IPO - Networth

8/11/2019 IPO - Networth

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INTRODUCTION


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INTRODUCTION:

The term "IPO" slipped into everyday speech during the tech bull market of the late 1990s. ack

then! it seemed you couldnt go a day #ithout hearing about a do$en ne# dot%com millionaires in

&ilicon 'alley cashing in on their latest IPO. The phenomenon spa#ned the term "siliconaire!"

#hich described the dot%com entrepreneurs in their early (0s and )0s #ho suddenly found

themselves living large due to IPOs from their Internet companies. &o! #hat is an IPO any#ay*

+o# did everybody get so rich so fast* ,nd! most importantly! is it possible for mere mortals like us

to get in on an IPO* ,ll these -uestions and more #ill be ans#ered in this tutorial. efore #e

continue! #e suggest you check out our stock basics tutorial as #ell as brokers and online trading if

you dont have a solid understanding of stocks and ho# they trade.

hat is an IPO* &elling &tock IPO is an acronym for Initial Public Offering. This is the first sale of

stock by a company to the public. , company can raise money by issuing either debt /bonds or

e-uity. If the company has never issued e-uity to the public! its kno#n as an IPO. ompanies fall

into t#o broad categories2 private and public.

, privately held company has fe#er shareholders and its o#ners dont have to disclose much

information about the company. ,nybody can go out and incorporate a company2 3ust put in some

money! file the right legal documents! and follo# the reporting rules of your 3urisdiction. 4ost

small businesses are privately held. ut large companies can be private too. 5id you kno# that

I67,! 5ominos Pi$$a! and +allmark ards are all privately held*

It usually isnt possible to buy shares in a private company. 8ou can approach the o#ners about

investing! but theyre not obligated to sell you anything. Public companies! on the other hand! have

sold at least a portion of themselves to the public and trade on a stock echange. This is #hy doing

an IPO is also referred to as "going public."

Public companies have thousands of shareholders and are sub3ect to strict rules and regulations.

They must have a board of directors and they must report financial information every -uarter. In the

:nited &tates! public companies report to the &7. In other countries! public companies are

overseen by governing bodies similar to the &7. ;rom an investors standpoint! the most eciting

thing about a public company is that the stock is traded in the open market! like any other

commodity. If you have the cash! you can invest. The 7O could hate your guts! but theres nothing

he or she could do to stop you from buying stock. hy


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ecause of the increased scrutiny! public companies can usually get better rates #hen they

issue debt.

,s long as there is market demand! a public company can al#ays issue more stock. Thus!

mergers and ac-uisitions are easier to do because stock can be issued as part of the deal.

Trading in the open markets means li-uidity. This makes it possible to implement things like

employee stock o#nership plans! #hich help to attract top talent.

eing on a ma3or stock echange carries a considerable amount of prestige. In the past! only private

companies #ith strong fundamentals could -ualify for an IPO and it #asnt easy to get listed. The

Internet boom changed all this. ;irms no longer needed strong financials and a solid history to go

public. Instead! IPOs #ere done by smaller startups seeking to epand their business. Theres

nothing #rong #ith #anting to epand! but most of these firms had never made a profit and didnt

plan on being profitable any time soon. ;ounded on venture capital funding! they spent like Teans

trying to generate enough ecitement to make it to the market before burning through all their cash.

In cases like this! companies might be suspected of doing an IPO 3ust to make the founders rich. In

' talk! this is kno#n as an eit strategy! implying that theres no desire to stick around and create

value for shareholders. The IPO then becomes the end of the road rather than the beginning. +o#

can this happen* =emember2 an IPO is 3ust selling stock. Its all about the sales 3ob. If you can

convince people to buy stock in your company! you can raise a lot of money. In our opinion! IPOslike this are etremely risky and should be avoided.

+o# can I get in on an IPO* The :nder#riting Process ehman rothers and 4organ

&tanley. The company and the investment bank #ill first meet to negotiate the deal. Items usually

discussed include the amount of money a company #ill raise! the type of securities to be issued! and

all the details in the under#riting agreement. The deal can be structured in a variety of #ays. ;or

eample! in a "firm commitment!" the under#riter guarantees that a certain amount #ill be raised

by buying the entire offer and then reselling to the public. In a "best efforts" agreement! ho#ever!the under#riter sells securities for the company but doesnt guarantee the amount raised. ,lso!


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investment banks are hesitant to shoulder all the risk of an offering. Instead! they form a syndicate

of under#riters. One under#riter leads the syndicate and the others sell a part of the issue. Once all

sides agree to a deal! the investment bank puts together a registration statement to be filed #ith the

&7. This document contains information about the offering as #ell as company info such as

financial statements! management background! any legal problems! #here the money is to be used!

and insider holdings. The &7 then re-uires a "cooling off period!" in #hich they investigate and

make sure all material information has been disclosed. Once the &7 approves the offering! a date

/the effective date is set #hen the stock #ill be offered to the public. 5uring the cooling off period

the under#riter puts together #hat is kno#n as the red herring. This is an initial prospectus

containing all the information about the company ecept for the offer price and the effective date!

#hich arent kno#n at that time. ith the red herring in hand! the under#riter and company attempt

to hype and build up interest for the issue. They go on a road sho# % also kno#n as the "dog andpony sho#" % #here the big institutional investors are courted. ,s the effective date approaches! the

under#riter and company sit do#n and decide on the price. This isnt an easy decision2 it depends

on the company! the success of the road sho#! and most importantly! current market conditions. Of

course! its in both parties interest to get as much as possible. ;inally! the securities are sold on the

stock market and the money is collected from investors. hat ,bout 4e* ,s you can see! the road

to an IPO is a long and complicated one. 8ou may have noticed that individual investors arent

involved until the very end. This is because small investors arent the target market. They dont have

the cash and therefore hold little interest for the under#riters.

If under#riters think an IPO #ill be successful! theyll usually pad the pockets of their favorite

institutional client #ith shares at the IPO price. The only #ay for you to get shares /kno#n as an

IPO allocation is to have an account #ith one of the investment banks that is part of the

under#riting syndicate. ut dont epect to open an account #ith ?1000 and be sho#ered #ith an

allocation. 8ou need to be a fre-uently trading client #ith a large account to get in on a hot IPO.

ottom line! your chances of getting early shares in an IPO are slim to none unless youre on the

inside. If you do get shares! its probably because nobody else #ants them. ets say you do get in on an IPO. +ere are a fe# things to look

out for. Ao +istory Its hard enough to analy$e the stock of an established company. ,n IPO

company is even trickier to analy$e since there #ont be a lot of historical information. 8our main

source of data is the red herring! so make sure you eamine this document carefully. >ook for the

usual information! but also pay special attention to the management team and ho# they plan to use


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the funds generated from the IPO. ,nd #hat about the under#riters* &uccessful IPOs are typically

supported by bigger brokerages that have the ability to promote a ne# issue #ell. e more #ary of

smaller investment banks because they may be #illing to under#rite any company. The >ockup

Period

If you look at the charts follo#ing many IPOs! youll notice that after a fe# months the stock takes a

steep do#nturn. This is often because of the lockup period. hen a company goes public! the

under#riters make company officials and employees sign a lockup agreement. >ockup agreements

are legally binding contracts bet#een the under#riters and insiders of the company! prohibiting

them from selling any shares of stock for a specified period of time. The period can be anything

from ) to (B months. 90 days is the minimum period stated under =ule 1BB /&7 la# but the

lockup specified by the under#riters can last much longer. The problem is! #hen lockups epire all

the insiders are permitted to sell their stock. The result is a rush of people trying to sell their stock to

reali$e their profit. This ecess supply can put severe do#n#ard pressure on the stock price.

;lipping ;lipping is reselling a hot IPO stock in the first fe# days to earn a -uick profit. This isnt

easy to do! and youll be strongly discouraged by your brokerage. The reason behind this is that

companies #ant long%term investors #ho hold their stock! not traders. There are no la#s that

prevent flipping! but your broker may blacklist you from future offerings or 3ust smile less #hen

you shake hands. Of course! institutional investors flip stocks all the time and make big money. The

double standard eists and there is nothing #e can do about it because they have the buying po#er.ecause of flipping! its a good rule not to buy shares of an IPO if you dont get in on the initial

offering. 4any IPOs that have big gains on the first day #ill come back to earth as the institutions

take their profits. ,void the +ype Its important to understand that under#riters are salesmen. The

#hole under#riting process is intentionally hyped up to get as much attention as possible. &ince

IPOs only happen once for each company! they are often presented as "once in a lifetime"

opportunities. Of course! some IPOs soar high and keep soaring. ut many end up selling belo#

their offering prices #ithin the year. 5ont buy a stock only because its an IPO % do it because its agood investment.

Tracking &tocks Tracking stocks appear #hen a large company spins off one of its divisions into a

separate entity. The rationale behind the creation of tracking stocks is that individual divisions of a

company #ill be #orth more separately than as part of the company as a #hole. ;rom the

companys perspective! there are many advantages to issuing a tracking stock. The company gets to

retain control over the subsidiary but all revenues and epenses of the division are separated from

the parent companys financial statements and attributed to the tracking stock. This is often done toseparate a high gro#th division #ith large losses from the financial statements of the parent


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company. 4ost importantly! if the tracking stock rockets up! the parent company can make

ac-uisitions #ith stock of the subsidiary instead of cash.

hile a tracking stock may be spun off in an IPO! its not the same as the IPO of a private company

going public. This is because tracking stock usually has no voting rights! and often there is no

separate board of directors looking after the rights of the tracking stock. Its like youre a second

class shareholderC This doesnt mean that a tracking stock cant be a good investment. @ust keep in

mind that a tracking stock isnt a normal IPO.

Introduction to Merchant Banking

Meaning:

The 4erchant anker has been defined under the &ecurities ,nd 7changes oard of India

/4erchant ankers =ules! 199( as Dany person #ho is engaged in the business of issue

management either by making arrangements regarding selling! buying or subscribing to securities as

manager! consultant! advisor or rendering corporate advisory service in relation to such issue

managementE.

History of Merchant Banking

The history of merchant bank can be dated back to 1FthG 1Hthcenturies #hen it first started in Italy

G ;rance. This #as started by the Italian grain merchants. It comprised of merchant bankers #ho

intermediated or assisted in financing the transactions of other traders and their o#n trade too. ith

the passage of time the practices in evolved and the merchant banking in the modern era started

from >ondon #here the merchants started to finance the foreign trade through acceptance of bill.

>ater they etended their services to the governments of under developed countries to raise the long

term funds through the floatation of bonds in the >ondon money market. Over the period they

etended their services to loan syndication! under#riting the issues! portfolio management etc. The

post #ar period #itnessed huge increase in the merchant banking activities.

Merchant Banking in India

4erchant banking activity #as officially commenced into the Indian capital 4arkets #hen


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itibank &etup its merchant banking division in Indian in 19F0.

Indian banks &tarted banking &ervices from 19F(.

&tate bank of India started the merchant banking division in 19F(

,fter that there #ere many banks #hich set up the merchant bank division such asJ

III

ank of India

ank of aroda

anara ank

Pun3ab Aational ank

:O ank

The 4erchant ank got more importance in the year 19H) #hen there #as a huge boom in the

primary market #here the companies #ere going for ne# issue. 4erchant banking activities are

organi$ed and undertaken in several forms. ommercial banks and foreign development

finance institutions have organi$ed them through formation divisions! nationali$ed banks have

formed subsidiary companies! share brokers and consultancies constituted themselves into public

limited companies or registered themselves as private limited ompanies. &ome merchant banking

companies have entered into collaboration #ith merchant bankers of foreign countries abroad #ith

several branches.

Services rovided !y Merchant Banks

elo# mentioned are the ma3or services offered by 4erchant ankersJ

Pro3ect ounseling

4anagement of debt and e-uity offerings

Issue 4anagement

4anagers! onsultants or ,dvisers to the Issue

:nder#riting of Public Issue

Portfolio 4anagement

=estructuring strategies

Off &hore ;inance

Aon%resident Investment

>oan &yndication

orporate ounseling and advisory services


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Placement and distribution

R"S"#RCH M"THODO$O%&

'( Descri)tive Research

5escriptive research is used to obtain information concerning the current status of the phenomena

to describe D#hat eistsE #ith respect to variables or conditions in a situation. 5escriptive research!

also kno#n as statistical research! describes data and characteristics about the population or

phenomenon being studied. 5escriptive research ans#ers the -uestions who! what! where! whenand

how. ,lthough the data description is factual! accurate and systematic! the research cannot describe

#hat caused a situation.

*( #na+ytica+ Research

,nalytical research takes descriptive research one stage further by seeking to eplain the reasons

behind a particular occurrence by discovering causal relationships. Once causal relationships have

been discovered! the search then shifts to factors that can be changed /variables in order to

influence the chain of causality.

Ty)e of Research Design:The research design is pre planned #hich is designed for analysis.

,nd also the data #as collected from structured and #ell thought K out instruments.

Data:

5ataLs are the useful information or any forms of document designed in a systematic and

standardi$e manner #hich are used for some further proceedings. One of the important tools for

conducting marketing research is the availability of necessary and useful data. &ome time the data

are available readily in one form or the other and some time the data are collected afresh. The

sources of 5ata fall under t#o categories! Primary &ource and &econdary &ources.


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', ri-ary Data: ollected from personal intervie#! collected under the guidance of &ri

=amakrishna! 4anager /;inance in Interconnected stock roking.

*, Secondary Data2 The &econdary data has been collected from

'( ,nnual reports of organi$ation.

*( Internet

.( roachers.

/( +ouse maga$ines of the units.

0( Other reports of the units.

1( ooks

S#M$" D"SI%N:

Sa-)+e unit:&ample unit is the organi$ation the pro3ect #as completed.

Ti-e and )+ace:Pro3ect completed #ithin a period of BM days. The company is in +yderabad.

SOURC"S O2

D#T#

RIM#R& D#T# S"COND#R& D#T#


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O!3ectives of the ro3ect

To study and understand the concept of and procedure involved in Initial Public Offer /IPO.

,n attempt has been made to analy$e the various IPOs and recommend others to invest in

good initial public offerings after thorough research of financial statements of the

companies.

To study and understand the process of 5ue 5iligence and its significance in Initial Public

Offers.

To analy$e the effect of Initial Public Offers on the issuing company! investors and the stock

market.

To understand the role of a merchant banker in managing Initial Public Offers.

To be actively involved in merchant banking activities! in order to gain valuable kno#ledge

through first%hand eperience in managing the issue of Initial Public Offers of various client

companies.

;ind out the factors #hich influence the IPO >isting Process.

S)read a4areness a!out this )rocess(


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$i-itation of the ro3ect

,nalysis done for a time period of BM days.

The time hori$on taken is considered short for the analysis of long run performance.

It #as tried very harder to include the best of information from published and unpublished

sources available on internet! books and maga$ines but some of the data re-uired for the

detailed study #as not available freely.

,lthough Initial Public Offers are issued by many companies! this study is confined to a fe#

companies only.

The pro3ect is based on the secondary data collected.


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R"5I"6 O2 $IT"R#TUR"


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* $IT"R#TUR" R"5I"6

The literature revie# on IPOs can be divided in the follo#ing main heads%

a,Reason and timing of going public


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industry to get the approimate price of the IPO. +o#ever they also found that P7 ratios

using historical earnings numbers do not give accurate results #hereas #hen forecasted

earnings numbers are used then the valuation is much more accurate.

urnananda- and S4a-inathan 7*88*, say that IPOs are priced M0N higher than

industry peers. ,lso they find that more the IPO is overpriced #ith respect to its peers! #orse

is its long term performance.

c) Allocation mechanism

The allocation mechanisms are specified by the regulators in different countries. $oughran9

Ritter and Ryd>vist 7';;/,find ) main categories across countries%,uctions! ;ied price offers

and ook uilding. Sher-an 7*880,finds that ook building is a superior mechanism for selling

IPOs rather than auctions.


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"5O$UTION #ND %RO6TH O2 INDI#N RIM#R& M#R="T(

"ar+y $i!era+i?ation hase: ';;*@';;0 72iAed ricing,

The initiation of the process of reform in India also #ould not have been possible #ithout changes

in the regulatory frame#ork. The Ae# 7conomic policy /1991 led to a ma3or change in the

regulatory frame#ork of the capital market in India. The apital Issues /ontrol ,ct 19BF #as

repealed and the Office of the ontroller of apital Issues /I #as abolished. The &ecurities and

7change oard of India /&7I! established in 19HH and armed #ith statutory po#ers in 199(!

came to be established as the regulatory body #ith the necessary authority and po#ers to regulate

and reform the capital market. &7I came to be recogni$ed as a regulatory body for the capital

market after the abolition of the I. The control on pricing of capital issue has been abolished and

easy access is provided to the capital market. Initial Public Issue caught the attention of general

public only after the success of =eliance! #hen millions of small investors made huge returns #hich

#ere unheard of till then. 5hirubhai ,mbani #as the first promoter #ho raised huge amounts

through the public issue route to finance large facilities.

The issue process #as smoothened! procedures #ere simplified and free pricing #as allo#ed!although #ith certain restrictions! The Indian market had the concept of par value of e-uity shares!

and anything above par #as considered premium. The only companies that #ere allo#ed to come

#ith premium issues #ere those! #hich had a three year profit%track record for the preceding five

years. Ae# companies #ithout this record could float premium issues if their promoting companies

had the same track record and they had to hold M0N of the post issue capital. ,ny ne# company

floated by first generation entrepreneurs could only issue e-uity at par. There #as no restriction

about prices in a premium issue.The offer #as al#ays at a fied price! #hether premium or par. The companies had to appoint

intermediaries like merchant bankers! registrars! bankers etc. 4erchant bankers had the

responsibility of fiing the prices! in consultation #ith the company! carrying out #ith due

diligence! preparing the prospectus /offer documents etc. The prospectus had to be submitted to

&7I for getting scrutiny.

The trend continued in the early nineties as many large pro3ects #ere launched after the economy

#as liberalised. 4any of these companies came out #ith public issues and the retail participation

increased dramatically. ut many of the companies #hich raised money during this period 3ust

disappeared #ithout a trace.


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$ate $i!era+i?ation eriod: ';;1@*880 7Book Bui+ding,

The late nineties and the first fe# years of the current decade did not see much activity in the

primary market even though #e sa# a huge bull run led by technology stocks at the turn of the

decade. The bad eperiences of retail investors kept them a#ay from the market and made it

difficult for companies to launch successful issues. The corporate sector #as recovering from the

damage caused by large capacity epansions and ne# pro3ects set up in the nineties.

The dormant primary issues market came alive after (00) mostly because of the divestment

programme of the government. The issue of 4aruti :dyog! through #hich the government sold part

of its stake in the company! rekindled retail investor interest in the primary market. The issue #as

made at a very reasonable price and investors made very good returns immediately.The year (00B sa# the primary market activity at its historic peak as some large private companies

also came out #ith issues. ;urther divestment by the governmentJ including the largest ever issue by

an Indian company from OA


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production and eploration company! airn 7nergy! #hich raised ?1.) billion #ith both companies

listing on domestic echanges.

+o#ever! some Indian companies are also listing abroad! especially >ondon! &ingapore and

>uembourg! primarily for higher valuations and visibility! the report noted.

The private e-uity rush into India is creating the potential for many IPO eits. In (00! private

e-uity firms invested more than ?F billion in India. Top global private e-uity funds as #ell as local

funds! have been key drivers of Indian IPO markets.

In (00F alone! 9M IPOs came and ma3ority of them #ere great hit because of favorable market

conditions.

In the year (00H! only ) IPOs came in the market but failed to collect money.

This year! so far 1) IPOs came in to the market.

5ue to favorable market conditions! recent IPOs of ,dani po#er! A+P and Oil India #ere hit.

,dani po#er! the company o#ned by


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=INDS O2 ISSU"S

Primarily! issues can be classified as a Public! =ights or preferential issues /also kno#n as private

placements. hile public and rights issues involve a detailed procedure! private placements or

preferential issues are relatively simpler. The classification of issues is illustrated belo#2

Public issues can be further classified into Initial Public offerings and further public offerings. In a

public offering! the issuer makes an offer for ne# investors to enter its shareholding family. The

issuer company makes detailed disclosures as per the 5IP guidelines in its offer document and

offers it for subscription. The significant features are illustrated belo#2

Initia+ u!+ic Offering 7IO,


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It is #hen an unlisted company makes either a fresh issue of securities or an offer for sale of its

eisting securities or both for the first time to the public. This paves #ay for listing and trading of

the issuerLs securities.

2urther )u!+ic offering 72O,

It is #hen an already listed company makes either a fresh issue of securities to the public or an offer

for sale to the public! through an offer document. ,n offer for sale in such scenario is allo#ed only

if it is made to satisfy listing or continuous listing obligations.

Rights Issue 7RI,

It is #hen a listed company #hich proposes to issue fresh securities to its eisting shareholders as

on a record date. The rights are normally offered in a particular ratio to the number of securities

held prior to the issue. This route is best suited for companies #ho #ould like to raise capital

#ithout diluting stake of its eisting shareholders unless they do not intend to subscribe to theirentitlements.

rivate )+ace-ent

It is an issue of shares or of convertible securities by a company to a select group of persons under

&ection H1 of the ompanies ,ct! 19M #hich is neither a rights issue nor a public issue. This is a

faster #ay for a company to raise e-uity capital. , private placement of shares or of convertible

securities by a listed company is generally kno#n by name of preferential allotment. , listed

company going for preferential allotment has to comply #ith the re-uirements contained in hapter

III of &7I /5IP uidity: The shares once traded have an assigned market value and can be resold. This

is etremely helpful as the company provides the employees #ith stock incentive packages

and the investors are provided #ith the option of trading their shares for a price.


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5a+uation: The public trading of the shares determines a value for the company and sets a

standard. This #orks in favor of the company as it is helpful in case the company is looking

for ac-uisition or merger. It also provides the share holders of the company #ith the present

value of the shares.

Increased 4ea+th: The founders of the companies have an affinity to#ards IPO as it can

increase the #ealth of the company! #ithout dividing the authority as in case of partnership.

R"%U$#TOR& 2R#M"6OR= 2OR IO&

"+igi!i+ity Conditions for Co-)anies Issuing Securities

The companies issuing securities offered through an offer docu-ent shall satisfy the follo#ing at the

time of filing the draft offer document #ith &7I and also at the time of filing the final offer document

#ith the =egistrar of ompanies 5esignated &tock 7change2

2i+ing of offer docu-ent

Ao issuer company shall make any public issue of securities! unless a draft

ros)ectus has been filed #ith the Board through a Merchant Banker! at least .8 days

prior to the filing of the Prospectus #ith the =egistrar of ompanies 7ROC,2

Provided that if the oard specifies changes or issues observations on the draft

Prospectus /#ithout being under any obligation to do so! the issuer company or the $ead

Managerto the Issue shall carry out such changes in the draft Prospectus or comply #ith

the observation issued by the oard before filing the Prospectus #ith =O.

Co-)anies !arred not to issue security

Ao company shall make an issue of securities if the company has been prohibited

from accessing the capital market under any order or direction passed by the oard.

#))+ication for +isting

Ao company shall make any public issue of securities unless it has made an

application for listing of those securities in the stock echange

Issue of securities in de-ateria+i?ed for-

Ao company shall make public or rights issue or an offer for sale of securities!

unless2


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The company enters into an agree-ent #ith a de)ositoryfor demateriali$ation of

securities already issued or proposed to be issued to the public or eisting shareholdersJ and

a. The company gives an o)tion to subscribers shareholders investors to

receive the security certificates or hold securities in de-ateria+i?ed for-

#ith a depository.

IO %rading

Ao un+isted co-)any shall make an IPO of e-uity shares unless the follo#ing

conditionsare satisfied as on the date of filing of Prospectus #ith =O2

a. the unlisted company has o!tained grading for the IPO from at +east one

credit rating agency

b. Disc+osuresof all the gradesobtained! along #ith the rationale description

furnished by the credit rating agency/ies for each of the grades obtained.

"+igi!i+ity Nor-s for IO

,n unlisted company may make an initial public offering /IPO of e-uity shares only if 2%

The company has net tangible assets of at least =s. ) crores in each of the preceding ) full

years /of 1( months each! of #hich not more than M0N is held in monetary assets.

The company has a track record of distributable profits in terms of &ection (0M of theompanies ,ct! 19M! for at least three /) out of immediately preceding five /M years.

The company has a net #orth of at least =s. 1 crore in each of the preceding ) full years /of

1( months each.

In case the company has changed its name #ithin the last one year! at least M0N of the

revenue for the preceding 1 full year is earned by the company from the activity suggested

by the ne# name.

ROC"DUR" 2OR IOS

2iAed ricing versus True ricing 7Book@ Bui+ding,

The traditional method of doing IPOs is the fied price offering. +ere! the issuer and the merchant

banker agree on an Dissue priceE. Then the investor has a choice of filling in an application form at

this price and subscribing to the issue. 7tensive research has revealed that the fied price offering

is a poor #ay of doing IPOs. ;ied price offerings! all over the #orld! suffer from QIPO


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underpricing. In India! on average! the fied%price seems to be around M0N belo# the price at first

listingJ i.e. the issuer obtains M0N lo#er issue proceeds as compared to #hat might have been the

case. This average masks a steady stream of dubious IPOs #ho get an issue price #hich is much

higher than the price at first listing. +ence fied price offerings are #eak in t#o directions2

dubious issues get overpriced and

ead 4anager /i.e. merchant banker on the basis

of feedback received from individual investors as #ell as most informed investors /#ho are

institutional and corporate investors like! :TI! >II!


23/73

0 Book Bui+ding )rocess:@

:nder this type of public offer! the issue of securities has to be categori$ed into2

Placement portion category

Aet offer to the public

The option of FMN ook uilding is available to all body corporate that are other#ise eligible to

make an issue of capital to the public. The securities issued through the book building process are

indicated as placement portion category and securities available to public are identified as net offer

to public. In this option! under#riting is mandatory to the etent of the net offer to the public. The

issue price for the placement portion and offers to public are re-uired to be same

'88 of the net offer to the )u!+ic through Book Bui+ding )rocess 2%

The 100N of the net offer to the public! entire issue is made through ook uilding process.

+o#ever! there can be a reservation or firm allotment to a maimum of MN of the issue si$e for the

permanent employees! shareholders of the company or group companies! persons #ho! on the date

of filing of the draft offer document #ith the oard! have business association! as depositors!

bondholders and subscribers to services! #ith the issuer making an initial public offering.

The number of bidding centers! in case of FMN book building process should not be less than the

number of mandatory collection centers specified by &7I. In case of 100N book building process!

the bidding centers should be at all the places #here the recognised stock echanges are situated.

ROC"SS O2 BOO=BUI$DIN%

The ookbuilding is basically an auction of share. ookbuilding essentially means that the Rbook is

being built.L 5uring the process on both the A&7 G &7! investors can #atch the book being built a

chart sho#n indicates the bid price G the number of shares being bid for. This helps the investors to

kno# the market price. ;ollo#ing mentioned are the main steps of ookbuilding Process

The company first a))oints a !ook runner! i.e. merchant banker.


24/73

The !ook runner )re)ares su!-its the draft docu-ents to the S"BI G obtains an

ackno#ledgement card.

The issuer !ook runner decide to offer shares at a )rice 4ithin a s)ecified )rice !and

7range,(

Offer regarding the de-and for securities at different )rice +eve+s are invited fro-

syndicate -e-!ers consisting of eligible brokers! merchant bankers! under#riters!

financial institutions! the bids. The advertisement should mention the opening G closing

dates for the bids. , bid is usually open for minimum M #orking days.

ased on the bids received! the issuer arrives at a fina+ cut@off rateG the allocation in

consultation #ith =>4.

The issuer G the book runner may impose restrictions on the number of shares that can be

allotted to each client so as to avoid any future takeover threats.

The fina+ )ros)ectus is fi+ed 4ith the registrarof companies along #ith the procurement

agreement.

The placement portion opens for subscription only after the prospectus is filed #ith the

=O.

The placement portion closes a day before the opening of the public issue portion.

The public portion opens G the allotment G listing of puts is done. The price determined in

the ookbuilding process is applicable to the public portion as #ell. If the public portion

stands oversubscribed! then the allotment is made on a proportionate basis.


25/73

Book Bui+ding rocess in India

The steps #hich are usually follo#ed in the book building process can be summari$ed belo#2

The issuer company proposing an IPO appoints a lead merchant banker as a =>4.

/( Initially! the issuer company consults #ith the =>4 in dra#ing up a draft prospectus /i.e.

offer document #hich does not mention the price of the issues! but includes other details about the

si$e of the issue! past history of the company! and a price band. The securities available to the public

are separately identified as Dnet offer to the publicE.

/) The draft prospectus is filed #ith &7I #hich gives it a legal standing.

/B , definite period is fied as the bid period and =>4 conducts a#areness campaigns likeadvertisement! road sho#s etc.

/M The =>4 appoints a syndicate member! a &7I registered intermediary to under#rite the

issues to the etent of Dnet offer to the publicE.

/ The =>4 is entitled to remuneration for conducting the ook uilding process.

/F The copy of the draft prospectus may be circulated by the =>4 to the institutional

investors as #ell as to the syndicate members.


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/H The syndicate members create demand and ask each investor for the number of shares and

the offer price.

/9 The =>4 receives the feedback about the investorLs bids through syndicate members.

/10 The prospective investors may revise their bids at any time during the bid period.

/11 The =>4 on receipts of the feedback from the syndicate members about the bid price and the

-uantity of shares applied has to build up an order book sho#ing the demand for the shares of the

company at various prices. The syndicate members must also maintain a record book for orders

received from institutional investors for subscribing to the issue out of the placement portion.

/1( On receipts of the above information! the =>4 and the issuer company determine the issue

price. This is kno#n as the market%clearing price.

/1) The =>4 then closes the book in consultation #ith the issuer company and determine the

issue si$e of /a placement portion and /b public offer portion.

/1B Once the final price is determined! the allocation of securities should be made by the =>4

based on prior commitment! investorLs -uality! price aggression! earliness of bids etc. The bid of an

institutional bidder! even if he has paid full amount may be re3ected #ithout being assigned any

reason as the ook uilding portion of institutional investors is left entirely at the discretion of the

issuer company and the =>4.

/1M The ;inal prospectus is filed #ith the registrar of companies #ithin ( days of determination of

issue price and receipts of ackno#ledgement card from &7I.

/1 T#o different accounts for collection of application money! one for the private placement

portion and the other for the public subscription should be opened by the issuer company.

/1F The placement portion is closed a day before the opening of the public issue through fied

price method. The =>4 is re-uired to have the application forms along #ith the application

money from the institutional buyers and the under#riters to the private placement portion.

/1H The allotment for the private placement portion shall be made on the (ndday from the closure

of the issue and the private placement portion is ready to be listed.

/19 The allotment and listing of issues under the public portion /i.e. fied price portion must be as

per the eisting statutory re-uirements.


27/73

/(0 ;inally! the &7I has the right to inspect such records and books #hich are maintained by the

=>4 and other intermediaries involved in the ook uilding process

ricing

efore establishment of &7I in 199(! the -uality of disclosures in the offer documents #as very

poor.

The main dra#back of free pricing #as the process of pricing of issues. The issue price #as

determined around 0%F0 days before the opening of the issue and the issuer had no clear idea about

the market perception of the price determined.

In ook uilding the price is determined on the basis of demand received or at price above or e-ual

to the floor price.

The ,llotment Process through ook%building2

Ste)'@The Co-)any 4i++ EdiscoverE its )rice

7arlier! the company determined a fied price for the stock issue. The issue #as marketed to the

general public through advertisements and a media campaign.

Today! companies prefer a book building process. ook building is the process of price discovery.

That means there is no fied price for the share. Instead! the company issuing the shares comes up

#ith a price band. The lo#est price is referred to as the floor and the highest! the cap. ids are then

invited for the shares. 7ach investor states ho# many shares she #ants and #hat she is #illing to

pay for those shares /depending on the price band. The actual price is then discovered based on

these bids.

Ste)*@+ayers of the ga-e

Three classes of investors can bid for the shares2


28/73

Sualified Institutional uyers2 SIs include mutual funds and ;oreign Institutional

Investors. ,t least M0N of the shares are reserved for this category.

=etail investors2 ,nyone #ho bids for shares under =s M0!000 is a retail investor. ,t least

(MN is reserved for this category.

The balance bids are offered to high net#orth individuals and employees of the company.

OBF"CTS O2 TH" O22"RIN% N"6 IO

;unds =e-uirement

;unding Plan /4eans of ;inance

,ppraisal

&chedule of Implementation

;unds 5eployed

&ources of ;inancing of ;unds already deployed

5etails of alance ;und =e-uirement Interim :se of ;unds

asic Terms of Issue

asis for issue price

Ta enefits

#D5#NT#%"S DR#6B#C=S O2 IO

The #dvantages of IO are numerous. The companies are launching more and more IPOLs to raise

funds #hich are utili$ed for undertakings various pro3ects including epansion plans. The


29/73

,dvantages of IPO is the primary factor for the immense gro#th of the same in the last fe# years.

The IPO or the initial public offering is a term used to describe the first sale of the shares to the

public by any company. ,ll types of companies #ith the idea of enhancing gro#th launch IPOs to

generate funds to cater the re-uirements of capital for epansion! ac-uiring of capital instruments!

undertaking ne# pro3ects.

Ma3or #dvantages of IO

IPO has a number of advantages. IPO helps the company to create a public a#areness about the

company as these public offerings generate publicity by inducing their products to various

investors.

The increase in the ca)ita+: ,n IPO allo#s a company to raise funds for utili$ing in various

corporate operational purposes like ac-uisitions! mergers! #orking capital! research and

development! epanding plant and

e-uipment and marketing.

$i>uidity: The shares once traded have an assigned market value and can be resold. This is

etremely helpful as the company provides the employees #ith stock incentive packages and the

investors are provided #ith the option of trading their shares for a price.

5a+uation: The public trading of the shares determines a value for the company and sets astandard. This #orks in favor of the company as it is helpful in case the company is looking for

ac-uisition or merger. It also provides the share holders of the company #ith the present value of

the shares.

Increased 4ea+th: The founders of the companies have an affinity to#ards IPO as it can increase

the #ealth of the company! #ithout dividing the authority as in case of partnership.

Dra4!acks of IOGsIt is true that IPO raises huge capital for the issuing company. ut! in order to launch an Initial

Public Offering /IPO! it is also necessary to make certain investments. &etting up an IPO does not

al#ays lead to an improvement in the economic performance of the company. , continuing

ependiture has to be incurred after the setting up of an IPO by the parent company. , lot of

epenses have to be incurred in the form of legal fees! printing costs and accounting fees! #hich are

connected to the registering of an IPO. &uch epenses might cost hundreds of :& dollars. ,part

from such enormous costs! there are other factors as #ell that should be taken into consideration bythe company #hile introducing an IPO.


30/73

&uch factors include the rules and regulations involved to set up public offerings and this entire

process on the other hand involve a number of compleities #hich sometime re-uire the services of

eperts in relevant fields. &ome companies hire eperts to do the needful to ensure a hassle%free

eecution of the task. ,fter the IPO is introduced! the epenses become a routine in every activity

involved. esides! the 7O of the company #ould have to spend a lot of time in handling the &7

regulations or sometimes he hires eperts to do the same. ,ll these aspects! if not handled #ith

efficiency! prove to be some ma3or dra#backs related to the launch of IPOs.

The launch of IPO also brings about shareholders of the company. &hareholders have o#nership in

the company. The primary o#ners of the company or the people holding maimum authority in the

company cannot take decisions all by themselves once an IPO has been launched and shareholders

have been formed. The shareholders have an active participation in every decision that is being

taken even if they do not hold M0 percent share of the company. They have their individual demandsto be met as they o#n a certain percentage of stakes in the company. The &7 regulations re-uire

notifications from the shareholders of the company! meetings! and also approvals from them #hile

making important business decisions.

, ma3or risk #ith shareholders is that! they can sell off their stocks any time they #ant! in case they

see the price band of the stakes of that company is going do#n. This #ill lead to a further drop of

the value of shares in the market #hich in turn #ill decrease the overall value of the company.

IO %rading

IO grading/initial public offering grading is a service aimed at facilitating the assessment of

e-uity issues offered to public. The grade assigned to any individual issue represents a relative

assessment of the RfundamentalsL of that issue in relation to the other listed e-uity securities in

India. IPO grading is positioned as a service that provides Ran independent assessment of

fundamentalsL to aid comparative assessment that #ould prove useful as an information and

investment tool for investors. 4oreover! such a service #ould be particularly useful for assessing

the offerings of companies accessing the e-uity markets for the first time #here there is no track

record of their market performance.

IPO grade assigned to any issue represents a relative assessment of the RfundamentalsL of that issue

in relation to the universe of other listed e-uity securities in India. This grading can be used by the

investor as tool to make investment decision. The IPO grading #ill help the investor better

appreciate the meaning of the disclosures in the issue documents to the etent that they affect the

issueLs fundamentals. Thus! IPO grading is an additional investor information and investment

guidance tool.


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redit =ating agencies /CR#s like I=,! =I&I>! ,=7 and ;itch =atings #ho are registered

#ith &7I #ill carry out IPO grading. &7I does not play any role in the assessment made by the

grading agency. The grading is intended to be an independent and unbiased opinion of that agency.

IPO grading is not mandatory but is optional and the assigned grade #ould be a one time

assessment done at the time of the IPO and meant to aid investors #ho are interested in investing in

the IPO. The grade #ill not have any ongoing validity.

S"BI %UID"$IN"S ON IO %R#DIN%

Ao unlisted company shall make an IPO of e-uity shares or any other security #hich may be

converted into or echanged #ith e-uity shares at a later date! unless the follo#ing

conditions are satisfied as on the date of filing of Prospectus /in case of fied price issue or

=ed +erring Prospectus /in case of book built issue #ith =O2

The unlisted company has obtained grading for the IPO from at least one credit

rating agencyJ

5isclosures of all the grades obtained! along #ith the rationaledescription furnished

by the credit rating agency/ies for each of the grades obtained! have been made in

the Prospectus /in case of fied price issue or =ed +erring Prospectus /in case of

book built issueJ and

The epenses incurred for grading IPO have been borne by the unlisted company

obtaining grading for IPO.

4ost of the market analysts have #elcomed this move of &7I as it #ill help the investors in a

volatile market to kno# #hether the merchant banker has carried the eercise in determining the

price of an issue in a proper manner or not. It #ill also help the investors in kno#ing #hether the

price of the issue is 3ustified or not. They even said that management of a good company #ill never

get afraid of getting graded of their IPOs if they are good. The only demerit of this step by the &7I


32/73

as said by many eperts is that there #ill be a slo#do#n in the number of IPOs coming out as

grading #ill be a bit lengthy process and there #ill be a cost%factor attached to it also.

2"#TUR"S O2 IO %R#DIN%

IPO grading covers both internal and eternal aspects of a company seeking to make an IPO in

general. The internal factors include competence and effectiveness of the management! profile of

promoters! marketing strategies! si$e and gro#th of revenues! competitive edge! technology!

operating efficiency! li-uidity and financial fleibility! asset -uality! accounting -uality! profitability

and hedging of risks. ,mong eternal factors! the key one is the industry and economicbusiness

environment for the issuer. +ere! it is important to note that internationally! the global rating

agencies such as &tandard G Poors and 4oodys do not perform grading of IPOs at all. hile

&tandard G Poors is the ma3ority stakeholder in =I&I> >td! 4oodys is the single biggest

stakeholder in I=, >td. &imilarly! the third global player ;itch I, /#hich ac-uired another

rating agency 5un G radstreet in (000 also does not grade IPOs as yet. The IPO grading is

indicated on a five point scale and a higher score indicating stronger fundamentals.

An IPO grading Scale

IO grade #ssess-ent

MM &trong fundamentals

BM ,bove average fundamentals

)M ,verage fundamentals

(M elo# average fundamentals

1M Poor fundamentals

The process #ill ideally re-uire (%) #eeks for completion! so it may be a good idea for companies

to initiate the grading process about %H #eeks before the targeted IPO date to provide sufficient

time for any contingencies.

Cost Invo+ved In IO %rading


33/73

Though nothing has been declared officially but most of the credit rating has said that IPO%grading

#ould not cost much to the issuers. They #ould be charging 10 basis points of the amount to be

raised #ith a ceiling of about =s 10%1M lakhs. Thus! even in the case of a mega IPO! there #ould be

a cap on fees! he noted. ,round 100 IPOs hit the market on an average every year. +o#ever! despite

this seemingly big number! the total receipts for the entire rating industry on account of grading fees

#ould be only about =s 10%1M crore.

Benefits of IO %rading

There are various positive sides of an IPO grading. The most significant factors that go in favor of

IPO grading are2

/a rofessiona+ and Inde)endent #))raisa+: IPO grading #ill create a#areness about the

fundamentals of the companyLs IPO and #ill provide focused company information as a key input

to prospective investors that #ill be helpful in taking an investment decision! in a manner similar to

#hat a credit rating is for debt investors.

/b Re-ova+ of Infor-ation Burden:here disclosures of issues are large and comple! a service

analy$ing and interpreting these disclosures independently and -uickly #ill be etremely useful in

cutting through the clutter. Thus! the usefulness of IPO grading #ould be particularly high for small

investors as it #ill serve as a guide about the company coming out #ith the issue.

/c I-)edi-ent for 6eak Co-)anies:hile fundamentally sound companies #ill gain from

the market! companies #hose fundamentals are not very strong #ill be impeded in building

up speculative demand among investors. &uch #eak companies #ill need to offer pricing!

#hich #ill ade-uately compensate investors for the risks they take. Therefore! IPO grading

provides disincentives for #eak companies planning to come to the market to raise easy

capital.

RO$" O2 M"RCH#NT B#N="RS IN IO

IntermediaryLs help corporations design securities that #ill be attractive to investors! buy these

securities from the corporations! and then resell them to savers in the primary markets.

Merchant Bankers $ead Manager


34/73


35/73

COM#N& RO2I$"

O4P,A8 P=O;I>7

Incorporated in 199)! Aet #orth &tock roking >imited /A&> has been a listed company

at ombay &tock 7change /&7! 4umbai since 199M.

, 4ember! at the Aational &tock 7change of India /A&7 and ombay &tock 7change! 4umbai

/&7 on the apital 4arket and 5erivatives /;utures G Options segment! A&> has been

traditionally servicing Institutional clients and in the recent past has forayed into retail broking!

establishing branches across the country. Presence is being marked in the 4iddle 7ast! 7urope and

the :nited &tates too! as part of our attempts to cater to global markets. e are a 5epository

participant at entral 5epository &ervices India /5&> #ith plans to become one at Aational

&ecurities 5epository /A&5> by the end of this -uarter. e have our customers participating in the

booming commodities markets #ith our membership at the 4ulti ommodity 7change of India

/4 and Aational ommodity G 5erivatives 7change /A57! through Aet#orth

&tock.om >td. ith its strong support and business units of research! distribution G advisory!


36/73

A&> aims to become a one%stop solution to the broking and investment needs of its clients!

globally.

Aet#orth has been successfully providing premium financial services and information for more

than a decade. Our aim has consistently been to empo#er investors to take charge of their financial

future G help them gro# their Aet#orth.

Aet#orth has al#ays endeavored to make a difference in the financial services space. It constantly

focuses on scaling and upgrading the technology infrastructure so as to provide the best services to

the investors. e have a presence of around )M0 centers across India.

e are

4anaged by a talented team of around H00 professionals.

&erving nearly 100!000 clients across the country.

I&O 90012(000 ertified &oft#are 5ivision.

inner of A%T'1HLs ;inancial ,dvisor ,#ards (00H for est =egional >evel ;inancial

,dvisor.

Proclaimed amongst the most read research analyst /Team Aet#orth by Thomson =euters

consistently over a period of time.

, harter member of ;inancial Planning &tandards oard of India ;P&U.

,lliance partners #ith PA for online trading.

orporate ,gents for 4et>ife India Insurance o >td.

&trong team of professionalLs eperienced and -ualified pool of human resources dra#n

from top financial service G broking houses form the backbone of our si$eable infrastructure.

+ighly technology oriented! the companyLs scalability of operations and the highest level of service


37/73

standards has ensured rapid gro#th in the number of locations G the clients serviced in a very short

span of time. RAet#orthiansL! as each one of our B00 plus and ever gro#ing team members are

addressed! is a dedicated team motivated to continuously progress by imbibing the best of global

practices! Indian sing

such practices! and to constantly evolve a comprehensive suite of products G

services trying to meet every financial investment need of the clients.

A&7 4 and 5erivatives &egment &7I =egn. 1A()0)H)9 G 1A;()0)H)9

&7 4 and 5erivatives &egment &7I =egn. 1A010)H)B G

P4& &7I =egn. 1AP000001)F1 5&> 5P &7I =egn. IA%5P%5&>

The Aet#orth connectivity #ith 10F branches and gro#ing


38/73

RODUCTS #ND S"R5IC"S ORT2O$IO

=etail and institutional broking

=esearch for institutional and retail clients


39/73

5istribution of financial products

P4&

orporate finance

Aet trading

5epository services

ommodities roking

Infrastructure

V , corporate office and ) divisional offices in 5 of 4umbai #hich houses state%of%the%art

dealing room! research #ing G management and back offices.


40/73

V ,ll of 10F branches and franchisees are fully #ired and connected to hub at orporate office

at 4umbai. ,dd on branches also #ill be #ired and connected to central hub

V eb enabled connectivity and soft#are in place for net trading.

V 0 operative I5Ls for dealing room

V In house technology back up team to ensure un%interrupted connectivity.

199)2 Aet#orth &tarted #ith )00 &-.ft. of office space G 10 employees

(0102 &pread over B( cities /around F0!000 &-.ft of office space #ith over 10F branches G

employee strength over B00

4arket G research

;ocusing on your needs

7very investor has different needs! different preferences! and different vie#points. hether investorprefer to make o#n investment decisions or desire more in%depth assistance! company committed

to providing the advice and research to help you succeed.

Aet#orth providing follo#ing services to their customers!

5aily 4orning Aotes

4arket 4using

ompany =eports

Theme ased =eportseekly Aotes

IPOs

&ector =eports

&tock &tance

Pre%guarter:pdates

ullion Tracker

;GO Tracker

S:,>IT8 PO>I8


41/73

To achieve and retain leadership! Aet#orth shall aim for complete customer satisfaction! by

combining its human and technological resources! to provide superior -uality financial services. In

the process! Aet#orth #ill strive to eceed ustomerLs epectations.

,s per the -uality policy! Aet#orth #ill2

uild in house processes that #ill ensure transparent and harmonious relationships #ith its

clients and investors to provide high -uality of services.

7stablish a partner relationship #ith in its investor service agents and vendors that #ill help

in keeping up its commitments to the customers.

Provide high -uality of #ork life for all its employees and e-uip them #ith ade-uate

kno#ledge G skill so as to respond to customerLs needs.

ontinue to uphold the values of honesty G integrity and strive to establish unparalleled

standards in business ethics.

:se state%of%the art information technology in developing ne# and innovative financial

products and services to meet the changing needs of investors and clients.

&trive to be a reliable source of value%added financial products and services and constantly guide

the individuals and institutions in making a 3udicious choice of it.

&trive to keep all stake%holders /share holders! clients! investors! employees! suppliers andregulatory authorities proud and satisfied.

6ey Personnel2

V 4r. & P @ain K 45 Aet#orth &tock roking >td.

, -ualified hartered ,ccountant #ith over 1M years of eperience in the capital

markets.

V 4r. 5eepak 4ehta K +ead P4&

Over 1( years of eperience in the capital markets and has the prior #ork eperience of

serving on the 7-uity desk of =eliance.

V 4r.'iral 5oshi K 7-uity &trategist

, -ualified hartered ,ccountant #ith eperience of over a decade in technical analysis

#ith respect to e-uity markets.

V 4r. 'inesh @ain K ,sst. ;und 4anager

, -ualified 4, graduate speciali$ing in finance and over t#o years of eperience in the

capital markets.


42/73

V =esearch and the ack office.

OUR %ROU COM#NI"S

Net4orth Stock Broking $td( NSB$J

A&> is a member of the Aational &tock 7change of India >td /A&7 and the ombay &tock

7change >td /&7 in the apital 4arket and 5erivatives /;utures G Options segment. A&>

has also ac-uired membership of the currency derivatives segment #ith A&7! &7! :&7 G 4%

&. It is 5epository participants #ith entral 5epository &ervices India /5&> and Aational

&ecurities 5epository /India >imited /A&5>. ith a client base of around 100!000 loyal

customers! A&> is spread across the country though its around )M0 branches. A&> is listed on

the &7 since 199B.

Net4orth 6ea+th So+utions $td( N6S$J

A&> is into the business of delivery of ;inancial Planning G ,dvice. ItLs vision is to R,dvice G

7ecute money related solutions tofor our customers in the most onvenient G onsolidated

manner! #hile making sure that their eperience #ith us is al#ays pleasant G memorable resulting

in positive advocacyL. The product G &ervices include ;inancial Planning! >ife Insurance! On%line

Trading ,ccount! 4utual ;unds! 5ebenturesonds! oans and 5epository

&ervices.

Net4orth Co--odities Invest-ents $i-ited NCI$J

AI> is the commodities arm of A&>. It is a member at the 4ulti ommodity 7change of India

/4! Aational ommodity G 5erivatives 7change /A57 and I7 Gis backed by solid

research G analytics in ommodities.

Net4orth Soft Tech $td( NS$J

A&> is an I&O 90012(000 ertified ompany. It is into ,pplication 5evelopment G maintenance.

uilding G Implementation of packaged soft#are across various functions #ithin the ;inancial

&ervices Industry is at its core. It also provides data center services #hich include hosting of

#ebsites! applications G related services. It combines a uni-ue delivery model infused by a distinct

culture of customer satisfaction.

Ravisha 2inancia+ Services vt( $td( R2S$J


43/73

=;&> is a =I registered A; engaged in financing! primarily it provides loan against securities.

Contract Us:

Registrars and Transfer #gent

/&hare transfers and communications regarding share certificates! dividends andchange

of address

Ms(Sky+ine 2inancia+ Services rivate $i-ited

Okhla Industrial ,rea!

Phase % I!

Ae# 5elhi % 110 0(0.

Tel Ao.2 011 % )0HM FMFM /10 >ines!

7%4ail2 adminWskylinerta.com

$isting of ">uity Shares on Stock "Achange at:

ombay &tock 7change >imited!

4umbai /&7 Phiro$e @ee3eebhoy To#ers!

5alal &treet! 4umbai B00 001

&tock ode G I&IA2 ombay &tock 7change &crip ode2 M11MM1

De-at ISIN Nu-!ers in NSD$ CDS$ for ">uity Shares: IN";8.D8'8''
mailto:[email protected]:[email protected]


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Balancesheet - Networth Stock Broking Ltd.

Particulars Mar'12 Mar'11 Mar'10 Mar'09 Mar'08

Liabilities 12

Months 12 Months

12Months

12 Months 12 Months

Share Capital 11.23 11.23 11.23 12.75 12.75

Reserves & Surplus 16.68 19.53 22.57 29.47 42.66

Net Worth 27.92 30.77 33.8 42.22 55.4Secured Loans .6 21.77 2.47 .85

!nsecured Loans

TT!L L"!#"L"T"$% 27.92 30.82 55.57 &2.&9 5&.25

!ssets

"ross #loc$ 1.97 12.91 18.85 18.72 16.4

%' (cc. )epreciation 4.3 5.35 6.74 5.16 3.32

Net #loc &.&8 7.57 12.11 13.5& 12.72

Capital *or$ in +ro,ress. .6 1.16 1.98

-nvestents. 9.35 9.35 1.35 1.34 1.34

-nventories .2 .1 .1 .8 .5

Sundr/ )e0tors 12.95 15.85 27.91 12.39 18.6

Cash (nd #an$ 6.4 25.66 43.91 38.3 44.4

Loans (nd (dvances 44.93 19.73 24.25 33.36 22.2

Total (urrent !ssets &4.3 &1.25 9&.08 84.14 85.25

Current Lia0ilities 47.6 42.71 59.31 42.3 49.67

+rovisions 5.36 4.65 4.26 4.48 4.38

Total (urrent Liabilities 52.42 47.35 &3.57 4&.51 54.05

N$T ()**$NT !%%$T% 11.89 13.9 32.51 37.&3 31.2

isc. penses .1TT!L !%%$T%+!,#,(,-,$

27.92 30.82 55.57 &2.&9 5&.25

Profit G >oss % Aet#orth &tock roking >td.

MarE'* MarE'' MarE'8 MarE8; MarE8o#2 1F9.(M % 1M.0

Previous lose2 1M.)0

Total Traded 'alue2 1B1FF9

M( eeks +igh % >o#2 0.00 % 0.00

=eff 2 http2crisil.com=atingsrochure#areAe#s=I&I>%research%pr0111(Yipo%gradingYpc%3e#eller.pdf

BH#RTI IN2R#T"$ $IMIT"D IO

Incorporated in (00! harti Infratel >imited is a provider of to#er and relatedinfrastructure. harti Infratel is one of the #orlds largest telecom to#er infrastructure

M


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providers #hich deploys! o#ns and manages telecom to#ers and communication

structures for all #ireless operators. The business of harti Infratel and Indus is to

ac-uire! build! o#n and operate to#er and related infrastructure.

harti Infratel and Indus currently provide access to their to#ers primarily to #ireless

telecommunications service providers. harti Infratels and Induss three largest

customers are harti ,irtel /together #ith harti +eacom! 'odafone India and Idea

ellular. They are the three leading #ireless telecommunications service providers in

India by #ireless revenue.

In India! Infratel has over )B!000\ to#ers! across 1H states! and 11 Telecom circles!

and still gro#ing. harti Infratel also has a B(N stake in Indus To#ers #hich #ascreated as a @oint 'enture bet#een harti Infratel! 'odafone and ,ditya irla Telecom

to hive off the To#ers business in 1M telecom circles.

Issue Detai+:

[[ Issue O)en2 5ec 11! (01( % 5ec 1B! (01(

[[ Issue Ty)e2 100N ook uilt Issue IPO

[[ Issue Si?e2 1HH!900!000 7-uity &hares of =s. 10

[[ Issue Si?e2 =s. B!1MM.H0 rore

[[ 2ace 5a+ue2 =s. 10 Per 7-uity &hare

[[ Issue rice2 =s. (10 % =s. (B0 Per 7-uity &hare

[[ Market $ot2 M0 &hares

[[ Mini-u- Order uantity2 M0 &hares

[[ $isting #t2 &7! A&7

Co-)any ro-oters:

The promoter of the company is harti ,irtel.

MF


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Co-)any 2inancia+s:

articu+ars 2or the year)eriod ended 7in Rs( Mi++ion,

.8@Se)@'* .'@Mar@'* .'@Mar@'' .'@Mar@'8 .'@Mar@8; .'@Mar@8o#2 (0.B0 % (01.(0

Previous lose2 (01.00

Total Traded 'alue2 M1)( M(

eeks +igh % >o#2 0.00 % 0.00

=eff 2harti Infratel IPO %research%pr(F111(Yipo%

gradingYbharti%infratel.pdf

M9
http://crisil.com/Ratings/Brochureware/News/CRISIL-research-pr271112_ipo-grading_bharti-infratel.pdfhttp://crisil.com/Ratings/Brochureware/News/CRISIL-research-pr271112_ipo-grading_bharti-infratel.pdfhttp://crisil.com/Ratings/Brochureware/News/CRISIL-research-pr271112_ipo-grading_bharti-infratel.pdfhttp://crisil.com/Ratings/Brochureware/News/CRISIL-research-pr271112_ipo-grading_bharti-infratel.pdfhttp://crisil.com/Ratings/Brochureware/News/CRISIL-research-pr271112_ipo-grading_bharti-infratel.pdfhttp://crisil.com/Ratings/Brochureware/News/CRISIL-research-pr271112_ipo-grading_bharti-infratel.pdfhttp://crisil.com/Ratings/Brochureware/News/CRISIL-research-pr271112_ipo-grading_bharti-infratel.pdf


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2indings Conc+usion

2indings

,n IPO company is difficult to analy$e since there isnt a lot of historical info.

,n IPO is the first sale of stock by a company to the public.

0


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It can be observed that out of ) companies! only ( companies have

given positive returns on the date of listing.

,s far as ) months G months returns are concerned! ( companies

have given positive returns.

;or months! c Fe4e++er $td has the highest &.5. at 1FM.B0

Aearly t#o%third of the 9 companies listed on bourses during

(01(% (01) are trading belo# their issue prices! resulting in

negative returns for investors.

,n analysis of the &7%listed companies sho#s that as many as BB

out of the 9 stocks are trading belo# their issue prices fied after

their initial public offers.

In (01( comprising M9 private sector firms and 11 P&:s! came up #ith an

public offer this year! raising =s F1!11B crores in the process. Of the 11 P&:s

issues! the Pun3ab G &ind ank is the latest entrant2

The costs of an initial public offering are small as compared to the costs of

borro#ing large sums of money for ten years or more!

,n IPO is a costly undertaking. , typical firm may spend about 1M%(MN of the

money raised on direct epenses. 7ven more resources are spent indirectly

/management time! disruption of business.

Only 10 companies #ere able to perform positive returns at the end of 1 year.

The investor faces limited risk in the secondary market. +e is ade-uately

protected from counter party risks by the stock echange. ut he needs much

more protection and safeguards in the primary market.

,ccording to my study the investment done in the securities by the investors is

mainly done only by the image of the company but not on the basis of the

fundamental analysis.

7P& is the money that is left over after a company pays all of its debt so!

higher the 7P& the better it is. /Pc @e#eller >td

1


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, lo# P7 is generally considered good because it may mean that the stock

price has not risen to reflect its earning po#er /Pc @e#eller >td. , high P7! on

the other may reflect an overpriced stock or decreasing earnings.

Investors evaluate an IPO maimum from Promoters of the company!

prevailing 4arket Trend G =ecent IPO performance G Issue &i$e of the IPO

and minimum from &uppliers of the company! >isting in ell 6no#n &tock

echanges G 4edia ,dvertisements.

Conc+usion

roadly speaking! companies are either private or public.


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SU%%"STIONS

Suggestions


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ontracts /=egulation =ules! making it mandatory for listed companies to

have a minimum public holding of (MN.

The investment in IPO can prove too risky because the investor does not kno#

anything about the company because it is listed first time in the market so itsperformance cannot be measure.

On the other hand it can be said that the higher the risk higher the returns

earned. &o #e can say that the though risky if investment is done then it can

give higher returns as #ell.

;or eample% #e can take the eample of =eliance po#er. The Investors

invested in huge amounts #ith the faith that they #ill get good returns but

nothing happened so #hen the IPO got listed. &o one should think and investin IPO.

Primary market is more volatile than the secondary market because all the

companies are listed for the first time in the market so nothing can be said

about its performance.

If higher risk is taken! it is al#ays re#arded #ith the higher returns. &o higher

the risk the more the returns re#arded for it.

De can fairly predict the future! but canLt make it happen as it is.E

Initial return given by the IPO should not be treated as indication of its success

or failure in the long run.

Investors of the secondary market must take part in the primary markets as it

has been seen that IPO activity in Indian &tock 4arket has been tremendously

gro#ing. ,nd IPO is the safest stock market investment.

Over subscription should be treated as indication of success of the issue.

Investors must analy$e all the sectors before investing in the IPO! in order toget maimum returns.

Investors should take into consideration the promoters of the business! the

prevailing market trend G =ecent IPO performance before investing in an

IPO.

Though IPO is considered as a safe investment avenue but it is very important

to make thorough fundamental study of any IPO before taking the decision. ,s

M


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sometimes a fundamentally strong company may not provide good returns due

to some reasons as in case of airn India >td.

efore taking an IPO investment decision it is very necessary to study the

stock market behavior at that time since it can have a vital bearing on thelisting of IPO.

It is very important to study the company individually irrespective of the

gro#th potential of the sector. It is evident from the different IPO

performances of Idea cellular >td. G &pice ommunications >td. even #hen

they both belong to the gro#ing Telecom sector.

ompanies issue their shares information through ne#spapers prospectus.

Theis nis not reached to illiterate persons. Then illiterate person also become

the investors in the company this is useful to be company as #ell as public.

,s per &7I the IPO& must be listed in stock echange #ith in M days.


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%$OSS#R&

IO %$OSS#R&

F


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A

#++ocation

This is the amount of stock in an initial public offering /IPO granted by the

under#riter to an investor.

#fter-arket

Trading in the IPO subse-uent to its offering is called the aftermarket.

B

Board of Directors

The composition of the oard of 5irectors is particularly critical for an IPO.

Typically! a board is composed of inside and outside directors.

Broken IOs

If an IPO trades belo# its IPO price in the aftermarket! it is said to be a broken

IPO.

C

Ca+endar

This refers to upcoming IPOs and secondary offerings. rokerage houses have

e-uity calendars! bond calendars and municipal calendars.

C+earing rice

The price at #hich all shares of an IPO can be sold to investors in a 5utch,uction. &ometimes referred to as the Dmarket clearing priceE.

F

H


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2irst Day C+ose

The closing price at the end of the first day of trading reflects not only ho#

#ell the lead manager priced and placed the deal! but #hat the near%term

trading is likely to be.

2+oat

hen a company is publicly traded! a distinction is made bet#een the total

number of shares outstanding and the number of shares in circulation! referred

to as the float. The float consists of the companys shares held by the general

public.

G

%reen Shoe

, typical under#riting agreement allo#s the under#riters to buy up to an

additional 1MN of shares at the offering price for a period of several #eeks

after the offering. This option is also called the over allotment and is eercised

#hen the IPO is oversubscribed and trading above its offer price. The term

comes from the


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IO rice

Individual investors often ask #hy the price at #hich an IPO starts trading is

different from its offer price. This occurs because the offer price is set by the

under#riters before the stock starts trading. Once the stock starts trading! the

price is determined by actual supply and demand and can be higher or lo#er.

IO Research

Prior to the offering! the under#riters involved in the IPO are prohibited from

issuing research or recommendations for forty days. ;ollo#ing the IPO! the

under#riter is allo#ed to issue a research report

M!

Market Ca)ita+i?ation

The total market value of a firm. It is defined as the product of the companys

stock price per share and the total number of shares outstanding

Market 5a+ue

The market value of a company is determined by multiplying the number of

shares outstanding by the current price of the stock.

O

Offering rice

This is the price at #hich the IPO is first sold to the public. It is set by the lead

manager! usually after the close of stock market trading the night before the

shares are distributed to IPO buyers. In the case of some foreign IPOs! the

pricing occurs over the #eekend.

Oversu!scri!ed

hen a deal has more orders than there are shares available it is said to be

oversubscribed.

P

F0


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re+i-inary ros)ectus

This is the offering document printed by the company containing a description

of the business! discussion of strategy! presentation of historical financial

statements! eplanation of recent financial results! management and their

backgrounds and o#nership.

roceeds

ompanies go public to raise money. The money raised is referred to as

proceeds.

R

Red Herring

This is the term of art for the preliminary prospectus. It gets its name from the

printed red disclaimer on the left side of the prospectus.

"V

Under4riter

This is a brokerage firm that raises money for companies using public e-uity

and debt markets. :nder#riters are financial intermediaries that buy stock or

bonds from an issuer and then sell these securities to the public.

5enture Ca)ita+

;unding ac-uired during the pre%IPO process of raising money for companies.

It is done only by accredited investors.

F1


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BIB$IO%R#H&

=7;7=7A7&

F(


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BOO=S

1. 6han 4. 8 .and @ain. P.6 /(00M. ;inancial management. Pearson publications

6"BSIT"S

1) http2###.google.com

2) http2###.crisil.com

3) http2iporatings.in

4) http2###.ipostatus.com

5) http2###.mandhana.com

6) http2###.3pinfra.com

7) http2###.unitedbankofindia.com

8) http2###.moneycontrol.com

9) http2money.rediff.com

10) ###.nseindia.com

11) ###.sebi.gov.in

12) ###.capitalmarket.com
http://www.google.com/http://www.crisil.com/http://iporatings.in/http://www.ipostatus.com/http://www.mandhana.com/http://www.jpinfra.com/http://www.unitedbankofindia.com/http://www.moneycontrol.com/http://money.rediff.com/http://www.nseindia.com/http://www.sebi.gov.in/http://www.google.com/http://www.crisil.com/http://iporatings.in/http://www.ipostatus.com/http://www.mandhana.com/http://www.jpinfra.com/http://www.unitedbankofindia.com/http://www.moneycontrol.com/http://money.rediff.com/http://www.nseindia.com/http://www.sebi.gov.in/

Documents

IPO - Networth