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INITIAL
PUBLIC
OFFER
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Topics Covered
Executive Summary
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Introduction
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What Is An IPO
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Why Go Public
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Getting In An IPO
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Registration Process
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IPO Scams
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Operational Deficiencies
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Recent IPO’s
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Bibliography
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EXECUTIVE SUMMARY
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.
Then we all know that scams have always been a part of any sector
you go in for which are covered in it and also few recommendations are
given for the same. It also gives us some idea about what are the
expenses that a company undertakes during an IPO.
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INTRODUCTION
IPO stands for Initial Public Offering and means the new
offer of shares from a company which was previously unlisted. This is
done by offering those shares to the public, which were held by the
promoters or the private investors prior to the IPO. In the case when
other investors or Promoter held the shares the stake holding comes
down to the extent their shares are offered to the public. In other cases
new shares are issued to the public and the shares, which are with the
promoters stay with them. In both cases the share of the promoters in
the total capital comes down.
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What is an IPO
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PRIMARY MARKET
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SECONDRY MARKET
Once the offer price is fixed and the shares are issued to
the people, stock exchanges facilitate the trading of shares for the
general public. Once a stock is listed on an exchange, people can start
trading in its shares. In a stock exchange the existing shareholders sell
their shares to anyone who is willing to buy them at a price agreeable
to both parties. Individuals cannot buy or sell shares in a stock
exchange directly; they have to execute their transaction through
authorized members of the stock exchange who are also called STOCK
BROKERS.
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Why Go Public?
Basically, going public (or participating in an "initial public
offering" or IPO) is the process in which a business owned by one or
several individuals is converted into a business owned by many. It
involves the offering of part ownership of the company to the public
through the sale of debt or more commonly, equity securities (stock).
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Getting In On an IPO
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Finally, the securities are sold on the stock market and the
money is collected from investors.
Bottom line, your chances of getting early shares in an IPO are slim to
none unless you're on the inside. If you do get shares, it's probably because nobody else
wants them. Granted, there are exceptions to every rule and it would be incorrect for us to
say that it's impossible. Just keep in mind that the probability isn't high if you are a small
investor.
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Increased Capital
Liquidity
Increased Prestige
Public companies often are better known and more visible than
private companies, this enables them to obtain a larger market
for their goods or services. Public companies are able to have
access to larger pools of capital as well as different types of
capital.
Valuation
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Increased wealth
Disclosure
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Regulatory Review
If the shares of the company's stock fall, the company may lose
market confidence, decreased valuation of the company may
effect lines of credits, secondary offering pricing, the company's
ability to maintain employees, and the personal wealth of
insiders and investors.
Vulnerability
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Promoters
Is the company a family run business or is it professionally
owned? Even with a family run business what are the credibility and
professional qualifications of those managing the company? Do the top
level managers have enough experience (of at least 5 years) in the
specific type of business?
Industry Outlook
The products or services of the company should have a
good demand and scope for profit.
Business Plans
Check the progress made in terms of land acquisition,
clearances from various departments, purchase of machinery, letter of
credits etc. A higher initial investment from the promoters will lead to a
higher faith in the organization.
Financials
Why does the company require the money? Is the company
floating more equity than required? What is the debt component? Keep
a track on the profits, growth and margins of the previous years. A
steady growth rate is the quality of a fundamentally sound company.
Check the assumptions the promoters are making and whether these
assumptions or expectations sound feasible.
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Risk Factors
The offer documents will list our specific risk factors such
as the company’s liabilities, court cases or other litigations. Examine
how these factors will affect the operations of the company.
Key Names
Every IPO will have lead managers and merchant bankers.
You can figure out the track record of the merchant banker through the
SEBI website.
Pricing
Compare the company’s PER with that of similar
companies. With this you can find out the P/E Growth ratio and
examine whether its earning projections seem viable.
Listing
You should have access to the brokers of the stock
exchanges where the company will be listing itself.
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Company.
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Business product/service/markets
Company Information
Risk Factors
Proceeds Use (How are you going to use the money)
Officers and Directors
Related party transactions
Identification of your principal shareholders
Audited financials
IPO SCAMS
YES BANK Ltd. CASE
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The IPO of YBL opened on June 15, 2005 and its shares
were listed on the BSE and the NSE on July 12, 2005.
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"It is seen that one branch manager has on the same date
signed as authorized signatory of different branches of the bank. This
raises a doubt as to the authenticity of the bank documents obtained
by Karvy-DP for opening dematerialised accounts," the SEBI order by
its Whole-time Director Mr G. Anantharaman said. SEBI also banned
four investors (in whose names the multiple accounts were opened)
viz., Ms Roopalben Nareshbhai Panchal (who was also named in the
YES Bank IPO scam), Sugandh Estates & Investments P Ltd, Mr
Purshottam Ghanshyam Budhwani and Mr Manojdev Seksaria from
doing any kind of transactions in the securities market, till further
directions.
Another 35 firms were also barred from participating in the IPOs in the
future, till further orders, the SEBI order said.
MARUTI Case
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The Charges
Description
Some of the demat accounts that were used to manipulate
allotments in the initial public offer of Yes Bank and IDFC were opened
during 2003, and not in the last year as was earlier believed. The first
IPO in which the key operators have participated was that of Maruti
Udyog Ltd, in June 2003, though the numbers of fictitious demat
accounts were not very high then, the interim order from Securities
and Exchange Board of India has said.
Inter-linkages
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In the dock
Description
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Common address
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This is the second time HDFC Bank has been fined for
violation of KYC norms. In January, the bank was imposed a penalty of
Rs 5 lakh.
Modus operandi
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Large number of cheques for the same value issued from a single
account on the same day
Operational deficiencies
Factors that facilitated the scam
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Recent IPOs
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September
Richa Knits 30 13 Sep 2006 19 Sep 2006
August
Voltamp Trans 345 24 Aug 2006 29 Aug 2006
July
Shirdi Ind 67-78 29 Jun 2006 08 Jul 2006
June
Vigneshwara 110-124 07 Jun 2006 16 Jun 2006
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Term
Description
AGM Annual General Meeting of Pratibha Industries Limited
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Allotment Issue of Equity Shares of the Company pursuant to the Public Issue
to the successful Bidders.
Allottee The successful Bidder to whom the Equity Shares are being issued.
Bankers to the Issue ICICI Bank Limited, Standard Chartered Bank, Deutsche Bank,
Kotak Mahindra Bank Limited
Bid An indication to make an offer made during the Bidding Period by a
prospective investor to subscribe to Equity Shares of the Company at
a price within the Price Band, including all revisions and
modifications thereto
Bid Price / Bid Amount The amount equal to highest value of the optional Bids indicated in
the Bid cum Application Form and payable by the Bidder on
submission of the Bid in the Issue
Bid Opening Dates / Issue The date on which the Syndicate Members shall start accepting Bids
Opening Date for the Issue, which shall be the date notified in a widely circulated
English national newspaper, a Hindi national newspaper and a
Marathi regional newspaper
Bid Closing Date / Issue The date after which the Syndicate Members will not accept any
Closing Date Bids for the Issue, which shall be notified in a widely circulated
English national newspaper, a Hindi national newspaper and a
Marathi regional newspaper
Bid cum Application The Form in terms of which the Bidder shall make an offer to
Form purchase the Equity Shares of the Company and which will be
considered as the application for allotment of the Equity Shares in
terms of this Red Herring Prospectus
Bidder Any prospective investor who makes a Bid pursuant to the terms of
this Red Herring Prospectus
Bidding Period / Issue The period between the Bid/Issue Opening Date and the Bid/Issue
Period Closing Date inclusive of both days and during which prospective
Bidders can submit their Bids
Book Building Process Book building route as provided under Chapter XI of the SEBI
Guidelines, in terms of which, this Issue is being made
BRLM Book Running Lead Manager to the Issue, in this case being Vivro
Financial Services Private Limited
CAN / Confirmation of The note or advice or intimation of allocation of Equity Shares sent
Allocation Note to the Bidders who have been allocated Equity Shares in accordance
with the Book Building Process
Cap Price The higher end of the Price Band, above which the Issue Price will
not be finalized and above which no bids will be accepted
Cut-off price Cut-off price refers to any price within the Price Band. A Bid
submitted at Cut-off is a valid Bid at all price levels within the Price
Band
Designated Stock Bombay Stock Exchange Limited
Exchange
Designated Date The date on which the funds are transferred from the Escrow
Account of the Company to the Public Issue Account after the
Prospectus is filed with the ROC, following which the Board of
Directors shall allot Equity Shares to successful bidders
Red Herring Prospectus This Red Herring Prospectus issued in accordance with Section
60B of the Companies Act, which does not have complete
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particulars on the price at which the Equity Shares are offered and
size of the Issue. It carries the same obligations as are applicable in
case of a Prospectus and will be filed with ROC at least three days
before the bid/offer opening date. It will become a Prospectus after
filing with ROC after the pricing
Equity Shares Equity Shares of the Company of the face value Rs. 10 each, unless
otherwise specified in the context thereof
Escrow Account Account opened with the Escrow Collection Bank(s) and in whose
favour the Bidder will issue cheques or drafts in respect of the Bid
Amount and refunds (if any) of the amount collected to the Bidders
Escrow Agreement Agreement entered into amongst the Company, the Registrar, the
Escrow Collection Bank(s), the Syndicate Members and the BRLMs
for collection of the Bid Amounts and refunds (if any) of the
amounts collected to the Bidders
Escrow Collection ICICI Bank Limited, Standard Chartered Bank, Deutsche Bank,
Bank(s) Kotak Mahindra Bank Limited
First Bidder The Bidder whose name appears first in the Bid cum Application
Form or Revision Form
Floor Price The lower end of the Price Band, below which the Issue Price will
not be finalized and below which no Bids will be accepted
Fresh Issue / Issue / Public Issue of 42,85,000 new Equity Shares of Rs. 10/- each for
Public Issue / Offer cash at the Issue Price of Rs. [•] per equity share aggregating to Rs.
[•] Lakhs by the Company in terms of this Red Herring Prospectus
Issue Account Account opened with the Banker to the issue to receive monies from
the Escrow Accounts on the Designated Date
Issuer Pratibha Industries Limited
Issue Price The final price at which Equity Shares will be issued and allotted in
terms of this Red Herring Prospectus, as determined by the
Company in consultation with the BRLMs, on the Pricing Date
Margin Amount The amount paid by the Bidder at the time of submission of his/her
Bid, being 10% to 100% of the Bid Amount
Members of the Syndicate The BRLM and the Syndicate Members
Non-Institutional Bidders All Bidders that are not Qualified Institutional Buyers, or Retail
Individual Bidders and who have Bid for Equity shares for an
amount more than Rs.1,00,000.
Non-Institutional Portion The portion of the Issue being a minimum of 5,78,475 Equity Shares
of Rs. 10/- each available for allocation to Non-Institutional Bidders
Pay-in-date The last date specified in the CAN sent to the Bidders
Pay-in-Period This term means
(i) With respect to Bidders whose Margin Amount is 100% of the
Bid Amount, the period commencing on the Bid/issue Opening
Date and extending until the Bid/issue Closing Date, and
(ii) With respect to Bidders whose Margin Amount is less than
100% of the Bid Amount, the period commencing on the
Bid/issue Opening Date and extending until the closure of the
Pay-in-Date
Price Band The Price band of a minimum price (Floor Price) of Rs.100/- and the
maximum price (Cap Price) of Rs. 120/- and includes revision
thereof
Pricing Date The date on which the Company in consultation with the BRLM
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Bibliography
Web Based
www.investopedia.com
www.sebi.com
www.vivro.net
www.intimespectrum.com
www.pratibhagroup.com
Book Based
Industry Based
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