Initial public offerings(ip os)

1. Initial Public Offerings(IPOs)

2. Meaning and
Benefits of IPOs
 An initial public offering is referred to as sale of equity
of a company to the public by the promoters of the
company.
 Companies prefer to go for Initial Public offering due to following
reasons:
• Additional Capital resources for funding of projects/expansion plans.
• Dilution of existing promoters share holding or by venture capitalist
• Liquidity for shareholders.
• Enhances corporate image thus providing visibility.

3. Process for IPO
• When a company wants to go public, the first thing it does
is hire an investment bank
• You can think of underwriters as middlemen between
companies and the investing public
• The company and the investment bank will first meet to
negotiate the deal. Items usually discussed include the
amount of money a company will raise, the type of
securities to be issued, and all the details in the
underwriting agreement

4. Red Herring
• The underwriter puts together what is known as the RED
HERRING.
• This is an initial prospectus containing all the information
about the company except for the offer price and the
effective date, which aren't known at that time.
• With the red herring in hand, the underwriter and company
attempt to hype and build up interest for the issue. They go
on a road show - also known as the "dog and pony show" -
where the big institutional investors are courted.

5. Issue Related Terms
• Bid
• Bid Amount
• Issue Closing Date
• Bid-cum-Application Form
• BRLMs (Book Running Lead Managers)
• Cut-off
• Red Herring Prospectus

6. Issue Related Terms
• Escrow Collection Bank (s)
• Margin Amount
• Prospectus.
• Revision Form.
• Escrow Account of the Company

7. Types of Public Issues
Fixed Price Issue
Public Issue
Private Placement
Offer for Sale
Book Building Issue

8. Types of Issues
 Fixed Price:- Wherein the price band of the issue is fixed. For e.g
Dwarikesh Sugar Industries Limited Public Issue of 50,00,000 equity
shares of Rs 10/- each at a premium of Rs 55/- per share aggregating
Rs 3250 lacs.
 Book Building Issue:
-- Book Building is a price discovery mechanism which is undertaken to
ascertain and determine the price of the security proposed to be
issued by a body corporate.
-- There is a price band which gives the bidder the facility to bid
within a price band at different price levels.
-- e.g National Thermal Power Corporation Limited wherein the price
band was fixed between Rs 52 to Rs 62/-

9. Category of Bidders
• Retail Individual Investor:- means an investor who applies or bids for
securities of or for face value of not more than Rs 50,000/-
• Non-Qualified Institutional Buyer: Any investor who bids for an
amount above Rs 50,000 and does not fall in the QIB category e.g HNI
investors.
• Qualified Institutional Buyer(QIB) shall mean:
a. public financial institution as defined in section 4A of the
Companies Act, 1956;
b. scheduled commercial banks;
c. mutual funds;
d. foreign institutional investor registered with SEBI;
Contd.

10. QIBs-category
e. multilateral and bilateral development financial
institutions;
f. venture capital funds registered with SEBI.
g. foreign Venture capital investors registered with SEBI.
h. state Industrial Development Corporations.
i. insurance Companies registered with the Insurance
Regulatory and Development Authority
j. provident Funds with minimum corpus of Rs. 25 crores
k. pension Funds with minimum corpus of Rs. 25 crores

11. Key Factors to keep in mind
before applying in a IPO
• Investors need to carefully go through the red herring
prospectus(preliminary prospectus and is subject to
revision, the final is the one which is filed with ROC) that
is available on the SEBI site.
• Objects of the issue.
• Risk factors related to the issue.
• Promoters track record and their experience in running a
particular business.
• Financials.
• Issue Price. contd.

12. Key factors……
• Sector prospects.
• Capital structure of the company.
• Terms of the present offer.
• Outstanding litigation & defaults.
• Tax Benefits.
• Any published reports that forecast the future
earnings.

13. Prospectus
• Information contained in this Prospectus relative
to markets for the company's products and trends
in net sales, gross margin and anticipated expense
levels, as well as other statements including words
such as "anticipate," "believe," "plan," "estimate,"
"expect" and "intend" and other similar
expressions, constitute forward-looking statements
...actual results of operations may differ materially
from those contained in the forward-looking
statements

14. Prospectus
• "...risks for the company include, but are not
limited to, an evolving and unpredictable business
model and the management of growth .... There
can be no assurance that the company will be
successful in addressing such risks, and the failure
to do so could have a material adverse effect on
the company's business, prospects, financial
condition and results of operations."

15. Recent IPO
Performance
ONGC Mar-04 750 777 3.6
BIOCON Mar-04 315 482 53.02
ICICI BANK Apr-04 280 348 24.29
NDTV Apr-04 70 129 84.29
TCS Aug-04 850 1301 53.06
NTPC Oct-04 62 81 30.65
•Curr Price
•Gain are absolute returns

16. Indian v/s Overseas
scenario
• In India the book is built directly while in the west the
underwriter takes the shares on his books and then allots
shares to investors.
• In India the book-building process is transparent while in US it
is done confidentially.
• Abroad, the book can be opened and closed anytime. In India,
the book has to be kept open for a minimum of five days;the
period can be extended if price band is revised.

17. Indian v/s Overseas
scenario
• In India, 50 percent of the book is reserved for high net worth
and retail individuals(25 percent each),the allotment being
proportional to the bid. The allotment to QIBs is discretionary
and there are no reservations. Retail investors account for
barely 15 percent of the issue.
• Overseas, the price band is often a soft band,in the sense the
underwriter is allowed to bid at a price outside the band;in
India, we have a rigid price band,though it can be revised.
• Retail investors here have to put in a cheque for the full
amount, although QIBs pay no margins. Overseas, neither
segment pays any margin.
(Source: Business Standard)

18. Required Changes in the current
process-some thoughts
• Bidding process to be made more convenient to
retail.
• Increasing the retail investor quota to 30 to 35% to
promote retail participation in IPOs.
• To increase the ceiling of investment for retail
category from Rs 50,000 to Rs 1,00,000.
• Refund Process: currently sent in physical form; to
be converted in ECS
• Registrars to be more proactive in solving IPO
related queries.
• More Transparency in terms of QIB’s Bidding.

19. For details and bookings contact:-
Parveen Kumar Chadha… THINK TANK
(Founder and C.E.O of Saxbee Consultants)
Email :-saxbeeconsultants@gmail.com
Mobile No. +91-9818308353
Address:-First Floor G-20(A), Kirti Nagar, New
Delhi India Postal Code-110015