the firs
t to go public when markets reopen. Early signs suggest a shift toward a new eco
nomic landscape favoring companies that offer innovative and productive solution
s for the changing environment. We look forward to working with these pioneering
companies in their transformation from a private entity to a public enterprise.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
49
INTIAL PUBLIC OFFERING IN INDIA
IPO’S IN PAST RECENT YEAR’S
YEARS 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 NO. OF IPO’S 19 23 76 76 84
21 AMOUNT (CR. RS) 3191.10 14662.32 10797.88 23706.16 41323.45 2033.99
RECENT IPO DATA WITH BREAK-UP
YEAR FRESH CAPITAL NO.OF AMOUNT IPOs (Rs.crore) OFFERS FOR SALE NO.OF IPOs AMOUN
T (Rs.crore) NO.OF IPOs TOTAL AMOUNT (Rs.crore)
2003-04 16 2004-05 21 2005-06 76 2006-07 74 2007-08 82 2008-09 21
1813.42 8099.59 9130.21
5 9 11
1377.68 6562.73 1667.67 960.72 2688.81 48.92
19 23 76 76 84 21
3191.10 14662.32 10797.88 23706.16 41323.45 2033.99
22745.44 12 38634.65 9 1985.08 3
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
50
INTIAL PUBLIC OFFERING IN INDIA
PRICING OF ISSUE
CONTROLLER OF CAPITAL ISSUE During the Controller of Capital Issue (CCI) regime
the issues were priced by the company and approved by CCI. Generally the CCI was
very conservative and hardly allowed premium issues.
ARRIVAL OF SEBI After the Arrival of SEBI free market policy is followed for pri
cing of issue. Merchant Bankers are responsible for justifying the premium. The
company was allowed to give future profit projections. A company can issue share
s to applicants in the firm allotment category at higher price than the price at
which securities are offered to public. Further, an eligible company is free to
make public/rights issue in any denomination determined by it in accordance wit
h the Companies Act, 1956 and SEBI norms.
DECIDING PREMIUM BY BID SYSTEM Since year 2000 SEBI has changed pricing formula.
The promoters cannot give future projections and merchant banker alone cannot d
ecide the pricing of IPO. At present, 50%of the IPO is reserved for the wholesal
e investors and 50% is for the small investor. The LeadManager starts road show
in consultation with Institutional Investors. Then they call for bid at recommen
ded prices. Once, bids are received pricing is open for discussion. The mean bid
price is accepted and allocation is done.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 51
INTIAL PUBLIC OFFERING IN INDIA
BOOK BUILDING
THE LATEST AVTAAR OF PRICE DISOVERY
WHAT IS BOOK BUILDING? Book Building is basically a capital issuance process use
d in Initial Public Offering (IPO), which aids price and demand discovery. IT is
a process used for marketing a public offer of equity shares of a company and i
s a common practice in most developed countries. Book Building is so-called beca
use the collection of bids from investors is entered in a "book". These bids are
based on an indicative price range. The issue price is fixed after the bid clos
ing date.
PERSONS INVOLVED IN THE BOOK-BUILDING PROCESS The principal intermediaries invol
ved in the Book Building process are the company; Book Running Lead Managers (BR
LM) and syndicate members who are intermediaries registered with SEBI and are el
igible to act as underwriters. Syndicate members are appointed by the BRLM.
HOW IS THE BOOK BUILT? A company that is planning an initial public offer appoin
ts a category-I Merchant Banker as a book runner. Initially, the company issues
a draft prospectus which does not mention the price, but gives other details abo
ut the company with regards to issue size, past history and future plans among o
ther mandatory disclosures. After the draft prospectus is filed with the SEBI, a
particular period is fixed as the bid
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 52
INTIAL PUBLIC OFFERING IN INDIA period and the details of the issue are advertis
ed. The book runner builds an order book, that is, collates the bids from variou
s investors, which shows the demand for the shares of the company at various pri
ces. For instance, a bidder may quote that he wants 50,000 shares at Rs.500 whil
e another may bid for 25,000 shares at Rs.600. Prospective investors can revise
their bids at anytime during the bid period that is, the quantity of shares or t
he bid price or any of the bid options.
BASIS OF DECIDING THE FINAL PRICE On closure of the book, the quantum of shares
ordered and the respective prices offered are known. The price discovery is a fu
nction of demand at various prices, and involves negotiations between those invo
lved in the issue. The book runner and the company conclude the pricing and deci
de the allocation to each syndicate member.
PAYMENT FOR THE SHARES The bidder has to pay the maximum bid price at the time o
f bidding based on the highest bidding option of the bidder. The bidder has the
option to make different bids like quoting a lower price for higher number of sh
ares or a higher price for lower number of shares. The syndicate member may waiv
e the payment of bid price at the time of bidding. In such cases, the issue pric
e may be paid later to the syndicate member within four days of confirmation of
allocation. Where a bidder has been allocated lesser number of shares than he or
she had bid for, the excess amount paid on bidding, if any will be
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
53
INTIAL PUBLIC OFFERING IN INDIA refunded to such bidder. Advantage of the Book B
uilding process versus the Normal IPO marketing process Unlike in Book Building,
IPO’s are usually marketed at a fixed price. Here the demand cannot be anticipate
d by the merchant banker and only after the issue is over the response is known.
In book building, the demand for the share is known before the issue closes. Th
e issue may be deferred if the demand is less. This process allows for price and
demand discovery. Also, the cost of the public issue is reduced and so is the t
ime taken to complete the entire process.
DIFFERENCE IN FIXED PRICE PROCESS AND BOOK BUILDING PROCESS
Features Pricing
Fixed price process
Book building process at which the
Price at which the Security Price is offered /allotted
is Security will be offered advance to the investor. Only an indicative price ra
nge is known.
known in advance to the /allotted is not known in investor.
Demand
Demand securities
for offered
the Demand
for
the
is securities offered can be
known only after the known everyday as the closure of the issue. book is built.
54
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
INTIAL PUBLIC OFFERING IN INDIA Guidelines for Issues to be made through 100% Bo
ok Building Route SEBI had issued guidelines in October 1997 for book building w
hich were applicable for 100% of the issue size and for issues above Rs.100 Cror
es. The guidelines were revised subsequently to reduce the limit to issues of Rs
.25 crores to encourage the use of this facility. However, no issuer used this f
acility. SEBI modified the framework for Book Building further in October 1999 t
o make it more attractive. The modified framework does not replace the existing
guidelines. The issuer would have option to issue securities using book building
facility under the existing framework:
1. The present requirement of graphical display of demand at bidding terminals t
o syndicate members as well as the investors has been made optional. 2. The 15%
reservation for individual investors bidding for up to 10 marketable lots may be
merged with the 10% fixed price offer. 3. Allotment for the book built portions
shall be made in demat form only. 4. The issuer may be allowed to disclose eith
er the issue size or the number of securities to be offered to the public. 5. Ad
ditional disclosure with respect to the scheme for making up the deficit in the
sources of financing and the pattern of deployment of excess funds shall be made
in the offer document.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
55
INTIAL PUBLIC OFFERING IN INDIA
COST OF PUBLIC ISSUE.
The cost of public issue is normally between 8 and 12 percent depending on the s
ize of the issue and on the level of marketing efforts. The important expenses i
ncurred for a public issue are as follows:
Underwriting expenses: The underwriting commission is fixed at 2.5 % of the nomi
nal value (including premium, if any) of the equity capital being issued to publ
ic.
Brokerage: Brokerage applicable to all types of public issues of industrial secu
rities are fixed at 1.5% whether the issue is underwritten or not. The managing
brokers (if any) can be paid a maximum remuneration of 0.5% of the nominal value
of the capital being issued to public.
Fees to the Managers to the Issues: The aggregate amount payable as fees to the
managers to the issue was previously subject to certain limits. Presently, howev
er, there is no restriction on the fee payable to the managers of the issue. Fee
s for Registrars to the Issue: The compensation to he registrars, typically base
d on a piece rate system, depends on the number of applications received, number
of allotters, and the number of unsuccessful applicants.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 56
INTIAL PUBLIC OFFERING IN INDIA Printing Expenses: These relate to the printing
of the prospectus, application forms, broachers, share certificate, allotment/re
fund letters, envelopes, etc.
Postage Expenses: These pertain to the mailing of application forms, brochures,
and prospectus to investors by ordinary post and the mailing of the allotment/re
fund letters and share certificates by register posts.
Advertising and Publicity Expenses: These are incurred primarily towards statuto
ry announcements, other advertisements, press conferences, and investor’s conferen
ces.
Listing Fees: This is the concerned fee payable to concerned stock exchange wher
e the securities are listed. It consists of two components: initial listing fees
and annual listing fees.
Stamp Duty: This is the duty payable on share certificates issued by the company
. As this is the state subject, it tends to vary from state to state.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
57
INTIAL PUBLIC OFFERING IN INDIA
BRIEF NOTE ON INTERMEDIARIES
The following are the important intermediaries involved in the process-
MERCHANT BANKERS Eligibility criteria-SEBI issues an authorization letter to the
finance companies, which are eligible to work as merchant bankers. The eligibil
ity criteria depend on network and infrastructure of the company. The company sh
ould not be engaged in activities that are banned for merchant bankers by SEBI.
SEBI issues authorization letter valid for 3 years and the company has to pay ne
cessary fees. Such merchant banker can be appointed as lead manager for IPO. Res
ponsibility-lead managers are fully responsible for the content and correctness
of the prospectus. They must ensure the commencement to the completion of the IP
O. Certain guidelines are laid down in section 30 of the SEBI act 1992 on the ma
ximum limits of the intermediaries associated with the issue. GUIDELINES FOR LEA
D MANAGERS BY SEBI
Size of the Issue 50 cr. 50-100 cr. 100-200 cr. 200-400 cr. Above 400 cr. No of
Lead Managers 2 3 4 5 1 or more as agreed by the board
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
58
INTIAL PUBLIC OFFERING IN INDIA The number of co managers should not exceed the
number of lead managers. There can be only 1 adviser to the issue. There is no l
imit on the number of underwriters.
BROKERS All the recognized stock exchange members are called brokers and A broke
r offer marketing support, underwriting support, disseminates information to inv
estors about the issue and distributes issues stationary at retail investor leve
l. The brokers are governed by rules of SEBI and the respective stock exchange.
The brokers are key to the success of the issue. The brokers appoint sub brokers
who are in direct contact with the investors.
UNDERWRITERS The underwriter is the principle player in the IPO providing the fi
rm with- Reputation-as the underwriter is legally liable and because he has ongo
ing dealing with the customers to whom he sells shares. The underwriter puts his
reputation on the line. Underwriting involves a commitment from the underwriter
to subscribe to the shares of a particular company to the extent it is under su
bscribed by the public or existing shareholders of the corporate. An underwriter
should have a minimum net worth of 20 lacs and his total obligation at any time
should not exceed 20 times his net worth. A commission is paid to the writers o
n the issue price for undertaking the risks of under subscription. The maximum r
ate of underwriting commission paid is as follows.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
59
INTIAL PUBLIC OFFERING IN INDIA UNDERWRITING COMMISSION TABLE
Nature of Issue
On amount Devolving on On amounts subscribed Underwriters by the public 2.5%
Equity
shares 2.5%
preference shares and Debentures Issue amount up to Rs5 2.5% lacs Issue exceedin
g % amount 2.0% 1.0% 2.5%
The fees for underwriter and broker are decided by the company within the maximu
m possible limit as fixed by the SEBI.
BANKERS TO THE ISSUE Any scheduled bank registered with SEBI can be appointed as
the banker to the issue. They get fees on amount collected by them. There are n
o restrictions on the number of bankers to the issue. The main function of banke
r involves collection of duly filed application forms with money (cheque/drafts)
maintains a daily report,
transferring the proceeds to the share application money collected with the appl
ication forms to the registrar.
REGISTRAR AND TRANSFER AGENTS Registration with SEBI is mandatory to take on res
ponsibilities as a registrar or share transfer agent. The registrar provides adm
inistrative support to the issue process. Each agent is registered with SEBI. He
y
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 60
INTIAL PUBLIC OFFERING IN INDIA have to maintain net worth and infrastructure cr
iteria. They have to renew their License periodically. He collects all applicati
on from the bank and ensures reconciliation of funds and of application amount a
nd participates in process of basis of allotment. If the IPO is oversubscribed t
hey provide computerized program for allotment. They manage refund orders and al
lotment letters. They provide the final list of allotees to Lead Manager ROC and
stock exchange. If the company wants they also manage post issue IPO functions
relating to shareholders register for the company.
DEPOSITORIES Since the year 2000 it’s compulsory that all fresh issue of shares mu
st be made only in the dematerialized format (DMAT). The Depository institute is
sues unique number of every IPO or company, when shares are allotted to the comp
any/registrar provides shareholders register to depository in electronic form. T
hus automatically all shareholders get allotment in their DMAT account.
LEGAL ADVISOR. Normally the company for the purpose of IPO does this appointment
. He is responsible legal compliance of IPO process. There are other intermediar
ies like Advertising Agents etc. but the company governs their role.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
61
INTIAL PUBLIC OFFERING IN INDIA
SEBI AND IPO
ELIGIBILITY NORMS FOR UNLISTED COMPANIES It should have a pre issue network of a
minimum amount of Rs1 crores in 3 out of the preceding 5 financial years. In ad
dition the company should compulsorily need the minimum network level during the
two immediately preceding years.
It should have a track record distributable profits as given in section 205 of c
ompanies act 1956 for at least 3 years in the preceding 5 years period.
The issue size (i.e. Offer + Form allotment + Promoters contribution through the
offer document) should not exceed an amount equal to 5 times its pre issue wort
h. FOR LISTED COMPANIES It should have a track record distributable profits as g
iven in section 205 of companies act 1956 for at least 3 years in the preceding
5 years period.
It should have a pre issue network of a minimum amount of Rs1 crores in 3 out of
the preceding 5 financial years with the minimum net Worth to be met during the
immediately preceding 2 years.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
62
INTIAL PUBLIC OFFERING IN INDIA
SEBI NORMS
SEBI has come up with Investor Protection and Disclosure Norms for raising funds
through IPO. These rules are amended from time to time to meet with the require
ment of changing market conditions.
DISCLOSURE NORMS.
Risk Factor-The Company/Merchant Banker must specify the major risk factor in th
e front page of the offer document. General Risk.-Attention of the investor must
be drawn on these risk factors. Issuers Responsibility-It is the absolute respo
nsibility of the issuer company about the true and correct information in the pr
ospectus. Merchant Banker is also responsible for giving true and correct inform
ation regarding all the documents such as material contracts, capital structure,
appointment of
intermediaries and other matters. Listing Arrangement- It must clearly state tha
t once the issue is subscribed where the shares will be listed for trading. Disc
losure Clause- It is compulsory to mention this clause to distinctly inform the
investors that though the prospectus is submitted and approved by SEBI it is not
responsible for the financial soundness of the IPO.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
63
INTIAL PUBLIC OFFERING IN INDIA Merchant Bankers Responsibility-Disclaimer Claus
e the Lead Manager has to certify that disclosures made in the prospectus are ge
nerally adequate and are in conformity with the SEBI Guidelines. Capital Structu
reThe Company must give complete
information about the Authorized capital, Subscribed Capital with top ten shareh
olders holding pattern, Promoters interest and their subscription pattern etc. A
lso about
 the reservation in the present issue for Promoters, FII s, Collaborato
rs, NRI s etc. Then the net public offer must be stated very clearly. Auditors R
eport- The Auditors have to clearly mention about the past performances, Cost of
Project, Means of Finance, Receipt of Funds and its usage prior to the IPO. Aud
itor must also give the tax-benefit note for the company and investors.
INVESTOR PROTECTION NORMS.
Pricing of Issue-The pricing of all the allocations for the present issue must f
ollow the bid system. The reservation must be disclosed for different categories
of investors and their pricing must be specified clearly. Minimum Subscription-
If the company does not receive minimum subscription of 90% of subscription in
each category of offer and if the issue is not underwritten or the underwriters
are unable to meet their obligation, then fund so collected must be refunded bac
k to all applicants.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
64
INTIAL PUBLIC OFFERING IN INDIA Basis of Allotment- In case of full subscription
of the issue, the allotment must be made with the full consultation of the conc
erned stock exchange and the company must be impartial in allotting the shares.
Allotment/Refund- Once the allotment is finalized, the refund of the excess mone
y must be made within the specified time limits otherwise the company must pay i
nterest on delayed refund orders. Dematerialization of Shares-As per the provisi
ons of the Depositories Act, 1996, And SEBI Rules, now all IPO will be in Demat
form only. Listing of Shares- It is mandatory on the part of the promoters that
once the IPO is fully subscribed, and then the underlying shares must be listed
on the stock exchange. This provides market and exit routes to the investors.
The above are the major Guidelines for the Investor Protection and Disclosure No
rms. The SEBI has provided rules for every possible situation.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
65
INTIAL PUBLIC OFFERING IN INDIA
SEBI GUIDELINES
IPO of Small Companies Public issue of less than five crores has to be through O
TCEI (Over the Counter Exchange of India) and separate guidelines apply for floa
ting and listing of these issues.
Public Offer of Small Unlisted Companies (Post-Issue Paid-Up Capital up to Rs.5
crores) Public issues of small ventures which are in operation for not more than
two years and whose paid up capital after the issue is greater than 3 crores bu
t less than 5 crores the following guidelines apply. 1. Securities can be listed
where listing of securities is screen based. 2. If the paid up capital is less
than 3 crores then they can be listed on the Over The Counter Exchange of India
(OTCEI) 3. Appointment of market makers mandatory on all the stock exchanges whe
re securities are proposed to be listed.
SIZE OF THE PUBLIC ISSUE Issue of shares to general public cannot be less than 2
5%of the total issue. In case of IT, Media and Telecommunication sectors, this s
tipulation is reduced subject to the conditions that 1. Offer to the public is n
ot less than 10% of the securities issued. 2. A minimum number of 20 lakh securi
ties is offered to the public 3. Size of the net offer to the public is not less
than Rs.30 crores.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 66
INTIAL PUBLIC OFFERING IN INDIA PROMOTERS CONTRIBUTION 1. Promoters should bring
in their contribution including premium fully before the issue 2. Minimum promo
ter’s contribution is 20-25% of the public issue. 3. Minimum lock in period for pr
omoter’s contribution is five years. 4. Minimum lock in period for firm allotment
is three years.
COLLECTION CENTERS FOR RECEIVING APPLICATIONS 1. There should be at least 30 man
datory collection centers, which should include invariably the places where stoc
k exchanges have been established. 2. For issues not exceeding Rs.10 crores the
collection centers shall be situated at:The 4 metropolitan centers’ viz. Mumbai De
lhi Calcutta Chennai All such centers where stock exchanges are located in the r
egion in which the registered office of the company is situated.
REGARDING ALLOTMENTS OF SHARES 1. Net Offer the general public has to be at leas
t 25% of the total issue size for listing on a stock exchange 2. It is mandatory
for a company to get its shares listed at the regional stock exchange where the
registered office of the issuer is located. 3. In an issue of more than 25 cror
es the issuer is allowed to place the whole issue by book-building.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 67
INTIAL PUBLIC OFFERING IN INDIA 4. Minimum of 50% of the Net Offer to the public
has to be reserved for the investors applying for less than 1000 shares. 5. The
re should be at least 5 investors for every 1 lakh equity offered. 6. Quoting of
PAN or GIR No. in application for the allotment of securities is compulsory whe
re monetary value of investment is Rs.50000/- or above. 7. Indian development fi
nancial institutions and Mutual Fund can be allotted securities up to 75% of the
issue amount. 8. A venture capital fund shall not be entitled to get its securi
ties listed on any stock exchange till the expiry of 3 years from the date of is
suance of securities. 9. Allotment to categories of FIIs and NRIs/OCBs is up to
maximum of 24%, which can be further extended to 30% by an application to the RB
I-supported by a resolution passed in the General Meeting.
TIMEFRAMES FOR ISSUE AND POST-ISSUE FORMALITIES
The minimum period for which the public issue is to be kept open is 3 working da
ys and the maximum for which it can be kept open is 10 working days. The minimum
period for right issue is 15 working days and the maximum is 60 working days. A
public issue is affected if the issue is able to procure 90% of the total issue
size within 60 days from the date of the earliest closure of the public issue.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
68
INTIAL PUBLIC OFFERING IN INDIA 1. In case of oversubscription the company may h
ave he right to retain the excess application money and allot shares more than t
he proposed issue, which is referred to as “greenshoe” option 2. Allotment has to be
made within 30 days of the closure of the Public issue and 42 days in case of R
ights issue 3. All the listing formalities of a Public Issue have to be complete
d within 70 days from the date of closure of the subscription list.
DISPATCH OF REFUND ORDERS. 1. Refund orders have to be dispatched within 30 days
of the closure of the issue. 2. Refunds of excess application money i.e. non-al
lotted shares have to be made within 30 days of the closure of the issue.
OTHER REGULATIONS 1. Underwriting is not mandatory but 90% subscription is manda
tory for each issue of capital to public unless it is disinvestment where it is
not applicable. 2. If the issue is undersubscribed then the collected amount sho
uld be returned back 3. If the issue size is more than Rs500 crores, voluntary d
isclosures should be made regarding the deployment of funds and an adequate moni
toring mechanism put in place to ensure compliance.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
69
INTIAL PUBLIC OFFERING IN INDIA 4. There should not be any outstanding warrants
for financial instruments of any other nature, at the time of the IPO. 5. In the
event of the initial public offer being at a premium and if the rights under wa
rrants or other instruments have been exercised within 12 months prior to such o
ffer, the resultant shares will be not taken into account for reckoning the mini
mum promoters contribution further, the same will also be subject to lock-in. 6.
Code of advertisement as specified by SEBI should be adhered to 7. Draft prospe
ctus submitted to SEBI should also be submitted simultaneously to all stock exch
anges where it is proposed to be listed.
RESTRICTIONS ON ALLOTMENTS 1. Firm allotments to mutual funds, FII and employees
are not subject to any lock-in period. 2. Within 12 months of the public issue
no bonus issue should be made. 3. Maximum percentage of shares, which can be dis
tributes to employees cannot be more than 5% and maximum shares to be allotted t
o each employee cannot be more than 200.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
70
INTIAL PUBLIC OFFERING IN INDIA RELAXATION OF ENTRY NORMS FOR INFRASTRUCTURE COM
PANIES
With a view channelize greater flow of funds to infrastructure companies, SEBI g
ranted a number of relaxations to infrastructure companies. These included:
Exemption from the requirement of making a minimum public offer of 25 percent of
securities and also from the requirement of 5shareholders per Rs.1 lakh of offe
r made. Exemption from the minimum subscription of 90 per cent provided disclosu
re is made about the alternate source of funding considered by the company, in t
he event of undersubscription in the public issue. Permission to keep the issues
opens for 21 days to enable the companies to mobilize funds. Exemption from req
uirement to create and maintain a debenture redemption reserve in case of debent
ure issues as provided in the SEBI Disclosure & Investor Protection Guidelines.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
71
INTIAL PUBLIC OFFERING IN INDIA
MARKETING OF IPO
The role of marketing, and particularly promotion, in the pricing and trading of
Securities is fairly limited
PRELIMINARY REQUIREMENTS The company has to complete all legal requirements, app
oint all intermediaries and once they get SEBI card (approval), the process of m
arketing of IPO can commence.
TIMING OF IPO This the most important factor for the success of IPO. If, seconda
ry market is depressed, if there is political unrest, if serious international p
roblems are prevailing then it is considered to be negative factors for timing o
f IPO’s. If these factors are favorable then the Company must find out about the t
iming of other prestigious IPO’s. This year more than 29 companies are coming with
IPO’s. Around Rs.25, 000-30,000crore of capital is going to be raised this year.
Marketing initial public offers (IPO’s) through the secondary market SEBI approved
a proposal of marketing IPO’s through the secondary market. It proposes to use th
e existing infrastructure of stock exchanges (terminals, brokers and systems), p
resently being used for secondary market transactions, for marketing IPO’s with a
view to get
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 72
INTIAL PUBLIC OFFERING IN INDIA rid of certain inherent disadvantages faced by i
ssuers and investors like tremendous load on banking and postal system and huge
costs in terms of money and time associated with the issue process.
THE EFFECTS OF MARKETING ON IPO’S An investment banker’s marketing campaign for an I
PO is critical. This campaign, as much as anything that precedes or follows it,
will determine the success or failure of the IPO. The key is to stimulate invest
or demand for the stock so that, the demand will exceed the supply. Through the
marketing effort, the underwriter attempts to create an imbalance in the supply/
demand equation for the issue, so that there are more buyers than sellers when t
he stock is finally released for sale to the public.
The reputation of an investment banker could expand a firm’s investor base at a lo
wer cost than the firm can, since the promotional efforts of an investment banke
r on behalf of the firm would be more creditable. The efforts of an investment b
anker to promote an IPO through increased media coverage will increase retail in
terest in that stock.
The effects of an investment banker’s promotional efforts are not only important f
or explaining the initial returns of some IPO’s, but also for explaining the ranki
ngs of investment bankers
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
73
INTIAL PUBLIC OFFERING IN INDIA Promoting an issue sufficiently to insure a run
up in its early run-up ear aftermarket prices attracts further investor interest
catches the interest of analysts and helps to maintain or expand the investor b
ase of the stock.
If the sole motivation of a road show were to sell IPO’s to their regular institut
ional investors and if those investors were to hold onto these and stocks, then
there would be no motivation for an investment banker to do more than a minimal
amount of promotion since there would be no need to attract retail investors in
early aftermarket trading.
MARKETING
PRESS CONFERENCE Promoters and Lead Managers call for press conference in each m
ajor investment center. Reporters are briefed about the issue. They carry it as
news-item in their papers. item
INVESTORS CONFERENCE The prospective investors are called by invitation. The Pro
moters and Lead
Managers give presentations. They reply to the questions of the investors to boo
st their confidence.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
74
INTIAL PUBLIC OFFERING IN INDIA
ROAD-SHOW This is like the investors conference but normally is done abroad for
marketing ADR/GDR issues. It is an expensive process and requires a lot of legal
compliances. The company has to observe the rules of the concerned country. How
ever, road shows are becoming more and more popular in India.
NEWSPAPER ADVERTISEMENT The company releases statutory advertisements advertisem
ents in leading
newspapers. The company has to publish abridges prospectus in leading newspapers
. It is the responsibility of the promoters to ensure that the issuing company a
nd their group companies should not release any commercial advertisement, which
may influence the investor’s decision for investment.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
75
INTIAL PUBLIC OFFERING IN INDIA
IPO GRADING
GRADING OF IPOS Investment decisions in IPOs are becoming increasingly difficult
, given the flurry of public offers that hit the market these days. Differentiat
ing a good offer from a bad one, assessing the company fundamentals and verifyin
g the credentials are becoming more complex. In this backdrop, the Securities an
d Exchange Board of India s decision to make IPOs (initial public offers) gradin
g by credit rating agencies mandatory, is likely to provide some respite to reta
il investors.
However, the rating is unlikely to throw much light
 for short-term investors or
traders seeking to make a quick buck from the listing gains .
We take a look at what the grading system proposes to do and what changes, if an
y, it is likely to bring in.
In a move, which does not appear to have any precedence elsewhere in the world o
f capital markets, the SEBI has introduced compulsory grading of initial public
offers that will hit the market from now on. Credit rating agencies such as the
CRISIL and ICRA will grade the various forthcoming IPOs on a five-point scale fr
om grade 5 (indicating strong fundamentals) to grade 1 (indicating poor fundamen
tals).
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
76
INTIAL PUBLIC OFFERING IN INDIA This grading, which will be based on the agencie
s assessment of company fundamentals, will consider the following five paramete
rs — earnings per share, financial risks, accounting quality, corporate governance
and management quality. Thus, the rating awarded to an IPO will mirror the comp
any s general health in terms of these qualitative and quantitative factors. The
IPO pricing, however, is not factored in for the purpose of rating.
These ratings, apart from being available in the respective offer documents of t
he companies, can also be viewed on the respective rating agency s Web site.
For instance, a company X decides to tap the primary market for raising capital.
The rating agencies will now be required to grade the company. This process wil
l include market checks, plant visits and practice of due diligence apart from s
tudying the other already-specified macro factors. At the end of the process, sa
y, X is awarded grade 1 (indicating poor fundamentals). This would mean that the
company is fundamentally weak and investments in that company could be risky. H
owever, the rating does not go on to say whether such an offer is to be avoided
or not.
In a similar manner, if X gets a grade 5 (the highest one possible), it does not
mean a blanket approval from the rating agency to invest in the public offer. I
t only means that X is
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 77
INTIAL PUBLIC OFFERING IN INDIA fundamentally sound on the basis of metrics used
by the rating agency.
Thus, in general, the grading process that has been introduced is meant to make
the retail investors aware of the health of the company s business. It cannot be
interpreted as a
recommendation to invest or avoid any offer that is so rated.
ADVANTAGES OF IPO GRADING
IPO grading, a hitherto optional exercise, has been made compulsory to encourage
only serious companies.
Over the long-term, it is likely to help SEBI regulate the IPO market by helping
it protect the investors from cases of vanishing companies. The rating will als
o facilitate the not-sowell known companies in tapping the primary market for ca
pital.
Retail investors, on the other hand, stand to benefit the most. The grading syst
em that purports to give a professional perspective of the company s fundamental
s is likely to help investors establish the credentials of the company they plan
to invest in.
Neutral agencies can be more objective in their evaluation of a public offer com
pared to other market participants.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
78
INTIAL PUBLIC OFFERING IN INDIA This apart, it is likely to help investors weed
out companies with poor fundamentals or those with a spurious background at the
preliminary stage itself.
DISADVANTAGES OF IPO GRADING
More often than not, the pricing of any IPO is what influences the decision
 of a
ny investor.
 The rating agencies, in this case, will not talk about what price
and what time aspects of the offer.
Given that the decision to invest or avoid investments in any IPO is most often
a function of the pricing, the lack of this aspect in the present IPO grading sy
stem could make the whole process an unfinished task.
Rating agencies (experienced in debt rating) could face trouble with rating the
equities, which, unlike debt rating, is more dynamic and cannot be standardized.
Further, IPO grading mechanism is a globally-unique initiative; it could increa
se the cost of raising capital in India and urge companies to seek capital overs
eas.
Markets, in the short term, can be price-driven and not purely motivated by comp
any fundamentals. That is to say that, at times, even good companies at a higher
price could be a bad
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
79
INTIAL PUBLIC OFFERING IN INDIA investment choice, while the not-as-good ones co
uld be a steal at lower prices.
Despite having disclaimers, a higher graded IPO may well tempt small investors i
nto falsely believing that a high premium would come about on listing.

Investors may get deluded by a low-graded IPO, which could become a missed oppo
rtunity in the future. The purpose of introducing grading, thus, might get defe
ated if it leads to a false sense of buoyancy or alarm among investors.
HIGHLIGHTS OF IPO GRADING:
Till such time the utility of the IPO grading system is unraveled, it is advisab
le for investors to use the grades only as an additional input to make an inform
ed decision. Investors need to be convinced about the business potential, pricin
g and valuations of an IPO, together with the grading, to make a final choice.
IPO grading is a welcome move from the regulator of the capital market. It is go
ing to bring better efficiency to the market. There is a challenge for the inves
tors to arrive at an informed investment decision based on voluminous and comple
x disclosure documents. Small investors will be the happier lot with this decisi
on because an independent, reliable and
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 80
INTIAL PUBLIC OFFERING IN INDIA unbiased assessment of the fundamentals of the i
ssuer company will facilitate an informed investment decision.
The major parameters to be considered by a rating agency for the assessment incl
ude management quality, business
prospects, industry and company, financial performance, corporate governance, pr
oject related factors, compliance track record, litigation history and capital h
istory. The grading provides the investors an independent assessment of the disc
losures in the offer documents to the extent that they affect the issuer’s fundame
ntals to take an informed decision. The grading could be particularly useful for
assessing the offerings of companies accessing the equity markets for the first
time where there is no track record of their market performance.
Needless to say, the rating is not intended to comment on the pricing of the iss
ue nor would it purport to provide an assessment of the market risk associated w
ith the investment. As in the case of rating of debt instruments, it is an addit
ional tool available to the investors to take an informed investment decision.
The Disclosure for Investor Protection (DIP) guidelines has come a long way from
the initial days of Sebi, with the present set of disclosure norms coupled with
the IPO grading a decidedly positive move. The disclosures in the offer
documents are as per Sebi DIP guidelines and currently there
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 81
INTIAL PUBLIC OFFERING IN INDIA are no assessments of quality especially on the
management bandwidth of the issuer. A proper assessment of the management qualit
y is very critical for the long-term
sustainability of a corporate entity in a highly competitive world. Rating agenc
ies have the expertise to do this job.
Issuers may be worried about a lower grading than expected and also the addition
al cost and effort. However, this worry would not last long because the issuers
will soon realize that the extra cost and effort put into grading is only going
to benefit them. Getting listed is a long process; it could take up to a year or
more depending upon the preparedness of the issuer. A listed company has huge r
esponsibilities to fulfill. A better prepared issuer company could complete the
IPO process faster and will be in a better position to the meet the expectations
of the market. To become a successful listed company, an unlisted company shoul
d act like a listed company much before the IPO. It is better to be fully prepar
ed before the plunge than regretting after listing and exhibiting poor performan
ce.
The compulsory IPO grading will facilitate the issuer to become a mature corpora
te citizen faster. Additionally, the grading will help better quality issuers to
benchmark themselves and project their underlying strength better. A perception
al change from the issuers is essential here.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
82
INTIAL PUBLIC OFFERING IN INDIA Though there has been criticism initially from t
he intermediaries involved in the IPOs, it is a matter of time before the mercha
nt bankers, brokers and investment advisors derive the benefits of grading. For
the merchant bankers, it will give additional comfort to their due diligence res
ponsibilities. IPO grading as an investment guidance tool is going to be accepte
d sooner or later. It will widen and deepen market participation and facilitate
the move towards a more mature equity IPO market.
Moreover,
private
equity
investors,
strategic
investors,
institutional investors or any large investors can afford to conduct third party
due diligence on the issuer company before taking an equity investment decision
. The retail investor does not have the privilege and hence this gap could be fi
lled up with compulsory IPO grading system.
This is a beginning and if there is a continuous effort to improve the process o
f grading, this new development could
substantially benefit the retail investor.
No SEBI proposal has met with the kind of criticism as the mandatory IPO grading
one has. There is no body of research, no world experience, no concept paper an
d no public debate to justify it. And even the pilot voluntary grading exercise —
which did not see any company come forward and 19 small companies were then forc
ed to do this — did not validate the
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
83
INTIAL PUBLIC OFFERING IN INDIA concept in any manner. Instead of a detailed rat
ionale even now, there are only oral justifications.
Small investors demanded it: Who in the world would not say yes to free actionab
le investment advice from experts? But are investor associations even aware of t
he pitfalls of IPO grading, and that what will be delivered is a subjective opin
ion, and that too incomplete. In spite of disclaimers and education, most small
investors will only look at the grade digit; history tells us so. As such, they
will reject a low-grade IPO and invest in a high-grade one. But if subsequently
low-grade IPOs do well after listing, they will complain about missed opportunit
ies. The fundamentals of a company can change dramatically after its IPO. IPOs a
re all about the future; IPO grading is all about the past. Incidentally, of the
six graded IPOs that have hit the market, five low-graded ones were handsomely
over-
subscribed and have listed above their offer prices
Rating
agencies
are
supposed
to
assess
only
the
fundamentals, but we know that even this is highly subjective. The rating agenci
es themselves differ in skill sets. Worse, there is no uniform grading methodolo
gy. Rating agencies would be learning on the job and the market would have to be
ar the cost of this. To avoid being seen as mark givers, rating agencies have in
vented the concept of relative grading. The grades are supposed to be a “relative
comparison to the other listed companies”. This presumes that all the three rating
agencies
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 84
INTIAL PUBLIC OFFERING IN INDIA have already graded all listed stocks (over 2,50
0 at the least) which they clearly have not. Are the rating agencies not misguid
ing investors by calling absolute marks as relative grades?
It is also interesting that grading will not get funded by the Investor Protecti
on Fund but by the companies. If the conflict is now in-built, what use is the g
rading? Vanishing companies scam: After a drought of nearly eight years, an aver
age of seven IPOs a month in the last year is no deluge. A real potential flood
has been avoided because we now have stringent entry norms, there is better vett
ing of issues by two national stock exchanges and by Sebi and there is a provisi
on for public comments. Most importantly, there is compulsory participation of 5
0 per cent in an issue by QIBs who are more discerning and better informed and w
hose response to an issue holds cues for small investors. Rank bad IPOs, in any
case, are rejected by stock exchanges and/or Sebi and as such cannot enter the m
arket while overpriced IPOs are rejected by the QIBs; more than 15 IPOs have met
such fate. The fear of another vanishing company scam is totally unfounded.
Investors need crispier information: The real need is to revisit the contents an
d format of the abridged prospectus. And redesign the risk factors, which were i
ntroduced to highlight the
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 85
INTIAL PUBLIC OFFERING IN INDIA negatives, but have become a joke. Even after th
is, a further condensed version of two to three pages would be welcome. And that
, in fact, should have been the task assigned to the rating agencies, not that o
f grading. Grades influences investment decision directly; a condensed summary d
oes not. Rating agencies could also be asked to do a forensic audit and report i
nstances of information gaps or wrong information (based upon which the concerne
d merchant bankers should be punished.). The information gathered during the gra
ding due diligence should also be included in the offer document.
With grading, we are taking the small investor away from the stated objective of
“informed decision making”. Equity is risk capital, and investors should know about
the company they invest in. Protecting investor interests is also to ensure tha
t they are not guided by subjective, incomplete advice.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
86
INTIAL PUBLIC OFFERING IN INDIA
GUIDE TO UNDERSTAND AN OFFER DOCUMENT:
This section basically tries to tell the reader about the structure of presentat
ion of the content in the Offer Document. This is with a view to help the reader
navigate through the content of an offer document.
A. COVER PAGE The Cover Page of the offer document covers full contact details o
f the issuer company, lead managers and registrars, the nature, number, price an
d amount of instruments offered and issue size, and the particulars regarding li
sting. Other details such as Credit Rating, IPO Grading, if opted for, risks in
relation to the first issue, etc are disclosed if applicable.
B. RISK FACTORS Here, the issuer’s management gives its view on the Internal and e
xternal risks faced by the company. Here, the company also makes a note on the f
orward looking statements. This information is disclosed in the initial pages of
the document and it is also clearly disclosed in the abridged prospectus. It is
generally advised that the investors should go through all the risk factors of
the company before making an investment decision.
C. INTRODUCTION The introduction covers a summary of the industry and business o
f the issuer company, the offering details in brief, summary of consolidated fin
ancial, operating and other data. General Information about the company, the mer
chant bankers and their responsibilities, the details of brokers/syndicate membe
rs to the Issue,
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 87
INTIAL PUBLIC OFFERING IN INDIA credit rating (in case of debt issue),debenture
trustees (in case of debt issue), monitoring agency, book building process in br
ief and details of underwriting Agreements are given here. Important details of
capital structure, objects of the offering, funds requirement, funding plan, sch
edule of implementation, funds deployed, sources of financing of funds already d
eployed, sources of financing for the balance fund requirement, interim use of f
unds, basic terms of issue, basis for issue price, tax benefits are covered.
D. ABOUT US This presents a review of on the details of the business of the comp
any, business strategy, competitive strengths, insurance, industry-regulation (i
f applicable), history and corporate structure, main objects, subsidiary details
, management and board of directors, compensation, corporate governance, related
party transactions, exchange rates, currency of presentation dividend policy an
d management s discussion and analysis of financial condition and results of ope
rations are given.
E. FINANCIAL STATEMENTS Financial statement, changes in accounting policies in t
he last three years and differences between the accounting policies and the Indi
an Accounting Policies (if the Company has presented its Financial Statements al
so as per Either US GAAP/IAS are presented.
F. LEGAL AND OTHER INFORMATION Outstanding litigations and material developments
, litigations involving the company and its subsidiaries, promoters and group co
mpanies are disclosed. Also material developments since the last balance sheet d
ate, government approvals/licensing arrangements, investment approvals
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 88
INTIAL PUBLIC OFFERING IN INDIA (FIPB/RBI etc.), all government and other approv
als, technical approvals, indebtedness, etc. are disclosed.
G. OTHER REGULATORY AND STATUTORY DISCLOSURES Under this head, the following inf
ormation is covered: authority for the Issue, prohibition by SEBI, eligibility o
f the company to enter the capital market, disclaimer clause, disclaimer in resp
ect of jurisdiction, distribution of information to investors, disclaimer clause
of the stock exchanges, listing, impersonation, minimum subscription, letters o
f allotment or refund orders, consents, expert opinion, changes in the auditors
in the last 3 years, expenses of the issue, fees payable to the lead managers, f
ees payable to the issue management team, fees payable to the registrars, underw
riting commission, brokerage and selling commission, previous rights and public
issues, previous issues for cash, issues otherwise than for cash, outstanding de
bentures or bonds, outstanding preference shares, commission and brokerage on, p
revious issues, capitalization of reserves or profits, option to subscribe in th
e issue,purchase of property, revaluation of assets, classes of shares, stock ma
rket data for equity, shares of the company, promise vis-à-vis performance in the
past issues and mechanism for redressal of investor grievances.
H. OFFERING INFORMATION Under this head, the following information is covered: T
erms of the Issue, ranking of equity shares, mode of payment of dividend, face v
alue and issue price, rights of the equity shareholder, market lot, nomination f
acility to investor, issue procedure, book building procedure if applicable, bid
form, who can bid, maximum and minimum bid size, bidding process, bidding bids
at different price levels, escrow
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 89
INTIAL PUBLIC OFFERING IN INDIA mechanism, terms of payment and payment into the
escrow collection account, electronic registration of bids, build up of the boo
k and revision of bids, price discovery and allocation, signing of underwriting
agreement and filing of prospectus with SEBI/ROC, announcement of statutory adve
rtisement, issuance of confirmation of allocation
note("can") and allotment in the issue, designated date, general instructions, i
nstructions for completing the bid form, payment instructions, submission of bid
form, other instructions, disposal of application and application moneys, inter
est on refund of excess bid amount, basis of allotment or allocation, method of
proportionate allotment, dispatch of refund orders, communications, undertaking
by the company, utilization of issue proceeds, restrictions on foreign ownership
of Indian securities, etc.
I. OTHER INFORMATION This covers description of equity shares and terms of the A
rticles of Association, material contracts and documents for inspection,
declaration, definitions and abbreviations, etc.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
90
INTIAL PUBLIC OFFERING IN INDIA
CASE STUDY ON IPO
“FUTURE CAPITAL HOLDINGS LTD” SECTOR: Financial Retail / Advisory Services. ABOUT TH
E COMPANY: Future Capital Holdings Ltd the financial arm of the Future Group, th
e parent of India s largest listed retailer Pantaloon Retail India Ltd, deals in
private equity and consumer finance - and is developing malls, and townships. I
ts $850 million domestic Kshitij Fund is building 11 malls in tier II cities, an
d the $350 million Horizon Fund is building at least four mixed-use townships. T
he company s $400 million in division funds buy stakes in consumer businesses. F
uture Capital also plans to launch a $350 million fund to build hotels. THREE PR
IMARY LINES OF BUSINESS ARE: o Investment Advisory and Asset Management. o Retai
l financial services. o Research.
OBJECTS OF THE ISSUE : Achieve the benefits of listing on the Stock Exchanges. E
xpansion of its retail financial services business. To meet the future capital r
equirements. General corporate purposes. MERCHANT BANKER: Kotak Mahindra Capital
Company Limited, Enam Securities, J.M.Financial Consultants & UBS Securities In
dia Private Limited.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
91
INTIAL PUBLIC OFFERING IN INDIA ISSUE SIZE: Public Issue of 6,422,800 Equity Sha
res of Rs.10 each of Future Capital Holdings Limited (The "Company" Or The "Issu
er") for cash at a price of Rs.765 per equity share of Rs.10 each including a sh
are premium of Rs.755 per Equity share aggregating Rs.49, 134.42 Lacs. The issue
constitutes 10.16% of the post issue paid-up capital of the company. Issue Pric
e Rs.765 Per Equity Share of Face value of Rs.10 each. The issue price is 76.50
times the face value.
Date of listing: 01/02/2008.
Price on Listing : 1044 on BSE/ 1081 on NSE.
Other Information: • Open - 11 Jan. • Close - 16 Jan. • Issue Type -100% Book Building
Issue. • Maximum Subscription Amount for Retail: Rs 100,000/• Listing - BSE, NSE. • R
egistrar -In time Spectrum Registry Limited. • Minimum and maximum shares for reta
il category - 1 lot - 8 shares and 16 lots - 128 shares. • Minimum and maximum amo
unt for retail category - 1lot - Rs 6120 and 16 lot - Rs 97920 @ cut off. • Applic
ation Multiple - 8 and in multiples there off starting with at least 8 shares • Ch
eque In Favor Of - "Escrow Account - FCH Public Issue Resident" For Retail categ
ory.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 92
INTIAL PUBLIC OFFERING IN INDIA Subscribe Statistics: The Issue received 1138493
applications for 846511648 equity shares resulting in 131.7979 times subscripti
on. The details of the applications received in the Issue from Qualified Institu
tional Buyers, Non-Institutional, Retail Individual Investors are as under (Befo
re technical rejections):
FUTURE CAPITAL SUBSCRIPTION DETAIL
Category Retail Bidders Non Institutional Bidders Qualified institutional Bidder
s TOTAL No. of Applications No. of Shares 1135843 2286 100327656 49995104 Subscr
iption 52.0685 77.84
364
696188888
180.6556
1138493
846511648
131.7979
The Basis of Allocation to the categories namely Retail Individuals Bidders, Non
-Institutional Bidders and QIB Bidders was finalized in consultation with the Bo
mbay Stock Exchange Limited ("BSE") on January 28, 2008. ALLOCATION TO RETAIL IN
VESTORS: The Basis of Allocation to the Retail Investors, who have bid at cut-of
f or at the Issue Price of Rs 765 per Equity Share, was finalized in consultatio
n with BSE. The category was over subscribed 50.759 times. The total number of s
hares allotted in this category is 1926840 Equity Shares.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 93
INTIAL PUBLIC OFFERING IN INDIA ALLOCATION TO NON INSTITUTIONAL INVESTORS: The B
asis of Allocation to the Non institutional, who have bid at the Issue Price of
Rs.765 per Equity Share, was finalized in consultation with BSE. The category wa
s subscribed 75.874734 times. The total number of shares allotted in this catego
ry is 642280 Equity Shares. ALLOCATION TO QIB BIDDERS: Allocations to QIBs have
been done on a proportionate basis in consultation with the BSE. As per the SEBI
guidelines, Mutual Funds were initially allotted 5% of the quantum of shares av
ailable 192684 and other QIBs and unsatisfied demands of Mutual Funds were allot
ted the remaining available shares 3660996 on proportionate basis. The sectoral
cap and other limits applicable to the holding of shares in company have been ta
ken into account while allotting shares. Mutual Funds were allotted 5.00 % for Q
IB segment and other QIB applicants were allotted 95.00 % of the shares for QIB
segment. VALUATION: The company is addressing two major financial service busine
sses with high growth potential — investment advisory services and consumer credit
— with an experienced management team at the helm. While the business undoubtedly
offers huge room for scalability, earnings visibility is extremely low at this
juncture. Capital Market points out that the Future Capital Holdings’ major revenu
e(76% of the total revenue) comes from the advisory business and the majority of
the investment advice is in the real estate and hospitality sector. The risk co
mes from the fact that these sectors are cyclical in nature.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
94
INTIAL PUBLIC OFFERING IN INDIA A nascent consumer credit business, untested bus
iness model of offering unsecured credit at the point of consumption, high depen
dence on group companies for business volumes and high competition from private
banks and NBFCs peg up risks associated with this investment. The asking price f
or the offer is stiff, offering little margin of safety on execution. At Rs 765,
the higher end of the price band, the offer values the entire business at a pri
ce-book value (P/BV) of about 6.6 times. Assuming an asset-based valuation for t
he advisory business (at 15 per cent of expected assets), the consumer credit bu
siness alone is being valued at 4.5-5 times book value post-IPO. Entrenched peer
s in banking/financial services with similar opportunities for growth — India bull
s Financial, ICICI Bank and IDFC — are available at comparable valuations. Future
Capital reported a total income of Rs 31.3 crores and a net loss of Rs 12 crores
on consolidated operations for the six months ended September 2007; the present
financials do not offer scope for a meaningful PE computation.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
95
INTIAL PUBLIC OFFERING IN INDIA
“RELIANCE POWER LTD “
Sector: Power About the Company: Reliance Power (RPL), part of the Reliance Anil
Dhirubhai Ambani Group (R-ADAG) company, a unit of India s secondbiggest utilit
y by market value, is engaged in the construction and development of various gas
- and coal-based thermal power projects and hydroelectric power projects in vari
ous parts of the country. Reliance Power won rights to develop a 4,000-MW mega p
ower project at Sasan in the central state of Madhya Pradesh in June. Its parent
, Reliance Energy, is building a 1,200-MW power plant at Rosa in northern Uttar
Pradesh state. The 4,000-MW project is expected to be the largest pit-head coal-
fired power project at a single location in the country and is scheduled to be c
ommissioned during the XI Plan. At the same time, the company expects to complet
e the Rosa Phase-I, 600-MW coal-fired project in Uttar Pradesh, now under constr
uction, by March 2010. The Rosa Phase II (600-MW expansion project) is scheduled
to be commissioned by September 2010. The other identified projects are located
in Western Region (12,220 MW), Northern region (9,080 MW) and North-Eastern reg
ion (2,900 MW). It is also making a big foray into the hydro power projects in A
runachal Pradesh. The power projects include six coal-fired projects (10,620 MW)
to be fuelled by reserves from captive mines and supplies from and abroad, two
gas-fired projects (10,280 MW) to be fuelled primarily by reserves from the Kris
hna Godavari Basin off the East Coast and four hydro power projects (3,300 MW),
three of them in Arunachal Pradesh and one in Uttarakhand.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 96
INTIAL PUBLIC OFFERING IN INDIA Objects of the Issue: Achieve the benefits of li
sting on the Stock Exchanges. Raise capital to fund subsidiaries to part-finance
the construction and development costs of certain of 12 power generation projec
ts currently under various stages of development. General corporate purposes. Me
rchant Banker: Kotak, UBS, ABN AMRO, Deutsche, Enam, ICICI Securities, JM Financ
ial and J.P. Morgan. Issue size: Public Issue of 260,000,000 Equity Shares of Rs
.10 each of RELIANCE POWER LIMITED (("RELIANCE .POWER" OR THE "COMPANY" OR THE "
ISSUER") for cash at a price of Rs. . 440* per equity share of Rs.10 each includ
ing at a discount of Rs.20 per Equity share aggregating Rs. 115,632 MILLION. The
issue constitutes 11.5% of the post issue paid-up capital of the company. Issue
Price Rs.440 Per Equity Share of Face value of Rs.10 each.
Date of listing: 11/02/2008. Price on Listing: 547.80 on BSE/ 530 on NSE.
Other Information:
• • • • •
Open - 15 Jan Close - 18 Jan Issue Type -100% Book Building Issue Issue Size - 1
,300,000,000 Equity Shares of Rs.10 each. Issue Price - Rs 405/- to Rs 450/- per
Equity share
97
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
INTIAL PUBLIC OFFERING IN INDIA
• • • •
Maximum Subscription Amount for Retail - Rs 100,000/Minimum and Maximum Order Qu
antity Listing - BSE, NSE Application Multiple - 15 and in multiples there off s
tarting with at least 15 shares.

Registrar - Karvy Computershare Pvt Ltd
Subscribe Statistics: The Issue received 48, 02,930 applications for 1599, 71, 2
9,272 equity shares resulting in 61.52 times subscription. The details of the ap
plications received in the Issue from Qualified Institutional Buyers, Non-Instit
utional, Retail Individual Investors are as under (Before technical rejections):
RELIANCE POWER SUBSCRIPTION DETAIL Category Qualified Institutional Buyers Non
Institutional Investors Retail Individual Investors No. of Applications 446 No o
f Shares 11299720185 Subscription 82.6
21592
. 3706983112
162.59
4780891
958425975
14.01
The Basis of Allocation to the categories namely Retail Individuals Bidders, Non
-Institutional Bidders and QIB Bidders was finalized in consultation with the Bo
mbay Stock Exchange Limited ("BSE") on January 28, 2008.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
98
INTIAL PUBLIC OFFERING IN INDIA A. Allocation to Retail Investors: The Basis of
Allocation to the Retail Individual Investors, who have bid at cut-off or at the
Issue Price of Rs.450 per Equity Share, was finalized in consultation with BSE.
The category was oversubscribed 13.572340 times. The total number of shares all
otted in this category is 6, 84, 00,000 Equity Shares to 41, 73,929 successful a
pplicants.
B. Allocation to Non Institutional Investors: The Basis of Allocation to the Non
institutional Investors, who have bid at the Issue Price of Rs.450 per Equity S
hare, was finalized in consultation with BSE. The category was subscribed 159.55
6149 times. The total number of shares allotted in this category is 2, 28, 00,00
0 Equity Shares to 11,862 successful applicants.
C. Allocation to QIB Bidders: Allocation to QIBs has been done on a proportionat
e basis in consultation with BSE. As per the SEBI guidelines, Mutual Funds were
initially allotted 5% of the quantum of shares available (68, 40,000) and other
QIBs and unsatisfied demands of Mutual Funds were allotted the remaining availab
le shares (12, 99, 60,000) on proportionate basis. VALUATION: RPL is part of the
Reliance Anil Dhirubhai Ambani (Reliance ADA) group and was established with th
e purpose of developing, constructing and operating power projects domestically
and internationally. The company is currently in the process of developing 13 me
dium and large sized
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 99
INTIAL PUBLIC OFFERING IN INDIA power projects with a combined planned installed
capacity of 28,200 MW. The identified project sites are located in western Indi
a (12,220 MW), northern India (9,080 MW) and northeastern India (2,900 MW) and s
outhern India (4,000 MW). They include 7 coal-fired projects (14,620 MW) to be f
ueled by reserves from captive mines and supplies from India and abroad, 2 gas-f
ired projects (10,280 MW) to be fueled primarily by reserves from the Krishna-Go
davari Basin off the east coast of India, and 4 hydroelectric projects (3,300 MW
), three of them in Arunachal Pradesh and one in Uttarakhand. The Indian power s
ector has robust growth prospects with a large demand and supply deficit. With v
arious proactive reforms in the power sector encouraging private-sector particip
ation in all the three core segments of generation, transmission and distributio
n, players such as RPower, who will be the face of the group for power generatio
n, will be able to capitalize on strong growth opportunities in the country. Pro
ject portfolio and its customers are well diversified. The locations of all the
13 projects are either near the load centre or fuel source. Fuel required is als
o diversified. Has no power project in operation and its first power generation
unit, the Phase I of the 600-MW Rosa Power project, will go on stream only in De
cember 2009. Unless there is any inorganic expansion, there will not be any oper
ating revenue or cash flow from the core business of power generation. Ahead of
the IPO, all the listed stocks in the power generation sector have been re-rated
based on the expected price of RPower. The offer price band stands at Rs 405 to
Rs 450. The discount of Rs 20 for retail
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 100
INTIAL PUBLIC OFFERING IN INDIA investors and part payment of the issue price (R
s 115 on application and balance on call) is a sweetener. With no financial trac
k record and no operational income expected to be generated till December 2009,
when the first unit of Rosa I is expected to go on stream, the RPower scrip coul
d end up with high volatility on news flow on the implementation of its various
projects and winning of new projects.. At higher price band, RPower will have a
market capitalization of Rs 101700 crores compared with NTPC s current market ca
pitalization of Rs 221630 crores. While RPower has plans to implement 28,200-MW
capacity with no assured returns in many projects and little experience in large
project execution, NTPC already has 27,904-MW capacity with plans to set up add
itional 22,100 MW. Most of NTPC’s projects enjoy assured returns and it has one of
the best track records of power-project execution. In the long run, RPower has
many execution risks to contend with. But in the short term, the market seems wi
lling to ignore all that.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
101
INTIAL PUBLIC OFFERING IN INDIA
“BANG-OVERSEAS LTD”
Sector: Textiles and Garments. About the Company: Incorporated in the year 1992
Bang Overseas Limited is presently providing fashion fabrics and meeting ready t
o wear requirements of our customers in apparel, textile and retail segment. Ban
g Overseas Limited started business from trading in textile and since 1998. Bang
Overseas Limited started ready-to-wear men’s segment in 2000 by outsourcing manuf
acturing process with our experience in designing fabrics and in turn selling to
various international brands. Bang Overseas Limited launched ready-to-wear men’s
garments under its brand name Thomas Scott in 2002. Objects of the Issue : • Set
ting up retail outlets across India and brand building. • Setting up a new apparel
manufacturing unit. • Warehousing and Logistic facilities. • For general corporate
purposes. Merchant Banker: Almondz Global Securities Limited (Formerly Allianz S
ecurities Limited) Issue size: Public Issue of 3,500,000 Equity Shares of Rs.10
each of Bang Overseas Limited ("Bang Overseas” Or the "Company" Or The "Issuer") f
or cash at a price of Rs. 207 per equity share of Rs.10 each including a share p
remium of Rs. 197 per Equity share aggregating Rs.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 102
INTIAL PUBLIC OFFERING IN INDIA 724.5 Million. The issue constitutes 25.81% of t
he post issue paid-up capital of the company. Issue Price Rs.207 per Equity Shar
e of Face value of Rs.10 each. The issue price is 20.70 times the face value.
Date of listing: 20/02/2008.
Price on Listing : 207 BSE/ 250 on NSE.
Other Information:
• • • • • • • • • •
Open - 28 Jan Close - 31 Jan Issue Type -100% Book Building Issue Issue Size - 3
,500,000 Equity Shares Of Face Value Rs.10 Each Issue Size in Rs - 72 Crores Iss
ue Price - Rs 200/- to Rs 207/- Per Equity Share Maximum Subscription Amount for
Retail Investor: Rs 100,000/Listing - BSE, NSE Registrar - Karvy Computershare
Private Limited Minimum and maximum shares for retail category - 1 lot -30 share
s and 16 lot - 480 shares.

Minimum and Maximum amount for retail category - 1 lot - Rs 6210 and 16 lot - Rs
99360 @ cut off.

Application Multiple - 30 and in multiples there off starting with at least 30 s
hares

Cheque In Favor Of - "Escrow Account - BOL Public Issue - R" For Retail category
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
103
INTIAL PUBLIC OFFERING IN INDIA Subscribe Statistics: The Issue received 4780 ap
plications for 3,966,170 equity shares resulting in 1.13 times subscription. The
details of the applications received in the Issue from Qualified Institutional
Buyers, NonInstitutional, Retail Individual Investors are as under (Before techn
ical rejections): BANG OVERSEAS LTD SUBSCRIPTION DETAIL Category Qualified Insti
tutional Buyers Non Institutional Investors Retail Individual Investors Employee
s Total No. of No. of Subscription (No. of Applications Shares Times) 3 1939980
1.14
15
666720
1.3
4733
1257260
1.05
29 4780
102210 3966170
1.02 1.13
The Basis of Allocation to the categories namely Retail Individuals Bidders, Non
-Institutional Bidders and QIB Bidders was finalized in consultation with the Bo
mbay Stock Exchange Limited ("BSE") on February 12, 2008.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
104
INTIAL PUBLIC OFFERING IN INDIA A. Allocation to Employees: The Basis of Allocat
ion to the Employees, who have bid at cut-off or at the Issue Price of Rs. 207/-
per Equity Share, was finalized in consultation with BSE. The category was over
subscribed 1.0221 times. The total number of shares allotted in this category is
100,000 Equity Shares to 29 successful applicants. B. Allocation to Retail Inve
stors: The Basis of Allocation to the Retail Individual Investors, who have bid
at cut-off or at the Issue Price of Rs.207/- per Equity Share, was finalized in
consultation with BSE. The category was oversubscribed 1.040748 times. The total
number of shares allotted in this category is 1190000 Equity Shares to 4612 suc
cessful applicants.
C. Allocation to Non-Institutional Investors: The Basis of Allocation to the Ret
ail Individual Investors, who have bid at cut-off or at the Issue Price of Rs. 2
07/- per Equity Share, was finalized in consultation with BSE. The category was
under-subscribed 1.307294 times. The total number of shares allotted in this cat
egory is 510000 Equity Shares to 15 successful applicants. D. Allocation to QIB’S:
Allocation to QIBs has been done on a proportionate basis in consultation with
BSE. As per the SEBI guidelines, there were 85,000 equity shares reserved for Mu
tual Funds category. Since no applications were received from Mutual funds, the
spillover portion has been added
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
105
INTIAL PUBLIC OFFERING IN INDIA to all other QIBs and other QIBs were allotted t
he remaining available shares (1,700,000) on proportionate basis. VALUATION: BOL
has a domestic market bias and is, therefore, relatively less exposed to rupee
fluctuations and export slowdown, problems that are plaguing most other textile
companies. The company started its garments business in 2002. Till then, it was
predominantly a trader in imported fabric. The company sells men’s clothing under
the brand “Thomas Scott” through a network of multibrand outlets, departmental store
s such as Shoppers’ Stop and Globus and 12 exclusive outlets. A growing share of g
arments in the revenue mix has significantly improved profitability. Revenues an
d profits have grown at a stupendous pace since 2005. The company ended fiscal 2
007 with revenues of close to Rs 100 crores. Garments currently account for abou
t 40 per cent of revenues. Through the proceeds of the offer, the company will e
xpand its garments capacity six-fold to more than 7 million pieces a year and ex
pand its retail chain to 100 stores. The fresh capacity is expected to come on s
tream by September 2008. The company expects to add an additional 88 stores by J
une 2009; 41 will be company-operated and the remaining franchisee-run. The addi
tional garment capacity will likely feed its expanding retail operations. and wi
ll also help it cater to increasing demand from apparel
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
106
INTIAL PUBLIC OFFERING IN INDIA retailers. BOL is also to foray into women’s wear
with a line of clothing — Miss Scott. While these moves can help boost margins and
profits in the long-term, there are execution risks, especially when it comes t
o the retail business. At the upper end of the price band of Rs 200-Rs 207, the
offer is valued at close to 20 times the company’s annualized FY 08 per-share earn
ings, on a fully expanded equity base. The company is in its infancy, and with a
n insufficient track record in the branded retail business, there could be execu
tion risks to its expansion plans. If it manages to execute its capacity additio
n and retail expansion plans successfully, the valuation is likely to be at more
attractive levels on a forward basis. Given the turbulence in the markets, howe
ver, staying invested with better-established players may be a more appropriate
strategy.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
107
INTIAL PUBLIC OFFERING IN INDIA “ J.KUMAR INFRAPROJECTS LIMITED” Sector: Constructio
n/Infrastructure. About the Company: J Kumar Infraprojects is a civil engineerin
g and infrastructure development company with primary focus on development of ro
ads, flyovers, bridges, railway over bridges, irrigation projects, commercial an
d residential buildings, railway buildings, sports
complexes and airport runways. It deals in transportation, engineering, civil co
nstruction, irrigation projects and piling work using hydraulic piling rigs. The
company also undertakes the design and construction of flyover projects to the
client s specified requirements on turnkey basis. J. Kumar Infraprojects has bee
n most active in Mumbai, Pune, Aurangabad and Vidharbha region of Maharashtra. O
bjects of the Issue : • Purchase of Capital Equipments. • Funding Working Capital Re
quirement. • General Corporate Purposes. Merchant Banker: Anand Rathi Securities L
imited Issue size: Public Issue of 65,00,000 Equity Shares of Rs.10 each of J. K
UMAR INFRAPROJECTS LIMITED (THE "COMPANY" OR THE "ISSUER") for cash at a price o
f Rs.110 per equity share of Rs.10 each including a share premium of Rs.100 per
Equity share aggregating Rs. 7,150,00 LACS. The issue constitutes 30.40% of the
post issue paid-up capital of the company. Issue Price Rs.110 Per Equity Share o
f Face value of Rs.10 each. The issue price is 11 times the face value.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 108
INTIAL PUBLIC OFFERING IN INDIA Date of listing: 12/02/2008.
Price on Listing: 100 on BSE / 109 on NSE.
Other Information:
• • • • • • • • •
Open - 18 Jan Close - 23 Jan Issue Type -100% Book Building Issue Issue Size - 6
5,00,000 Equity Shares Of Rs. 10/- Each Issue Price - Rs 110/- to Rs 120/- Per E
quity Share Maximum Subscription Amount for Retail Investor: Rs 100,000/Listing
- BSE, NSE Registrar - Karvy Computershare Private Limited Minimum and maximum s
hares for retail category - 1 lot - 55 shares and 15 lot - 825 shares.

Minimum and Maximum amount for retail category - 1 lot - Rs 6600 and 15 lot - Rs
99000 @ cut off.

Application Multiple - 55 and in multiples there off starting with at least 55 s
hares.
Subscribe Statistics: The Issue received 12,238 applications for 1, 30, 96,660 e
quity shares resulting in 2.01 times subscription. The details of the applicatio
ns received in the Issue from Qualified Institutional Buyers, NonInstitutional,
Retail Individual Investors are as under (Before technical rejections):
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
109
INTIAL PUBLIC OFFERING IN INDIA
J.KUMAR INFRAPROJECTS LTD. SUBSCRIPTION DETAIL
Category Qualified Institutional Buyers No. of Applications No. Shares 11 883399
0 of Subscription 2.8
Non 40 institutional Investors Retail Individual 12134 Investors Employees 53
848980
0.9
3210190 203500
1.46 1.01
The Basis of Allocation to the categories namely Retail Individuals Bidders, Non
-Institutional Bidders and QIB Bidders was finalized in consultation with the Bo
mbay Stock Exchange Limited ("BSE") on January 28, 2008. A. Allocation to Employ
ees: The Basis of Allocation to the Employees, who have bid at cut-off or at the
Issue Price of Rs.110/- per Equity Share, was finalized in consultation with BS
E. The category was oversubscribed 1.017500 times. The total number of shares al
lotted in this category is 2, 00,000 Equity Shares to 53 successful applicants.
B. Allocation to Retail Individual Investors: The Basis of Allocation to the Ret
ail Individual Investors, who have bid at cut-off or at the Issue Price of Rs.11
0/- per Equity Share, was finalized in consultation with BSE. The category was o
versubscribed 1.354675 times. The spillover portion to the extent of 99870 equit
y shares has
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
110
INTIAL PUBLIC OFFERING IN INDIA been added to this category. The total number of
shares allotted in this category is 2304870 Equity Shares to 10954 successful a
pplicants. B. Allocation to Non Institutional Investors: The Basis of Allocation
to the Retail Individual Investors, who have bid at cut-off or at the Issue Pri
ce of Rs.110/- per Equity Share, was finalized in consultation with BSE. The cat
egory was under- subscribed 0.894317 times. As per the Red Herring Prospectus, t
he spillover portion to the extent of 99870 equity shares has been added to the
Retail Individual Investors category. The total number of shares allotted in thi
s category is 845130 Equity Shares to 38 successful applicants.
C. Allocation to QIB Bidders: Allocation to QIBs has been done on a proportionat
e basis in consultation with NSE. As per the SEBI guidelines, Mutual Funds were
initially allotted 5% of the quantum of shares available (1, 57,500) and other Q
IBs and unsatisfied demands of Mutual Funds were allotted the remaining availabl
e shares (29, 92,500) on proportionate basis. VALUATION: JKI, a construction com
pany with operations in Maharashtra, focuses on building roads, flyovers, buildi
ngs and piling works. The offer proceeds (Rs 72-78 crores) are to be utilized fo
r purchasing capital equipment and for working capital requirements. At the offe
r price band, the market capitalization of the company’s stock would be Rs 228-248
crores. JKI, although incorporated in 1999, started operations in 2005 and saw
a huge jump in revenues in 2006. This was after one of the promoter
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 111
INTIAL PUBLIC OFFERING IN INDIA group companies — J. Kumar & Co. — transferred certa
in assets as well as a contract license for public works department. JKI’s revenue
grew from Rs 3 crores in FY-05 to Rs 112 crores in FY-07. The company’s current o
rder-book of Rs 461 crores provides earnings visibility over the next couple of
years. However, the annual growth over 2006 and 2007, afforded by a low base, is
unlikely to repeat itself. The present infrastructure boom in the country provi
des ample room for small players such as JKI to share a part of the order flow p
ie. However, JKI’s current business model depends more on the local municipal and
metropolitan development authority’s (in Maharashtra) than on the ‘infrastructure sp
ending’ in the country. While this strategy is likely to fetch steady revenues in
the medium term, the growth opportunity appears relatively less as infrastructur
e players moving to high-end segments could be better options from an investment
perspective. The company’s valuation can, therefore, at best be at a discount to
other infrastructure players. Concentration of work in a single State also poses
the risk of slowdown if the State spending declines. The company has also not s
tated any plans of moving to locations outside of Maharashtra. The asking price
of Rs 110-120 appears stiff, given the present size of the company and the large
number of unorganized players in the contracting space. Limited geographical pr
esence, significant expansion in equity and low visibility for growth over the l
ong term are also limiting factors for this company. However, given that the ove
rall prospects for the company’s business appear good, investors can take a second
look at the stock post-listing, if its valuation dips due to broad market facto
rs.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
112
INTIAL PUBLIC OFFERING IN INDIA At the offer band, the IPO is priced at 19-21 ti
mes it’s per share earnings of FY 2007 on a pre-issue equity base. Post-issue, the
price-earnings multiple is 14-16 times the annualized earnings for FY-08. Simil
ar sized peers are at a discount to this valuation.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
113
INTIAL PUBLIC OFFERING IN INDIA “CORDS CABLE INDUSTRIES LTD” Sector Cables (Power).
About the Company: Cords Cable Industries Limited is in the business of providin
g cost-effective and quality solutions for various electrical connectivity requi
rements. Established in 1987 Cords has developed a wide range of specialized cab
les to address the specific requirements of industries involving modern process
technologies, instrumentation and communication demanding the highest standards
of precision and reliability, and household users seeking products with assured
quality and safety. Some of its products include: LT control cables, LT power ca
bles, instrumentation cables, thermocouple extension cables, compensating cables
, coaxial cables, telephone cables, panel wires / household wires & networking c
ables. CCIL currently manufactures cables up to 1.1 kv at their manufacturing fa
cility in Chopanki, Rajasthan for various applications and caters to the require
ments of industries in steel, power, chemical, cement, fertilizer, refineries. T
he main raw materials used are copper, aluminium, PVC resin, XLPE, GI wire, alum
inium tapes, and thermo couple. Objects of the Issue:
• • •
Setting up of production facilities. Working capital requirements. General Corpo
rate Purposes.
Merchant Banker: Collins Stewart Inga Private Limited
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
114
INTIAL PUBLIC OFFERING IN INDIA Issue size: Public Issue of 30, 85,000 Equity Sh
ares of Rs.10 each of CORDS CABLE INDUSTRIES LIMITED (THE "COMPANY" OR THE "ISSU
ER") for cash at a price of Rs.135 per equity share of Rs.10 each including a sh
are premium of Rs.125 per Equity share aggregating Rs. 4164.75 LACS. The issue c
onstitutes 26.38% of the post issue paid-up capital of the company. Issue Price
Rs.135 per Equity Share of Face value of Rs.10 each. The issue price is 13.50 ti
mes the face value.
Date of listing: 13/02/2008.
Price on Listing: 130 on BSE
Other Information:
• • • • • • • • •
Open - 21 Jan Close - 24 Jan Issue Type -100% Book Building Issue Issue Size - 3
5,00,000 Equity Shares Of Rs. 10/- Each Issue Price - Rs 125/- to Rs 135/- Per E
quity Share Maximum Subscription Amount for Retail Investor: Rs 100,000/Listing
- BSE, NSE Registrar - Intime Spectrum Registry Ltd Minimum and maximum shares f
or retail category - 1 lot - 50 shares and 14 lot - 700 shares.

Minimum and Maximum amount for retail category - 1 lot - Rs 6750 and 14 lot - Rs
94500 @ cut off.

Application Multiple - 50 and in multiples there off starting with at least 50 s
hares
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
115
INTIAL PUBLIC OFFERING IN INDIA

Cheque In Favor Of - "Escrow Account - CCIL Public Issue - R" For Retail categor
y.
Subscribe Statistics: The Issue received 10564 applications for 14278550 equity
shares resulting in 4.6284 times subscription. The details of the applications r
eceived in the Issue from Qualified Institutional Buyers, NonInstitutional, Reta
il Individual Investors are as under (Before technical rejections): CORDS CABLE
INDUSTRIES LTD SUBSCRIPTION DETAIL Category Qualified Institutional Buyers No. o
f Applications No. Shares 30 10291900 of Subscription 6.8271
Non65 Institutional Investors Retail Individual 10456 Investors Employees 13
1435450
3.174
2480300 70900
2.3504 1.0129
The Basis of Allocation to the categories namely Retail Individuals Bidders, Non
-Institutional Bidders and QIB Bidders was finalized in consultation with the Bo
mbay Stock Exchange Limited ("BSE") on February 5, 2008. A. Allocation to Employ
ees: The Basis of Allocation to the Employees, who have bid at cut-off or at the
Issue Price of Rs. 135/- per Equity Share was finalized in consultation with BS
E. The category was oversubscribed 1.0129 times.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 116
INTIAL PUBLIC OFFERING IN INDIA The total number of Equity Shares allotted in th
is category is 70000 Equity Shares to 13 successful applicants. B. Allocation to
Retail Investors: The Basis of Allocation to Retail Individual Investors, who h
ave bid at cut-off or at the Issue Price of Rs. 135/- per Equity Share, was fina
lized in consultation with BSE. The category was oversubscribed 2.3019 times. Th
e total number of Equity Shares allotted in this category is 1055252 Equity Shar
es to 8232 successful applicants.
C. Allocation to Non Institutional Investors: The Basis of Allocation to Non-ins
titutional Investors, who have bid at the Issue Price of Rs. 135/- per Equity Sh
are, was finalized in consultation with BSE. The category was oversubscribed 2.9
849 times. The total number ol Equity Shares allotted in this category is 452248
Equity Shares to 57 successful applicants.
D. Allocation to QIB Bidders: Allocation to QIBs has been done on a proportionat
e basis in consultation with BSE. As per the SEBI (Disclosure and Investor Prote
ction) Guidelines, 2000, Mutual Funds were initially allotted 5% of the quantum
of shares available (75375) and other QIBs and unsatisfied demands of Mutual Fun
ds were allotted the remaining available shares (1432125) on proportionate basis
.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
117
INTIAL PUBLIC OFFERING IN INDIA VALUATION: In the business of manufacturing cabl
es, CCIL offers a proxy exposure to the ongoing infrastructure and power growth
story. Robust growth in sales and bottom-line, diverse revenue mix, established
clientele and the proposed entry into HT (high tension) power, rubber and specia
lty cables segment, suggest good prospects for the company. CCIL has a diversifi
ed clientele and product portfolio. Its current orderbook, with the major portio
n leaning towards power sector (about 48 per cent), is spread across sectors suc
h as cement, refineries and petrochemicals and steel. The company may be able to
further extend its reach to sectors such as railways, shipping and wind power a
fter the proposed expansion of its capacity and the addition of new products. On
the product front, it offers an extensive range of high quality control and ins
trumentation cables, power cables and special cables for oil wells. The company
plans to utilize proceeds from the issue towards setting up of production facili
ties. About Rs 6 crores from the proceeds will be diverted towards working capit
al requirements. The demand for cables is set to increase significantly, given t
he ongoing capex in power and infrastructure and strong growth in industries suc
h as metro rail, shipping and aviation. In the price band of Rs 125-135, the sto
ck would be valued at about 12-13 times its likely FY-08 per share earnings on a
diluted equity base. The stock is currently available at a P/E of 11x to 12x on
the lower and upper price bands respectively of its FY 08E EPS of Rs.11.72. The
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
118
INTIAL PUBLIC OFFERING IN INDIA margins shown by CCIL is one on the higher side
while comparing it to its peer group with OPM being at 15% & NPM at 8%. The comp
any has shown excellent growth rate in the last few years & with the upward tren
d in its user industries, we expect the growth to continue. One of the key conce
rns is that currently the user industry is on uptrend. A slowdown can hit CCIL’s f
ortunes. The industry is currently trading at a P/E of 22x, which leaves enough
room for upside potential. The company has plans of introducing new products in
the product line which will boost the revenues.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
119
INTIAL PUBLIC OFFERING IN INDIA
“K N R Constructions Limited”
Sector: Construction – Medium/Small. About the Company: Incorporated in 1995, KNR
Constructions Ltd an infrastructure project development company providing engine
ering, procurement and construction services across various fast growing sectors
; viz., roads & highways, irrigation and urban water infrastructure management.
KNR Constructions Ltd. has in the past executed infrastructure projects independ
ently as well as through joint ventures. Currently, most of the road projects un
der execution are with its joint venture partner, Patel Engineering Limited with
whom it has business association for the past 7 years. As on June 30, 2007, it
has 24 projects on hand across various states in India covering Uttar Pradesh, M
adhya Pradesh, Assam, Andhra Pradesh, Karnataka, and Tamil Nadu. Objects of the
Issue:
• • • •
Further Equity investment in BOT projects Purchase of capital equipment. For mee
ting working capital requirement. For general corporate purposes.
Merchant Banker: AXIS BANK Limited. Issue size: Public Issue of 7,874,570 Equity
Shares of Rs.10 each of KNR CONSTRUCTIONS LIMITED (THE "COMPANY" OR THE "ISSUER
") for cash at a price of Rs.130 per equity share of Rs.10 each including a shar
e premium of Rs.120 per Equity share aggregating Rs. 1338.68 MILLION. The issue
constitutes 28.00% of the post issue paid-
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
120
INTIAL PUBLIC OFFERING IN INDIA up capital of the company. Issue Price Rs.130 pe
r Equity Share of Face value of Rs.10 each. The issue price is 17 times the face
value.
Date of listing: 18/02/2008.
Price on Listing: 180 on BSE / 210 on NSE.
Other Information:
• • • • • • • • • •
Open - 24 Jan Close - 29 Jan Issue Type -100% Book Building Issue Issue Size - 7
,874,570 Equity Shares Of Face Value Rs.10 Each Issue Size in Rs - 142 Crores Is
sue Price - Rs 170/- to Rs 180/- Per Equity Share Maximum Subscription Amount fo
r Retail Investor: Rs 100,000/Listing - BSE, NSE Registrar - Intime Spectrum Reg
istry Limited Minimum and maximum shares for retail category - 1 lot - 35 shares
and 15 lot - 525 shares.

Minimum and Maximum amount for retail category - 1 lot - Rs 6300 and 15 lot - Rs
94500 @ cut off.

Application Multiple - 35 and in multiples there off starting with at least 35 s
hares

Cheque In Favor Of - "ESCROW ACCOUNT - KNR IPO RESIDENT" For Retail category
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
121
INTIAL PUBLIC OFFERING IN INDIA Subscribe Statistics: The Issue received 5948 ap
plications for 9729195 equity shares resulting in 1.2355 times subscription. The
details of the applications received in the Issue from Qualified Institutional
Buyers, NonInstitutional, Retail Individual Investors are as under (Before techn
ical rejections): K.N.R. CONSTRUCTION LTD SUBSCRIPTION DETAIL Category No. of No
. of Equity Subscription Bids/Applications Shares (no. of times) 644910 3683995
0.2382 3.1754
Retail Individual 5847 bidders NonInstitutional bidders Qualified Institutional
Buyers Employee bidders 28
22
5317445
1.375
51
82845
0.5918
The Basis of Allocation to the categories namely Retail Individuals Bidders, Non
-Institutional Bidders and QIB Bidders was finalized in consultation with the Bo
mbay Stock Exchange Limited ("BSE") on February 08, 2008. A. Allocation to Retai
l Investors: The Basis of Allocation to the Retail Investors, who have bid at cu
t-off or at and above the Issue price of Rs.170/- Equity Share, was finalized in
consultation with BSE. The category was subscribed 0.234841 times. The total nu
mber of equity shares allotted in this category is 635740.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 122
INTIAL PUBLIC OFFERING IN INDIA B. Allocation to Non Institutional Investors: Th
e Basis of Allocation to the Non-Institutional Investors, who have bid at cut-of
f or at the Issue Price of Rs.170/- per Equity Share, was finalized in consultat
ion with BSE. The category was
subscribed1.430179 times. The total number of equity shares allotted in this cat
egory is 2561340 including Spill over from Employee Category (37620 Equity Share
s) and Retail Category (1363535 Equity Shares) to successful applicants.
C. Allocation to Employees: The Basis of Allocation to the Employee Category, wh
o have bid at cutoff or at and above the Issue price of Rs.170/- Equity Share, w
as finalized in consultation with BSE. The category was subscribed 0.5917 times.
The total number of equity shares allotted in this category is 82,845. The unsu
bscribed portion (57,155 shares) of Employee Category is added to QIB and HNI Ca
tegory Respectively. D. Allocation to QIB s: Allocation to QIBs has been done on
a proportionate basis in consultation with BSE. As per the SEBI guidelines, Mut
ual Funds were initially allotted 5% of the quantum of shares available (193,365
) other QIBs and unsatisfied demands of Mutual Funds were allotted the remaining
available shares (4401280) on proportionate basis. The total number of equity s
hares allotted In this category is 4594645 including spill over from Employee Ca
tegory (19535 Equity Shares) and Retail Category (707830 Equity Shares) to succe
ssful applicants.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
123
INTIAL PUBLIC OFFERING IN INDIA VALUATION: The Company has strong execution of i
nfrastructure development projects capabilities which requires significant amoun
t of technical expertise and skill. It also has the requisite pre-qualification
to bid for such projects, which is based on past experience of execution of simi
lar projects and financial strength. The company has a team of qualified and exp
erienced employees, who have qualities to meet requirements of the clients and t
he technical skills of the various projects that we undertake. The management te
am which is led by managing director, has over three decades of experience in th
e construction industry, has expertise and experience in the road construction s
ector. On a consolidated basis, its operating income, EBIDTA and PAT have grown
at a CAGR of 58.38%, 111.88% and 108.22% over FY05 to FY07. The government is gi
ving special importance to the industry so as to maintain 9% plus economic growt
h rate, which required large investments in infrastructure segments. As outlined
in approach paper to 11th plan, the investment in infrastructure will need to i
ncrease by 6% points in average gross domestic investment rate from 29.1% to 35.
1% of GDP needed to accelerate GDP growth rate from 7% to 9%, about half should
be in infrastructure. Shares of KNRCL are available at price to earnings (P/E) m
ultiple of 16.76x at the floor price and 17.75x at the cap price based on earnin
gs per share (EPS) for FY 2007. The valuation of KNECL seems to be attractive wh
en compared with its peers, MSK Projects India, Madhucon Projects, Patel Enginee
ring and Sadbhav Engineering which were trading at P/E multiple of 17.70x, 31.50
x, 39x, and 40.80
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
124
INTIAL PUBLIC OFFERING IN INDIA
“ONMOBILE GLOBAL LIMITED”
Sector: Telecom Software. About the Company: In the Year 2000 OnMobile Global Li
mited
Incubated at Infosys. OnMobile Global Limited provides value-added telecommunica
tions software products and services for
telecommunications and media companies primarily in India. It offers a range of
applications that are delivered by its carrier customers to their end-user subsc
ribers. The company s products include ring back tones, voice portals, ring tone
downloads, subscription manager, contests, music messaging, ondevice client sof
tware, mobile radio, voice mail, voice short messaging service, and missed call
alerts, which enable subscribers to personalize their mobile phones. It also del
ivers interactive media solutions to media companies, such as tele-voting, inter
active programming, and mobile auditioning; and to marketing companies for mobil
e adverting and lead generation. In addition, the company provides a range of mo
bile commerce solutions, which enable subscribers to buy movie tickets, railway
tickets, top up their pre-paid mobile phone cards, and pay bills using their mob
ile phones. Further, it offers MMP2500, a multi-model platform that combines spe
ech, text, and touch input with graphics, text, and audio output to deliver enha
nced applications and services. The company is based in Bangalore.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
125
INTIAL PUBLIC OFFERING IN INDIA Objects of the Issue :
• •
Achieve the benefits of listing on the Stock Exchanges. Purchase equipment for c
ompany s office at Bangalore, Mumbai, Delhi and various customer sites.

To meet the long term working capital requirements of the Company.

For general corporate purposes
Merchant Banker: ICICI Securities Limited & Deutsche Equities Private India Limi
ted Issue size: Public Issue of 1, 09, 00,545 Equity Shares of Rs.10 each of ONM
OBILE GLOBAL LIMITED (THE "COMPANY" OR THE "ISSUER") for cash at a price of Rs.4
40 per equity share of Rs.10 each including a share premium of Rs.430 per Equity
share aggregating Rs. 47962.39 Lacs. The issue constitutes 18.99% of the post i
ssue paid-up capital of the company. Issue Price Rs.440 Per Equity Share of Face
value of Rs.10 each. The issue price is 44 times the face value.
Date of listing: 19/02/2008.
Price on Listing: 440 on BSE / 440 on NSE.
Other Information: • Open - 24 Jan • Close - 29 Jan • Issue Type -100% Book Building I
ssue
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
126
INTIAL PUBLIC OFFERING IN INDIA • Issue Size - 10,900,545 Equity Shares Of Face Va
lue Rs.10 Each • Issue Size in Rs - 491 Crores • Issue Price - Rs 425/- to Rs 450/-
Per Equity Share • Maximum Subscription Amount for Retail Investor: Rs 100,000/• Lis
ting - BSE, NSE • Registrar - Karvy Computershare Private Limited • Minimum and maxi
mum shares for retail category - 1 lot - 15 shares and 14 lot - 210 shares. • Mini
mum and Maximum amount for retail category - 1 lot - Rs 6300 and 14 lot - Rs 945
00 @ cut off. • Application Multiple - 15 and in multiples there off starting with
at least 15 shares • Cheque In Favor Of - "Escrow Account - OnMobile Public Issue
- R" For Retail category.
Subscribe Statistics: The Issue received 37,738 applications for11, 83, 43,547 e
quity shares resulting in 10.85 times subscription. The details of the applicati
ons received in the Issue from Qualified Institutional Buyers, NonInstitutional,
Retail Individual Investors are as under (Before technical rejections):
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
127
INTIAL PUBLIC OFFERING IN INDIA
ONMOBILE GLOBAL LTD SUBSCRIPTION DETAIL
Category Qualified institutional Buyers No. of Applications No. of Subscription
Shares 94 11,22,35,550 17.16
Non 128 Institutional Investors Retail Individual 37,516 Investors
24,20,830
2.21
36,87,167
1.12
The Basis of Allocation to the categories namely Retail Individuals Bidders, Non
-Institutional Bidders and QIB Bidders was finalized in consultation with the Bo
mbay Stock Exchange Limited ("BSE") on February 08, 2008. A. Allocation to Retai
l Investors: The Basis of Allocation to the Retail Individual Investors, who hav
e bid at cut-off or at the Issue Price of Rs.440/- per Equity Share, was finaliz
ed in consultation with BSE. The category was oversubscribed 1.115325 times. The
total number of shares allotted in this category is 32, 70,164 Equity Shares to
36,462 successful applicants. B. Allocation to Non Institutional Investors: The
Basis of Allocation to the Retail Individual Investors, who have bid at cut-off
or at the Issue Price of Rs.440/- per Equity Share, was finalized in consultati
on with BSE. The category was over- subscribed 2.195630
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
128
INTIAL PUBLIC OFFERING IN INDIA times. The total number of shares allotted in th
is category is 10, 90,054 Equity Shares to 119 successful applicants. C. Allocat
ion to QIB Bidders: Allocation to QIBs has been done on a proportionate basis in
consultation with NSE. As per the SEBI guidelines, Mutual Funds were initially
allotted 5% of the quantum of shares available (3, 27,016) and other QIBs and un
satisfied demands of Mutual Funds were allotted the remaining available shares (
62, 13,311) on proportionate basis. VALUATION: OnMobile Global (OnMobile) was pr
omoted in September 2000 by OnMobile Systems, Inc (OMSI) and Arvind Rao, a B Tec
h from IIT Mumbai and management graduate from Wharton school, University of Pen
nsylvania, and Chandramouli Janakiraman, a B Tech and a former Infosys Technolog
ies employee, to develop telecommunication software platforms and applications f
or the mobile telecommunications industry. Initially, it was incorporated as Ons
can Technologies India The name was changed to OnMobile Asia Pacific in April 20
01 and to OnMobile Global in August 2007. The customer base includes all the maj
or telecom operators in India and more than 10 international telecom operators i
n over eight countries including Optus in Australia, Banglalink in Bangladesh, M
axis in Malaysia, and BTEL and Indosat in Indonesia. In addition, markets produc
ts and services to media companies such as AOL, Disney, ESPN, India Today Group
digital, Star India and Nokia.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
129
INTIAL PUBLIC OFFERING IN INDIA Due to competitive industry dynamics, mobile tar
iffs have been falling and there has been pressure on the average revenue per su
bscriber (ARPU) of telecom operators. Thus, telecom operators would be looking f
or more VAS revenue at very little incremental capital expenditure. This is a po
tential lever to counter the trend of falling ARPUs. It will result in decent gr
owth opportunity for OnMobile as VAS will have higher growth trajectory on lower
base and increasing acceptability Its weaknesses are More than 80% of the reven
ue from just five largest customers (major telecom service providers), constitut
ing less than 10% of total customers, in the six months ended September 2007. Th
e loss of any major customer or decrease in the volume of work from them or dip
in revenue sharing may adversely impact revenue and profitability. Revenue grew
at a CAGR of 99% and net profit at a CAGR of over 100% over the three-year perio
d ended March 2007. However, operating profit margin has been declining over the
couple of years though is still decent at above 40%. Performance improved signi
ficantly in the six months ended September 2007, achieving revenue of Rs 112.51
crores (82% of the revenue in FY 2007) and net profit of Rs 30.52 crores (87% of
net profit realized in FY 2007). Share of revenue with telecom operators is abo
ut 20% on an average ranging between 15%-40%. Overseas revenue was about 9.1% of
total revenue in H1 of FY 2008 as against 5.1% in FY 2007. On annualized EPS of
Rs 10.2 in the six months ended September 2007 on post-issue equity capital of
Rs 60.09 crores, the P/E works out to 41.8 – 44.3 at the price band of Rs 425 – Rs 4
50. The trailing 12-month (TTM) P/E of Tanla Solutions (broadly providing simila
r services outside India) is 20.5.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 130
INTIAL PUBLIC OFFERING IN INDIA “NATIONAL HYDROELECTRIC POWER CORPORATION LTD” Secto
r: power sector About the Company: Incorporated in 1975, NHPC Limited (Formerly
known as National Hydroelectric Power Corporation Ltd.) is a Govt. of India s En
terprise. NHPC is a hydroelectric power generating company dedicated to the plan
ning, development and implementation of an integrated and efficient network of h
ydroelectric projects in India. They execute all aspects of the development of h
ydroelectric projects, from concept to commissioning. NHPC have developed and co
nstructed 13 hydroelectric power stations and their total installed capacity is
currently 5,175 MW. This includes two power stations with a combined capacity of
1,520 MW, constructed and operated through our Subsidiary, NHDC. Company s powe
r stations and hydroelectric projects are located in the North and North East of
India, in the states of Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Arunach
al Pradesh, Assam, Manipur, Sikkim and West Bengal. Company generated 14,813.16
MUs of electricity in Fiscal 2008. Presently, they are engaged in the constructi
on of 11 additional hydroelectric projects, which are expected to increase total
installed capacity by 4,622 MW. Further eight projects, including one joint ven
ture project, with an anticipated capacity of 5,751 MW, are currently awaiting s
anction from the CCEA. NHPC have obtained ISO 18001:2000, ISO 9001:2000 and ISO
14001:2004 certifications from the Bureau of Indian Standards.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
131
INTIAL PUBLIC OFFERING IN INDIA Objects of the Issue: a) Utilize the proceeds to
part finance the construction and development cost of certain of Identified pro
jects namely Subansiri Lower, Uri – II, Chamera – III, Parbati – III, Nimoo Bazgo, Chu
tka and Teesta Low Dam – IV Use the proceeds for future growth opportunities. b) U
se the proceeds for future growth opportunities. c) For General Corporate Purpos
e. Merchant Banker: 1. Enam Securities Private Limited 2. Kotak Mahindra Capital
Company Limited 3. SBI Capital Markets Limited Issue size: Public issue of 1,67
,73,74,015 equity shares of Rs. 10 each (the “equity shares”) for cash at a price of
Rs. [•] per equity share of NHPC limited (“NHPC”, “our company” or “the issuer”) aggregati
Rs. [•] crores (the “issue”). The issue comprises a fresh issue of 1,11,82,49,343 equi
ty shares by NHPC (the “fresh issue”) and an offer for sale of 55,91,24,672 equity s
hares by the president of India acting through the ministry of power, government
of India (the “selling shareholder”) (the “offer for sale”). The issue comprises a net
issue to the public of 1,63,54,39,665 equity shares (the “net issue”) and a reservat
ion of 4, 19, 34,350 equity shares for subscription by eligible employees. Date
of listing: September 01, 2009 Price on Listing: Rs. 39.00(BSE) Rs. 42.00(NSE)
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
132
INTIAL PUBLIC OFFERING IN INDIA Other Information:
»» Issue Open »» Issue Type: »» »» »» »» »» »» »» Issue Size: Issue Size: Face Value: Issue
um Order Quantity: Listing At:
Aug07,2009-Aug12,2009 100% Book Built Issue IPO 1,677,374,015 Equity Shares of R
s. 10 Rs. 6,038.55 Crores Rs. 10 Per Equity Share Rs. 30 - Rs. 36 Per Equity Sha
re 175 Shares 175 shares BSE, NSE
Subscribe Statistics NATIONAL HYDROELECTRIC POWER CORPORATION LTD
SUBSCRIPTION DETAIL VALUATION: NHPC Limited was incorporated by the Government o
f India in the year 1975. NHPC is a hydroelectric power generating company commi
tted to the planning, development and implementation of an integrated and effici
ent network of hydroelectric projects in India. NHPC is involved in all the acti
vities right from commencement to development of hydroelectric projects. The com
pany has experience in the design, development, construction and operation of hy
droelectric projects, executing and managing all aspects of projects, from front
-end engineering design to commissioning, operation and maintenance. NHPC has se
lective undertaken projects in alliance with state governments where there is hi
gh hydro potential and thus tend to enjoy location and operational advantage. NH
PC has constructed and developed 13 hydroelectric power stations with a capacity
of 5,175 MW.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 133
INTIAL PUBLIC OFFERING IN INDIA The current total generation capacity of the com
pany is 5,134.2 MW, taking into account total installed capacity of of the Lokta
k and Tanakpur power stations (combined capacity of 1,520 MW) constructed and op
erated through its subsidiary NHDC. The company’s power stations and hydroelectric
projects are located predominantly in the North and North East of India. In FY0
9 the company and its subsidiary sold 14,587.88 MUs and 2,345.01 MUs of electric
ity, respectively. Currently the company is involved in the construction of 11hy
droelectric projects, which are expected to increase its total installed capacit
y by 4,622 MW. The company is also awaiting the government approval of five proj
ects with an anticipated capacity of 4,565 MW and for certain joint venture proj
ects within anticipated capacity of 2,166 MW.
NHPC is one of the largest hydro power generator in India account to 14% of tota
l hydro capacity in India.
150bps increase in ROE from 14% to 15.5% under new CERC norms for FY2009-14. The
Government has estimated the total investment potential of the sector at Rs 9,0
00 bn for a specified period up to fiscal year 2011.
NHPC has strong operating efficiency as reflected in average capacity index of 9
3.61% for 2008-09.
Being a mini ratna the company can enter into greater autonomy to undertake new
projects without GoI approval subject to investment ceiling of Rs 500 cr.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
134
INTIAL PUBLIC OFFERING IN INDIA NHPC has got into long term power purchase agree
ments for major portion of capacity under construction.
NHPC has strong in-house design and engineering team.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
135
INTIAL PUBLIC OFFERING IN INDIA
IPO SCAM
IPO SCAMS – OVERVIEW
IPO Scams are well structured game played by the absolute opportunists consistin
g of intermediaries, financiers and bank
employees, who make a lot of money by controlling shares\ meant for retail inves
tors in Initial Public Offer (IPO), as the per the statement of th In the last f
ew years, the capital market in India went through a rapid transformation. The i
ncreased use of information technology and the integration of financial markets
have stepped up the risk profile of the cap
The two major IPO scams in the Indian Capital market were the Harshad Mehta scam
in the year 1992 and the Ketan Parekh scam in loopholes in the Indian capital t
he Securities Exchange Board of India. capital market. 2001. The IPO Scams opene
d up the latent market.
IPO SCAMS - CAUSES • Two of the most common factors of the major IPO scams in Indi
a were the tacit consent of the banks and the poor surveillance techniques. • The
Depository Participants must be provided the proof of identity and proof of addr
ess as a routine check for the opening Demat accounts. This was not followed. • Nu
merous dematerialized accounts and bank accounts had been opened under false nam
es and the IPO applications were made in non existing names.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
136
INTIAL PUBLIC OFFERING IN INDIA IPO SCAMS - HOW IT WAS DONE
At first bank accounts were opened up "benami" names, which allowed these fictit
ious account holders to open demat accounts. The master account holders, the per
son who had executed the planning acts as an intermediary on behalf of the finan
ciers. The shares acquired at the of listing at a premium to get more than the a
mount of money invested. Investing in fictitious or IPO’s were disposed on the dat
e The banks played an important part by means of opening bank accounts and givin
g loans to the fictitious entities for the purpose of earning fee incomes. IPO’s a
re the key stone in the financial structure of the venture industries. But the r
ecent paucity of IPO’s has caused alarm for the venture industry & has intensified
a continuing shakeout among the venture capitalist firms. It is good times ahea
d for early bird investors. If the current government has its way, we might go f
rom a complete death Of IPO’s & follow on issues market with the government both i
n listed and unlisted space the numbers are staggering. Dalal Street likes noise
& India could stand apart with some very good paper hitting the market but the
most important will be what this move does for the government. The performance o
f Indian government goes ahead with reform plan. to a flood of new paper hitting
the being a large owner of equities market depends upon a lot how the SEBI has
agreed to dispose of pending proceedings against Mr Gautam Zhaveri for his invol
vement in the IPO scam of 2003 04, following settlement of the Mr Zhaveri, who a
pplied for the consent order, paid Rs 2.7 crores towards settlement, including a
disgorgement amount of Rs 2.36 crores, settlement charges of Rs 23.6 lakh, comp
ounding charges of Rs 9 lakh and legal charges of lakh. The applicant (Zhaveri)
had been proceeded against for irregular dealings in shares issued through IPOs,
and for
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 137
INTIAL PUBLIC OFFERING IN INDIA cornering shares meant for retail investors, mak
ing unlawful profits from the shares upon their listing. Case through a consent
order. 2003- Rs 1 SEBI had banned the apply market; initiated adjudication proce
edings against him, prosecution proceedings in the ACMM court in Mumbai under th
e Companies Act; and a protest petition before the CBI court for non-filing of c
harge sheet against the SEBI’s consent order disposes of all these pending proceed
ings. SEBI will file an application for withdrawal of its protest application at
the CBI special court, and shall not oppose compounding of prosecution in the A
CMM court, the Regulator said in its consent order. SEBI said it would also drop
proceedings against Pratik Stock Vision Pvt Ltd in the matter of carry forward
transactions in the shares of Global Tele applicant offered to settle the case,
offering Rs 1.25 towards settlement charges applicant from dealing in the securi
ties applicant. Tele-systems Ltd in 2000 charges.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
138
INTIAL PUBLIC OFFERING IN INDIA
SURVEY ANALYSIS
1. What is your age?
25 years and below
25-40 years
40-60 years
Retired
PARTICULARS 25 years and below 25-40 years 40-60 years Retired Total
RESPONSE 11 16 12 11 50
Below 25 25-40 40-60 Above 60
Out of the responded most of them almost 32% of them were from 25 25-40 age grou
p. Fewer almost 22% were there from age group of below 25 22% and above 65 years
almost on retirement age.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 139
INTIAL PUBLIC OFFERING IN INDIA 2. Which is your preferred area of investment?
Share /equity
Gold
Real estate
Mutual funds
Banks
Other
PARTICULARS Share Gold Real estate Mutual Funds Banks Other Total
RESPONSE 8 11 10 6 12 3 50
Share Gold Real Estate Mutual Funds Banks Others
Most of the responded around 24% were preferring in traditional 24% investment a
venue of banks and gold and fewer in share market
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
140
INTIAL PUBLIC OFFERING IN INDIA 3. Do you invest in Equity shares?
PARTICULARS YES NO total
RESPONSE 40 10 50
No
No, 20%
Yes
Yes, 80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
From the survey conducted of 50 people, about 80% of them invest in Equity share
s. So there is a huge market available for targeting those 80% where the product
s available
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
141
INTIAL PUBLIC OFFERING IN INDIA 4. For what term you invest your money?
PARTICULARS Less than 1 year 2-5 year More than 5 year total
RESPONSE 27 14 9 50
More than 5 years
18%
2 - 5 years
27%
Less than 1 yes
55%
0%
10%
20%
30%
40%
50%
60%
When asked about their investment period, 55% people invest for less than 1 year
and 27% of them invest for 2 – 5 yrs, which means majority of them invest for a s
hort term period and only 18% invest for a long term i.e., more than 5 yrs.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
142
INTIAL PUBLIC OFFERING IN INDIA 5. Approximately how much is your portfolio wort
h?
More than 10 lacs
14%
5 - 10 lacs
20%
2 - 5 lacs
25%
Less than 2 lacs
41% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
PARTICULARS LESS THAN 2 LACS 2-5 LACS 5 TO 10 LACS MORE THAN 10 LACS total
RESPONSE 20 13 10 7 50
As the response from the survey states that 41% holds less than 2 Lacs portfolio
and only 14% shows more than 10 lacs portfolio which shows people are cautious
about their investment in stock market considering the risk and volatility it ha
s.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
143
INTIAL PUBLIC OFFERING IN INDIA
6. How can you describe your equity investment experience?
Limited
Moderate
Extensive
Particulars Limited Moderate Extensive Total
Response 15 24 11 50
Limited Moderate Extensive
Out of the surveyed almost 50% responded had moderate experience in stock market
.30% of them had limited experience in stock market. .30%
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 144
INTIAL PUBLIC OFFERING IN INDIA 7. How much time do you give to Investment optio
ns & related reading every day?
Particulars LESS THAN 10 MINUTES 10-30 30-60 MORE THAN 1 HOUR TOTAL
Response 20 15 9 6 50
More than 1 hour
12%
30 - 60 mins
18%
10 - 30 mins
30%
Less than 10 mins
40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Generally people spend less than 10 minutes on stock reading, may be because the
y are not trader or having other business to do. 12% of responded spend more tha
n 1 hour which indicate they might be regular investor in market.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
145
INTIAL PUBLIC OFFERING IN INDIA . 8. Do you know about IPO?
Yes
No
PARTICULARS
RESPONSE
Yes
23
No
27
Total
50
Yes No
Almost 46% responded knows about IPO and rest have no idea.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
146
INTIAL PUBLIC OFFERING IN INDIA 9. From where you got the knowledge of IPO and o
ther investment options?
PARTICULARS WEBSITES BROKER STUDY MARKET OTHERS TOTAL
RESPONSE 7 15 8 17 3 50
Others Market Study Broker Websites 0%
5% 35% 16% 29% 15% 5% 10% 15% 20% 25% 30% 35% 40%
Information investor and trader generally obtain from market about equity as 35%
from surveys indicate it. 29% get news and information from their own broker. R
est of them gets information from websites, study and other sources. Website may
play major role in future as internet user are increasing in millions per year
in India
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 147
INTIAL PUBLIC OFFERING IN INDIA
CONCLUSION & RECOMMENDATIONS
CONCLUSION: The Indian initial public offer (IPO) market has always had more tha
n its fair share of doomsayers Right from the Maruti issue, which pundits decrie
d as being overpriced, to the ONGC and TCS issues, where the huge sizes of the o
fferings drew predictions of calamitous effects on the secondary markets, the op
inions of the “experts” have proved to be wide off the mark. Not only did the mega i
ssues sail through, but the secondary markets proved to be far more resilient th
an anybody had anticipated. The data show that as much as Rs. 2033.99 Crores has
been raised from the primary market in the current calendar year, making it obv
ious that the Indian investor has far more appetite for equities than most peopl
e realize. Most of the money has been raised by big companies with a long-term t
rack record. A substantial number of issues—barring that of TCS—also happened during
the early part of the year, before the markets got the shivers. The heavy overs
ubscriptions in many cases can also be traced to the availability of bank financ
e for IPO investment. Nevertheless, there is no denying the enormous interest re
tail and other investors have shown in the primary market, perhaps even more so
than in the secondary one. This interest has been sustained despite the lack of
bounce in the secondary market and is not confined to the big issues; even small
er issues have sailed through with large oversubscriptions.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
148
INTIAL PUBLIC OFFERING IN INDIA If investors are gung-ho about IPO’s, there are se
veral reasons for it. Unlike earlier IPO booms, this one is being driven by a mu
ch better quality of offering. Missing in action so far are the fly-by-night ope
rators of the 1990s who made public offers only to collect the money and vanish.
Next, most recent IPO’s have resulted in gains on listing for the investor. The l
isting gains have probably initiated a kind of virtuous cycle, tempting investor
s who have already made money to return to the primary market.
There is also reason to believe that companies are pricing their issues less agg
ressively this time, either due to general concerns about a volatile market, or
because of a deliberate effort to leave something on the table for all investors
. DQ Entertainment (International) Ltd and NMDC Limited are lining up issues. Ev
en mutual funds have got into the act, and are tailoring their offerings to matc
h current market fancies— mid-cap funds, dividend yield funds, and what-have-you.
If the government wants to get some money into its kitty through disinvestment p
rogrammers, this is the time to make a dash for it
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
149
INTIAL PUBLIC OFFERING IN INDIA RECOMMENDATIONS: After making the project, I wou
ld like to say SEBI is playing very important role in regulating the risk and fi
nancial aspects of the investors. Also the DIP guideline is framed in such a man
ner, which can be understood by any individual. Overall the process and the vari
ous intermediaries, which are involved in IPOs or initial public offering, are d
oing very important task. I found the following points very important from the i
nvestor point of view while doing this project: • The IPOs should be consumer frie
ndly: Any investor should be able to analyze the IPO in its simplest form and sh
ould be able to understand of whether to apply for it or not. • IPOs should be gra
ded which is already started. But I think such kind of grading is not enough bec
ause it doesn’t give enough information about the company; it only says what the l
evel of grade that a company deserves is. • I would suggest shortening the time be
tween application and allocation or listing. We know SEBI and other intermediari
es has done great job in doing so in the past, but looking at the current scenar
io we think it’s very important to do so. This would help investor in investing th
e same money in other IPOs if he is not allotted shares in that particular compa
ny.
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
150
INTIAL PUBLIC OFFERING IN INDIA BIBLIOGRAPHY:
BOOKS AND MAGAZINE:-
Indian Capital Markets Financial management –Prasanna Chandra Ncfm module: financi
al market’s Initial public offerings- richard p. Kleeburg Dalal street journal’s “stoc
k market book Ipo-conepts and experience-arindam banerjee Ipo markets-prospectiv
es and experience-vandana shajan
WEBSITES:-
www.business.mapsofindia.com/ipo-india/ www.moneycontrol.com www.domain-b.com ww
w.sebi.gov.in www.investopedia.com www.chittorgarh.com/ipo/
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
151
INTIAL PUBLIC OFFERING IN INDIA
REFERENCE
PADMASHREE DR. D.Y.PATIL UNIVERSITY DEPARTMENT OF BUSINESS MANAGEMENT.
“A survey on people preferences about Investment & IPO”
This research is being done for academic purpose only. All the information provi
ded shall be kept confidential.
Name:
1. What is your age?
25 years and below 40-60 years
25-40 years Retired
2. Which is your preferred area of investment?
Share /equity Mutual funds
Gold Banks
Real estate Other
3. Do you invest in Equity shares?
Yes
No
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT
152
INTIAL PUBLIC OFFERING IN INDIA
4. For what term you invest your money? Less than 1 year 1-5 year For more than
5 year 5. Approximately how much is your portfolio worth? Less than 2 lacs 5-10
lacs 2-5 lacs more than 10 lacs
6. How can you describe your equity investment experience 7. Limited Moderate Ex
tensive
7. How much time do you give to Investment options & related reading every day?
less than 10 minutes 30-60 minutes 10-30 minutes more than 60 minutes
8. Do you know about IPO? Yes No
9. From where you got the knowledge of IPO and other investment options? Website
s Broker Study Market Other
DR, D. Y.PATIL UNIVERSITY, DEPT. OF BUSINESS MANAGEMENT 153