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Study on Indian Initial Public Offering (IPO) market and its

Regulatory aspect with reference to Religare Securities Ltd

Project report
Submitted in Partial Fulfillment of the
Requirements and for the award of Degree of

Post Graduate Diploma in Management


(PGDM)

BY

RADHE SHYAM LAL


(Registration No. 09/042)

Institute of Computer & Business Management


School of Business Excellence
Member ACBSE

Approved by AICTE Govt. Of India


HYDERABAD-500048
ACKNOWLEDGEMENT
I owe a great many thanks to a great many people who helped and supported me
during the writing of this book.

First of all I would like to convey my sincere gratitude to Dr. S. Zarar and
Mrs. Ritu Zarar, Principal and chairman (Institute for Computers and
Business Management) for their unprecedented support and giving me an
opportunity to do my summer internship program at RELIGARE SECURITIES
LTD, which has been a pure learning experience and has enlightened my
knowledge and skills about financial aspect.

I would also like to express my gratitude to Prof. Jitender Govindani,


Administrative Director, Institute of Computers and Business Management
and my special thanks to finance faculty and my mentor Mr. Ramesh Babu Sir
and Mrs. Annie Kavita Maam for his outstanding and undeniable
considerations. I would also like to thank all my friends who have bore with me
during this project, apart from that, those who have helped up in to some way or
the other. Last but not the least I would like to extend my heartfelt thanks to my
parent, who were with me when I was some expensive about the project. Their
help and encouragement also proved to be a handful.
I express my gratefulness to the Mr. Praveen Mahendraker, associate Vice
President Investment Banking in Religare Capital Markets Limited in
Hyderabad for their valuable suggestion, constant encouragement, silent
support & unwavering confidence, without which this project would not have
been possible. It was they who motivated for this cause (to do something
entirely new) and always was present with their expert guidance and disciplined
ideas.
Radhe Shyam Lal
DECLARATION

I hereby declare that the project on Study on Indian Initial Public Offering
(IPO) market and its Regulatory aspect with reference to Religare
Securities Ltd in Hyderabad is completely my work. It has been submitted to
ICBM-SCHOOL OF BUSINESS EXCELLENCE for partial fulfillment of the
educational session and allotment of marks.

Radhe shyam lal


09/42
CERTIFICATE FROM THE ORGANIZATION
CONTENT

SR.NO PARTICULAR PAGE. NO


1 1.1 Introduction 1-2
1.2 Objectives of the Project 3
1.3 Research Methodology 4
1.4 Scope of the Project 5
1.5 Limitation 6
1.6 Review of Literature 7

2 INDUSTRY PROFILE 8
2.1 Initial Public Offer 8-10
2.2 SEBI (Regulatory Aspect) 11-12
2.3 NSE 13-14
2.4 BSE 15-16

3 COMPANY PROFILE 17
3.1 Name of the Organization 17
3.2 History and background 18
3.3 Group structure 19
3.4 About Religare Sec. limited 20-21
3.5 The Religare Edge 21-22
3.6 Company IPO 23

4 Indian IPO market 24


4.1 IPO overview 25-26
4.2 Process of IPO 27-33
4.3 Role of Regulatory Aspect 34-51
4.3.1 SEBI
4.3.2 NSE
4.3.3 BSE

5 Data Analysis and interpretation 52-64


6 Conclusion 65
6.1 Findings 66-67
6.2 Suggestions 68

7 BIBLIOGRAPHY 69
8 ANNEXURE 70-77
INTRODUCTION

This report, as the title Public issue suggests, is an attempt to bring forth the
importance of the process of Issue of an Initial Public Offer (IPO).

When a Company issues an IPO, it means it is going public. The issue of an


IPO introduces a great degree of transparency in a Companys operations. All
the relevant and updated information pertaining to the company is laid down
before the investors so that they may make an investment decision. Again, there
are set procedures, rules, regulations and laws to be followed in laying down
this information before the investors. A document called the Prospectus must
be prepared. The Prospectus captures all the necessary information that is to be
made available to the investors. Apart from the Prospectus, there are various
other company documents that need to be verified and summarized in order to
present them before the investors.

Many Intermediaries are appointed for the purpose of managing the public
issue of an IPO of a company. They play a vital role by co-ordinating the
activities of the company, the Regulatory Bodies and Investors. The
following are the responsibilities:

Company, to manage the entire process of issue of its IPO, and to


present the Companys information before the investors in a concise and
unambiguous form.
Investors, to give them all the relevant and updated information on the
Company, while at the same time protecting their interests
Regulatory Bodies such as the Securities and Exchange Board of
India, to adhere to all secretarial and legal work.
In order to fulfill all their responsibilities well, they must work
diligently. The process through which they verify and summarize the
Companys information is thus called the process of Due Diligence.
-1-
These Intermediaries must issue Due Diligence Certificates at various
points during the issue process, saying that the company documents have
all been verified and are correct.

This report will take the reader through the entire process of the
Issue of an IPO and will lay special emphasis on the dynamic role played
by them.

This report aims at highlighting the key points about an IPO issue by
separating the concrete points regarding an issue from the frills, and
focusing on these concrete points.

-2-
Objectives of the Project

To study and analysis the Indian initial public offering (IPO) market and
Role of its regulatory aspect.

To study and understand the concept of and procedure, problem, benefits,


involved in Initial Public Offers (IPOs).
To understand the role of intermediaries in managing Initial Public
Offers.
To know various services offered by religare securities.
To study risks faced by investor in primary market.

-3-
Scope of the Project

The following report is an attempt to analyses thoroughly, the behavior and

dynamics of Initial Public Offerings market in India. In other words, its a

detailed study on the Primary and secondary Market in India. A long with study

on IPO process and its regulatory aspect. This study takes into account Public

Offerings made by major companies in various sectors, in a period ranging of

last few year. The sectors taken into consideration are-

a) Industrials

b) Consumer goods & retail

c) Technology , media & Telecommunication

d) Real Estate & infrastructure

e) Banking, financial Services & insurance

f) Healthcare & life sciences

g) Power and Energy

The study analyses the behavior of public offerings of companies within each

sector and also attempts to make a comparative analysis among the sectors,

with the purpose of gauging investor preference. Over subscription and under

subscription analysis determines the investor preference at the time of issue.

-4-
Research Methodology

Sources of Study

The data for the project has been collected from both primary and
secondary sources.

Primary data has been collected by:

Consulting the officials associate Vice President Investment Banking


in Religare Capital Markets Limited in Hyderabad.

Also, IPO prospectus and all the necessary documents required for, and
furnished by, the companies for managing the issue of IPOs and IPO
process have been used as primary data.

Secondary data

It includes, information secured from web sites, magazines and the daily
experience, observations and through newspapers.
Books related to Financial Management.

Web sites were used as the vital information source.

-5-
Limitations of the project

Although Initial Public Offers are issued by many companies, this study
is confined to a few companies only. These are companies that fall within
limited company.

This study will be limited to the information willingly shared by the


authorities and of RSL.
To understand the overall India IPO market, the period of 45 days is not
enough, so finding cannot be generalized for all times.

The data followed in project is partly based on Secondary information


and it cant be held true as 100% correct.

The scope of the study is very vast. It is very difficult to cover and focus
on all the areas. Therefore an attempt is made to cover as much as
possible.

-6-
Review of Literature

IPO INITIAL PUBLIC OFFERING is the hottest topic in the current


industry, mainly because of India being a developing country and lot of growth
in various sectors which leads a country to ultimate success. And when we talk
about countrys growth which is dependent on the kind of work and how much
importance to which sector is given. And when we say or talk about industries
growth which leads the economy of country has to be balanced and given
proper finance so as to reach the levels to fulfill the needs of the society. And
industries which have massive outflow of work and a big portfolio then its very
difficult for any company to work with limited finance and this is where IPO
plays an important role.

This report talks about how IPO helps in raising fund for the companies going
public, what are its pros and cons, and also it gives us detailed idea why
companies go public. How and what are the steps taken by the companies
before going for any IPO and also the role of (SEBI) Securities and Exchange
Board of India the BSE and NSE , what are primary and secondary markets and
also the important terms related to IPO. It gives us idea of how IPO is driven in
the market and what are various factors taken into consideration before going
for an IPO. And it also tells us how we can more or less judge a good IPO.

IPO has been one of the most important generators of funds for the small
companies making them big and given a new vision in past and it is still
continuing its work and also for many coming years.

-7-

INDUSTRY PROFILE
INDIAN IPO MARKET
HISTORY

The term initial public offering (IPO) slipped into everyday speech during the
tech bull market of the late 1990s. Back then, it seemed you couldn't go a day
without hearing about a dozen new dotcom millionaires in Silicon Valley who
were cashing in on their latest IPO. The phenomenon spawned the term
siliconaire, which described the dotcom entrepreneurs in their early 20s and 30s
who suddenly found themselves living large on the proceeds from their internet
companies' IPOs.

INVESTORS are still wary of equities in the 1990s, to blame are the excesses in
the primary market in the 1990s. Of the thousands of IPOs (initial public
offerings) and offers for sale made between 1994 and 1996, less than a hundred
were from companies with track record. Even in this shortlist, only a few
managed to complete planned projects and deliver value to investors. The rest
just frittered the money away.

The primary market of the mid-1990s was merely used as a channel to move
public funds into private hands. The Securities and Exchange Board of India
(SEBI) was late to wake up to the excesses, but when it did, it improved the
disclosure framework, tightened the prerequisites for an IPO, and towards the
end of the decade, introduced book-building.

-8-
CURRENT POSITION OF INDIAN IPO MARKET
India is being lauded as the savior of the ailing global IPO market with $3.3
billion worth of proceeds from eight deals. This makes India the largest IPO
market in the world so far this year.

India accounts for 49.1% of global IPO proceeds at the moment, compared to
just 3.7% same time last year. Significant, given that global IPOs declined
36.1% over the last one year.

It was the real estate sector which took the maximum advantage of the bullish
stock market trends in 2007. According to the industry body Assocham, real
estate players raised the maximum amount of funds from the capital market
through IPOs last year. Realty firms picked up around 42.7% of the total funds
generated through IPOs. Of the Rs.34,119 crore raised in the primary market in
the period starting from January 1, 2007 to mid-December, about Rs.14,591
crore was raised by the realty firms.

Financial Year Amount raised through IPO


2002-03 Rs 1,039 crore
2003-04 Rs 17,807 crore
2004-05 Rs 21,432 crore
2005-06 Rs 23,676 crore
2006-07 Rs 24,994 crore
2007-08 Rs 52,253 crore

Secondary markets out performed primary markets in 2009, but we expect 2010
will be exciting performance for both primary and secondary markets.
With more than 60 firms already in process for approval form SEBI to raise
approximate INR 400B, we expect the number of draft offer document filed
with SEBI will match the levels of 2007
The divestment programme is expected to gain the momentum in 2010, with
government expecting to raise INR 500 B by end of 2010.

-9-
2010 will see the IPOs of BSNL and RITES and FPO of SAIL.
With the handy increase in liquidity in market and stabilization in secondary
markets, the companies will raise money with ease in early in 2010.
PRIMARY MARKET AND SECONDARY MARKET

When shares are bought in an IPO it is termed primary market. The primary
market does not involve the stock exchanges. A company that plans an IPO
contacts an investment banker who will in turn called on securities dealers to
help sell the new stock issue.

This process of selling the new stock issues to prospective investors in the
primary market is called underwriting.

When an investor buys shares from another investor at an agreed prevailing


market price, it is called as buying from the secondary market.

The secondary market involves the stock exchanges and it is regulated by a


regulatory authority. In India, the secondary and primary markets are governed
by the Security and Exchange Board of India (SEBI).

ADVANTAGES AND DISADVANTAGES OF AN IPO

ADVANTAGES

Increased capital
Liquidity
Increased Prestige
Valuation
Increased wealth

DISADVANTAGES

Time and Expense


Disclosure
Decision based upon stock price
Regulatory Review
Falling Stock Price -10-
Securities and Exchange Board of India

The Securities and Exchange Board of India was established on April 12, 1992
in accordance with the provisions of the Securities and Exchange Board of
India Act,1992.

The PREAMBLE of the Securities and Exchange Board of India describes the
basic functions of the Securities and Exchange Board of India as

..to protect the interests of investors in securities and to promote the


development of, and to regulate the securities market and for matters
connected there with or incidental thereto

The mission of SEBI is to make India as one of the best securities market of the
world and SEBI as one of the most respected regulator in the world.

OBJECTIVE

SEBI protect the interests of investors in securities, and promotes the


development of Securities Market and it also regulates the securities
market.

Another significant event is the approval of trading in stock indices (like


Nifty & Sensex) in 2000. A market Index is a convenient and effective
product because of the following reasons:

It is used in derivative instruments like index futures and index options;

It can be used for passive fund management as in case of Index Funds.


-11-
FUNCTIONS

The regulation of the capital markets is primarily the responsibility of the


Securities and Exchange Board of India (SEBI), which is located in
Mumbai. Some of the major functions of SEBI are:

SEBI is expected to regulate the business in stock exchanges and any


other securities markets.

Registering and regulating the working of collective investment schemes,


including mutual funds is a responsibility of SEBI.

SEBI is responsible for prohibiting fraudulent and unfair trade practices relating
to securities markets.

Prohibiting insider trading in securities, with the imposition of monetary


penalties, on erring market intermediaries.

Regulating substantial acquisition of shares and takeover of companies.

-12-
The National Stock Exchange (NSE) is India's leading stock exchange covering
various cities and towns across the country. NSE was set up by leading
institutions to provide a modern, fully automated screen-based trading system
with national reach. The Exchange has brought about unparalleled transparency,
speed & efficiency, safety and market integrity. It has set up facilities that serve
as a model for the securities industry in terms of systems, practices and
procedures.

The Organization

The National Stock Exchange of India Limited has genesis in the report of the
High Powered Study Group on Establishment of New Stock Exchanges, which
recommended promotion of a National Stock Exchange by financial institutions
(FIs) to provide access to investors from all across the country on an equal
footing. Based on the recommendations, NSE was promoted by leading
Financial Institutions at the behest of the Government of India and was
incorporated in November 1992 as a tax-paying company unlike other stock
exchanges in the country.
On its recognition as a stock exchange under the Securities Contracts
(Regulation) Act, 1956 in April 1993, NSE commenced operations in the
Wholesale Debt Market (WDM) segment in June 1994. The Capital Market
(Equities) segment commenced operations in November 1994 and operations in
Derivatives segment commenced in June 2000.

-13-
Market Segments and Products

NSE provides a trading platform for of all types of securities for investors under
one roof Equity, Corporate Debt, Central and State Government Securities, T-
Bills, Commercial Paper (CPs), Certificate of Deposits (CDs), Warrants, Mutual
Funds (MFs) units, Exchange Traded Funds (ETFs), Derivatives like Index
Futures, Index Options, Stock Futures, Stock Options and Currency Futures.

The Exchange provides trading 5 in 4 different segments viz., Wholesale Debt


Market (WDM) segment, Capital Market (CM) segment, Futures & Options
(F&O) segment and the Currency Derivatives Segment (trading on which
commenced on August 29, 2008)

Graph depicting the turnover in NSE

The above graph depicts the turnover of NSE from 2000 to 2007,the graph
shows from a mare turnover of above 1,000,000 crore in the year 2000 how it
has decreased and increased to more than 3,500,000 crore in the year 2007,
constant increase in turnover itself proves the growth and attractiveness of this
market.

-14-
Bombay Stock Exchange Limited (the Exchange) is the oldest stock exchange
in Asia with a rich heritage. Popularly known as "BSE", it was established as
"The Native Share & Stock Brokers Association" in 1875. It is the first stock
exchange in the country to obtain permanent recognition in 1956 from the
Government of India under the Securities Contracts (Regulation) Act, 1956.The
Exchange's pivotal and pre-eminent role in the development of the Indian
capital market is widely recognized and its index, SENSEX, is tracked
worldwide. Earlier an Association of Persons (AOP), the Exchange is now a
demutualised and corporatised entity incorporated under the provisions of the
Companies Act, 1956, pursuant to the BSE Scheme, 2005 notified by the
Securities and Exchange Board of India (SEBI).Bombay Stock Exchange
Limited received its Certificate of Incorporation on 8th August, 2005 and
Certificate of Commencement of Business on 12th August, 2005. The 'Due
Date' for taking over the business and operations of the BSE, by the Exchange
was fixed for 19th August, 2005, under the Scheme. The Exchange has
succeeded the business and operations of BSE on going concern basis and its
recognition as an Exchange has been continued by SEBI

The Exchange has a nation-wide reach with a presence in 417 cities and towns
of India. The systems and processes of the Exchange are designed to safeguard
market integrity and enhance transparency in operations. During the year 2004-
2005, the trading volumes on the Exchange showed robust growth.

-15-
Coverage:

The equity shares of 200 selected companies from the specified and non
specified lists of this Exchange have been considered for inclusion in the sample
for `BSE-200'. The selection of companies has primarily been done on the basis
of current market capitalization of the listed scripts on the exchange. Besides
market capitalization, the market activity of the companies as reflected by the
volumes of turnover and certain fundamental factors were considered for the
final selection of the 200 companies.

Choice of Base Year:

The financial year 1989-90 has been chosen as the base year for the price
stability exhibited during that year and due to its proximity to the current period.

Graph depicting the turnover of BSE:

The above graph shows the turnover in BSE from the year 2000 to the year
2007.
The graph easily shows that the turnover of BSE has increased in leaps and
bounds over the given period.
-16-
COMPANY PROFILE

RELIGARE SECURITIES LTD.

SEBI Registration No: INMOOOO11062

Corporate Office:
19 Nehru Place, New Delhi 110019
Website: www.religare.in
Email: info@religare.in
SMS: RELIGARE to 5888

PUNE:
Ground Floor, Amar Caliber,
BMCC Road, Shivajinagar,
Pune 411004

AHMEDNAGAR:
5&6, Himalaya Tower,
Opp. Deepak Hospital,
Savedi Road,
Ahmednagar 414003

-17-
HISTORY AND BACKGROUND

RELIGARE Securities Ltd. (RSL) is a wholly owned subsidiary of


RELIGARE Financial Services Ltd. (RFSL), a Company promoted by the late
Dr.Parvinder Singh, Ex-CMD of Ranbaxy Laboratories Ltd.

The primary focus of Religare Securities Ltd. is to cater to services in Capital


Market Operations to Institutional Investors. The Company is a member of the
National Stock Exchange (NSE) and OTCEI. The growing list of financial
institutions with whom RSL is empanelled as approved Broker is a reflection of
the high levels of services maintained by the Company.

REL operates from seven domestic regional offices, 43 sub-regional offices, and
has a presence in 498* cities and towns controlling 1,837* business locations all
over India.

To make a mark in the global arena, REL acquired UK-based Hichens, Harrison
& Co. in 2008 which was subsequently re-named as Religare Hichens Harrison
PLC ("RHH"). Hichens, Harrison & Co. was incorporated in London in the year
1803 and is believed to be one of the oldest firms of stockbrokers in the City of
London. Pursuant to expansion of REL's business, the company has grown from
largely an equity trading company into a diversified financial services company.
With the addition of RHH the REL group now operates out of multiple global
locations, other than India, (the UK, the USA, Brazil, South Africa, Dubai and
Singapore).

RELIGARE was founded with the vision of providing integrated financial care
driven by the relationship of trust. The bouquet of services offered by
RELIGARE includes Broking (Stocks and Commodities), Depository
Participant Service, Advisory on Mutual Fund Investments and Portfolio
Management Services.

RELIGARE is a pioneer in the concept of partnership to reach multiple


locations
in order to effectively service its large base of individual clients. Besides the
reach of RELIGARE, the clients of the company greatly benefit by its strong
research capability, which encompasses fundamentals as well as technical
knowledge.
-18-
Religare Finvest
Religare ltd Religare Wealth
Securities Ltd Mgt Services Ltd

Religare Religare capital


Commodities Ltd
RELIGARE Markets Ltd
ENTERPRISE

LIMITED
Religare Insurance Religare finance

Broking Ltd Ltd

Religare Venture Religare Realty

Capital Pvt Ltd Ltd

-19-
ABOUT RELIGARE SECURITIES LIMITED

BRND IDENTITY

Name
Religare is a Latin word that translates as 'to bind together'. This name has been
chosen to reflect the integrated nature of the financial services the company
offers.
Symbol
The Religare name is paired with the symbol of a four-leaf clover. Traditionally,
it is considered good fortune to find a four-leaf clover as there is only one four-
leaf clover for every 10,000 three-leaf clovers found.

For us, each leaf of the clover has a special meaning. It is a symbol of Hope.
Trust. Care. Good Fortune. For the world, it is the symbol of Religare.

The first leaf of the clover represents Hope, The aspirations to


succeed. The dream of becoming, Of new possibilities, It is the beginning of
every step and the foundation on which a person reaches for the stars.

The second leaf of the clover represents Trust, The ability to place
ones own faith in another. To have A relationship as partners in a team. To
accomplish a given goal with the balance that brings satisfaction to all, not in
the binding, but in the bond that is built.
-20-
The third leaf of the clover represents Care, The secret ingredient
that is the cement in every relationship. The truth of feeling that underlines
sincerity and the triumph of diligence in every aspect. From it springs true
warmth of service and the ability to adapt to evolving environments with
consideration to all.

The fourth and final leaf of the clover represents Good Fortune.
Signifying that rare ability to meld opportunity and planning with circumstance
to generate those often looked for remunerative moments of success.

Hope. Trust. Care. Good Fortune. All elements perfectly combine


in the emblematic and rare, four-leaf clover to visually symbolize the values
that bind together and form the core of the Religare vision.

THE RELIGARE EDGE

Diverse offerings

Dynamic Management Team

State-of-the art technology

Vast Distribution and Reach

Robust Brand Recognition

Synergistic partnerships

Innovative Initiative

-21-
RELIGARE GLOBAL NETWORK
Religare operate across multiple locations & countries.

INDIA
DUBAI
QATAR
HONG KONG
MALAYSIA
SINGAPORE
TOKYO
INDONESIA
BRAZIL
NEW YORK
SAN FRANCISCO
UNITED KINGDOM

-22-
Companys IPO

Book Floor
Sr. Name Running Date No. of Price Exit
No of the Lead of No. of bidding Issue (in Price
issue Manager issue members centers Size Rs) (in
Rs
KAUSAR Religare Mar 23,
1 INDIA
capital
2009 to
13.00
LIMITED Mar 25, 1 30 9,74,268 50.54
markets 2009
limited
EMMBI KEYNOTE 01/02/ 95.74 40 TO
2 POLYARNS 2010 TO
84 51 45
CORPORATION 45
LIMITED 03/02/
SERVICE
2010
LIMITED

INFINITE INDIA 11/JAN/ 115,03 155


3 COMPUTER 2010
121 45 165
INFOLINE LTD TO
SOLUTION TO
&
(INDIA 13/ 165
LTD) SPA JAN/
MERCHANT 2010
BANKER LTD

Standard Chartered PLC


Symbol Series STAN EQ

Issue Period May 25, 2010 to May 28, 2010

Post issue Modification Period May 29, 2010

240,000,000 INDIAN DEPOSITORY RECEIPTS (including Anchor


Issue Size
investor portion of 36,000,000 IDRs)

Issue Type 100% Book Building

Price Range Rs 100 to Rs 115

Tick Size Re. 1/-

Market Lot 200 IDRs

Minimum Order Quantity 200 IDRs

Maximum Subscription Amount for


Retail Investor Rs.100000

-23-
INITIAL PUBLIC OFFERING

-24-

AN OVERVIEW OF INITIAL PUBLIC OFFER


An IPO or an Initial Public Offer is a company's first sale of
equity shares to the general public. Shares offered in an IPO are often, but not
always, those of newly setup companies seeking outside equity capital and a
public market for their shares.

An Initial Public Offering (IPO) can be a good investment avenue for


equity investors. While the IPO market is dry these days, a fresh crop is
expected soon. It is important to understand IPOs and decide whether to invest
in them or not.

Why does a company go for 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. This paves way for listing and trading of the issuers
securities.

A company's first sale of stock to the public. Securities offered in an IPO are
often, but not always, those of young, small companies seeking outside equity
capital and a public market for their stock. Investors purchasing stock in IPOs
generally must be prepared to accept very large risks for the possibility of large
gains. IPO's by investment companies (closed end funds) usually contain
underwriting fees which represent a load to buyers.

The basis purpose of an IPO is to facilitate transfer of resources from savers to


entrepreneurs seeking to establish new enterprise or to diversify/expand existing
ones. -25-
Such facilities are of crucial importance in the context of the dichotonomy of
funds available for capital uses form those in whose hands they accumulate, and
those by whom they are applied for capital uses from those in whose hands they
accumulate, and those by whom they are applied to productive uses.

However it should not be conceived as exclusively serving


the purpose of raising finance for new capital expenditure. Infect the
organization and facilities of the market are also utilized for selling concerns to
the public as going concerns through the conversion of existing proprietary
enterprises or private companies in to public companies

Corporate may raise capital in the primary market by way of an initial public
offer, rights issue or private placement. An Initial Public Offer (IPO) is the
selling of securities to the public in the primary market. This Initial Public
Offering can be made through the fixed price method, book building method or
a combination of both.

In case the issuer chooses to issue securities through the book building route
then as per SEBI guidelines, an issuer company can issue securities in the
following manner:

a) 100% of the net offer to the public through the book building route.

b) 75% of the net offer to the public through the book building process

c) 25% through the fixed price portion.

-26-
PROCESS OF AN IPO
The Process:

The Issuer who is planning an IPO nominates a lead merchant banker as a


'book runner'.

The Issuer specifies the number of securities to be issued and the price
band for orders.

The Issuer also appoints syndicate members with whom orders can be
placed by the investors.

Investors place their order with a syndicate member who inputs the orders
into the 'electronic book'. This process is called 'bidding' and is similar to
open auction.

A Book should remain open for a minimum of 5 days.

Bids cannot be entered less than the floor price.

Bids can be revised by the bidder before the issue closes.

On the close of the book building period the 'book runner evaluates the
bids on the basis of the evaluation criteria which may include -

Price Aggression

Investor quality

Earliness of bids, etc.

-27-
The book runner and the company conclude the final price at which it is
willing to issue the stock and allocation of securities.

Generally, the number of shares are fixed, the issue size gets frozen based
on the price per share discovered through the book building process.

Allocation of securities is made to the successful bidders.

Book Building is a good concept and represents a capital market which is


in the process of maturing.

How does the company fix the price band?

The red herring prospectus may contain either the floor price for the securities
or a price band within which the investors can bid. The spread between the floor
and the cap of the price band shall not be more than 20%. In other words, it
means that the cap should not be more than 120% of the floor price. The price
band can have a revision and such a revision in the price band shall be widely
disseminated by informing the stock exchanges, by issuing press release and
also indicating the change on the relevant website and the terminals of the
syndicate members. In case the price band is revised, the bidding period shall be
extended for a further period of three days, subject to the total bidding period
not exceeding thirteen days

Pricing is critical and the most important process in IPO. Pricing involves lot of
research and calculations. Pricing is done in such a way that investors are
benefited and also the companys objective is achieved that is its aim for an IPO
is achieved. Thus, pricing is the most important factor in IPO process generally
there are two methods of IPO pricing .-28-
Fixed Pricing

Book building Process

PROCEDURE

The sale (that is, the allocation and pricing) of shares in an IPO may take
several forms. Common methods include:

Dutch auction
Firm commitment
Best efforts
Bought deal
Self Distribution of Stock
A large IPO is usually underwritten by a "syndicate" of investment banks led by
one or more major investment banks (lead underwriter). Upon selling the
shares, the underwriters keep a commission based on a percentage of the value
of the shares sold. Usually, the lead underwriters, i.e. the underwriters selling
the largest proportions of the IPO, take the highest commissionsup to 8% in
some cases.

Multinational IPOs may have as many as three syndicates to deal with differing
legal requirements in both the issuer's domestic market and other regions. For
example, an issuer based in the E.U. may be represented by the main selling
syndicate in its domestic market, Europe, in addition to separate syndicates or
selling groups for US/Canada and for Asia. Usually, the lead underwriter in the
main selling group is also the lead bank in the other selling groups.

Because of the wide array of legal requirements, IPOs typically involve one or
more law firms with major practices in securities law, such as the Magic Circle
firms of London and the white shoe firms of New York City. -29-
Usually, the offering will include the issuance of new shares, intended to

raise new capital, as well the secondary sale of existing shares. However,
certain regulatory restrictions and restrictions imposed by the lead underwriter
are often placed on the sale of existing shares.

Public offerings are primarily sold to institutional investors, but some shares are
also allocated to the underwriters' retail investors. A broker selling shares of a
public offering to his clients is paid through a sales credit instead of a
commission. The client pays no commission to purchase the shares of a public
offering; the purchase price simply includes the built-in sales credit.

Fixed Pricing

An issuer company is allowed to freely price the issue. The basis of issue price
is disclosed in the offer document where the issuer discloses in detail about the
qualitative and quantitative factors justifying the issue price. Fixed price does
not allow an opportunity to the issuer or the merchant banker to do any
discretionary allotment, which is possible only in a book building issue. So
there is one factor that we should remember which drives book building issue
more.

Book building Process

Book building Process as Mentioned in the SEBI

Book Building is basically a capital issuance process used in Initial Public Offer
(IPO) which aids price and demand discovery. It is a process used for marketing
a public offer of equity shares of a company. It is a mechanism where, during
the period for which the book for the IPO is open, bids are collected from
investors at various prices, which are above or equal to the floor price. The
process aims at tapping both wholesale and retail investors. -30-
The offer/issue price is then determined after the bid closing date based on
certain evaluation criteria.

Guidelines for Book Building

Rules governing book building is covered in Chapter XI of the Securities and


Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000.

Difference between shares offered through book building and offer of shares
through normal public issue:

Feature Fixed Price process Book Building process

Pricing Price at which the Price at which securities


securities are will be offered/allotted
offered/allotted is is not known in advance
known in advance to to the investor. Only an
the investor. indicative price range is
known.

Demand Demand for the Demand for the


securities offered is securities offered can
known only after the be known everyday as
closure of the issue the book is built.
Payment Payment if made at the Payment only after
time of subscription allocation.
wherein refund is given
after allocation.

EXAMPLE OF BOOK BUILDING

-32-
-33-
SEBI (DIP) Guidelines Given for Book Building

An issuer company proposing to issue capital through book building

Shall comply with the following:

A) 75% Book Building Process

11.2 In an issue of securities to the public through a prospectus the option For
75% book building shall be available to the issuer company subject To the
following:

(I)

The option of book-building shall be available to all body corporate


Which are otherwise eligible to make an issue of capital to the public?

(ii)

(a) The book-building facility shall be available as an alternative to, and


to The extent of the percentage of the issue which can be reserved for firm
Allotment, as per these Guidelines.

(b) The issuer company shall have an option of either reserving the
Securities for firm allotment or issuing the securities through book building
Process.

(iii)

The issue of securities through book-building process shall be Separately


identified / indicated as 'placement portion category', in the Prospectus.

-34-
(iv)

(a) The securities available to the public shall be separately identified as


'net offer to the public'.

(b) The requirement of minimum 25% of the securities to be offered to


the public shall also be applicable.

(v)

In case the book-building option is availed of, underwriting shall be mandatory


to the extent of the net offer to the public.

(vi)

The draft prospectus containing all the information except the information
regarding the price at which the securities are offered shall be filed with the
Board.

(vii)

One of the lead merchant banker to the issue shall be nominated by the
issuer company as a Book Runner and his name shall be mentioned in the
prospectus.

(viii)

(a) The copy of the draft prospectus filed with the Board may be
circulated by the Book Runner to the institutional buyers who
are eligible for firm allotment and to the intermediaries eligible
to act as underwriters inviting offers for subscribing to the
securities.

-35-
(b) The draft prospectus to be circulated shall indicate the price band
within which the securities are being offered for subscription.

(ix)

The Book Runner on receipt of the offers shall maintain a record of the
names and number of securities ordered and the price at which the institutional
buyer or underwriter is willing to subscribe to securities under the placement
portion.

(x)

The underwriter(s) shall maintain a record of the orders received by him


for subscribing to the issue out of the placement portion.

Duration of the issue

Subscription list for public issues shall be kept open for at least 3 working
days and not more than 10 working days. In case of Book built issues, the
minimum and maximum period for which bidding will be open is 37 working
days extendable by 3 days in case of a revision in the price band. The public
issue made by an infrastructure company, may be kept open for a maximum
period of 21 working days and Rights issues shall be kept open for at least 30
days and not more than 60 days.

-36-
B) 195(Offer to Public through Book Building Process)

11.3

196(An issuer company may, subject to the requirements specified in


This chapter, make an issue of securities to the public through a Prospectus in
the following manner:

a.100% of the net offer to the public through book building process, or

b.75% of the net offer to the public through book building process and

25% at the price determined through book building.)

11.3.1

(I) 197(Deleted)

(ii) Reservation or firm allotment to the extent of percentage specified in These


Guidelines shall not be made to categories other than the Categories mentioned
in sub-clause (iii) below.

(iii) Book Building shall be for the portion other than the promoters
Contribution and the allocation made to:

(a) Permanent employees of the issuer company and in the case of a new
Company the permanent employees of the promoting companies';

(b) Shareholders of the promoting companies in the case of a new Company


and shareholders of group companies in the case of an Existing company either
on a competitive basis or on a firm allotment Bases.

-37-
198

((c) persons who, on the date of filing of the draft offer document with
the Board, have business association, as depositors, bondholders and
Subscribers to services, with the issuer making an initial public offering,
provided that allotment to such persons shall not exceed 5% of the issue
Provided further that no reservation shall be made for the issue management
team, syndicate members, their promoters, directors and employees and for the
group/associate companies of issue management team and syndicate members
and their promoters, directors and employees.)

(iv)

The issuer company shall appoint an eligible Merchant Banker(s) as book


runner(s) and their name(s) shall be mentioned in the draft prospectus.

199

((iv) (a) The issuer company shall enter into an agreement with one or
more of the Stock Exchange(s) which have the requisite system of on-line offer
of securities. The agreement shall specify inter-alia, the rights, duties,
responsibilities and obligations of the company and stock exchange (s) inter se.
The agreement may also provide for a dispute resolution mechanism between
the company and the stock exchange.

(iv) (b) The company may apply for listing of its securities on an
exchange other than the exchange through which it offers its securities to public
through the on-line system.)

-38-
200

(V) The Lead Merchant Banker shall act as the Lead Book Runner.)

201

((v) (a) In case the issuer company appoints more than one 202(merchant
banker(s)), the names of all such (merchant bankers(s)) who have submitted the
due diligence certificate to SEBI, may be mentioned on the front cover page of
the prospectus. A disclosure to the effect that " the investors may contact any of
such (merchant bankers(s)), for any complaint pertaining to the issue" shall be
made in the prospectus, after the "risk factors.)

203

((v) (b) The lead book runner/issuer may designate, in any manner, the
other Merchant Banker(s), subject to the following;

Eligible for reservation

In a book built issue allocation to Retail Individual Investors (RIIs), Non


Institutional Investors (NIIs) and Qualified Institutional Buyers (QIBs) is in
the ratio of 35: 15: 50 respectively. In case the book built issues are made
pursuant to the requirement of mandatory allocation of 60% to QIBs , the
respective figures are 30% for RIIs and 10% for NIIs. This is a transitory
provision pending harmonization of the QIB allocation.

The allotment to the Qualified Institutional Buyers (QIBs) is on a discretionary


basis. The discretion is left to the Merchant Bankers who first disclose the
parameters of judgment in the Red Herring Prospectus. There are no objective
conditions stipulated as per the DIP Guidelines.

-39-
The Merchant Bankers are free to set their criteria and mention the same in the
Red Herring Prospectus.

Reservation on Competitive Basis is when allotment of shares is made in


proportion to the shares applied for by the concerned reserved categories.
Reservation on competitive basis can be made in a public issue to the
Employees of the company, Shareholders of the promoting companies in the
case of a new company and shareholders of group companies in the case of an
existing company, Indian Mutual Funds, Foreign Institutional Investors
(including non resident Indians and overseas corporate bodies), Indian and
Multilateral development Institutions and Scheduled Banks.

-40-
Book Building at NSE

The NSE has set up nation-wide network for trading whereby members can
trade remotely from their offices located all over the country. The NSE trading
network spans various cities and towns across India.

NSE decided to offer this infrastructure for conducting online IPOs through the
Book Building process. NSE operates a fully automated screen based bidding
system called NEAT IPO that enables trading members to enter bids directly
from their offices through a sophisticated telecommunication network.

Book
Building through the NSE system offers several advantages:

The NSE system offers a nationwide bidding facility in securities.

It provides a fair, efficient & transparent method for collecting bids using
latest electronic trading systems

Costs involved in the issue are far less than those in a normal IPO

Procedures

Issuers

Issuers desirous of using NSE's online IPO system are required to comply with
the following procedures:

1. Submit a written request as per prescribed format (Letter1, Letter2,


BRLM) for usage of electronic facilities and software of NSE
2. Give details regarding Book Running Lead Manager, Co Book Running
Lead Managers and Syndicate Members.
3. Pay the requisite charges to NSE.
-41-
Trading Members

The Book Running Lead Manager will give the list of trading members who are
eligible to participate in the Book Building process to the Exchange. Members
have to submit a one time undertaking to the Exchange. Eligible trading
members have to give in the prescribed format details of the user IDs that they
would like to use.

Subscribers

Subscribers can approach any of the approved trading members for submitting
bids in the NEAT IPO system. On line transaction registration slip are generated
automatically after entering the bids in to the system which acts as proof of the
registration of each Bid option.

-42-
BSE's Book Building System

BSE offers the book building services through the Book Building
software that runs on the BSE Private network.

This system is one of the largest electronic book building networks


anywhere spanning over 350 Indian cities through over 7000 Trader
Work Stations via eased lines, VSATs and Campus LANS

The software is operated through book-runners of the issue and by the


syndicate member brokers. Through this book, the syndicate member
brokers on behalf of themselves or their clients' place orders.

Bids are placed electronically through syndicate members and the


information is collected on line real-time until the bid date ends.

In order to maintain transparency, the software gives visual graphs


displaying price v/s quantity on the terminals.

Listing Rules for New Companies on BSE /IPO Rules


The following eligibility criteria have been prescribed for the companies
seeking permission to get list on the stock exchange, effective August 1 st 2006.

The companies are classified into two categories: large cap and Small cap. A
company is treated as a large cap company if the issue size is greater than or
equal to Rs 10 crore and market capitalization of not less then Rs 25 crore.

-43-
A) In case of large cap companies

The minimum post-issue paid up capital of the applicant


company shall be Rs. 3 crore.
The minimum issue size shall be Rs. 10 crore and
The minimum market capitalization of the company shall be
Rs. 25 crore

Authorized capital is the amount for which a company has got the authorization
from the regulatory body to raise through the issue. A company may or may not
want to raise the full amount of authorized capital. Issue size is the amount that
a company want to raise funds through the issue. Its always less than or equal
to authorized capital.

Part payment facility may be available for the investors who want to subscribe
to an issue. Post-issue paid-up capital is the value of subscriptions (including
promoters holding) paid at the end of issue date. This will be less than issue
size if the total subscriptions are less than the offered shares or when there is
part payment facility available for the issue.

Market capitalization is the product of number of shares outstanding (including


promoters holding) and the market price. In an IPO before the first day of
listing the market price is the issue price.

B) 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.
The minimum income/turnover of the company shall be Rs. 3 crore
in each of the preceding three 12 month period.
The minimum number of the public shareholder after the issue
shall be 1000.
-44-
A due diligence study may be conducted by an independent team
of chartered Accountant or merchant banker (Investment Banker)
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.

In addition to this, the issuer company should have a post issue net worth
(equity capital + free reserve excluding revaluation reserve) of Rs 20 crore.

C) For all companies


In respect of the requirement of paid up capital and market
capitalization, the issuers shall be required to include in the
disclaimer clause forming a part of the offer document that in the
event of market capitalization requirement of BSE not being met,
the securities of the issuer would not be listed on BSE.
The applicant, promoters and / or group companies, shall be in
default in compliance of the listing agreement.

The above eligibility criteria would be in additions of the


companies prescribed under SEBI guidelines.

-45-
Listing Fees (BSE)

Particular Amount (Rs)

Initial Listing fees 7500

Annual listing fees companies with


paid capital
Of Rs 1 crore 4200

Above 1 corer upto 5 crore 8400

Above 5 corer upto 10 crore 14000

Above 10 corer upto 20 crore 28000

Above 20 corer upto 50 crore 42000

Above 50 crore 70000

-46-
Role of Lead manager

In the pre-issue process, the Lead Manager (LM) takes up the due
diligence of companys operations/ management/ business plans/ legal etc.
Other activities of the LM include drafting and design of Offer documents,
Prospectus, statutory advertisements and memorandum containing salient
features of the Prospectus. The book running lead manager (BRLMs) shall
ensure compliance with stipulated requirements and completion of prescribed
formalities with the Stock Exchanges, RoC and SEBI including finalisation of
Prospectus and RoC filing. Appointment of other intermediaries viz.,
Registrar(s), Printers, Advertising Agency and Bankers to the Offer is also
included in the pre-issue processes.

The lead manager also draws up the various marketing strategies for the issue.
The post issue activities including management of escrow accounts, coordinate
non-institutional allocation, intimation of allocation and dispatch of refunds to
bidders etc are performed by the LM. The post Offer activities for the Offer will
involve essential follow-up steps, which include the finalization of trading and
dealing of instruments and dispatch of certificates and demat of delivery of
shares, with the various agencies connected with the work such as the
Registrar(s) to the Offer and Bankers to the Offer and the bank handling refund
business. The merchant banker shall be responsible for ensuring that these
agencies fulfill their functions and enable it to discharge this responsibility
through suitable agreements with the Company.

-47-
Role of registrar

The Registrar finalizes the list of eligible allottees after deleting the
invalid applications and ensures that the corporate action for crediting of shares
to the demat accounts of the applicants is done and the dispatch of refund orders
to those applicable are sent. The Lead manager coordinates with the Registrar to
ensure follow up so that that the flow of applications from collecting bank
branches, processing of the applications and other matters till the basis of
allotment is finalized, dispatch security certificates and refund orders completed
and securities listed.

Role of banker to the issue

Bankers to the issue, as the name suggests, carries out all the activities of
ensuring that the funds are collected and transferred to the Escrow accounts.
The Lead Merchant Banker shall ensure that Bankers to the Issue are appointed
in all the mandatory collection centers as specified in DIP Guidelines. The lead
manager also ensures follow-up with bankers to the issue to get quick estimates
of collection and advising the issuer about closure of the issue, based on the
correct figures.

Merchant Banking

Issue Management Services to act as Book Running Lead


Manager/Lead
Project appraisal
Corporate Advisory Services
underwriting of equity issues
Banker to the Issue/Paying Banker -48-
Refund Banker
Monitoring Agency
Debenture Trustee

Investment Banking

Investment Bank is a financial intermediary that performs a variety of


services which includes underwriting, acting as an intermediary between an
issuer of securities and the investing public, facilitating mergers and other
corporate reorganizations, and also acting as a broker for institutional clients.

Private Equity

Private equities are equity securities of unlisted companies. Private


equities are generally illiquid and thought of as a long-term investment. Private
equity investments are not subject to the same high level of government
regulation as stock offerings to the general public. Private equity is also far less
liquid than publicly traded stock.

Acquisition

Acquisition is the process through which one company takes over the
controlling interest of another company. Acquisition includes obtaining supplies
or services by contract or purchase order with appropriated or non-appropriated
funds, for the use of Federal agencies through purchase or lease.

Venture Capital

Venture Capital is the money and resources made available to startup


firms and small businesses with exceptional growth potential. Most venture
capital money comes from an organized group of wealthy investors.

-49-
Underwriter

Lead Merchant Banker shall ensure that the underwriters appointed or


proposed to be appointed are capable of discharging their obligations under the
Issue.

Clause 5.5.3 requires the Lead Merchant Banker to underwrite a minimum of


5% of the total underwriting commitment of Rs. 25 Lakh, whichever is less.
However, under no situation, a BRLM can underwrite more than 20 times its
Net Worth at any point of time.

Non institutional bidders.

Companies, corporate bodies, Scientific institutions and trusts, resident


Indian Individuals HUF (in the name of Karta) and NRIs (Applying for an
amount exceeding Rs.100000 )

Retail individual bidders

Individuals (including NRIs and HUFs) applying for an amount up to


Rs.100000.

FPO

FPO means following public offer when a company goes for an public
offer after going for an IPO it is known as Following Public Offer(FPO). It may
go for an public offer if it is again in requirement of funds for new projects, for
expansion or for dilution of holding of shares. -50-
IPO Grading

1 An unlisted company making an IPO of equity shares or any other


security which may be converted into or exchanged with equity shares at a later
date may opt to obtain grading for such an IPO from one or more credit rating
agencies.

.2 Where an issuer opts to obtain IPO grading under clause 5.6B.1, it shall
disclose all grades so obtained by it, including unaccepted grades, in the
prospectus and abridged prospectus.

-51-
Data Analysis and interpretation

-52-
Analysis last six year (2004-2009) no. of issue and issue amount

Year No. of issues Issue amount (crore)

2004 23 13,749

2005 76 10,936

2006 76 28,504

2007 84 42,595

2008 21 3582

2009 17 1978

-53-
Interpretation:

As shown in the table during the economic boom there were much more IPOs.
During 2007-2008 the share market witnessed its highest number of IPOs in
past one decade and highest issue amount. Due to inflation and slowdown in
economic it affect the Indian IPO market in year 2008, 2009.

-54-
Indias Largest IPOs in 2009
During 2009, there were 20 IPOs. Of which, 16 IPOs have listed and 4
IPOs are yet to be listed.

Of the 16 IPOs that have listed, 5 IPOs have received investment from
Anchor Investors; and 11 IPOs have not received investment from
Anchor Investors.

5 IPO Received Investment from Anchor Investor

company Anchor Issue Size Current Issue Issue Price (INR) Return*
investor (INRM) Value Size Price 31 Dec09 (%)
INR M ($M) (INR)
Adani
Power Yes 30,165 29,200 621.7 36 34.0 -5.6%
Ltd.
Pipavav
Shipyard Yes 4,956 4,540 102.8 58 54.2 -6.6%
Ltd.
Indiabulls
Power Ltd Yes 15,291 11,350 332.0 45 34.9 -22.4
DEN
Networks Yes 3,900 3,760 82.4 195 196.0 0.5%
Ltd.
Cox and
Kings Yes 6,105 7,680 131.3 330 452.2 37.0%
(India)
Ltd
Total 60,417 56330 2.9
-55-
-56-

Interpretation

Of the 5 IPOs that have received investment from Anchor Investors, 3 IPOs are
trading below the issue price (that is 60% of such issues) and only 2 IPO is
trading above the issue price. On an aggregate basis, about Rs. 60417 Crores is
mobilized by such IPOs that have received anchor investors. However, the
current value of such IPOs is down to Rs. 5,6330 Crores, indicating a Mark-to-
Market loss of about Rs. 4087 Crores, indicating current Mark-to-Market profit
of 2.9 %.

11 IPOs have not received investment from Anchor Investors.

Sr.No Company Anchor Issue Current Current Profit Loss


Investor Size value MTM
(INRM) Return
(%)
1 Edserv No 240 960 304.25% 1 0
Softsystems
Ltd.
2 Mahindra No 2,780 3,950 42.3% 1 0
Holiday &
Resorts
India Ltd.
3 Excel No 480 330 -30.88% 0 1
Infoways
Ltd.
4 Raj Oil No 1,140 680 -40.25% 0 1
Mills Ltd
5 NHPC Ltd. No 60,385 54,350 -10% 0 1

6 Jindal No 844 1,140 35% 1 0


Cotex Ltd.
7 Globus No 750 710 -5.05% 0 1
Spirits Ltd.
8 Oil India No 27,772 32,800 18.10% 1 0
Ltd.
9 Euro No 660 270 -58.73% 0 1
Multivision
Ltd.

10 Thinksoft No 460 1,070 135.36% 1 0


Global
Services
Ltd.
11 Astec No 620 640 3.35% 1 0
Lifesciences
Ltd.
Total 96,131 96,900 0.81% 6 5
-58-

0.00%

-10.00%

-20.00%

-30.00%

-40.00% Return (%) Loss

-50.00%

-60.00%
Excel NHPC ltd Euro
infoways multivision
ltd ltd

Particular Issue size Current Return IPO IPO


(in Rs. value (in in in
Crs) Rs. Crs) (%) Profit Loss

Aggregate of IPOs with participation of 60,417 56,330 2.9% 2 3


Anchor Investors
Aggregate of IPOs without
participation of Anchor Investors 96,131 96,900 0.81% 6 5

Total 1,56,548 1,53,230 3.71% 8 8


-59-

Interpretation

Outof the 11 IPOs that have not received investment from Anchor investors,
about 6 IPOs are trading above the issue price and 5 IPOs are trading below the
issue price. The total amount that is mobilized by such IPOs that have not
received investment from Anchor investors is about Rs. 9,6131 Crores. And, the
current value of such IPOs is increased to about Rs. 9,6900 Crores, indicating a
Mark-to-Market gain of about Rs. 769 Crores, indicating current Mark-to
Market gain of +0.81%.

On an aggregate basis, total amount that is mobilized by 16 IPOs is about Rs.


1,56,548 Crores. And, the current value of such IPOs is decreased to Rs.
1,53,230 Crores, indicating a Mark-to-Market loss of Rs. 3,318 Crores,
indicating current Mark-to-Market loss of 3.71%. In total, of the 16 IPOs, about
8 IPOs are in profit and 8 IPOs are in loss.

Even though the IPO market has tried to stage a comeback during 2009, the
listing performances of several high profile companies has been disappointing,
raising the concerns about the recovery of the primary market. Further, even the
IPOs which could able to attract the anchor investors interest, couldn't able to
fare well. In fact, the IPOs which have received the investment from Anchor
Investors have underperformed in comparison to the IPOs which have not
received the investment from Anchor Investors.

-60-
Sector Wise Comparison (Volume)
-61-

Interpretation

(REI) Healthcare and BFSI sector didnt have any offering in 2009, but
contributed more than 25% (in total volume) in 2008

2IPOs from (REI) and 1 each from (TMT) and Energy & power made their
debut in 2009, but are to be listed in 2010

**Banking finance services & Insurance (BFSI)


**Technology, Media & Telecommunication (TMT)
**Real Estate & Infrastructure (REI)
-62-

IPOs: Sector Wise Comparison in 2009

2010 IPOs Issued and Listed in 2009

Sector* IPO Proceeds % of IPO IPO Volume % of IPO Volume


(INR M) Proceeds

Energy& 105,842 67.5% 3 17.6%


Power
Industrial 34,413 22.0% 5 29.4%

Hospitality 8,884 5.7% 2 11.8%

Telecom, 5,016 3.2% 3 17.6%


Media &
Technology
Consumer 1,890 1.2% 2 11.8%
Goods &
Retail
Outsourcing 482 0.3% 1 5.9%

Education 238 0.2% 1 5.9%

Total 156,765 100% 17 100%


IPO Volume

Interpretation

Out of the total Energy proceeds, NHPC IPO contributed 57%


Out of the total Industrial proceeds, OIL India IPO contributed 81%

Out of the total TMT*** proceeds, Den Networks IPO contributed


74%

-64-

Findings
&
Conclusion
-65-

Major Findings

An IPO can be a risky investment. For the individual investor, it is


tough to predict what the stock or shares will do on its initial day of
trading and in the near future since there is often little historical
data with which to analyze the company.
IPOs are playing major role in the field of investment.
It can be observed that out of 16 companies, only 5 companies
have given positive returns on the date of listing.
Out of 16 companies, 11 IPOs have not received investment from
Anchor Investors.
As per sectors wise comparison out of 7 areas only 3 sector
(Energy & power, Industrial, and Telecom, Media & Technology)
gives better response.
As per sector wise comparison in year 2008 and 2009 out of 7
areas only 3 sectors (Education, energy & power and TMT) give
positive return.
In IPO process Intermediary (SEBI, NSE, BSE) play a vital role in
issue of IPO book building.

-66-

Conclusion

IPO is used by a company to raise its funds. The extra amount obtained from
public may be invested in the development o f the company, although it costs a
little to a company but it gives a way to get more money for long term
investments.

The issue of an IPO by a Company involves a number of stages, each


calling for a great deal of verification. The relevant and updated information on
the Company has to be captured precisely in the Prospectus. The decision by the
Investors on whether to invest in a Company is influenced significantly by the
information contained in the Prospectus. The Regulatory Bodies are also
involved and there are set procedures that must be followed. Legal compliance
has to be maintained. Moreover, the Companys potential should not be
understated in or lost in the Prospectus because of the weight of such rules,
regulations and formalities.
.
In this project all the aspects of IPO have been studied like IPO norms, IPO
process and its regulatory aspect, Pricing Process, Factors and financial
parameters to watch before investing in an IPO.

Thus the objective of studying is achieved.

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SUGGESTIONS

The investment in IPO can prove too risky because the investor does not
know anything about the company because it is listed first time in the
market so its performance cannot be measure.

On the other hand it can be said that the higher the risk higher the returns
earned. So we can say that the though risky if investment is done then it
can give higher returns as well.

Primary market is more volatile than the secondary market because all
the companies are listed for the first time in the market so nothing can be
said about its performance.

If higher risk is taken, it is always rewarded with the higher returns. So


higher the risk the more the returns rewarded for it.
We can fairly predict the future, but cant make it happen as it is.

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BIBLIOGRAPHY

Websites:

www. bseindia.com
www.religareonline.in
www. business-standard.com
www.moneycontrol.com
www.nseindia.com
www.bseindia.com
http://www.theinvestor.tv/money/thebrokerageindustry.htm
http://www.economywatch.com/market/share-market/share-market
trading.html

Books & Journals:

NSE fact book 2009


Raising capital, second edition 2005, GET THE MONEY YOU NEED
TO GROW YOUR BUSINESS, AUTHOR ANDREW J . SHERMAN
NSE Certification
BSE Certification
SEBI Guidelines- August - 2009

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ANNEXURE

Top Companies: An analysis

Reliance Power IPO has been issued by Reliance Power Limited. Reliance
Power IPO was issued on 15th January, 2008 and closed on 18th January, 2008.
Reliance Power Limited Company is planning to generate capital worth Rs. 11,
700 crores through the IPO. This makes it the largest IPO in the country as on
17th January, 2008. The price band of the equity shares of Reliance Power IPO
has been fixed at Rs. 405- 450 per equity share.
The total size of Reliance Power IPO is around 26 crores equity shares.
Reliance Power IPO will be listed on the National Stock Exchange (NSE) and
also on the Bombay Stock Exchange (BSE). The lead bankers of Reliance
Power IPO are Enam Securities, Kotak Mahindra Capital Co, ABN Amro
Rothschild, ICICI Securities, JP Morgan Chase & Co, UBS AG and Deutsche
Bank AG.
The main objective of Reliance Power IPO is that the proceeds from the issue
will be used to fund the power generation projects that the company plans to
carry out.

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Kingfisher till date has not launched any IPO, but has expressed its wish to
launch one soon. This IPO would be used to fund its aggressive
expansion plans in India. The accumulated corpus would be utilized to fund its
airline business and to payoff debt for its acquired liquor company Shaw
Wallace & Company.
The brand Kingfisher is being owned by the business conglomerate United
Breweries Group. The brand is being used for two business entities Airlines
and Alcoholic Beverage. The Airlines operates under the name of "Kingfisher
Airlines" and the alcoholic beverage segment manufactures "Beer" and
"Mineral Water" under the same brand name. Till now the company has not
launched any IPO to fund its aggressive expansion plans, but plans to launch it
in near future to raise capital. Dr Vijay Mallya is the Chairman and CEO of both
the segments. The Chief of the United Breweries Holding Ltd (UBHL), Mr
Vijay Mallaya, said that the group would come up with an Initial Public
Offering in 2008 and would raise a total corpus of US$ 400 million. The Initial
Public Offering of the Kingfisher Airlines would target a corpus of US$ 200
million and the rest would be raised through the IPO of the liquor business.
Kingfisher Airline IPO, to be issued for the first time in the year 2008, to
finance the airline's expansion and funding of A380s air fleet.
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The Maruti IPO has set a price range of Rs. 125 per share above the Floor
price of Rs. 115. The subscription for Maruti IPO opened on June 12, 2003 and
closed on June 19, 2003. The response to Maruti IPO was overwhelming within
the subscription period, which led to an over-subscription of the public offerings
of Maruti by more than ten times.

The government decided to shell out 85 percent shares of IPO to the


noninstitutional investors and 15 percent shares to the non-institutional high
networth individuals. Consequently, government would get Rs.993 crores for
7.94 crores shares. But SEBI recommended that 60 percent can be given to the
institutional investors but at least 40 percent should be allotted for the retail
investors as well. The government has allotted 60 percent shares to the retail
investors and 40 percent shares to the institutional investors. The shares were
allotted to the individuals on a pro rata basis. The IPO of Maruti is claimed to
be one of the biggest capital market transactions in recent years in India and
also the largest Book Built IPO that has been implanted in India till date. Maruti
IPO received more than 300,000 applications which is a record in the history of
IPO in India. The majority of applicants to these comprise of the Indian retail
investors. They received the allotments on the basis of the price range already
fixed by the government. A huge number of institutional investors also paid a
lot of importance in investing in Maruti.
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DATA BASE COVERAGE 1990-91 to 2008-09 (19 years)

Year Amount in Rs No. of Issue


(Crores)
1990-1991 2251 209
1991-92 3851 316
1992-93 12630 488
1993-94 9306 384
1994-95 6793 351
1995-96 6520 291
1996-97 2724 131
1997-98 1703 49
1998-99 568 26
1999-2000 1560 28
2000-01 729 27
2001-02 1041 13
2002-03 431 12
2003-04 1006 22
2004-05 3616 26
2005-06 4126 36
2006-07 3704 38
2007-08 13519 23
76,078 2,470

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IPO GLOSSARY

Allocation
This is the amount of stock in an initial public offering (IPO) granted by the
underwriter to an investor.

Aftermarket
Trading in the IPO subsequent to its offering is called the aftermarket.

Aftermarket Orders
Underwriters look favorably on investors who buy IPOs in the days after the
IPO first goes public. While underwriters cannot solicit aftermarket orders,
some expect investors to purchase two or three times their IPO allocation in the
aftermarket.

B
Board of Directors
The composition of the Board of Directors is particularly critical for an IPO.
Typically, a board is composed of inside and outside directors.

Broken IPOs
If an IPO trades below its IPO price in the aftermarket, it is said to be a broken
IPO.

C
Calendar
This refers to upcoming IPOs and secondary offerings. Brokerage houses have
equity calendars, bond calendars and municipal calendars.

Clearing Price
The price at which all shares of an IPO can be sold to investors in a Dutch
Auction. Sometimes referred to as the market clearing price.

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F
First Day Close
The closing price at the end of the first day of trading reflects not only how well
the lead manager priced and placed the deal, but what the near-term trading is
likely to be.

Float
When a company is publicly traded, a distinction is made between the total
number of shares outstanding and the number of shares in circulation, referred
to as the float. The float consists of the company's shares held by the general
public.

G
Green Shoe
A typical underwriting agreement allows the underwriters to buy up to an
additional 15% of shares at the offering price for a period of several weeks after
the offering. This option is also called the overallotment and is exercised when
the IPO is oversubscribed and trading above its offer price. The term comes
from the Green Shoe Company, which was the first to have this option.

H
Hot Issue
When there is significantly more demand than supply for an IPO it is said to be
a hot
issue.

I
Initial Public Offering
This is the event of a company first selling its shares to the public.

Insiders
Management, directors and significant stockholders are regarded as insiders
because they are privy to information about the operations of a company not
known to the general public.

IPO Price
Individual investors often ask why the price at which an IPO starts trading is
different from its offer price. This occurs because the offer price is set by the
underwriters before the stock starts trading. Once the stock starts trading, the
price is determined by actual supply and demand and can be higher or lower.
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IPO Research
Prior to the offering, the underwriters involved in the IPO are prohibited from
issuing research or recommendations for forty days. Following the IPO, the
underwriter is allowed to issue a research report

M-N
The total market value of a firm. It is defined as the product of the company's
stock price per share and the total number of shares outstanding
Market Value
The market value of a company is determined by multiplying the number of
shares outstanding by the current price of the stock.

O
Offering Price
This is the price at which the IPO is first sold to the public. It is set by the lead
manager, usually after the close of stock market trading the night before the
shares are distributed to IPO buyers. In the case of some foreign IPOs, the
pricing occurs over the weekend.

Oversubscribed
When a deal has more orders than there are shares available it is said to be
oversubscribed.

P
Preliminary Prospectus
This is the offering document printed by the company containing a description
of the business, discussion of strategy, presentation of historical financial
statements, explanation of recent financial results, management and their
backgrounds and ownership.

Proceeds
Companies go public to raise money. The money raised is referred to as
proceeds.

R
Red Herring
This is the term of art for the preliminary prospectus. It gets its name from the
printed red disclaimer on the left side of the prospectus.

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U-V
Underwriter
This is a brokerage firm that raises money for companies using public equity
and debt markets. Underwriters are financial intermediaries that buy stock or
bonds from an issuer and then sell these securities to the public.

Venture Capital
Funding acquired during the pre-IPO process of raising money for companies. It
is done only by accredited investors.

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