IPO Final

15 Critical Disclosures of IPO

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What is an IPO?

Initial Public Offering, IPO, is when an unlisted

company makes either a fresh issue of securities or

an offer for sale of its existing securities or both for

the first time to the public

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Different Kinds of Issues

Public Rights Preferential

Issues

Initial Public Offering

Further Public Offering

Fresh Issue Offer For Sale Fresh Issue Offer For Sale

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Reasons to go public…

Raising funds to finance cap ex programs like

expansion, diversification, modernization

Financing of increased working capital

requirements

Debt refinancing

Financing acquisitions like a manufacturing unit,

brand acquisition

Exit route for existing investors

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Entry Norms

Entry norm I (EN I)The company shall meet the following requirements:

(a) Net Tangible Assets of at least Rs. 3 crore for 3 full years

(b) Distributable profits in at least three years

(c) Net worth of at least Rs. 1 crore in three years

(d) If change in name, at least 50% revenue for preceding 1

year should be from the new activity

(e) The issue size does not exceed 5 times the pre- issue net

worth

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Entry Norms (Contd.)

Entry Norm II (EN II)(a) Issue shall be through book building route, with at

least 50% to be mandatory allotted to the Qualified

Institutional Buyers (QIBs)

(b) The minimum post-issue face value capital shall be Rs.

10 crore or there shall be a compulsory market-making for

at least 2 years

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Entry Norms (Contd.)

Entry Norm III (EN III)(a) The “project” is appraised and participated to the

extent of 15% by FIs/Scheduled Commercial Banks of

which at least 10% comes from the appraiser(s)

(b) The minimum post-issue face value capital shall be Rs.

10 crore or there shall be a compulsory market-making for

at least 2 years

(c) The company shall also satisfy the criteria of having at

least 1000 prospective allotters in its issue

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Pre-Issue Obligation

Appointment of merchant banker registered with

SEBI

Appointment of other intermediaries

Advisor

Lead manager

Co-manager

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Registrar Category I and category II Assists in selection of banker Assists in devising application form Collection of daily collection figure Finalize the list of eligible allotters Amount of shares outstanding in the market

matches the amount of shares authorized by the

company

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Bankers Compulsory registration with SEBI Share application money account Issue of certificate of final collection figure Acceptance of money payable on allotment and

on calls Refund of application money to unsuccessful

applicants

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Underwriters

Advertising Agency English National Daily with wide circulation Hindi National newspaper Regional language newspaper with wide

circulation at the place of the registered office of

the issuer Shall be in the format and contain the minimum

disclosure

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Auditor

Auditors’ report

Promoters contribution certificate

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Promoter’s Contribution

Who is Promoter?

Persons who are in overall control of the

company

Instrumental in the formulation of a plan or

programme pursuant to which the securities

are offered to public

Persons named in the prospectus as promoters

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Unlisted company

Minimum requirement: 20% of the post-issue

capital

Listed company

Post-issue holding should be more than 20%

Should bring in their contribution

including premium fully before the issue

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Securities not eligible for computation Shares issued for consideration other than cash Shares resulting from bonus issue out of

revaluation reserves Shares issued to promoter during preceding

year, at a lower price Shares issued to partners for capital brought in

during last year

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Lock-in

Indicates a freeze on the shares

For minimum contribution 3 years

For excess contribution 1 year

Lock in period starts from

Date of allotment

or

Date commencement of commercial production

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Securities And Exchange Board Of India

(Disclosure And Investor ProtectionGuidelines, 2000)

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Issue Details

(a) Logo, name, previous name, if any, address, telephone

number, fax number, contact person, website address and e-

mail address of the issuer company

(b) Nature, number, price and amount of instruments offered

and issue size, as may be applicable

(c) Risks in relation to first issue

(d) General risk regarding investments in equity

(e) Issuer's Absolute Responsibility clause

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Issue Details(f) Logo, names and addresses of all the Lead

Merchant Bankers with their titles who file the

prospectus with the Board, along with their telephone

numbers, fax numbers, website addresses and e-

mail addresses

(g) Logo, names of the Registrar to the Issue, along

with its telephone number, fax number, website

address and e-mail address

(h) Issue Schedule

(i) IPO Grading, Credit Rating, if applicable

(j) Names of the Stock Exchanges where listing is

proposed along with details of in-principle approval

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Table of Contents

1)Definitions And Abbreviations

2)Risk Factors

3)Introduction

4)About The Issuer Company

5)Financial Information

6)Legal And Other Information

7) Other Regulatory And

Statutory Disclosures

8) Issue Information

9) Main Provisions Of The

Articles Of Association

Of The Company

10)Other Information

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Definitions and Abbreviations

Conventional/ General terms

Offering-related Terms

Company/ Industry-related Terms

Abbreviations

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Risk Factors

1. Forward-looking Statements and Market Data, if

any (to be disclosed on voluntary basis).

2. Risk Factors

i. Risks envisaged by Management.

ii.Proposals, if any, to address the risks.

iii.Notes to the risk factors.

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Introduction1. Summary

i. Summary of the industry and business of the issuer company

ii. Offering details in brief

iii. Summary Consolidated Financial, Operating and Other Data

2. General Information

i. Name, address of registered office and the registration number of the issuer company,

along with the address of the Registrar of Companies where the issuer company is

registered

ii. Board of Directors of the issuer company

iii. Brief details of the Chairman, Managing Director, Whole Time Director, etc

iv. Names, addresses, telephone numbers, fax numbers and e-mail addresses of the

Company Secretary, Legal Advisor and Bankers to the Company

v. Name, address, telephone number, fax number and e-mail address of the Compliance

Officer

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vi. Names, addresses, telephone numbers, fax numbers, contact person,

website addresses and e-mail addresses of the Merchant Bankers, Co-

Managers, Registrars to the Issue, Bankers to the Issue, Brokers to the

Issue, Syndicate members, Self Certified Syndicate Banks, etc.

vii. Names, addresses, telephone numbers, fax numbers and e-mail addresses of

the auditors of the issuer company.

viii.Statement of inter se allocation of responsibilities among Lead Managers.

ix. Credit Rating (in case of debenture issue) / IPO Grading.

x. Names, addresses, telephone numbers, fax numbers, website addresses and

e-mail addresses of the trustees under debenture trust deed (in case of

debenture issue).

xi. Name of the monitoring agency, if applicable.

xii. Where the project is being appraised, name, address, telephone number and

e-mail address of the appraising entity.

xiii.Book Building Process in brief.

xiv. Details of Underwriting, if any.

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3. Capital Structurei. Capital structure

ii. Classes of shares, if applicable

iii. Notes to capital structure

4. Objects of the

Offeringi. Funds Requirement

ii. Funding Plan (Means of Finance)

iii. Appraisal

iv. Schedule of Implementation

v. Funds Deployed

vi. Sources of Financing of Funds already

deployed

vii.Details of Balance Fund Requirement

viii.Interim Use of Funds

ix. Basic Terms of Issue

x. Basis for issue price

xi. Tax Benefits

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About the Issuer Company

1. Industry overview

2. Business overviewi. Details of the business of the

issuer company

a) Location of the project.

b) Plant, machinery, technology, process, etc.

c) Collaborations, any performance guarantee

or assistance in marketing by the

collaborators.

d) Infrastructure facilities for raw materials

and utilities like water, electricity, etc.

e) Products/ services of the company.

ii. Business strategy

a) Brief statement about business strategy.

b) Brief statement about future prospects,

including capacity & capacity utilization

and projections.

iii. Competitive strengths (to be

disclosed on a voluntary basis).

iv. Insurance (to be disclosed on a

voluntary basis).

v. Property.

vi. Purchase of property.

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3. Key Industry-Regulation (if applicable)

4. History and Corporate Structure of the issuer

company:(i) History and Major Events.

(ii) Main objects.

(iii) Subsidiaries of the issuer company, if any and their businesses.

(iv) Shareholders agreements.

(v) Other agreements.

(vi) Strategic partners.

(vii) Financial partners.

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5. Managementi. Board of Directors.

ii. Compensation of Managing Directors/ Whole time Directors.

iii. Compliance with Corporate Governance requirements.

iv. Shareholding of Directors, including details of qualification shares held by them.

v. Interest of the Directors.

vi. Change, if any, in the directors in last three years and reasons thereof, wherever

applicable.

vii. Management Organisation Structure.

viii. Details regarding Key Management Personnel.

ix. Employees.

x. Disclosures regarding employees stock option scheme/ employees stock purchase

scheme of the issuer company, if any, as required by the Guidelines or Regulations of

the Board relating to Employee Stock Option Scheme and Employee Stock Purchase

Scheme.

xi. Payment or Benefit to Officers of the Company (non-salary related).

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6. Promoters/ Principal Shareholders:i. Details about promoters who are individuals

ii. Details about promoters which are companies

iii.Common pursuits

iv.Interest of promoters

v. Payment or benefit to promoters of the issuer company

vi.Related party transactions as per the Financial Statements

7. Exchange rates (to be disclosed on voluntary

basis)

8. Currency of presentation

9. Dividend policy

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Financial Statements

1. Selected Consolidated Financial and Operating data.

2. Financial information of the issuer company.

3. Financial information of group companies.

4. Changes in Accounting Policies in the last three years.

5. Management’s Discussion and Analysis of Financial

Condition and Results of Operations as Reflected in the

Financial Statements:

i. Overview of the business of the issuer company.

ii. Significant developments subsequent to the last financial year.

iii. Factors that may affect Results of the Operations.

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Financial Statements (Contd.)

iv. Discussion on Results of Operations.

v. Comparison of recent financial year with the previous financial

years (last three years) on the major heads of the Profit & Los

Statement.

vi. Liquidity and Capital Resources (to be disclosed on voluntary

basis).

vii. Capital Expenditure (to be disclosed on voluntary basis).

viii.Foreign Exchange Risk (to be disclosed on voluntary basis).

ix. Interest rate Risk (to be disclosed on voluntary basis).

x. Recent accounting pronouncements (to be disclosed on voluntary

basis).

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Legal Other Information1. Outstanding litigations and Material Developments

i. Outstanding litigations involving the issuer company.

ii. Outstanding litigations against the issuer company’s subsidiaries (if applicable).

iii. Outstanding litigations involving the promoter and group companies.

iv. Material developments since the last balance sheet date.

2. Government approvals/ Licensing Arrangements

i. Investment approvals (FIPB/ RBI, etc.).

ii. All government and other approvals.

iii. Technical approvals.

iv. Letter of intent/ industrial license and declaration of the Central Government/ RBI

about non responsibility for financial soundness or correctness of statements.

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Other Regulatory and Statutory Disclosures

1. Authority for the issue and details of the resolution passed for the issue.

2. Prohibition by SEBI.3. Eligibility of the Issuer

Company to enter the Capital market.

4. Disclaimer clause.5. Caution.6. Disclaimer in respect of

jurisdiction.7. Disclaimer clause of the stock

Exchanges.8. Disclaimer clause of the

Reserve Bank of India (if applicable). Filing of prospectus with the Board and the Registrar of Companies.

9. Listing.10.Impersonation.11.Consents.12.Expert opinion obtained, if

any.13.Expenses of the issue. 14.Details of fees payable.15.Underwriting commission,

brokerage and selling commission.

16.Previous rights and public issues if any (during the last five years).

17.Capitalisation of reserves or profits (during last five years).

18.Revaluation of assets, if any (during last five years).

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Offering Information

1. Terms of the issuei. Ranking of equity shares. (Details of Applications Supported by Blocked Amount

Process)

ii. Mode of payment of dividend.

iii. Face value and issue price/ floor price/ price band.

iv. Rights of the equity shareholder.

v. Market lot.

vi. Nomination facility to investor.

vii.Minimum subscription.

viii.Arrangements for Disposal of Odd Lots.

ix. Restrictions, if any, on transfer and transmission of shares/debentures and on their

consolidation/ splitting.

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2. Issue procedure:i. Fixed price issue or book building procedure as may be applicable,

including details regarding bid form / application form, who can

bid/apply, maximum and minimum bid/application size, bidding process,

bidding, bids at different price levels, etc.

ii. Option to subscribe in the issue.

iii.How to apply - availability of forms, prospectus and mode of payment.

iv.Escrow mechanism:

(a) Escrow A/c. of the company.

(b) Escrow A/c. of the syndicate member.

v. Terms of payment and payment into the Escrow Collection Account.

vi.Electronic registration of bids.

vii.Build up of the book and revision of bids.

viii.Price discovery and allocation.

ix.Signing of underwriting agreement.

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x. Filing of prospectus with the Registrar of Companies.

xi. Announcement of pre-issue Advertisement.

xii. Issuance of Confirmation of Allocation note (“CAN”) and Allotment in the

Issue.

xiii.Designated date.

xiv. Other instructions:

(a) Joint bids in the case of individuals.

(b) Multiple bids.

(c) Permanent Account Number

(d) Rejection of Bids

(e) Equity shares in de-mat form with NSDL or CDSL.

(f) Investor’s attention invited to contact the compliance officer in case of any pre-

issue/ post-issue related problems.

xv. Disposal of application and Application moneys.

xvi. Provisions of sub-section (1) of section 68A of the Companies Act, 1956

relating to punishment for fictitious applications.

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xvii. Interest on refund of excess bid amount.

xviii.Basis of allotment or allocation.

xix. Procedure and time of schedule for allotment and issue of

certificates.

xx. Method of proportionate allotment.

xxi. Letters of allotment or refund orders

xxii. Restrictions on foreign ownership of Indian securities, if

any.

(a) Investment by NRIs .

(b) Investment by FIIs.

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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.

Therefore, in case the price is not disclosed, the

number of shares and the upper and lower price

bands have to be disclosed.

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Red Herring Prospectus (Contd.) On the other hand, an issuer can state the issue

size and the number of shares are determined

later.

In the case of book-built issues it is a process of

price discovery, hence, only on completion of the

bidding process, the details of the final price are

included in the offer document.

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SEBI’s Role in an Issue Submission of offer document to SEBI should not

in any way be deemed or construed that the

same has been cleared or approved by SEBI

SEBI does not recommend any issue nor does

take any responsibility either for the financial

soundness of any scheme or the project for

which the issue is proposed to be made

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Difference between… Offer document

Covers all the relevant information to help an investor to make his/her investment decision

Draft Offer document Offer document in draft stage Are filed with SEBI, at least 21 days prior to the filing of

the Offer Document with the RoC

Abridged Prospectus Contains all the salient features of a prospectus Accompanies the application form of public issues

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What is 'IPO Grading'?

Aimed at facilitating the assessment of equity issues offered to public

An assessment of the ‘fundamentals’ of that issue in relation to the universe of other listed equity securities in India

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IPO Grading Parameters

Financial risks Accounting quality Corporate governance Management quality Earnings per share

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Advantages of IPO Grading Is likely to help SEBI regulate the IPO market by

helping it protect the investors from cases of vanishing companies

Retail investors, stand to benefit the most on account of the professional perspective of the company's fundamentals

Neutral agencies can be more objective in their evaluation of a public offer compared to other market participants

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Disadvantages of IPO Grading

The rating agencies will not talk about “what price” and “what time” aspects of the offer

Rating agencies (experienced in debt rating) could face trouble with rating the equities, which, unlike debt rating, is more dynamic and cannot be standardized

Investors may get deluded by a low-graded IPO, which could become a `missed opportunity' in the future

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Pricing No price formula stipulated by SEBI Issuer in consultation with the merchant banker

determines the price as well as the price band SEBI plays no role in price fixation Full disclosure of parameters used for pricing to

SEBI

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Factors Influencing Pricing

QUALITATIVE

Past Records Experience of Promoters Unique Selling Proposition Industry Scenario Credit Rating

QUANTITIVE

Current Market Price & High Low of last 3 yrs

P/E Multiple compared to Industry

Growth Rate in PAT & EPS

Book Value of Shares RONW & ROCE

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Fixed Price V/S Book Building Offer / Allotment Price is

known by the investor in

advance.

Demand for the securities

offered is known only after

the closure of the issue

Payment can be made at

the time of subscription

wherein refund is given

after allocation

Only indicative Price

Range is known to the

Investor.

Demand for the securities

offered can be known

everyday as the book is

built.

Payment only after

allocation

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Process of Book Building

Appointment of BRLM by the issuer Company

Draft prospectus

Filing the draft prospectus with SEBI

Bid period is decided on

Appointment of a SEBI registered syndicate

member as the underwriter by BRLM

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Circulation of copy of draft prospectus to

institutional investors and syndicate member

Syndicate members create demand

BRLM receives feedback from syndicate

members

BRLM has to build up an order book

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Syndicate members to maintain record book

Issue Price is determined

Order book is closed and issue size for placement

portion and the public issue portion determined

Final price is determined and allocation is made

Filing Final Prospectus with Registrar of Companies

Different accounts for collection of application money

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Reservations

Retail Investors 35%

Non Institutional Investors 15%

Qualified Institutional Investors 50%

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Post Issue Obligations

Role of Registrar Determines the no. of successful applicants

Scrutinizes all applications

Grouping the applications and segregating them

In case of oversubscription , allotment finalized by

consulting Regional Stock Exchange

Dispatching Certificate of allotment/refund order

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Post Issue Obligations (Contd.)

Role of underwriters If issue not subscribed up to 90% they should bring in

shortfall amount

Honor commitments within 60 days of closure of issue

If an issue is not subscribed to 100%, the underwriters are

obligated to take-up the unsubscribed portion

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Allotment

Applicants categorized according to no. of shares

applied

The total number of shares to be allotted to each

category as a whole shall be arrived at on a

proportionate basis (number of applicants in the

category x number of shares applied for)

multiplied by the inverse of the over-subscription

ratio

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Illustration

Total number of applicants in category of 100s

1,500

Total number of shares applied for

1,50,000

Number of times over-subscribed

3

Therefore, Proportionate allotment to category

1,50,000 x 1/3

50,000

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Illustration

Number of the shares to be allotted to the successful allotters shall

be arrived at on a proportionate basis

E.g.:

No. of shares applied by each applicant

100

No. of times oversubscribed

3

Proportionate allotment to each successful applicant 100

x 1/3

(to be rounded off to 100)

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Post Issue Obligations (Contd…)

All the applications where the proportionate

allotment works out to less than 100 shares per

applicant, the allotment shall be made as follows:

Each successful applicant shall be allotted a

minimum of 100 securities

The successful applicants out of the total

applicants shall be determined by withdrawal

of lots.

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Post Issue Obligations (Contd...)

If the proportionate allotment to an applicant is more than

100 but is not a multiple of 100, the number in excess of the

multiple of 100 shall be rounded off to the higher multiple of

100 if that number is 50 or higher.

Illustration:

If the proportionate allotment works out to 250, the applicant

would be allotted 300 shares.

If however the proportionate allotment works out to 240, the

applicant shall be allotted 200 shares.

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Green Shoe Option Also known by its legal title as an "over-

allotment option" (the only way it can be referred to in a prospectus), gives underwriters the right to sell additional shares in a registered securities offering if demand for the securities is in excess of the original amount offered

An issuer company making a public offer of equity shares can avail of the Green Shoe Option (GSO) for stabilizing the post listing price of its shares

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Glossary

Offer for saleA public invitation by a sponsoring intermediary, such as

an investment or merchant bank, of existing securities

Further Public OfferingPublic offer by a listed company through issue of shares

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Glossary

Fresh Issue

Initial public offer through issue of new shares

Rights Issue

Existing shareholders have the privilege to buy

a specified number of new shares from the

firm at a specified price within a specified time

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Glossary

Market Making

A broker-dealer firm accepts the risk of

holding a certain number of shares of a

particular security in order to facilitate trading

and liquidity in that security by displaying buy

and sell quotations for a guaranteed number of

shares. The lead manager is supposed to be

the market maker or appoint one

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Glossary Qualified Institutional Buyers

Institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets

Lead ManagersThe commercial or investment bank which has primary responsibility for organizing a given credit or bond issuance. This bank will find other lending organizations or underwriters to create the syndicate, negotiate terms with the issuer, and assess market conditions. Also called syndicate manager, managing underwriter or lead underwriter

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Glossary

Registrar

They play an administrative role in conducting a

public issue. They are responsible for collecting

information from the collecting banks and report

to the companies and lead managers about the

issue collections. They advise the company

regarding the closure or extension of closing

date of the issue.

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Glossary

Underwriter

Financial intermediaries that buy stock or bonds

from an issuer and then sell these securities to

the public

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Glossary

Grey Market

Grey market is the unofficial trading in a

company’s share before it starts trading on the

stock exchange after an IPO.

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Guidelines on advertisement Truthful, clear, concise matter and

understandable language Statements considered misleading Should not use celebrities, models, fictional

characters, landmarks In case of Television ads risk factors should not

be scrolled and advise to refer to Red Herring Prospectus

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Guidelines on advertisement contd.. Financial data for past three years Print size not to be less than 7 points Compulsory mention of risk factors No advertisement regarding subscription status

during period of subscription No corporate advertisement of issuer company

shall be issued after 21 days of the filing of the offer document with the Board till the closure of the issue

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Description of Equity Shares and Terms of the Articles of Association1. Rights of members regarding voting, dividend,

lien on shares and the process for modification

of such rights and forfeiture of shares.

2. Main provisions of the Articles of Association.

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Listing Procedure (NSE)

1. Approval of Memorandum and Articles of

Association

2. Approval of draft prospectus

3. Submission of Application

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Approval of Memorandum and Articles of Association

Provisions Needed

There shall be no forfeiture of unclaimed dividends before the claim becomes barred by law

Fully paid shares shall be free from all lien and that in the case of partly paid shares the Issuer's lien shall be restricted to moneys called or payable at a fixed time in respect of such shares

Any amount paid up in advance of calls on any share may carry interest but shall not in respect thereof confer a right to dividend or to participate in profits

Option or right to call of shares shall not be given to any person except with the sanction of the Issuer in general meetings.

Permission for Sub-Division/Consolidation of Share Certificate.

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Approval of draft prospectus

Issuer shall file draft prospectus with the NSE. In

case NSE is no the regional stock exchange, then

the draft prospectus should be filed simultaneously

with the NSE, when the same is filed with the

Regional Stock Exchange pertaining to the issue,

for perusal of NSE

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Listing Procedure (BSE) Minimum Listing Requirements for New Companies

Companies have been classified as large cap companies and small cap

companies. A large cap company is a company with a minimum issue

size of Rs. 10 crore and market capitalization of not less than Rs. 25

crore. A small cap company is a company other than a large cap

company

In respect of Large Cap Companies The minimum post-issue paid-up capital of the applicant company

(hereinafter referred to as "the Company") shall be Rs. 3 crore

The minimum issue size shall be Rs. 10 crore

The minimum market capitalization of the Company shall be Rs. 25

crore (market capitalization shall be calculated by multiplying the

post-issue paid-up number of equity shares with the issue price)

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Listing Fees (BSE)

Particulars Amount (Rs)

Initial Listing fees 7500

Annual listing fees companies with paid capital

Of Rs 1 crore 4200

Above 1crore upto 5 crore 8400

Above 5crore upto 10 crore 14000

Above 10 crore upto 20 crore 28000

Above 20 crore upto 50 crore 42000

Above 50 crore 70000

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In respect of Small Cap Companies

The minimum post-issue paid-up capital of the Company shall be Rs. 3

crore

The minimum issue size shall be Rs. 3 crore

The minimum market capitalization of the Company shall be Rs. 5 crore

(market capitalization shall be calculated by multiplying the post-issue

paid-up number of equity shares with the issue price); and

The minimum income/turnover of the Company shall be Rs. 3 crore in

each of the preceding three 12-months period

The minimum number of public shareholders after the issue shall be

1000.

A due diligence study may be conducted by an independent team of

Chartered Accountants or Merchant Bankers appointed by BSE, the cost

of which will be borne by the company. The requirement of a due

diligence study may be waived if a financial institution or a scheduled

commercial bank has appraised the project in the preceding 12 months

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Permission to Use the Name of BSE in an Issuer Company's Prospectus

Companies desiring to list their securities offered through a public issue

are required to obtain prior permission of BSE to use the name of BSE in

their prospectus or offer for sale documents before filing the same with

the concerned office of the Registrar of Companies.

BSE has a Listing Committee , comprising of market experts, which

decides upon the matter of granting permission to companies to use the

name of BSE in their prospectus/offer documents. This Committee

evaluates the promoters, company, project , financials, risk factors and

several other aspects before taking a decision in this regard.

Decision with regard to some types/sizes of companies has been

delegated to the Internal Committee of BSE.

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Submission of Letter of Application As per Section 73 of the Companies Act, 1956, a company

seeking listing of its securities on BSE is required to submit a

Letter of Application to all the stock exchanges where it proposes

to have its securities listed before filing the prospectus with the

Registrar of Companies.

Companies making public/rights issues are required to deposit

1% of the issue amount with the Designated Stock Exchange

before the issue opens. This amount is liable to be forfeited in the

event of the company not resolving the complaints of investors

regarding delay in sending refund orders/share certificates, non-

payment of commission to underwriters, brokers, etc.

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Payment of Listing fees (NSE)Particulars Amount (Rs)

Initial Listing Fees 20,000.00

Annual Listing Fees

i) Companies with listed capital* upto Rs. 5 crores

(ii) Above Rs. 5 crore and upto Rs. 10 crores

(iii)Above Rs. 10 crore and upto Rs. 20 crore

10,000.00

15,000.00

30,000.00

Companies which have a listed capital* of more than Rs. 20 crore are required to pay an additional fee @ Rs. 750 for every additional Rs. 1 crore or part thereof.

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Aishwarya Telecom Limited

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Risk Factors• An investment in the company’s Equity Shares involves a

high degree of risk. One should carefully consider all of the information in this Prospectus, including the risks and uncertainties described below, before making an investment decision. Risks have been quantified, wherever possible. If any of the following risks actually occur, the business, financial condition and results of operations could suffer, the trading price of the Equity Shares may decline and you may lose all or part of your investment.

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Risk Factors contd…

• A. INTERNAL TO THE COMPANY▫ Dependence on Technology

▫ Variations in the revenues of these telecom operators

▫ Decrease in Govt. spending in telecom sector

▫ Unable to qualify the tender

▫ Availability & retention of skilled & trained personnel

▫ Increase presence of foreign T&M manufacturers in India

▫ Cancellation / non-renewance of tie-ups with foreign

distributors

▫ Recruitment for new unit

▫ Company’s proposed expansion plans are subject to the

risk of cost and time overruns

84


▫ Contingent Liabilities As on December 31, 2007, the contingent liabilities are as

follows:

Particulars Rs. in Lakhs

Counter Guarantees given for obtaining Bank Guarantees from various Banks

116.89

Counter Guarantees given for obtaining Letter of Credit from various Banks

46.70

Disputed Income Tax Liabilities 4.02

Disputed Sales Tax Liabilities 53.14

Total 220.75

85


• B. EXTERNAL TO THE COMPANY▫ Change in Import Duty Structure

▫ Exposure to Foreign Currency Risk

▫ Adverse changes in tax policies of Government of India

and other state Governments

▫ Economic downturn

▫ Effect of Natural Calamities, Terrorism and Violence

▫ Disruption of Utility Services

▫ Downgrading of India’s debt rating by a domestic or

international rating agency

86

Introduction• Summary

1. Industry Overview Progressive reforms Telecommunication sector in the forefront of reforms Invited private participation Telecom density was just 2% prior to telecom reforms Quite low compared to other developed countries having

telecom density of 70-80% Overall teledensity is 23.89% at the end of December 2007 T&M instruments sector is playing a vital role in

instrument operations The Indian market for T&M instruments was estimated at

Rs. 602 crore for the year 2006-07 Imported instruments’ sales estimates were at Rs. 552

crore

87

2. Business Overview ATL deals in hi-tech test & measuring equipments The Company has its manufacturing facilities situated at

two production units ATL is ISO 9001:2000 Certified Company manufacturing

Fibre Optic Test Equipments & Cable Fault Locators Currently, ATL manufactures products for Telephone

Service Providers, Defence Sector, Railways, Telecom equipment manufacturing companies and Cable TV Operators

ATL is planning to expand in to designing products for Defence Sector and Educational Sector also

Introduction contd…

88

Equity Shares offered:Fresh Issue 40,00,000 Equity Shares of Rs. 10 each

Comprising of

Employee Reservation Portion 1,00,000 Equity Shares of Rs. 10 each

Net Issue to Public 39,00,000 Equity Shares of Rs. 10 each

Of Which

Qualified Institutional Buyer portion of which

Upto 19,50,000 Equity Shares of Rs. 10 each(Available for Allocation on a proportionate basis)

Available for allocation to Mutual Funds Upto 97,500 Equity Shares of Rs. 10 each(Available for Allocation on a proportionate basis)

Balance for all QIBs including Mutual Funds

18,52,500 Equity Shares of Rs. 10 each(Available for Allocation on a proportionate basis)

Non Institutional Portion Not less than 5,85,000 Equity Shares of Rs. 10 each(Available for Allocation on a proportionate basis)

Retail portion Not less than 13,65,000 Equity Shares of Rs.10 each(Available for Allocation on a proportionate basis)

Equity Shares outstanding prior to the Issue

66,59,400 Equity Shares of Rs. 10 each

Objects of the Issue The Company intends to deploy the net proceeds of the fresh issue for part-financing its proposed project

89

Introduction contd…

3. SUMMARY OF FINANCIAL AND OPERATING INFORMATION

Summary of Assets & Liabilities is required

Summary Statement of Profits & Losses is required

90

General InformationAISHWARYA TELECOM LIMITED• INCORPORATION

▫ The Company was incorporated as Aishwarya Telecom Private Limited on June 2, 1995 with the Registrar of Companies, Andhra Pradesh, Hyderabad and took over the business of the partnership firm named ‘Advanced Electronics & Communications System’. Subsequently, it was converted into a Public Limited Company on July 12, 2005 and the name of the company was changed Aishwarya Telecom Limited vide a fresh Certificate of Incorporation obtained from the Registrar of Companies, Andhra Pradesh, Hyderabad.

• REGISTERED OFFICEAishwarya Telecom Limited3-C, Samrat Commercial ComplexOpp A G OfficeSaifabad, KhairatabadHyderabad - 500 004Andhra Pradesh, IndiaTel.: +91 40 2323 6019, 2323 5439Fax: +91 40 2329 6282E-mail: [email protected]: www.aishwaryatelecom.com

91

• Company Registration No.: 01-20569• Corporate Identification Number (CIN):

U64204AP1995PLC020569• REGISTRAR OF COMPANIES

▫ Registrar of Companies, Andhra Pradesh2nd Floor, CPWD BuildingKendriya Sadan,Sultan Bazar, KotiHyderabad – 500 195

• BOARD OF DIRECTORSName of the Director Designation

Mr. G Rama Krishna Reddy Chairman (Non-Executive and Non-Independent)

Mr. G Rama Manohar Reddy

Managing Director

Mrs. G Amulya Reddy Whole-Time Director

Mr. D Venkata Subbiah Director (Independent)

Mr. K Hari Krishna Reddy Director (Independent)

Mr. Venkataraman Krishnan Director (Independent)

92

General Information contd…

• CREDIT RATING▫ As the present Issue is of Equity Shares, credit rating is

not required• IPO GRADING

▫ CARE has assigned “IPO Grade 2 out of 5” to the proposed Public Issue of the Company indicating ‘below average fundamentals’, vide its letter dated August 30, 2007 and the Grading has been subsequently revalidated vide its letter dated January 29, 2008 for a further period of three months from the date of revalidation

93

Projects

•ATL has planned various expansion projects as detailed below.

(Rs in Lakhs)Project Cost

Capital expenditure for R&D of Optical Time Domain Reflectometer

80.39

Capital expenditure for R&D of Ethernet Traffic Analyzer 64.17

Cost of package for GSM/CDMA/GPRS analyzers for providing technical audit services to mobile operators

700.13

Land and construction of building for a new production unit at Hyderabad

272.31

Land and construction of new corporate, marketing, R&D office at Hyderabad

332.40

Additional working capital requirements 700.00

Public issue expenses 250.60

Total 2400.00

94

CAPITAL STRUCTURE OF THE COMPANYShare Capital Nominal

ValueAggregate Value

A. Authorised Capital 1,20,00,000 Equity shares of Rs.

10 each

12,00,00,000

B. Issued, Subscribed and Paid Up Capital Before the Issue 66,59,400 Equity Shares of Rs. 10 each fully paid up

6,65,94,000

C. Present Issue through this Prospectus

Fresh Issue of: 40,00,000 Equity Shares of Rs. 10

each

4,00,00,000 14,00,00,000

Of which

D. Employee Reservation Portion 1,00,000 Equity Shares of Rs. 10 each are reserved for allotment to eligible employees of the Company

10,00,000 35,00,000

95

CAPITAL STRUCTURE contd..

E. Net Issue to the Public 39,00,000 Equity Shares of Rs. 10 each

3,90,00,000 13,65,00,000

F. Paid Up Share Capital After the Issue 1,06,59,400 Equity Shares of Rs. 10 each

10,65,94,000

24,53,14,000

G. Share Premium Account Before the Issue After the Issue

3,87,20,00013,87,20,00

0

96

OBJECTS OF THE ISSUE

• To fund the Capital Expenditure for Research & Development of Main Frame Optical Time Domain Reflectometer (OTDR) in collaboration with IIT, Chennai

• To fund the Capital Expenditure for Research & Development of Ethernet Traffic Analyzers

• To fund the cost of Global System for Mobile Communication (GSM)/ General Packet for Radio Service (GPRS)/Code Division Multiple Access (CDMA) Analyzers for providing Technical Audit Services to the Mobile Operators

• To purchase land & construct building for new corporate, marketing, administrative and R&D office at Hyderabad

• To purchase land & construction of building for a new production unit at Hyderabad;

• To meet additional working capital requirements for its operations

• To meet the expenses of this Issue

97

FUNDS REQUIREMENT

Sr. No. Particulars Amt.

1 Capital Expenditure for Research & Development of Main Frame Optical Time Domain Reflecto Meter (OTDR)

80.39

2 Capital Expenditure for Research & Development of Ethernet Traffic Analyzers

64.17

3 Cost of GSM/GPRS/CDMA Analyzers for providing Technical Audit Services to the Mobile Operators

700.13

4 Cost of land & construction of building for a new production unit at Hyderabad

272.31

5 Cost of land & construction of building for new corporate, marketing, administrative and R&D office at Hyderabad

332.40

6 Additional working capital requirements 700.00

7 Issue Expenses 138.00

Total 2287.40

98

MEANS OF FINANCE

Sr. No. Particulars Amount

1 Public Issue of Equity Shares 1400.00

2 Internal Accruals 58.90

3 Term Loan from SBH 360.00

4 Pre-IPO Placement 468.50

Total 2287.40

99

About ATL•Location of the Project

▫ Existing Project: The Company has its manufacturing facilities situated at two

production units1) 2-330, Thota Street 2) Industrial Plot No. F-102 Yanam – 533 464 UPSIDC Industrial Area, Pondicherry Selaqui

Dehradun, Uttarakhand

•Technology▫ The Company deals in Test & Measuring equipments

(T&M). T&M Equipments are used to qualify, trouble shoot and to maintain the telecom optical, copper and wireless networks.

▫ The products (Test and Measuring Equipments) of the Company are mainly classified into three categories1.Fiber Optic Cable Testing Equipments2.Data Network Testers3.Copper Cable Testing Equipments

100

Legal and other Information

• Litigation involving the Company▫ There are no outstanding litigations, defaults etc

pertaining to matter likely to affect operations and finances of the Company including prosecution under any enactment in respect of Schedule XIII of the Companies Act, 1956 (1 of 1956).

• Against the company▫ The Company received a legal notice dated 07.03.07 from M/s. EL-

Tronics, Jaipur (ET) wherein ET demanded payment of expenses/interest/penalties/damages for deficiency of service/loss of goodwill amounting to Rs. 5,70,600/- and for delay in delivery of certain equipments by ATL

▫ Subsequently, ET filed a complaint before the District Forum (Hyderabad) praying for relief of Rs. 7,19,100/- along with compensation of Rs. 1,00,000/-, which was dismissed by the forum

▫ ET has then preferred an appeal before State Forum (AP) against the order of the District Forum

101

Legal and other Information contd..

• By the company▫ The Company is party to certain legal proceedings, incidental to

its business and operations, which if not determined in its favour, could have a material adverse impact on the business, results of operations and/or financial condition of the Company.

Type of Litigation Amt. involved Present Status

Income Tax 8,52,415 ACIT demanding additional IT for the AY 2004-05, the co. preferred an appeal before the Commissioner of IT (Appeals) - II

Sales Tax 5,83,611 DC of Sales Tax , in 2001-02, assessed the products manufactured by the co. under a different category which attracts higher rate of ST; the High Court granted the stay appealed by the co., till the disposal of the appeal

102

Type of Litigation

Amt. involved

Present Status

Sales Tax 23,01,489 The Commercial Tax Officer, while assessing the APGST Sales Tax Return of the Company for the year 2003-04, disallowed certain exemptions and also enhanced the taxable turnover; the Appellate Deputy Commissioner passed an order, in reply to the company’s appeal, wherein it had partly allowed the appeal and partly remanded the matter to the assessing authority

Sales Tax 33,79,692 The Commercial Tax Officer, while assessing the CST Sales Tax Return of the Company for the year 2003-04, disallowed certain exemptions and also enhanced the taxable turnover; the Appellate Deputy Commissioner passed an order, in reply to the company’s appeal, wherein it had partly allowed and partly dismissed the appeal

Criminal 8,95,000 The Company has filed a criminal case under Section 138 of the Negotiable Instruments Act, against one of its customers for non-payment of the amount due towards sale of goods and consequent dishonour of cheque received from the said customer.

103

Legal and other Information contd..

• Litigations of companies/firms promoted by the promoters/directors of ATL▫ There is no company/firm promoted by the promoters/directors

of Aishwarya Telecom Limited

• Litigations Of Subsidiary Company(ies)▫ The Issuer Company does not have any subsidiary company

• Against or By the Directors▫ There are no cases / litigations filed by or against the directors

of the Company

• Against or by the promoters▫ There are no cases / litigations filed by or against the promoters

(i.e., Mr G Rama Krishna Reddy, Mr G Rama Manohar Reddy and Mrs G Amulya Reddy)

104

Other Regulatory And Statutory Disclosures• Authority for the present issue

▫ The issue of Equity Shares by the Company has been authorised by the resolution of the Board of Directors passed at their meeting held on January 9, 2007, and subsequently authorised by the shareholders passed at the Extraordinary General Meeting of the Company held on February 15, 2007.

• Prohibition by sebi/any other authority▫ There is no prohibition against The Company, its Directors, its

Promoters, Promoter Group, the Group Companies, other companies with which the promoters/directors are associated

• Eligibility for the issue▫ The Company is eligible for the issue as per Clause 2.2.1 of the

SEBI (DIP) Guidelines as confirmed by the Auditors of the Company The Company has net tangible assets of at least Rs. 3 crores in each

of the preceding three full years (of 12 months each), of which not more than 50% is held in monetary assets;

105

Other Regulatory And Statutory Disclosures contd…

The Company has had a track record of distributable profits as per Section 205 of Companies Act, 1956 for at least three out of the immediately preceding five years;

The Company has had a pre-Issue net worth of more than Rs. 1 crore in each of the preceding three full years;

The name of the Company has not been changed in last one year; The proposed Issue size would not exceed five times the pre-Issue

net worth as per the audited accounts for the year ended March 31, 2007.

• Filing of red herring prospectus with the board and the registrar of companies▫ A copy of the Draft Red Herring Prospectus, alongwith

the documents required, has been filed with Corporation Finance Department of SEBI at SEBI Bhawan, Bandra Kurla Complex, Bandra (East), Mumbai - 400051.

106

Other Regulatory And Statutory Disclosures contd…

▫ A copy of the Red Herring Prospectus, alongwith the material contracts and documents required to be filed under Section 60B of the Companies Act, 1956 has been delivered for registration to the Registrar of Companies, Andhra Pradesh located at 2nd Floor, CPWD Building, Kendriya Sadan, Sultan Bazar, Koti, Hyderabad – 500195.

▫ A copy of the Prospectus, along with the documents required to be filed under Section 60 of the Companies Act, have been delivered for registration to the Registrar of the Companies, Andhra Pradesh located at 2nd Floor, CPWD Building, Kendriya Sadan, Sultan Bazar, Koti, Hyderabad – 500195.

▫ The Issuer and the Book Running Lead Managers confirm compliance of all legal requirements applicable till the filing of the Prospectus with RoC.

Birla Cotsyn (India) Limited

108

RISK FACTORS

Business related risks

Outstanding legal proceedings against Company

Demand Notice for Rs 886.14 lakhs from Income

Tax Department for the assessment year 2005-06

One of directors Shri Y.P. Trivedi was in RBI’s

defaulters list.

Negative cash flows in the recent five years

period

108

109

RISK FACTORS (Contd.)

RISK FACTORS RELATED TO GROUP

COMPANIES Birla Bombay Pvt. Ltd appears in the RBI

Defaulters List

Show cause notice issued to Birla Leasing &

Infrastructure Limited

Show cause notice issued to Dagger Forst Tools

Ltd.

Losses by promoter / group / associate company

109

110


RISKS RELATING TO THE ISSUE

Equity shares will not be able to sell

immediately

An active market may cause the price to fall

Future sales of Equity Shares may adversely

affect the market price

Post-issue volatility in prices of the scrip

110

111


EXTERNAL RISK FACTORS

Changes in regulations or applicable government incentives

Emergence of competition from other manufacturing

countries

Financial instability in countries

Increase in the cost of raw material

Globally competitive environment

Instability of economic policies and the political situation

Terrorist attack, war, natural disaster or other catastrophic

events

111

112

Capital structure112

113

Basic Terms of the Issue Terms of the Issue

Subject to the provisions of the Companies Act,

Memorandum and Articles of Association, Prospectus,

etc.

Subject to laws as applicable, guidelines, notifications

and regulations

Terms of Payment Applications should be for a minimum of 350 equity

shares

Price of the equity shares of Rs. 14 /- per share is

payable on application

113

114

Basic Terms of the Issue (Contd.) Authority for the Issue

Issue of equity shares via Special Resolution

passed at Extra Ordinary General Meeting of

Company held on December 18, 2006

114

115

OBJECTS OF THE ISSUE

Expansion of integrated textile project at

Khamgoan and Malkapur

To set up a garment manufacturing plant

To establish retail outlets

To achieve the benefits of listing company’s

shares on BSE and NSE

115

116

Means of Finance

Sr. No.

Particulars Amount (Rs. in Lakhs)

1. Term Loan 15,459.00

2. EquityPublic / Promoters Contribution

16,353.00

3. Subsidy 208.00

TOTAL 32,020.00

116

117

COST OF THE PROJECT AS PER THE APPRAISAL REPORTSr. No.

Particulars Amount (Rs. In Lakhs)

1. Land & Site Development 327

2. Building & Civil construction cost 4888

3. Plant & Machinery (Domestic) 7524

4. Plant & Machinery (Imported) 4823

5. Stores & Misc Fixed Assets 3957

6. Acquisition cost 717

7. Contingency 1102

8. Preliminary & Pre-operative expenses

1812

9. Working Capital Margin 3169

10. Interest During Construction 476

11. Upfront fees 124

TOTAL COST 28919

117

118

Business of the Company

Company was earlier engaged in Cotton Ginning,

Pressing and Oil expelling

Cotton spindle yarn manufacturing

Manufacture of Open End rotor based Cotton

yarn

Manufacture of finished cloth

118

119

Promoters & Promoter Group INDIVIDUALS

Mr P.B.Bharadwaj

Mr Yashovardhan Birla

COMPANIES/TRUSTS/SOCIETIES Polytex Limited

Nirved Traders Private Limited

Shearson Investment & Trading Company Private Limited

Yah Society

Birla Industries Group Charity Trust ( Medical Institution)

Sunanda Medical Institute

119

120

Management BOARD OF DIRECTORS

Mr. P.B. Bhardwaj

Mr. Yashovardhan Birla

Mr. P.V.R .Murthy

Mr. Sanjay K. Agarwal

Mr. Y. P. Trivedi

Mr. Mohan Jayakar

Mr. Mohandas Shenoy Adige

Mr. Navinchandra Chhaganlal Shah

Mr. Alok Bhardwaj

120

121

BIRLA COTSYN IPO Price Band

IPO price band was reduced to Rs 12-14 from Rs 15-18 per

equity share

Issue was supposed to close on July 4 but that also got

extended to July 9, 2008.

Public issue got subscribed just 0.51 times, till 3rd July

2008

The issue had been subscribed 1.46 times by non-

institutional investors, 0.90 times by retail individual

investors, or RIIs, and 0.016 times by qualified institutional

buyers till 4th July 2008

121

122

BIRLA COTSYN IPO Price Band (Contd.) IPO on June 30, 2008 to raise around Rs 96.12-

112.14 crore at revised price band

Price change had been marginal with the trend and

mood of the market

It was because of the marginal shortfall in RII

(Retail Institutional Investors) subscription that the

issue was extended. Under SEBI guidelines,

subscription by qualified institutions is not

mandatory

122

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References http://www.reliancemoney.com

http://en.wikipedia.org

http://finance.indiamart.com/india_business_information/

sebi_investors_knowhow.html

http://www.hinduonnet.com/2003/03/26/stories/

2003032604291800.htm

http://demataccount.com/2008/01/15/learning-basic-concepts-of-ipo-

india/

http://www.sebi.gov.in

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THANK YOU

Documents

IPO Final