Initial Public Offering

Introduction Why IPO is done SEBI Guidelines for IPO IPO Process Benefits of IPO Recent IPOs in India

What is IPO ?
IPO stands for Initial Public Offering. Initial Public Offering refers to the selling of shares by a private company to the public for the first time This happens in the primary market. The primary market is where a company makes its first contact with the public at large.

Why IPO is done?

New capital Almost all companies go public primarily because they need money to expand the business Future capital Once public, firms have greater and easier access to capital in the future Mergers and acquisitions Its easier for other companies to notice and evaluate a public firm for potential synergies IPOs are often used to finance acquisitions

SEBI Guidelines for IPO

1. It must have a pre-issue net worth of not less than Rs. 10,000,000 (Rupees One crore) in 3 out of the preceding 5 years, with a minimum net worth to be met during the 2 immediately preceding years. It must have a track record of distributing dividends for at least 3 out of the immediately preceding 5 years, and The issue size, i.e., the offer through the offer document, the firm allotment and the promoters contribution through the offer document, should not exceed five times the pre-issue net worth as per the last available audited account, either at the time of filing the draft offer document with the Securities and Exchange Board of India (SEBI) or at the time of opening of the issue.

2. 3.

If the above conditions are not satisfied, then the IPO can be made only through a book-building process, provided that sixty percent (60%) of the issue size must be allotted to Qualified Institutional Buyers (QIBs).

IPO Process
IPO Process

Fixed price method

Book building method

Combination method

In the fixed price method, the price at which the securities are offered is fixed in advance.

In the book building method, the investors have to bid for shares within a price band specified by the issuer and the final price is decided after observing the result of the bidding

In the combination method, components of both the methodsfixed price & book building method are considered.

The Process of IPO by Book Building Method

Company nominates lead merchant banker(s) as underwriters. Disclose of securities to be issued & price band for bidding Appointment of syndicate members Bidding process Process normally remains for 5 days Bids have to be entered within the specified price band On the closure of the process, the book runners evaluates the price levels At last the book runners & the issuer decides the final price Allocation of securities is made to the successful bidders Rest get refund orders.

Benefits of IPOs
For Companies For Investors

Stocks and shares are a fast way to raise capital for business expansion and growth. By becoming a publicly traded company, a business can take advantage of new, larger opportunities and can start working towards incorporation and even worldwide expansion or take their business to another level. IPO gives a company fast access to public capital.

For the investor, IPOs are attractive mainly because they are perceived to be undervalued. To make IPOs more attractive, many companies may offer their initial public offering at a low rate. This encourages investors to buy IPOs as a profitable investment option. IPOs may be undervalued in some cases, which can help the investor make a quick profit.

Recent IPOs In India Bharti Infratel Dec 11, 2012 Dec 14, 2012 210/- to 240/IPO-BB
Limited IPO PC Jeweller Ltd IPO Credit Analysis & Research Ltd IPO Veto Switchgears and Cables Ltd IPO Tara Jewels Limited IPO Bronze infratech Ltd IPO Dec 10, 2012 Dec 12, 2012 125/- to 135/Dec 07, 2012 Dec 11, 2012 700/- to 750/IPO-BB IPO-BB

Issuer company

Issue open

Issue close

Offer pice (Rs)

Issue type

Offer size Crore(Rs) 4,155.80 609.30 539.98

Dec 03, 2012 Dec 05, 2012 48/- to 50/-

IPO-BB

25.00

Nov 21, 2012 Nov 23, 2012 225/- to 230/Oct 19, 2012 Oct 23, 2012 15/-

IPO-BB IPO-FP

183.49 8.56

FPO
FPO stands for FOLLOW ON PUBLIC ORDER An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process. Examples :Indian bank , ONGC , BHEL ,Power finance corporation , Tata Steel.