ipo krishana

7/31/2019 IPO Krishana

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PROJECT REPORT

ON

A STUDY ON IPO ISSUE DOCUMENTS AND THEIR

PAST LISTING PERFORMANCE.

submitted submitted

by to

Krishna Rawal shailaja parmar

DECLARATION

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I hereby declare that the project entitled A STUDY ON IPO ISSUE

DOCUMENTS AND THEIR PAST LISTING PERFORMANCE.

submitted for the Degree of Master of Business Administration in Applied

Management is my original work and the project has not formed the basis for

the award of any degree, diploma, associate ship, fellowship or similar other

titles. It has not been submitted to any other university or Institution for the

award of any degree or diploma.

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ACKNOWLEDGEMENT

It is with real pleasure that, I record my indebtedness to my academic

Guide, Ms. Shailaja parmar for his counsel and guidance during the

preparation of this project.

I am grateful to Centre Head Mr. Praveen Mehta

I wish to record my sincere and special thanks to Mr. Amit Sharma,

My thanks are due to Mr. Manish Goyal and Mr. Bharat Kuldeep to

give me great and valuable support.

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CERTIFICATE

Certified that the project is a work done by Mr. Krishna Rawal during the

period of his study under my guidance, and that the project has not previously

formed the basis for the award of any degree, diploma, associates hip,

fellowship or similar other titles and that it is an independent work done by his .

Place: Name: Mr. Praveen Mehta

Date:

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TABLE OF CONTENT

Chapter Content Page No.

Acknowledgement III

List of Tables VII

List of Diagrams VIII

(1) Introduction 09-42

1.1 Initial public offering (IPO)

10-23

What is IPO? 10-12

Reasons for Listing 13-15

IPO Market in india 16-17

IPO Allotment Status 18-19

IPO Procedure 20-23

1.2 Objectives and Role of IPO in india

24-25

1.3 Review of Literature 26-30

Advantages & Drawbacks of IPO 26-29

Example of Some Published Issues

30

1.4 Hypothesis 31-38

Past/ Present/ Future of IPO

31-34

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What are the Critical Areas to Focus

35-38

1.5 Limitations of the Study

39-40

1.6 Methodology 41-42

Source of Data 41

Other Source 42

(2) Significance of the study 43-54

2.1 Global IPO Market 44-51

2.2 Upcoming IPO in The Market 52-54

(3) Research and Analysis 55-71

3.1 Latest News in IPO Sector 56-58

3.2 Major Player of IPO in India 59-71

(4) Finding & Conclusion 72-74

(5) Bibliography 75-76

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Table No. Title of the Table

Page No.

1.1. Middle East Activity Table48

1.2. Industrial Distribution50

1.3. No.IPO of NSE in India 58

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Table No. Title of the Diagram Page No.

1.1. Different Kind of Issue 11

1.2. How To Listing An IPO 13

1.3. IPO Process 15

1.4 . Book Building Process23

1.5 . IPO Returns40

1.6. Global IPO Activity 44

1.7. Global IPO Activity by Indust. 46

1.8. Top Ten IPO in US 51

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Chapter (1)

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Part-1.1

INITIAL PUBLIC OFFERING (IPO)

Initial public offering (IPO), also referred

to simply as a "public offering", is when

a company issues common stock or

shares to the public for the first time.

They are often issued by smaller,

younger companies seeking capital to expand, but can also be done by large

privately-owned companies looking to become publicly traded. In an IPO, the

issuer may obtain the assistance of an underwriting firm, which helps it

determine what type of security to issue (common or preferred), best offering

price and time to bring it to market.Initial Public Offering (IPO) in India means

the selling of the shares of a company, for the first time, to the public in the

country's capital markets. This is done by giving to the public, shares that are

either owned by the promoters of the company or by issuing new shares. During

an Initial Public Offer (IPO) the shares are given to the public at a discount on

the intrinsic value of the shares and this is the reason that the investors buy

shares during the Initial Public Offering (IPO) in order to make profits for them

selves. IPO in India is done through various methods like book building

method, fixed price method, or a mixture of both. The method of book building

has been introduced in the country in 1999 and it helps the company to find out

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the demand and price of its shares. A merchant banker is nominated as a book

runner by the Issuer of the IPO. The company that is issuing the Initial Public

Offering (IPO) decides the number of shares that it will issue and also fixes the

price band of the shares. All these information are mentioned in the company's

red herring prospectus. During the company's Initial Public Offering (IPO) in

India, an electronic book is opened for at least five days. During this period of

time, bidding takes place which means that people who are interested in buying

the shares of the

Company makes an offer within the fixed price band. Once the book building is

closed then the issuer as well as the book runner of the Initial Public Offering

(IPO) evaluate the offers and then determine a fixed price. The offers for shares

that fall below the fixed price are rejected. The successful bidders are then

allotted the shares

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IPOs 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. Also, most IPOs are of companies going through a transitory growth

period, and they are therefore subject to additional uncertainty regarding their

future value

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REASONS FOR LISTING

When a company lists its shares on a public exchange, it will almost

invariably look to issue additional new shares in order to raise extra capital at

the same time. The money paid by investors for the newly-issued shares goes

directly to the company (in contrast to a later trade of shares on the exchange,

where the money passes between investors). An IPO, therefore, allows a

company to tap a wide pool of stock market investors to provide it with large

volumes of capital for future growth. The company is never required to repay

the capital, but instead the new shareholders have a right to future profits

distributed by the company and the right to a capital distribution in case of a

dissolution.

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The existing shareholders will see their shareholdings diluted as a proportion of

the company's shares. However, they hope that the capital investment will make

their shareholdings more valuable in absolute terms.

In addition, once a company is listed, it will be able to issue further shares via a

rights issue, thereby again providing itself with capital for expansion without

incurring any debt. This regular ability to raise large amounts of capital from

the general market, rather than having to seek and negotiate with individual

investors, is a key incentive for many companies seeking to list.

Major Reason for Listing IPO

The increase in the capital: An IPO allows a company to raise funds for

utilizing in various corporate operational purposes like acquisitions,

mergers, working capital, research and development, expanding plant and

equipment and marketing.

Liquidity: The shares once traded have an assigned market value and

can be resold. This is extremely helpful as the company provides the

employees with stock incentive packages and the investors are provided with

the option of trading their shares for a price.

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Valuation: The public trading of the shares determines a value for the

company and sets a standard. This works in favor of the company as it is

helpful in case the company is looking for acquisition or merger. It also

provides the share holders of the company with the present value of the

shares.

Increased wealth: The founders of the companies have an affinity

towards IPO as it can increase the wealth of the company, without dividing

the authority as in case of partnership.

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IPO MARKET IN INDIA

The IPO Market in India has been developing since the liberalization of the

Indian economy. It has become one of the foremost methods of raising funds

for various developmental projects of different companies.

The IPO Market in India is on the boom as more and more companies are

issuing equity shares in the capital market. With the introduction of the open

market economy, in the 1990s, the IPO Market went through its share of policy

changes, reforms and restructurings. One of the most important developments

was the disassembling of the Controller of Capital Issues (CCI) and the

introduction of the free pricing mechanism.

This step helped in developing the IPO Market in India, as the companies were

permitted to price the issues. The Free pricing mechanism permitted the

companies to raise funds from the primary market at competitive price.

The Central Government felt the need for a governed environment pertaining to

the Capital market, as few corporate houses were using the abolition of the

Controller of Capital Issues (CCI) in a negative manner. The Securities

Exchange Board of India (SEBI) was established in the year 1992 to regulate

the capital market. SEBI was given the authority of monitoring and regulating

the activities of the bankers to an issue, portfolio managers, stockbrokers, and

other intermediaries related to the stock markets. The effects of the changes are

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evident from the trend of the resources of the primary capital market which

includes rights issues, public issues, private placements and overseas issues.

The IPO Market in India experienced a boom in its activities in the year 1994.

In the year 1995 the growth of the Indian IPO market was 32 %.

The growth was halted with the South East Asian crisis.

The markets picked up speed again with the introduction of the software stocks.

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IPO ALLOTMENT STATUS

Initial public offering is also popularly known as IPO, is the first time sale

of stocks, of a private company. A new company can launch IPO to raise capital

to initiate its business. Moreover, Initial Public Offering can also be launched to

raise money for expansion or other important operations of an existing

company. The sale of stock through such Initial Public Offering (IPO) is meant

for the individual and corporate investors. The aim of such issuance of Initial

Public Offering is to invest the accumulated corpus for, either opening -up of a

company or expansion of an existing company.

Thus, effectively, an Initial Public Offering pools investments and utilizes it in

building or expansion of the said company. The shares held by such investors

give them the rights of the company and to its future profits. The process which

involves determination of the issue size and type, offer price and best time of

introduction into the market is called "underwriting". The underwriting is

generally done by the investment bankers. These underwriting firms or

investment bankers are allotted some specified numbers of shares to sell, which

is called as IPO Allotment Status.

In other words, IPO Allotment Status can also be defined as the number of

stocks which an investment banker is permitted to sell to the general investor

before the share is being traded on an exchange. The excess shares are then

allotted to other investment bankers which are eligible to sell such shares. In

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India, the main governing body that determines such eligibility criteria and the

IPO Allotment Status is the Securities and Exchange Board of India (SEBI).

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IPO - PROCEDURE

IPOs generally involve one or more investment banks as "underwriters."

The company offering its shares, called the "issuer," enters a contract with a

lead underwriter to sell its shares to the public. The underwriter then approaches

investors with offers to sell these shares.

The sale (that is, the allocation and pricing) of shares in an IPO may take

several forms. Common methods include:

Best efforts contract

Firm commitment contract

All-or-none contract

Bought deal

Dutch auction

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

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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 ofLondon and the white shoe firms ofNew York City.

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.

The issuer usually allows the underwriters an option to increase the size of the

offering by up to 15% under certain circumstance known as the green shoe or

over allotment option.

The first sale of stock by a private company to the public. IPOs are often issued

by smaller, younger companies seeking the capital to expand, but can also be

done by large privately owned companies looking to become publicly traded. In

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an IPO, the issuer obtains the assistance of an underwriting firm, which helps it

determine what type of security to issue (common or preferred), the best

offering

MAJOR PROCESS OF AN IPO

Eligibility Criteria:

Net Tangible assets of Rs. 3.00 Crore in each of the preceding 3

years.

Track record of Distributable profits at least 3 out of 5 preceding

years.

The Company has a Networth of Rs. 1.00 Crore in preceding 3

years.

The proposed issue should not exceed 5 times of its Pre-issue

The process of an IPO - Eligibility criteria: (Alternate route)

Book building process and 50% of the offer to QIBs or

15% participation in project by F/Is or Schedule Banks;

10% of the Project cost from appraiser;

10% of the Issue to QIBs.

Minimum post issue face capital of Rs.10 Crores or

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Market making for 2 years and Minimum number of allottees atleast

1000

Official Process of IPO

Appointment of Brokers, Advertisers and Bankers

Conducting Road shows and Press Conference

Opening and closing of Subscription list

Preparation of Basis of Allotment

Allotment of shares

Listing of shares

price and the time to bring it to market

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Part 1.2

OBJECTIVES AND ROLE OF

IPO

To get the knowledge of IPO.

To analyze the returns of IPOs which were issued in the 1st

quarter of 2007.

To know the return of those IPOs for 1 month, 3 months, 6

months, and 1 year.

To know the market rate of return for the same period.

To know the procedure for calculating the Standard Deviation,

calculating Sharpes Ratio & the abnormal return.

Spread awareness about this process.

Find out the companies which like to adopt this technique.

Find out the factors which influence the IPO Listing

Process.

What the companies are looking from Open New IPOs in

India?

Analysis between Share Holder and IPO Companies

Analysis of IPOs post/present/future Prospects

Analysis of Auction, Pricing, Issued Price and Reverse

IPOs.

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OBJECTS OF THE OFFERING NEW IPO

Funds Requirement

Funding Plan (Means of Finance)

Appraisal

Schedule of Implementation

Funds Deployed

Sources of Financing of Funds already deployed

Details of Balance Fund Requirement

Interim Use of Funds

Basic Terms of Issue

Basis for issue price

Tax Benefits

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Part 1.3

ADVANTAGES & DRAWBACKS

OF IPO

The Advantages of IPO are numerous. The companies are launching more

and more IPOs to raise funds which are utilized for undertakings various

projects including expansion plans. The Advantages of IPO is the primary

factor for the immense growth of the same in the last few years. The IPO or the

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

public by any company. All types of companies with the idea of enhancing

growth launch IPOs to generate funds to cater the requirements of capital for

expansion, acquiring of capital instruments, undertaking new projects.

Major Advantages of IPO

IPO has a number of advantages. IPO helps the company to create a publi

c awareness about the company as these public offerings generate publicity by

inducing their products to various investors.

The increase in the capital: An IPO allows a company to raise funds for

utilizing in various corporate operational purposes like acquisitions, mergers,

working capital, research and development, expanding plant and equipment and

marketing.

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Liquidity: The shares once traded have an assigned market value and

can be resold. This is extremely helpful as the company provides the employees

with stock incentive packages and the investors are provided with the option of

trading their shares for a price.

Valuation: The public trading of the shares determines a value for the

company and sets a standard. This works in favor of the company as it is

helpful in case the company is looking for acquisition or merger. It also

provides the share holders of the company with the present value of the shares.

Increased wealth: The founders of the companies have an affinity

towards IPO as it can increase the wealth of the company, without dividing the

authority as in case of partnership.

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Drawbacks of IPOs

It is true that IPO raises huge capital for the issuing company. But, in

order to launch an Initial Public Offering (IPO), it is also necessary to make

certain investments. Setting up an IPO does not always lead to an improvement

in the economic performance of the company. A continuing expenditure has to

be incurred after the setting up of an IPO by the parent company. A lot of

expenses have to be incurred in the form of legal fees, printing costs and

accounting fees, which are connected to the registering of an IPO. Such

expenses might cost hundreds of US dollars. Apart from such enormous costs,

there are other factors as well that should be taken into consideration by the

company while introducing an IPO.

Such factors include the rules and regulations involved to set up public

offerings and this entire process on the other hand involve a number of

complexities which sometime require the services of experts in relevant fields.

Some companies hire experts to do the needful to ensure a hassle-free execution

of the task. After the IPO is introduced, the expenses become a routine in every

activity involved. Besides, the CEO of the company would have to spend a lot

of time in handling the SEC regulations or sometimes he hires experts to do the

same. All these aspects, if not handled with efficiency, prove to be some major

drawbacks related to the launch of IPOs.

The launch of IPO also brings about shareholders of the company. Shareholders

have ownership in the company. The primary owners of the company or the

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people holding maximum authority in the company cannot take decisions all by

themselves once an IPO has been launched and shareholders have been formed.

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

taken even if they do not hold 50 percent share of the company. They have their

individual demands to be met as they own a certain percentage of stakes in the

company. The SEC regulations require notifications from the shareholders of

the company, meetings, and also approvals from them while making important

business decisions.

A major risk with shareholders is that, they can sell off their stocks any time

they want, in case they see the price band of the stakes of that company is going

down. This will lead to a further drop of the value of shares in the market which

in turn will decrease the overall value of the company.

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EXAMPLE OF SOME PUBLISHED

ISSUES

Indian Bank IPO on the anvil-India Business-Business-The Times of

India

India is world's 8th largest IPO market- The Times of India

India Inc's fund raising via IPO in 2008 dips to 3-yr low- The Economic

Time

IPO market to boom in second half- The Economic Time

India Inc raises over Rs 45,000 cr in IPOs, follow-ons in 2007- The

Hindu

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Part 1.4

PAST/ PRESENT/ FUTURE OF

IPO

Indias rapid economic growth, robust corporate profit stability, and a four-

year bull run on Bombays Stock Exchange (BSE), continue to fuel Indias

strong IPO markets. Keen investor interest in Indias strong growth story has

been real acted in the attractive valuations and key price/earnings multiples

garnered by Indian companies, says R. Balanchine, IPO Leader, Strategic

Growth Markets, Ernst & Young India. In 2006, Indias markets launched 78

IPOs and raised US$7.23 billion. Currently, Indias exchanges rank eighth in

the world for numbers of IPOs and value in 2006. Despite a May 2006 market

tumble that erased more than US$100 billion in value in the BSE and sparked

concerns that the four-year Indian stock rally was over, Indian IPO activity

quickly resumed its upward momentum. In 2006, Indias IPO market has been

fairly broad-based, although energy companies dominated with more than 50%

share of funds raised. In 2006, Indias largest IPO was petroleum rife nine

company, Reliance Petroleum, which raised US$1.8 billion, followed by the oil

production and exploration company, Cairn Energy, which raised US$1.3

billion. Real estate IPOs also generated stellar returns for investors.

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In the United States, during the dot-com bubble of the late 1990s, many venture

capital driven companies were started, and seeking to cash in on the bull

market, quickly offered IPOs. Usually, stock price spiraled upwards as soon as

a company went public. Investors sought to get in at the ground-level of the

next potential Microsoft and Netscape.

Initial founders could often become overnight millionaires, and due to generous

stock options, employees could make a great deal of money as well. The

majority of IPOs could be found on the NASDAQ stock exchange, which lists

companies related to computer and information technology. However, in spite

of the large amounts of financial resources made available to relatively young

and untested firms (often in multiple rounds of financing), the vast majority of

them rapidly entered cash crisis. Crisis was particularly likely in the case of

firms where the founding team liquidated a substantial portion of their stake in

the firm at or soon after the IPO (Mudambi and Treichel, 2005).

This phenomenon was not limited to the United States. In Japan, for example, a

similar situation occurred. Some companies were operated in a similar way in

that their only goal was to have an IPO. Some stock exchanges were set up for

those companies, such as Osaka Securities Exchange.

Perhaps the clearest bubbles in the history of hot IPO markets were in 1929,

when closed-end fund IPOs sold at enormous premiums to net asset value, and

in 1989, when closed-end country fund IPOs sold at enormous premiums to net

asset value. What makes these bubbles so clear is the ability to compare market

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prices for shares in the closed-end funds to the value of the shares in the funds'

portfolios. When market prices are multiples of the underlying value, bubbles

are likely to be occurring.

A Brief Note on Future of IPOs in India

The IPO industry in India has received a major boost in the current year

especially with the emergence of Reliance Power IPO on 15th January 2008.

Apart from Reliance Power, another IPO which brought in major capital is

Kishore Biyani-led Future Group's financial services arm. This IPO has been a

recipient of 17.36 crores equity shares as bidding as compared to 6,422,000

equity shares on offer. The public offerings of the IPO of Kishore Biyani-led

Future Group's financial services arm are estimated to rise around Rs. 490

crores future capital. The price range fixed for the Equity shares of this IPO

varies between Rs. 700 to Rs. 765. The subscription for the issue of this IPO

was opened from 11th January 2008 to 16th January 2008.Future of IPOs in

India is quite bright as the Future Capital Holdings in India are expected to rise

up to USD 124 million by the end of 2008. Future Capital, the financial services

arm of the diversified Future Group is expected to divest around 10.16 percent

of its capital which accounts for around 6.4 million shares in the IPO market. In

the year 2007, the IPO market in India has been estimated to raise USD 8.2

billion from 88 IPOs as compared to USD 4.7 billion in the previous year. It

contributed largely in the growth of stock market which rose by 47 percent.

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Assuming a major hike in the Indian IPOs, the government has confirmed the

opening of the Oil India IPO by March 2008. The IPO of Oil India Limited has

been reported to raise Rs.1500 crores and will hit the capital market in March

2008.

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WHAT ARE THE CRITICAL

AREAS TO FOCUS

Compliance with SEBI Guidelines

90% subscription of the issue

Underwriting Agreements

Firm Allotments

Listing approvals from the Stock Exchanges

ROC approval for the prospectus

Advertising and Road Shows

Statutory advertisements

In-time allotments and refunds

Listing of the shares with the Exchanges

SEBI GUIDELINES

Filing of prospectus:

Prospectus to be filed with SEBI through Merchant Banker At least 30 days

ipo krishana

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