INTRODUCTION

INTRODUCTION:
The term "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
dot-com millionaires in Silicon Valley cashing in on their latest IPO. The phenomenon
spawned the term "siliconaire," which described the dot-com entrepreneurs in their
early 20s and 30s who suddenly found themselves living large due to IPOs from their
Internet companies. So, what is an IPO anyway? How did everybody get so rich so
fast? And, most importantly, is it possible for mere mortals like us to get in on an
IPO? All these questions and more will be answered in this tutorial. Before we
continue, we suggest you check out our stock basics tutorial as well as brokers and
online trading if you don't have a solid understanding of stocks and how they trade.
What is an IPO? Selling Stock IPO is an acronym for Initial Public Offering. This is
the first sale of stock by a company to the public. A company can raise money by
issuing either debt (bonds) or equity. If the company has never issued equity to the
public, it's known as an IPO. Companies fall into two broad categories: private and
public.
A privately held company has fewer shareholders and its owners don't have to
disclose much information about the company. Anybody can go out and incorporate a
company: just put in some money, file the right legal documents, and follow the
reporting rules of your jurisdiction. Most small businesses are privately held. But
large companies can be private too. Did you know that IKEA, Domino's Pizza, and
Hallmark Cards are all privately held?
It usually isn't possible to buy shares in a private company. You can approach the
owners about investing, but they're not obligated to sell you anything. Public
companies, on the other hand, have sold at least a portion of themselves to the public
and trade on a stock exchange. This is why doing an IPO is also referred to as "going
public."
Public companies have thousands of shareholders and are subject to strict rules and
regulations. They must have a board of directors and they must report financial
information every quarter. In the United States, public companies report to the SEC.

In other countries, public companies are overseen by governing bodies similar to the
SEC. From an investor's standpoint, the most exciting thing about a public company is
that the stock is traded in the open market, like any other commodity. If you have the
cash, you can invest. The CEO could hate your guts, but there's nothing he or she
could do to stop you from buying stock. Why Go Public? Going public raises cash,
and usually a lot of it. Being publicly traded also opens many financial doors:

Because of the increased scrutiny, public companies can usually get better
rates when they issue debt.

As long as there is market demand, a public company can always issue more
stock. Thus, mergers and acquisitions are easier to do because stock can be
issued as part of the deal.

Trading in the open markets means liquidity. This makes it possible to

implement things like employee stock ownership plans, which help to attract
top talent.

Being on a major stock exchange carries a considerable amount of prestige. In the

past, only private companies with strong fundamentals could qualify for an IPO and it
wasn't easy to get listed. The Internet boom changed all this. Firms no longer needed
strong financials and a solid history to go public. Instead, IPOs were done by smaller
startups seeking to expand their business. There's nothing wrong with wanting to
expand, but most of these firms had never made a profit and didn't plan on being
profitable any time soon. Founded on venture capital funding, they spent like Texans
trying to generate enough excitement to make it to the market before burning through
all their cash. In cases like this, companies might be suspected of doing an IPO just to
make the founders rich. In VC talk, this is known as an exit strategy, implying that
there's no desire to stick around and create value for shareholders. The IPO then
becomes the end of the road rather than the beginning. How can this happen?
Remember: an IPO is just selling stock. It's all about the sales job. If you can
convince people to buy stock in your company, you can raise a lot of money. In our
opinion, IPOs like this are extremely risky and should be avoided.

How can I get in on an IPO? The Underwriting Process Getting a piece of a hot IPO is
very difficult, if not impossible. To understand why, we need to know how an IPO is
done, a process known as underwriting. When a company wants to go public, the first
thing it does is hire an investment bank. A company could theoretically sell its shares
on its own, but realistically, an investment bank is required - it's just the way Wall
Street works. Underwriting is the process of raising money by either debt or equity (in
this case we are referring to equity). You can think of underwriters as middlemen
between companies and the investing public. The biggest underwriters are Goldman
Sachs, Merrill Lynch, Credit Suisse First Boston, Lehman Brothers and Morgan
Stanley. 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. The deal
can be structured in a variety of ways. For example, in a "firm commitment," the
underwriter guarantees that a certain amount will be raised by buying the entire offer
and then reselling to the public. In a "best efforts" agreement, however, the
underwriter sells securities for the company but doesn't guarantee the amount raised.
Also, investment banks are hesitant to shoulder all the risk of an offering. Instead,
they form a syndicate of underwriters. One underwriter leads the syndicate and the
others sell a part of the issue. Once all sides agree to a deal, the investment bank puts
together a registration statement to be filed with the SEC. This document contains
information about the offering as well as company info such as financial statements,
management background, any legal problems, where the money is to be used, and
insider holdings. The SEC then requires a "cooling off period," in which they
investigate and make sure all material information has been disclosed. Once the SEC
approves the offering, a date (the effective date) is set when the stock will be offered
to the public. During the cooling off period 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.
As the effective date approaches, the underwriter and company sit down and decide
on the price. This isn't an easy decision: it depends on the company, the success of the
road show, and most importantly, current market conditions. Of course, it's in both
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parties' interest to get as much as possible. Finally, the securities are sold on the stock
market and the money is collected from investors. What About Me? As you can see,
the road to an IPO is a long and complicated one. You may have noticed that
individual investors aren't involved until the very end. This is because small investors
aren't the target market. They don't have the cash and therefore hold little interest for
the underwriters.
If underwriters think an IPO will be successful, they'll usually pad the pockets of their
favorite institutional client with shares at the IPO price. The only way for you to get
shares (known as an IPO allocation) is to have an account with one of the investment
banks that is part of the underwriting syndicate. But don't expect to open an account
with $1000 and be showered with an allocation. You need to be a frequently trading
client with a large account to get in on a hot IPO.
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.
Things to Consider before Buying Let's say you do get in on an IPO. Here are a few
things to look out for. No History It's hard enough to analyze the stock of an
established company. An IPO company is even trickier to analyze since there won't be
a lot of historical information. Your main source of data is the red herring, so make
sure you examine this document carefully. Look for the usual information, but also
pay special attention to the management team and how they plan to use the funds
generated from the IPO. And what about the underwriters? Successful IPOs are
typically supported by bigger brokerages that have the ability to promote a new issue
well. Be more wary of smaller investment banks because they may be willing to
underwrite any company. The Lockup Period
If you look at the charts following many IPOs, you'll notice that after a few months
the stock takes a steep downturn. This is often because of the lockup period. When a
company goes public, the underwriters make company officials and employees sign a
lockup agreement. Lockup agreements are legally binding contracts between the
underwriters and insiders of the company, prohibiting them from selling any shares of

stock for a specified period of time. The period can be anything from 3 to 24 months.
90 days is the minimum period stated under Rule 144 (SEC law) but the lockup
specified by the underwriters can last much longer. The problem is, when lockups
expire all the insiders are permitted to sell their stock. The result is a rush of people
trying to sell their stock to realize their profit. This excess supply can put severe
downward pressure on the stock price. Flipping Flipping is reselling a hot IPO stock
in the first few days to earn a quick profit. This isn't easy to do, and you'll be strongly
discouraged by your brokerage. The reason behind this is that companies want longterm investors who hold their stock, not traders. There are no laws that prevent
flipping, but your broker may blacklist you from future offerings or just smile less
when you shake hands. Of course, institutional investors flip stocks all the time and
make big money. The double standard exists and there is nothing we can do about it
because they have the buying power. Because of flipping, it's a good rule not to buy
shares of an IPO if you don't get in on the initial offering. Many IPOs that have big
gains on the first day will come back to earth as the institutions take their profits.
Avoid the Hype It's important to understand that underwriters are salesmen. The
whole underwriting process is intentionally hyped up to get as much attention as
possible. Since IPOs only happen once for each company, they are often presented as
"once in a lifetime" opportunities. Of course, some IPOs soar high and keep soaring.
But many end up selling below their offering prices within the year. Don't buy a stock
only because it's an IPO - do it because it's a good investment.
Tracking Stocks Tracking stocks appear when a large company spins off one of its
divisions into a separate entity. The rationale behind the creation of tracking stocks is
that individual divisions of a company will be worth more separately than as part of
the company as a whole. From the company's perspective, there are many advantages
to issuing a tracking stock. The company gets to retain control over the subsidiary but
all revenues and expenses of the division are separated from the parent company's
financial statements and attributed to the tracking stock. This is often done to separate
a high growth division with large losses from the financial statements of the parent
company. Most importantly, if the tracking stock rockets up, the parent company can
make acquisitions with stock of the subsidiary instead of cash.
While a tracking stock may be spun off in an IPO, it's not the same as the IPO of a
private company going public. This is because tracking stock usually has no voting

rights, and often there is no separate board of directors looking after the rights of the
tracking stock. It's like you're a second class shareholder! This doesn't mean that a
tracking stock can't be a good investment. Just keep in mind that a tracking stock isn't
a normal IPO.

Introduction to Merchant Banking

Meaning:
The Merchant Banker has been defined under the Securities And Exchanges Board of
India (Merchant Bankers) Rules, 1992 as any person who is engaged in the business
of issue management either by making arrangements regarding selling, buying or
subscribing to securities as manager, consultant, advisor or rendering corporate
advisory service in relation to such issue management.
History of Merchant Banking
The history of merchant bank can be dated back to 17th & 18th centuries when it first
started in Italy & France. This was started by the Italian grain merchants. It comprised
of merchant bankers who intermediated or assisted in financing the transactions of
other traders and their own trade too. With the passage of time the practices in
evolved and the merchant banking in the modern era started from London where the
merchants started to finance the foreign trade through acceptance of bill. Later they
extended their services to the governments of under developed countries to raise the
long term funds through the floatation of bonds in the London money market. Over
the period they extended their services to loan syndication, underwriting the
issues, portfolio management etc. The post war period witnessed huge increase in the
merchant banking activities.
Merchant Banking in India
Merchant banking activity was officially commenced into the Indian capital Markets
when Grindlays bank received the license from reserve bank in 1967. Grindlays
started its operations with management of capital issues, recognized the requirements
of upcoming class of Entrepreneurs for diverse financial services ranging from
production planning and system design to market research. Apart from this it also
provides management consulting services to meet the Requirements of small and
medium sector rather than large sector.
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Citibank Setup its merchant banking division in Indian in 1970.

Indian banks Started banking Services from 1972.

State bank of India started the merchant banking division in 1972

After that there were many banks which set up the merchant bank division such as;

ICICI

Bank of India

Bank of Baroda

Canara Bank

Punjab National Bank

UCO Bank

The Merchant Bank got more importance in the year 1983 when there was a huge
boom in the primary market where the companies were going for new issue. Merchant
banking activities are organized and undertaken in several forms. Commercial banks
and foreign development finance institutions have organized them through formation
divisions, nationalized banks have formed subsidiary companies, share brokers and
consultancies constituted themselves into public limited companies or registered
themselves as private limited Companies. Some merchant banking companies have
entered into collaboration with merchant bankers of foreign countries abroad with
several branches.

Services Provided by Merchant Banks

Below mentioned are the major services offered by Merchant Bankers;

Project Counseling

Management of debt and equity offerings

Issue Management

Managers, Consultants or Advisers to the Issue

Underwriting of Public Issue

Portfolio Management

Restructuring strategies

Off Shore Finance

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Non-resident Investment

Loan Syndication

Corporate Counseling and advisory services

Placement and distribution

RESEARCH
METHODOLOGY

RESEARCH METHODOLOGY
1. Descriptive Research
Descriptive research is used to obtain information concerning the current status of the
phenomena to describe what exists with respect to variables or conditions in a
situation. Descriptive research, also known as statistical research, describes data and
characteristics about the population or phenomenon being studied. Descriptive
research answers the questions who, what, where, when and how. Although the data
description is factual, accurate and systematic, the research cannot describe what
caused a situation.

2. Analytical Research
Analytical research takes descriptive research one stage further by seeking to
explain the reasons behind a particular occurrence by discovering causal
relationships. Once causal relationships have been discovered, the search then shifts
to factors that can be changed (variables) in order to influence the chain of causality.

Type of Research Design: The research design is pre planned which is designed
for analysis. And also the data was collected from structured and well thought out
instruments.

Data:
Datas are the useful information or any forms of document designed in a systematic
and standardize manner which are used for some further proceedings. One of the
important tools for conducting marketing research is the availability of necessary and
useful data. Some time the data are available readily in one form or the other and
some time the data are collected afresh. The sources of Data fall under two categories,
Primary Source and Secondary Sources.

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SOURCES OF
DATA

PRIMARY DATA

SECONDARY DATA

1) Primary Data: Collected from personal interview, collected under the guidance
of Sri Ramakrishna, Manager (Finance) in Interconnected stock Broking.
2) Secondary Data: The Secondary data has been collected from
1. Annual reports of organization.
2. Internet
3. Broachers.
4. House magazines of the units.
5. Other reports of the units.
6. Books

SAMPLE DESIGN:
Sample unit: Sample unit is the organization the project was completed.
Time and place: Project completed within a period of 45 days. The company is
in Hyderabad.

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Objectives of the Project

To study and understand the concept of and procedure involved in Initial Public
Offer (IPO).
An attempt has been made to analyze the various IPOs and recommend others to
invest in good initial public offerings after thorough research of financial
statements of the companies.
To study and understand the process of Due Diligence and its significance in
Initial Public Offers.
To analyze the effect of Initial Public Offers on the issuing company, investors
and the stock market.
To understand the role of a merchant banker in managing Initial Public Offers.
To be actively involved in merchant banking activities, in order to gain valuable
knowledge through first-hand experience in managing the issue of Initial
Public Offers of various client companies.

Find out the factors which influence the IPO Listing Process.
Spread awareness about this process.

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Limitation of the Project

Analysis done for a time period of 45 days.
The time horizon taken is considered short for the analysis of long run
performance.
It was tried very harder to include the best of information from published and
unpublished sources available on internet, books and magazines but some of
the data required for the detailed study was not available freely.
Although Initial Public Offers are issued by many companies, this study is
confined to a few companies only.
The project is based on the secondary data collected.

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REVIEW OF
LITERATURE
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2 LITERATURE REVIEW

The literature review on IPOs can be divided in the following main headsa) Reason and timing of going public

Going public marks a watershed in the life cycle of the firm. While
increased equity can support the firms future plans of growth, the trade off for the
firm is that of increased public scrutiny.

Brealy and Myers (2005) state that in the context of USA the firms may seek
private equity in their initial years and only later go for public issues.

Pagano, Panetta and Zingales (1998) in their study of Italian firms, find
that firms going public are not seeking money for growth but are rebalancing
their accounts after high investment and growth.

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 Lerner (1994) found that there are times (windows of opportunity) when the
markets could be extremely optimistic about a particular industry and it may
be a good time for the firms in that industry to go public.

The post IPO period sees a reduction in leverage as well as investment. They state that
going public is a conscious choice that some firms make while some others prefer to
remain private. Thus going public is not a natural element in the life cycle of a firm.
b) Valuation of IPOs
Benveniste and Spindt (1989) find that under writers try to resolve the
information asymmetry problem between the firm and the investors by
providing an incentive to the investors to reveal their private information about
the firm.

Kim and Ritter (1999) in their study of 190 firms find that under writers
forecast the next years earnings numbers and multiply them with PE ratios of
comparable firms in the industry to get the approximate price of the IPO.
However they also found that PE ratios using historical earnings numbers do
not give accurate results whereas when forecasted earnings numbers are used
then the valuation is much more accurate.

Purnanandam and Swaminathan (2002) say that IPOs are priced 50%
higher than industry peers. Also they find that more the IPO is overpriced with
respect to its peers, worse is its long term performance.
c) Allocation mechanism
The allocation mechanisms are specified by the regulators in different countries.
Loughran, Ritter and Rydqvist (1994) find 3 main categories across countriesAuctions, Fixed price offers and Book Building. Sherman (2005) finds that Book
building is a superior mechanism for selling IPOs rather than auctions.

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EVOLUTION AND GROWTH OF INDIAN PRIMARY

MARKET.
Early Liberalization Phase: 1992-1995 (Fixed Pricing)
The initiation of the process of reform in India also would not have been possible
without changes in the regulatory framework. The New Economic policy (1991) led
to a major change in the regulatory framework of the capital market in India. The
Capital Issues (Control) Act 1947 was repealed and the Office of the Controller of
Capital Issues (CCI) was abolished. The Securities and Exchange Board of India
(SEBI), established in 1988 and armed with statutory powers in 1992, came to be
established as the regulatory body with the necessary authority and powers to regulate
and reform the capital market. SEBI came to be recognized as a regulatory body for
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the capital market after the abolition of the CCI. The control on pricing of capital
issue has been abolished and easy access is provided to the capital market. Initial
Public Issue caught the attention of general public only after the success of Reliance,
when millions of small investors made huge returns which were unheard of till then.
Dhirubhai Ambani was the first promoter who raised huge amounts through the public
issue route to finance large facilities.
The issue process was smoothened, procedures were simplified and free pricing was
allowed, although with certain restrictions, The Indian market had the concept of par
value of equity shares, and anything above par was considered premium. The only
companies that were allowed to come with premium issues were those, which had a
three year profit-track record for the preceding five years. New companies without
this record could float premium issues if their promoting companies had the same
track record and they had to hold 50% of the post issue capital. Any new company
floated by first generation entrepreneurs could only issue equity at par. There was no
restriction about prices in a premium issue.
The offer was always at a fixed price, whether premium or par. The companies had to
appoint intermediaries like merchant bankers, registrars, bankers etc. Merchant
bankers had the responsibility of fixing the prices, in consultation with the company,
carrying out with due diligence, preparing the prospectus (offer documents) etc. The
prospectus had to be submitted to SEBI for getting scrutiny.
The trend continued in the early nineties as many large projects were launched after
the economy was liberalised. Many of these companies came out with public issues
and the retail participation increased dramatically. But many of the companies which
raised money during this period just disappeared without a trace.

Late Liberalization Period: 1996-2005 (Book Building)

The late nineties and the first few years of the current decade did not see much
activity in the primary market even though we saw a huge bull run led by technology
stocks at the turn of the decade. The bad experiences of retail investors kept them
away from the market and made it difficult for companies to launch successful issues.
The corporate sector was recovering from the damage caused by large capacity
expansions and new projects set up in the nineties.

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The dormant primary issues market came alive after 2003 mostly because of the
divestment programme of the government. The issue of Maruti Udyog, through which
the government sold part of its stake in the company, rekindled retail investor interest
in the primary market. The issue was made at a very reasonable price and investors
made very good returns immediately.
The year 2004 saw the primary market activity at its historic peak as some large
private companies also came out with issues. Further divestment by the government;
including the largest ever issue by an Indian company from ONGC, attracted more
retail investors into the market. The IPO market continues to buzz in the current year
as well. Taking advantage of the strength in the secondary market, many high profile
companies are lining up to raise money from the market. The year started with the
issue from Jet Airways which attracted a lot of interest from investors. As a result of
tougher regulations, the quality of the issues has gone up substantially.

2006 onwards scenario:

India's IPO market emerged as the eighth largest with $7.23 billion (Rs 30,000 core)
in net proceeds through 78 public issues, global research and consultancy firm Ernst
& Young said in its Global IPO report. Across the world, the companies raised $246
billion, up from $167 billion in 2005, through a total of 1,729 IPOs, led by Chinese
companies at the top with net proceeds of $56.6 billion. However, the biggest number
of IPOs came from the United States with 187 offerings, followed by Japan with 185
and China with 175 IPOs. According to the study, India's increasing number of larger
deals has been driven by the growth of Indian corporations and their need for
additional capital for potential acquisitions. In 2007 Indian IPOs continue to surge in
numbers. Continued strength is expected in the real estate and energy sector. "The
rapid growth in emerging market economies has resulted in a migration of capital
from the developed economies into the emerging markets," E&Y said.
The localisation trend in India is evidenced by several billion-dollar IPOs hosted by
Indian exchanges. In 2006, India's largest IPO, Reliance Petroleum raised $1.8 billion,
followed by the oil production and exploration company, Cairn Energy, which raised
$1.3 billion with both companies listing on domestic exchanges.

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However, some Indian companies are also listing abroad, especially London,
Singapore and Luxembourg, primarily for higher valuations and visibility, the report
noted.
The private equity rush into India is creating the potential for many IPO exits. In
2006, private equity firms invested more than $7 billion in India. Top global private
equity funds as well as local funds, have been key drivers of Indian IPO markets.
In 2007 alone, 95 IPOs came and majority of them were great hit because of favorable
market conditions.
In the year 2008, only 36 IPOs came in the market but failed to collect money.
This year, so far 13 IPOs came in to the market.
Due to favorable market conditions, recent IPOs of Adani power, NHPC and Oil India
were hit. Adani power, the company owned by Gautam Adani was one major IPO
after the financial crisis. The issue was over subscribed by 21 times. It is a fact that
after listing the companies didn't shine much except Oil India. On the listing day
itself, Oil India's stock price was up by Rs100. Indian IPO market is now active and
people are more interested in buying fresh shares. Primary market in India slowly
gaining pace and this will be the same in the near future.

India IPO Activity

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KINDS OF ISSUES
Primarily, issues can be classified as a Public, Rights or preferential issues (also
known as private placements). While public and rights issues involve a detailed
procedure, private placements or preferential issues are relatively simpler. The
classification of issues is illustrated below:

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Public issues can be further classified into Initial Public offerings and further public
offerings. In a public offering, the issuer makes an offer for new investors to enter its
shareholding family. The issuer company makes detailed disclosures as per the DIP
guidelines in its offer document and offers it for subscription. The significant features
are illustrated below:
Initial Public Offering (IPO)

It 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.
Further public offering (FPO)

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It is when an already listed company makes either a fresh issue of securities to the
public or an offer for sale to the public, through an offer document. An offer for sale
in such scenario is allowed only if it is made to satisfy listing or continuous listing
obligations.
Rights Issue (RI)
It is when a listed company which proposes to issue fresh securities to its existing
shareholders as on a record date. The rights are normally offered in a particular ratio
to the number of securities held prior to the issue. This route is best suited for
companies who would like to raise capital without diluting stake of its existing
shareholders unless they do not intend to subscribe to their entitlements.
Private placement
It is an issue of shares or of convertible securities by a company to a select group of
persons under Section 81 of the Companies Act, 1956 which is neither a rights issue
nor a public issue. This is a faster way for a company to raise equity capital. A private
placement of shares or of convertible securities by a listed company is generally
known by name of preferential allotment. A listed company going for preferential
allotment has to comply with the requirements contained in Chapter XIII of SEBI
(DIP) Guidelines pertaining to preferential allotment in SEBI (DIP) guidelines include
pricing, disclosures in notice etc, in addition to the requirements specified in the
Companies Act.

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

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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.

REGULATORY FRAMEWORK FOR IPOS

Eligibility Conditions for Companies Issuing Securities
The companies issuing securities offered through an offer document shall satisfy the
following at the time of filing the draft offer document with SEBI and also at the time of
filing the final offer document with the Registrar of Companies/ Designated Stock
Exchange:

Filing of offer document

No issuer company shall make any public issue of securities, unless a draft
Prospectus has been filed with the Board through a Merchant Banker, at
least 30 days prior to the filing of the Prospectus with the Registrar of
Companies (ROC):
Provided that if the Board specifies changes or issues observations on
the draft Prospectus (without being under any obligation to do so), the issuer
company or the Lead Manager to the Issue shall carry out such changes in
the draft Prospectus or comply with the observation issued by the Board
before filing the Prospectus with ROC.

Companies barred not to issue security

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No company shall make an issue of securities if the company has been

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

Application for listing

No company shall make any public issue of securities unless it has
made an application for listing of those securities in the stock exchange

Issue of securities in dematerialized form

No company shall make public or rights issue or an offer for sale of
securities, unless:
The company enters into an agreement with a depository for
dematerialization of securities already issued or proposed to be issued to the
public or existing shareholders; and
a. The company gives an option to subscribers/ shareholders/
investors to receive the security certificates or hold securities
in dematerialized form with a depository.

IPO Grading
No unlisted company shall make an IPO of equity shares unless the
following conditions are satisfied as on the date of filing of Prospectus with
ROC:
a. the unlisted company has obtained grading for the IPO from at
least one credit rating agency
b. Disclosures of all the grades obtained, along with the
rationale/ description furnished by the credit rating agency(ies)
for each of the grades obtained.

Eligibility Norms for IPO

An unlisted company may make an initial public offering (IPO) of equity
shares only if :-

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The company has net tangible assets of at least Rs. 3 crores in each of the
preceding 3 full years (of 12 months each), of which not more than 50% is
held in monetary assets.

The company has a track record of distributable profits in terms of Section 205
of the Companies Act, 1956, for at least three (3) out of immediately
preceding five (5) years.

The company has a net worth of at least Rs. 1 crore in each of the preceding 3
full years (of 12 months each).

In case the company has changed its name within the last one year, at least
50% of the revenue for the preceding 1 full year is earned by the company
from the activity suggested by the new name.

PROCEDURE FOR IPOS

Fixed Pricing versus True Pricing (Book- Building)
The traditional method of doing IPOs is the fixed price offering. Here, the issuer and
the merchant banker agree on an issue price. Then the investor has a choice of
filling in an application form at this price and subscribing to the issue. Extensive
research has revealed that the fixed price offering is a poor way of doing IPOs. Fixed
price offerings, all over the world, suffer from `IPO underpricing'. In India, on
average, the fixed-price seems to be around 50% below the price at first listing; i.e.
the issuer obtains 50% lower issue proceeds as compared to what might have been the
case. This average masks a steady stream of dubious IPOs who get an issue price
which is much higher than the price at first listing. Hence fixed price offerings are
weak in two directions:

dubious issues get overpriced and

Good issues get under priced.

BOOK-BUILDING

26

A mechanism where, during period for which the IPO is open, bids are collected from
investors at various prices which are above or equal to the floor price (the minimum
price). The final price of the share is determined after the bid closing date, based on
certain evaluation criteria.
The SEBI (Disclosure and Investor Protection) Guidelines, 2000, define the term
`book-building' in a rather complex language as "a process undertaken by which a
demand for the securities proposed to be issued by a body corporate is elicited and
built-up and the price for such securities is assessed for determination of the quantum
of such securities to be issued by means of a notice, circular, advertisement, document
or information memoranda or offer document.''
Book building process is a common practice used in most developed countries for
marketing a public offer of equity shares of a company. However, Book building acts
as scientific as well as flexible price discovery method through which a consensus
price of IPOs may be determined by the issuer company along with the Book
Running Lead Manager (i.e. merchant banker) on the basis of feedback received from
individual investors as well as most informed investors (who are institutional and
corporate investors like, UTI, LICI, GICI, FIIs, and SFCI etc). The method helps to
make a correct evaluation of a companys potential and the price of its shares.
In simple terms, book-building is a mechanism by which the issue price is
discovered on the basis of bids received from syndicate members/brokers and not by
the issuers/merchant bankers.

TYPES OF BOOKBUILDING
The issue of securities through Book building can be done in either of the following
two ways.

75% Book building

100% Book building

75% Book Building process:Under this type of public offer, the issue of securities has to be categorized into:

27

Placement portion category

Net offer to the public

The option of 75% Book Building is available to all body corporate that are
otherwise eligible to make an issue of capital to the public. The securities issued
through the book building process are indicated as 'placement portion category' and
securities available to public are identified as 'net offer to public'. In this option,
underwriting is mandatory to the extent of the net offer to the public. The issue price
for the placement portion and offers to public are required to be same
100% of the net offer to the public through Book Building process:The 100% of the net offer to the public, entire issue is made through Book Building
process. However, there can be a reservation or firm allotment to a maximum of 5%
of the issue size for the permanent employees, shareholders of the company or group
companies, 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.
The number of bidding centers, in case of 75% book building process should not be
less than the number of mandatory collection centers specified by SEBI. In case of
100% book building process, the bidding centers should be at all the places where the
recognised stock exchanges are situated.

PROCESS OF BOOKBUILDING
The Bookbuilding is basically an auction of share. Bookbuilding essentially means
that the book is being built. During the process on both the NSE & BSE, investors
can watch the book being built a chart shown indicates the bid price & the number of
shares being bid for. This helps the investors to know the market price. Following
mentioned are the main steps of Bookbuilding Process
The company first appoints a book runner, i.e. merchant banker.

28

 The book runner prepares & submits the draft documents to the SEBI &
obtains an acknowledgement card.
The issuer & book runner decide to offer shares at a price within a
specified price band (range).
Offer regarding the demand for securities at different price levels are
invited from syndicate members consisting of eligible brokers, merchant
bankers, underwriters, financial institutions, the bids. The advertisement
should mention the opening & closing dates for the bids. A bid is usually open
for minimum 5 working days.
Based on the bids received, the issuer arrives at a final cut-off rate & the
allocation in consultation with BRLM.
The issuer & the book runner may impose restrictions on the number of shares
that can be allotted to each client so as to avoid any future takeover threats.

The final prospectus is filed with the registrar of companies along with the
procurement agreement.

The placement portion opens for subscription only after the prospectus is filed
with the ROC.

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

The public portion opens & the allotment & listing of puts is done. The price
determined in the Bookbuilding process is applicable to the public portion as
well. If the public portion stands oversubscribed, then the allotment is made on
a proportionate basis.

29

Book Building Process in India

The steps which are usually followed in the book building process can be summarized
below:
The issuer company proposing an IPO appoints a lead merchant banker as a BRLM.
(2)

Initially, the issuer company consults with the BRLM in drawing up a draft

prospectus (i.e. offer document) which does not mention the price of the issues, but
includes other details about the size of the issue, past history of the company, and a
price band. The securities available to the public are separately identified as net offer
to the public.
(3)

The draft prospectus is filed with SEBI which gives it a legal standing.

(4)

A definite period is fixed as the bid period and BRLM conducts awareness

campaigns like advertisement, road shows etc.

(5) The BRLM appoints a syndicate member, a SEBI registered intermediary to
underwrite the issues to the extent of net offer to the public.
(6)

The BRLM is entitled to remuneration for conducting the Book Building

process.
30

(7)

The copy of the draft prospectus may be circulated by the BRLM to the

institutional investors as well as to the syndicate members.

(8)

The syndicate members create demand and ask each investor for the number

of shares and the offer price.

(9)

The BRLM receives the feedback about the investors bids through syndicate

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

(11) The BRLM on receipts of the feedback from the syndicate members about the bid
price and the quantity of shares applied has to build up an order book showing the
demand for the shares of the company at various prices. The syndicate members must
also maintain a record book for orders received from institutional investors for
subscribing to the issue out of the placement portion.
(12) On receipts of the above information, the BRLM and the issuer company
determine the issue price. This is known as the market-clearing price.
(13) The BRLM then closes the book in consultation with the issuer company and
determine the issue size of (a) placement portion and (b) public offer portion.
(14) Once the final price is determined, the allocation of securities should be made by
the BRLM based on prior commitment, investors quality, price aggression, earliness
of bids etc. The bid of an institutional bidder, even if he has paid full amount may be
rejected without being assigned any reason as the Book Building portion of
institutional investors is left entirely at the discretion of the issuer company and the
BRLM.
(15) The Final prospectus is filed with the registrar of companies within 2 days of
determination of issue price and receipts of acknowledgement card from SEBI.
(16) Two different accounts for collection of application money, one for the private
placement portion and the other for the public subscription should be opened by the
issuer company.

31

(17) The placement portion is closed a day before the opening of the public issue
through fixed price method. The BRLM is required to have the application forms
along with the application money from the institutional buyers and the underwriters to
the private placement portion.
(18) The allotment for the private placement portion shall be made on the 2 nd day
from the closure of the issue and the private placement portion is ready to be listed.
(19) The allotment and listing of issues under the public portion (i.e. fixed price
portion) must be as per the existing statutory requirements.
(20) Finally, the SEBI has the right to inspect such records and books which are
maintained by the BRLM and other intermediaries involved in the Book Building
process

Pricing
Before establishment of SEBI in 1992, the quality of disclosures in the offer
documents was very poor.
The main drawback of free pricing was the process of pricing of issues. The issue
price was determined around 60-70 days before the opening of the issue and the issuer
had no clear idea about the market perception of the price determined.
In Book Building the price is determined on the basis of demand received or at price
above or equal to the floor price.

The Allotment Process through Book-building:

Step1-The Company will 'discover' its price

Earlier, the company determined a fixed price for the stock issue. The issue was
marketed to the general public through advertisements and a media campaign.
32

Today, companies prefer a book building process. Book building is the process of
price discovery. That means there is no fixed price for the share. Instead, the company
issuing the shares comes up with a price band. The lowest price is referred to as the
floor and the highest, the cap. Bids are then invited for the shares. Each investor
states how many shares s/he wants and what s/he is willing to pay for those shares
(depending on the price band). The actual price is then discovered based on these
bids.

Step2-Players of the game

Three classes of investors can bid for the shares:

Qualified Institutional Buyers: QIBs include mutual funds and Foreign
Institutional Investors. At least 50% of the shares are reserved for this
category.
Retail investors: Anyone who bids for shares under Rs 50,000 is a retail
investor. At least 25% is reserved for this category.
The balance bids are offered to high networth individuals and employees of
the company.

OBJECTS OF THE OFFERING NEW IPO

33

 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

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 public 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.

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

34

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.

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 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

35

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.

IPO Grading
IPO grading (initial public offering grading) is a service aimed at facilitating the
assessment of equity issues offered to public. The grade assigned to any individual
issue represents a relative assessment of the fundamentals of that issue in relation to
the other listed equity securities in India. IPO grading is positioned as a service that
provides an independent assessment of fundamentals to aid comparative assessment
that would prove useful as an information and investment tool for investors.
Moreover, such a service would be particularly useful for assessing the offerings of
companies accessing the equity markets for the first time where there is no track
record of their market performance.
IPO grade assigned to any issue represents a relative assessment of the fundamentals
of that issue in relation to the universe of other listed equity securities in India. This
grading can be used by the investor as tool to make investment decision. The IPO
grading will help the investor better appreciate the meaning of the disclosures in the
issue documents to the extent that they affect the issues fundamentals. Thus, IPO
grading is an additional investor information and investment guidance tool.
Credit Rating agencies (CRAs) like ICRA, CRISIL, CARE and Fitch Ratings who are
registered with SEBI will carry out IPO grading. SEBI does not play any role in the
assessment made by the grading agency. The grading is intended to be an independent
and unbiased opinion of that agency. IPO grading is not mandatory but is optional and
the assigned grade would be a one time assessment done at the time of the IPO and

36

meant to aid investors who are interested in investing in the IPO. The grade will not
have any ongoing validity.

SEBI GUIDELINES ON IPO GRADING

No unlisted company shall make an IPO of equity shares or any other security
which may be converted into or exchanged with equity shares at a later date,
unless the following conditions are satisfied as on the date of filing of
Prospectus (in case of fixed price issue) or Red Herring Prospectus (in case of
book built issue) with ROC:

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

Disclosures

of

all

the

grades

obtained,

along

with

the

rationale/description furnished by the credit rating agency(ies) for each

of the grades obtained, have been made in the Prospectus (in case of
fixed price issue) or Red Herring Prospectus (in case of book built
issue); and

The expenses incurred for grading IPO have been borne by the unlisted
company obtaining grading for IPO.

Most of the market analysts have welcomed this move of SEBI as it will help the
investors in a volatile market to know whether the merchant banker has carried the
exercise in determining the price of an issue in a proper manner or not. It will also
help the investors in knowing whether the price of the issue is justified or not. They
even said that management of a good company will never get afraid of getting graded
of their IPOs if they are good. The only demerit of this step by the SEBI as said by

37

many experts is that there will be a slowdown in the number of IPOs coming out as
grading will be a bit lengthy process and there will be a cost-factor attached to it also.

FEATURES OF IPO GRADING

IPO grading covers both internal and external aspects of a company seeking to make
an IPO in general. The internal factors include competence and effectiveness of the
management, profile of promoters, marketing strategies, size and growth of revenues,
competitive edge, technology, operating efficiency, liquidity and financial flexibility,
asset quality, accounting quality, profitability and hedging of risks. Among external
factors, the key one is the industry and economic/business environment for the issuer.
Here, it is important to note that internationally, the global rating agencies such as
Standard & Poors and Moodys do not perform grading of IPOs at all. While Standard
& Poors is the majority stakeholder in CRISIL Ltd, Moodys is the single biggest
stakeholder in ICRA Ltd. Similarly, the third global player Fitch IBCA (which
acquired another rating agency Dun & Bradstreet in 2000) also does not grade IPOs as
yet. The IPO grading is indicated on a five point scale and a higher score indicating
stronger fundamentals.

An IPO grading Scale

IPO grade
5/5
4/5
3/5
2/5
1/5

Assessment
Strong fundamentals
Above average fundamentals
Average fundamentals
Below average fundamentals
Poor fundamentals

The process will ideally require 2-3 weeks for completion, so it may be a good idea
for companies to initiate the grading process about 6-8 weeks before the targeted IPO
date to provide sufficient time for any contingencies.

38

Cost Involved In IPO Grading

Though nothing has been declared officially but most of the credit rating has said that
IPO-grading would not cost much to the issuers. They would be charging 10 basis
points of the amount to be raised with a ceiling of about Rs 10-15 lakhs. Thus, even in
the case of a mega IPO, there would be a cap on fees, he noted. Around 100 IPOs hit
the market on an average every year. However, despite this seemingly big number, the
total receipts for the entire rating industry on account of grading fees would be only
about Rs 10-15 crore.

Benefits of IPO Grading

There are various positive sides of an IPO grading. The most significant factors that
go in favor of IPO grading are:
(a) Professional and Independent Appraisal: IPO grading will create awareness
about the fundamentals of the companys IPO and will provide focused company
information as a key input to prospective investors that will be helpful in taking an
investment decision, in a manner similar to what a credit rating is for debt investors.
(b) Removal of Information Burden: Where disclosures of issues are large and
complex, a service analyzing and interpreting these disclosures independently and
quickly will be extremely useful in cutting through the clutter. Thus, the usefulness of
IPO grading would be particularly high for small investors as it will serve as a guide
about the company coming out with the issue.
(c) Impediment for Weak Companies: While fundamentally sound companies
will gain from the market, companies whose fundamentals are not very strong
will be impeded in building up speculative demand among investors. Such
weak companies will need to offer pricing, which will adequately compensate
investors for the risks they take. Therefore, IPO grading provides disincentives
for weak companies planning to come to the market to raise easy capital.

ROLE OF MERCHANT BANKERS IN IPO

39

Intermediarys help corporations design securities that will be attractive to investors,

buy these securities from the corporations, and then resell them to savers in the
primary markets.

Merchant Bankers/ Lead Manager

Merchant bankers play an important role in issue management process. Lead
managers have to ensure correctness of the information furnished in the offer
document. They have to ensure compliance with SEBI rules and regulations as also
Guidelines for Disclosures and Investor Protection. To this effect, they are required to
submit to SEBI a due diligence certificate confirming that the disclosures made in the
draft prospectus or letter of offer are true, fair and adequate to enable the prospective
investors to make a well informed investment decision. The role of merchant bankers
in performing their due diligence functions has become even more important with the
strengthening of disclosure requirements and with SEBI giving up the vetting of
prospectuses. Their functions are:

To act as intermediaries between the company seeking to raise money and the
investors. They must possess a valid registration from SEBI enabling them to
do this job.

They are responsible for complying with the formalities of an issue, like
drawing up the prospectus and marketing the issue.

If it is a book building process, the lead manager is also in charge of it. In such
a case, they are also called Book Running Lead Managers.

40

COMPANY
BACKGROUND

COMPANY PROFILE

41

SMC Group, founded in 1990, is Indias best

Equity Broking House and the Largest Distribution Network, providing a
wide range of financial services and investment solutions. A blend of
extensive experience, diverse talent and client focus has made us achieve
this landmark.
Over the years, SMC has expanded its operations domestically as well as
internationally. Existing network includes regional offices at Mumbai,
Kolkata, Chennai, Cochin, Ahmedabad, Jaipur, Hyderabad, Bangalore plus
a growing network of 2300+ offices spread across 425 cities/towns in
India.
We offer a diverse range of financial services which includes institutional
and retail brokerage of equity , currency, commodities, derivatives , online
trading , depository services , fixed Deposits, IPOs and mutual funds
distribution , dedicated desk for NRI and institutional clients , insurance
broking , clearing services , margin funding, investment banking , portfolio
management, wealth advisory & research . We have a highly efficient
workforce of over 6000 employees and over 7500 financial advisors
serving the financial needs of more than 6,00,000 satisfied investors.
We are also amongst the first financial firms in India to expand operations
in the lucrative gulf market, by acquiring license for broking and clearing
member with Dubai Gold and Commodities exchange (DGCX.
The SMC Advantage:
Large avenues of investment solutions and financial services under

one roof
Personalized solution and attention offered to each investors
Research support and timely advice by our high-tech research wing
An extensive network of branch offices
A perfect blend of latest technology and rich experience of over 20

years
Honesty, transparency and fairness imbibed in all our dealings

Providers of one of the best trading platforms in terms of speed,

convenience and risk management to trade in NSE, BSE, F&O, NCDEX,
MCX,, MCX-SX, NMCE, ICEX, ACE & DGCX
Founders & Promoters
Subhash C. Aggarwal
Chairman & Managing Director: SMC Global Securities Ltd

42

Mr. Aggarwal is co-founder and promoter of SMC Group. He has vast

experience, in-depth knowledge and strong understanding of various
intricacies of the Securities Market and Financial Services. He has
exhaustive and rich experience of securities business of more than 20
years. His exceptional leadership skills and outstanding commitment have
made this group one of the leading brokerage and distribution houses of
the country. Under his leadership, SMC has diversified its business from
stock broking and arbitrage to Commodities Broking, Distribution of
Mutual Funds, IPOs, Insurance products, Wealth Management and
Advisory Services. Mr. Aggarwal is a Fellow member of ICAI.
Mahesh C. Gupta
Vice-Chairman & Managing Director: SMC Global Securities Ltd .
Mr. Gupta has co-founded and promoted the SMC Group. He has rich
experience of more than 20 years in the securities market. His exceptional
leadership skills and outstanding commitment has made SMC as one of the
leading investment solutions and services provider. He possesses expertise
in managing and controlling the finance needs, risk management and
surveillance. His disciplined style of working is an inspiration to the
workforce of SMC. Mr. Mahesh C. Gupta is a fellow member of ICAI
Corporate Ethos
Our Vision
To be a global major in providing complete investment solutions, with
relentless focus on investor care, through superior efficiency and complete
transparency.
Core Values
Ethical deals: Honesty is the only policy.
Experience and trust: Over 20 years of experience has made SMC earn the
trust of more than 6,00,000 Investors
Expertise: Know-how and skills to provide investors an edge.
Personalised Solutions: Every investor is unique. Every solution is unique.
Our Approach
Value for investors trust:SMC values the trust reposed in by the clients
and is committed to uphold it at all cost.
Integrity and honesty: Integrity, honesty and transparency are the
underlying principles in all our dealings.
Personaliszed attention:The most valued asset is our relationship with the
clients, which has been built over years by giving personalized attention.
Network which works: SMC has a vast network extending to 425+cities
and towns ensuring easy accessibility, convenience and hassle free trading

43

experience.
Research based advisory services: SMC offers proactive and timely world
class research based advice and guidance to its clients to enable them to
take informed decisions.
Our Credentials

Best Equity Broking House (Source: BSE-Dun and Bradstreet,

2010)
Largest distribution network in the country (Source: BSE-Dun and

Bradstreet, 2010)
Awarded the Fastest Growing Retail Distribution Network in

financial services (Source: Business Sphere, 2010)

Received Major Volume Driver award from BSE for 3 years

consecutively(2004-05, 2005-06 and 2006-07)

Nominated amongst the top 3, in the CNBC Optimix Financial

Services Award 2008 under "National Level Retail Category"

Amongst the First Financial Firms in India to expand operations in

the lucrative gulf market, by acquiring license for broking and

clearing member with Dubai Gold and Commodities exchange
(DGCX)
One of the largest proprietary desk for doing near risk-free arbitrage
in equities and commodities

Institute of Economic Studies (IES) has honored our Chairman with the
Pride of India and Udyog Rattan awards. Also, IIFS has conferred him
with Glory of India award recently
Memberships & Registrations
Trading Member of NSE, BSE, NCDEX, MCX, DGCX, NMCE, ICEX,
ACE, MCX-SX ,National Spot Exchange Ltd.(NSEL) & NCDEX Spot
Exchange Ltd.( NSPOT).
Clearing Member in NSE (F&O, Currency), BSE (F&O, Currency),

MCX (Commodities), NCDEX, MCX-SX, ICEX, ACE & DGCX

Depository Participant with CDSL & NSDL
Category 1 Merchant banker
Corporate Insurance Broker for Life & General Insurance
(Registered with IRDA)
Distributor of IPOs & Mutual Funds (Registered with AMFI)
Portfolio Management Services (PMS) registered with SEBI
Non Banking Financial Company (NBFC) registered with RBI

44

Association with London based ICON Capital,

(Registered under FSA & NSA ,London)

ACE Derivatives and commodities Exchange (ACE)

Register
With more than 2300 offices across 425 cities and a substantial client base
of over 6,00,000 satisfied investors, SMC is known for its life-long and
steady relationships with all its Business Partners/Associates. We believe
in long-term commitment and association that plays a vital role in the
growth of any business.
SMC believes in growing with its Business Partners/Associates. Our
dedicated efforts and continuous improvement in our services has made us
one of the most respected and largest broking houses with a huge network
of Business Partners/Associates across India. SMC provides its sub-broker
with the right tools and support. Association with SMC means a strong
bond with one of the largest broking firms of India. SMC invites you to
become a Business Partners/Associates
Offerings
SMC facilitates trading activities in all the major market segments
including; equity, derivatives, commodities, interest derivatives and
currency futures. Its robust and user-friendly trading platform enables to
execute trades simultaneously across all Segments. We also have whole
bucket of other services like online trading, depository, IPO, mutual funds,
insurance broking, institution broking, margin funding, NRI services,
clearing services, investment banking, PMS

A broking house having perfect blend of latest technology and rich

experience of over 20 years. Technological tools include VPN

network of HCL Comnet, HECL, Aircel & Tulip.
Best Equity Broking House (Source: BSE-Dun and Bradstreet,

2010)
Largest distribution network in the country (Source: BSE-Dun and

Bradstreet, 2010)
Received Major Volume Driver award from BSE for 3years

consecutively
Awarded fastest growing Retail Distribution Network in financial

services (source: Business sphere, 2010)

Large avenues of investment solutions and financial services under
one roof.

45

Overall support in start-up, training, marketing, advertising, client

acquisition and recruiting etc.

Perfect back office support which helps you to make their dealing

with company as well as clients in very efficient manner

Strong research support backed by high end technology
One of the best trading platforms in terms of speed, convenience

and risk management

Marketing support though TV, Newspapers, Website, Brochures,

Posters, Personalized solution and attention offered to each investor

Clearing Services
Overview
SMC is one of the leading clearing members, which currently manages the
clearing services for more than 134 trading members in different segments
of different exchanges.
Our offerings
We are Clearing Member of NSE (F&O, Currency), BSE (F&O, Currency),
MCX (Commodities), MCX-SX, NCDEX, ICEX, ACE & DGCX
Our edge

Trusted name in Broking Industry

One of the leading Clearing member of NSE
Incredible track record of timely delivery of Commitments
Concern about timely need of Trading Members being, in the same

fraternity
Attitude to follow the best practices in the Industry
Committed approach to business
Technologically sound to cope with the growing needs of Trading

Members
Senior Professional personnel for every service need

Currency

46

Overview
Currently in India, there are 3 major exchanges offering Currency future
trading NSE, BSE & MCX-SX. SMC Global Securities is a trading cum
clearing member of all these exchanges for the currency segment. We
believe in the tremendous potential of currency future to become a
dominant force of the Indian financial market with a turnover which can
outperform even equity and commodity segment. We firmly believe that
wider market participation will bring more strength to the market & this
can be achieved through disseminating education & information among
various market participants. For us, currency is not just any other segment
of business; it is "the business of future".
Our Offerings
Offline trading: This is the most traditional way of carrying out trading in
financial markets. Clients can place their orders with our nearest branch
by visiting them personally or on the phone.
Online trading: Online trading offers the convenience to trade from the
comfort of your home / office. We provide trading software which can be
downloaded by the client on any system. Through their user ID &
password, clients can start trading online. Alternatively, we also provide
the facility to trade through our browser based application.
Corporate advisory: We believe that corporate participation is the key to
growth of this segment. We understand that corporates have a very special
set of requirements for hedging as well as investment. Every business
needs customized solutions to its requirements and that is what we deliver
- hedging / investment solutions based on what is best-suited to the
business dynamics. Our dedicated team of Relationship Managers ensures
that our deliverables exceed the expectations & a long-lasting relationship
is built
Commodities
Overview
SMC Comtrade Limited, a key constituent of SMC Group of Companies,
came into existence at the very start of Commodity Exchanges in India.
47

With nationwide presence, it enables the retail & corporate investors to

diversify their portfolio and enjoy the benefits of commodity trading in
MCX, NCDEX, NMCE & ICEX. Our highly appreciated research team
guides the investors to make wise investment decisions for agricommodity market as well as international commodities trading.
SMC Comex International DMCC (part of SMC Group) is one of the
initial, leading & experienced clearing and broking members of Dubai
Gold and Commodities Exchange (DGCX). It offers commodity trading in
Gold, Silver, Crude (WTI & Brent), Forex (INR, Euro, Dollar & Sterling)
and Steel Rebar Contracts. For more information, visit
www.smccomex.com
Depository
Overview
Depository Participants (DP) offers a safe & convenient way to hold
securities in electronic form as compared to paper form. It offers freedom
from delays, forgeries, settlement risk and paper work. SMC provides an
integrated single platform for our clients ensuring a quick, risk free and
efficient process. We are participants of Central Depository Services
Limited (CDSL) and National Securities Depository Limited (NSDL). We
believe in efficient, cost-effective and integrated fixed deposit services
support to our brokerage business India. SMC, as a Depository Participant,
offers depository accounts to individual investors as well as corporate
houses, which enables them to trade in the dematerialized environment.
We are one of the few Depository Participants offering depository
facilities for commodities. We are empanelled with NCDEX, MCX and
spot exchanges.
Institutional Broking
Overview
Institutional Broking Services at SMC cater to the investment needs of
leading domestic and foreign institutional investors. Backed by incisive
research, this division is a one-stop investment gateway and knowledge
repository for the clients, servicing their unique and sophisticated needs.
Our offerings
48

Our efficient execution, quality research, top quality human resources and
complete compliance with stock exchange regulations as well as business
standard ethics lend towards our exemplary institutional services to
investors through:
IPOs
Equities
Derivatives
Mutual Funds
We also focus on identifying undiscovered value stocks to investors.
Through our gamut of institutional services, this division is well suited to
the investment side of all classes of institutional investors including
Mutual Funds , Insurance Companies , Banks, and FIIs
Our edge

A wide array of products and services, specifically aimed at serving

unique needs of unique clients.

A research division with a designated team for each asset class and

sector to evaluate market trends and make unbiased and objective

reports
Specialized services for international investors
Idea Generation and Stock Picks
In-depth, detailed and insightful coverage across different sectors
which comprise :
o Initiating coverage reports
o Result Previews
o Result Updates
o Sectoral Reports
o India Strategy Reports

An international distribution network servicing the needs of institutions &

corporate
Clearing Services
Overview

49

SMC is one of the leading clearing members, which currently manages the
clearing services for more than 134 trading members in different segments
of different exchanges.
Our offerings
We are Clearing Member of NSE (F&O, Currency), BSE (F&O, Currency),
MCX (Commodities), MCX-SX, NCDEX, ICEX, ACE & DGCX
Our edge

Trusted name in Broking Industry

One of the leading Clearing member of NSE
Incredible track record of timely delivery of Commitments
Concern about timely need of Trading Members being, in the same

fraternity
Attitude to follow the best practices in the Industry
Committed approach to business
Technologically sound to cope with the growing needs of Trading

Members
Senior Professional personnel for every service need

Distribution
Overview
SMC offers distribution services of IPO, Mutual Funds, Public Issues,
Company Fixed Deposits, Bonds, Acquisitions and Mergers through
its mammoth network of branches across India. We assure you a
hassle free and pleasant transaction experience through us. Our focus
is to offer integrated solutions for your investment needs of our
investors
Our offerings

Mutual funds: The range of products includes liquid, gilt, debt,

equity and balanced funds. Moreover, the setup of a legal structure
safeguards investors interests & ensures that they are not cheated
out of their hard-earned money. Click here to access complete
information on Mutual Funds.
50

Public issues: It is the first sale of a company's common shares to

public investors. This paves the way for listing and trading of their
securities on the stock exchange. With expert analysis and timely
advice, it can prove to be a highly profitable investment. Click
here to know more about public issues.

Fixed deposits: Company Fixed Deposit is an attractive option for

regular income with option to receive monthly, quarterly, half
yearly & annual interest income. Fixed Deposits in companies earn
a fixed rate of return for specified time period. Deposits mobilised
are governed by the Companies Act under Section 58A. It may be
noted that deposits are unsecured, and hence in of any default by
of company, the investor cannot sell the documents to recover his
capital, thus making it a risky investment option. Click here to
access complete details of Company Fixed Deposits

Research
Overview
With the EIC (Economy, Industry, Company) approach, our Research
team offers timely Research reports covering investment summary, trend
of world markets, sector trends, commodity trends. The same is covered
in our esteemed weekly magazine Wise Money. We have a team of
highly experienced analysts, who cover stocks, commodity, currency,
mutual funds and special reports. All our research reports, estimates and
enhanced analytics are available on our website
www.smctradeonline.com
Our offerings
Equity Reports:

Morning Mantra

Evening Buzzer

Derivatives

IPO Reports

Wise Money equity content.

51

Commodities Reports:

Morning Mantra- Agri

Morning Mantra- metals & energy

Afternoon Metals & Energy

Evening Buzzer- Agri & Metals

Special Commodities Updates

Trading opportunity report

DGCX Daily

Currency Reports:

Currency Daily

Afternoon Currency Buzzer

Mutual fund Reports:

NFO Analysis

Mutual Fund Tracker

Mutual Fund Weekly update

Portfolio Monitor

Special reports:

Result Updates

Pre-Budget Analysis

Post-Budget Analysis

Newsletters:

Wise Money

Online Trading
Overview

52

SMC Online is your single gateway for all your financial needs. Now,
you can invest online in Equities, Commodities, IPOs, Mutual Fund
Schemes and Currency Futures anywhere anytime. You can access a
multitude of resources like live quotes, charts, research, advice and
online assistance to help you take informed decisions. You can also
access your account from anywhere using our Call-N-Trade services. So
get empowered and enrich your experience of online trading, which
opens the door to a whole new world of possibilities to get convenient &
hassle-free online stock trading experience.
Our offerings
SMC Trading Platforms offer investors the ease and convenience of an
uninterrupted trading experience. SMC offers seamless Online Trading
experience with freedom to opt for a product that meets your needs:

SMC SELECT - Easy to use simple web-based trading platform for

beginners

SMC EXCLUSIVE - Advanced web-based trading platform with

live streaming quotes

SMC PRIVILEGE - Software-based trading platform for active

traders.

SMC Mobitrade - state-of-art mobile trading application.

Clients opting for above mentioned products get facility to invest in IPOs
& Mutual Fund schemes at no extra cost

Our edge

Convenience of integrating the Bank, Trading and Demat accounts

with attractive brokerage options

Designed for better speed for instant order & trade confirmation

Lifetime free AMC option

User friendly platforms

53

24 X 7 online back office access

Pan-India presence

Dedicated customer care

Excellent research & advisory support

A range of trading options

Wealth Management
Overview
At SMC Wealth, we abide by one principle, Precious solutions for your
Precious Wealth. We bring together a comprehensive knowledge base
with over two decades of experience to design customized solutions.
SMC Wealth Management Services Ltd. is a joint venture between Indias
SMC Group and Sanlam Group of South Africa. Our dedicated Wealth
Managers develop personalized wealth management strategies for our
clients by listening to them and understanding their financial needs and
goals. Our investment solutions cater to the financial needs of high networth individuals, retail clients, corporate houses and financial
institutions.
Our offerings
Our wealth management services include:

Portfolio Management Services

Multi Manager Investment Solutions

Portfolio Advisory

Trading in Equity, Currency, Interest Rate Futures

Depository Services

Mutual Funds & IPOs

Fixed Income Products

Near Risk-free Arbitrage Products

Structured Products

Investment Banking
Overview
SMC Capitals Limited is the Investment Banking arm of SMC group and
is a SEBI registered Category I Merchant Banker with strong

54

management team; financial sponsors and corporate partners to help

corporate clients and HNIs achieve their financial and strategic goals. We
offer a wide spectrum of investment banking services covering Corporate
Advisory, Public Issues Management, Capital Restructuring, Private
Equity and Debt Syndication, Merger & Acquisition Advisory, Valuation
Services and ESOP.
SMC Capitals is associated with London-based ICON Capital. ICON is
authorized and regulated by the Financial Services Authority (FSA), UK
and is a member of the London Stock Exchange (LSE) which helps
companies to raise money from foreign markets by issuing ADR, GDR
and IDR. ICON is also an approved broker for the AIM segment of the
LSE.
Our offerings
SMC capitals offers a wide spectrum of services covering:

Corporate Advisory

Public Issue Management

Capital Restructuring

Private Equity and Debt Syndication

Buybacks

Delisting

ESOP

QIPs

FCCBs

Insurance
Overview
SMC offers risk management services and a complete range of insurance
solutions through its subsidiary company SMC Insurance Brokers Pvt.
Ltd. The company holds a Direct Insurance Broker's license from
Insurance Regulatory and Development Authority (IRDA) and provides a
wide array of Life Insurance and General Insurance products under

55

professional guidance of experts in the field. SMC provides customized

solutions to individual clients, small and medium enterprises as well as
to the leading corporate houses and institutions across the country.
Our edge

Pan India presence with own branches in over 48 locations and

2300+ offices of group companies

3000+ strong team of employees

1,00,000+ customers

1500+ man years of General Insurance experience

Robust IT Infrastructure with over 1 lac Sq. ft. office space

Widest possible product range

A team of passionate professionals with strong Domain knowledge

and expertise

Flexibility to choose product of any insurance company

56

ANALYSIS AND
INTERPRETATION

Overview of Public Issues Offered in 2012 in Indian Market

Abstract
The article presents an overview of the public issues that were offered in 2012 in
Indian market. This article would be useful to both individuals and businesses who
want to understand the behavior of public issues that are being offered in India. If read
along with the previous article titled Analysis of Public Issues Offered in 2011 in
Indian Market by the author, the reader would be able to understand the comparative
trends and features of the IPOs offered in Indian Market.
Introduction
In the year 2012, 30 Initial Public Offerings (also called, IPOs, issues) came out
between January 2012 and December 2012, which was 29% less than 2011. Out of
them, 3 issues (Plastene India Limited, Samvardhana Motherson Finance Limited and
Goodwill Hospital) were later withdrawn due to poor response from the public. The
57

27 remaining issues were listed at different platforms of Bombay Stock Exchange

(BSE) and National Stock Exchange (NSE), the leading exchanges in India.
For the first time, all the initial offerings with post-issue paid-up capital not exceeding
Rs.25 Crore, called Small and Medium Enterprises (SME), were listed on a separate
platform of both BSE and NSE. Out of 27 IPOs, 12 were listed at BSEs SME
platform, 2 issues (Veto Switchgears and Cables Limited, Thejo Engineering Limited)
were listed on NSEs EMERGE platforms and 13 on the main platform of the two
exchanges.
From the 27 issues, the equity worth Rs 7,806.98 Crore was raised from the public by
offering close to 40 Crore shares. In 2012, the equity raised was only 60% of 2011
(equity raised was Rs 13,063.24 Crore), whereas the number of shares offered were
only 22%.
Features of public issued offered in 2012
Bharti Infratel Limited had the biggest issue size, amounting to Rs 4,172.31
Crore where as Jupiter Infomedia Limited had the smallest issue size,
amounting to Rs 4.08 Crore only. The average issue size was Rs 289.15 Crore.
The highest issue price was Rs 1,032 / share and the issue was offered by Multi
Commodity Exchange of India Limited while the lowest issue price was Rs
10 / share and the issue was offered by RCL Retail Limited and Comfort
Commotrade Limited.
The average issue price was Rs 162.9 and the average number of equity shares
offered was 14,878,656.
Maximum number of equity shares was offered by Bharti Infratel Limited,
amounting to 188,900,000 while the minimum number of equity shares was
offered by Thejo Engineering Limited, amounting to 472,800.
Maximum number of issues were from Finance (including NBFCs) / Financial
Services Industry (5), followed by Other Apparels and Accessories industry
(4).
For the first time since 2008, issues from Giift Articles,Toys & Cards industry
and Departmental Stores industry (Olympic Cards and RCL Retail Limited
respectively) were offered.

58

Issue with highest Post issue paid-up Capital was of Comfort Commotrade
Limited (59.88%) and the lowest was of Bharti Infratel Limited (10%).
[divider][divider]
Maximum number of issues was offered from companies that were registered in
Maharashtra (15), followed by Delhi (4) and Tamilnadu (3).
In 7 issues (26%), the registrar was Karvy Computershare Private Limited
followed by Cameo Corporate Services Limited (5 issues; 19%).

Issues offered and their grading

Year 2012 saw variety of issues being offered. So the grading policies were also
diverse. According to Chapter IX-B of SEBI Regulations, 2009, it was not mandatory
for the issues under SME category to go for the grading. 12 Issues that were listed
at BSE SME did not get any grade. 2 issues on NSE EMERGE were graded 4/5 (Veto
Switchgears and Cables Limited) and 5/5 (Thejo Engineering Limited) respectively,
indicating above average and excellent fundamentals in comparison to other SMEs in
India.
2 issues (Godrej Properties Limited and Godrej Industries Limited) were for the
Qualified Institutional Buyers (QIB) and adhered to the Chapter VIII-A of the
Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements, ICDR) regulations, 2009 so they were not given any grade.
1 issue (Credit Analysis And Research Limited CARE), being the grading agency
itself, has been exempted by SEBI (pursuant to Regulation 109(b) of the SEBI
Regulations) from obtaining an IPO grading for the offer.Out of the remaining 10
issues, only 2 were rated Grade 1 and 8 were evaluated as having Grade 3 or more on
a scale of 1 to 5.
Issues offered and their industry

59

Figure above shows the top 3 industries on the basis of the amount of capital raised.
We can see that 1 issue of Other Telecom Services industry raised about 3.4 times the
money raised by 5 issues of Finance / Financial Services Industry and about 4.2 times
the money raised by 4 issues of Other Apparel & Accessories Industry.
Summary
We analyzed the public issues offered in 2012 to reveal some interesting results. We
could see that amount of capital raised by a particular industry was not necessarily
dependent on the number of issues offered.
About 52% (14 out of 27) issues were from Small and Medium Enterprises, indicating
that small scale industries are growing in India. Also, by providing a separate platform
for trading of SMEs established the fact that SEBI (regulator of Financial Market in
India) also wanted small industries to play an active role in Indian economy.

List of Upcoming IPO's, Current IPO's and Recently Closed IPO's in India
Offer
Issuer Company

Issue Open

Issue Close

Price
(Rs.)

Stellar Capital Services Ltd

IPO

Oct 15, 2013

Oct 18, 2013

20/-

Issue
Issue

Size

Type

(Crore
Rs.)

IPO-FP

9.00

60

Amrapali Capital and Finance

Services Ltd IPO
MITCON Consultancy &
Engineering Services Ltd IPO
VCU Data Management Ltd
IPO
Subh Tex India Limited IPO
Newever Trade Wings Ltd IPO
SRG Securities Finance Ltd
IPO
Satkar Finlease Limited IPO
Tiger Logistics (India) Ltd IPO
Ace Tours Worldwide Ltd IPO
Kushal Tradelink Ltd IPO
VKJ Infradevelopers Ltd IPO
Silverpoint Infratech Ltd IPO
GCM Commodity &
Derivatives Ltd IPO
Alacrity Securities Ltd IPO
Money Masters Leasing &
Finance Ltd IPO
Edynamics Solutions Ltd IPO
India Finsec Limited IPO
Onesource Techmedia Ltd IPO
Just Dial Ltd IPO

Oct 15, 2013

Oct 18, 2013

100/-

IPO-FP

25.78

Oct 15, 2013

Oct 18, 2013

61/-

IPO-FP

25.01

Oct 04, 2013

Oct 08, 2013

25/-

IPO-FP

18.75

Sep 30, 2013

Sep 30, 2013

Oct 07, 2013

Oct 03, 2013

10/10/-

IPO-FP
IPO-FP

3.50
6.32

Oct 07, 2013

Oct 14, 2013

20/-

IPO-FP

5.02

Sep 25, 2013

Aug 27, 2013
Sep 09, 2013
Aug 14, 2013
Aug 12, 2013
Aug 12, 2013

Sep 27, 2013

Aug 29, 2013
Sep 12, 2013
Aug 21, 2013
Aug 16, 2013
Aug 14, 2013

18/66/16/35/25/15/-

IPO-FP
IPO-FP
IPO-FP
IPO-FP
IPO-FP
IPO-FP

13.51
7.52
8.00
27.75
12.75
12.00

Aug 01, 2013

Aug 05, 2013

20/-

IPO-FP

7.02

Jul 29, 2013

Aug 01, 2013

15/-

IPO-FP

9.00

Jul 23, 2013

Jul 26, 2013

15/-

IPO-FP

2.00

Jun 10, 2013

May 24, 2013
May 17, 2013

Jun 12, 2013 25/May 28, 2013 10/May 21, 2013 14/470/-

IPO-FP
IPO-FP
IPO-FP

15.60
6.00
2.80

May 20, 2013

May 22, 2013 to

IPO-BB

543/Scotts Garments Ltd IPO"

href="http://www.chittorgarh.c
om/ipo/scotts_garments_ipo/37
6/"Scotts Garments Ltd IPO
Samruddhi Realty Ltd IPO
Ashapura Intimates Fashion
Ltd IPO
Opal Luxury Time Products
Ltd IPO
Lakhotia Polyesters (India) Ltd
IPO
GCM Securities Ltd IPO
Bothra Metals and Alloys Ltd

822.38 950.11

118/Apr 25, 2013

May 03, 2013 to

IPO-BB

120/Mar 28, 2013

Apr 03, 2013

12/-

IPO-FP

2.60

Mar 28, 2013

Apr 04, 2013

40/-

IPO-FP

21.00

IPO-BB

13.00

130/Mar 25, 2013

Mar 28, 2013

to
135/-

Mar 19, 2013

Mar 21, 2013

35/-

IPO-FP

5.08

Mar 18, 2013

Mar 12, 2013

Mar 20, 2013

Mar 14, 2013

20/25/-

IPO-FP
IPO-FP

12.18
12.21

61

IPO
165/Repco Home Finance Ltd IPO

Mar 15, 2013

to

IPO-BB

270.39

Mar 01, 2013

Mar 05, 2013

172/35/-

IPO-FP

15.75

Feb 22, 2013

Feb 26, 2013

25/-

IPO-FP

11.67

Feb 18, 2013

Feb 21, 2013

20/-

IPO-FP

10.62

Feb 20, 2013

Feb 22, 2013

5.10

Sai Silks (Kalamandir) Ltd IPO Feb 11, 2013

Feb 13, 2013

40/IPO-FP
70/- to
IPO-BB
75/195/-

V-Mart Retail Ltd IPO

Feb 05, 2013

to

IPO-BB

94.42

HPC Biosciences Ltd IPO

Channel Nine Entertainment
Ltd IPO
Sunstar Realty Development
Ltd IPO
Kavita Fabrics Ltd IPO

Mar 13, 2013

Feb 01, 2013

89.00

215/Esteem Bio Organic Food

Processing Ltd IPO
Eco Friendly Food Processing
Park Ltd IPO

Jan 18, 2013

Jan 22, 2013

25/-

IPO-FP

11.25

Dec 27, 2012

Dec 31, 2012

25/-

IPO-FP

7.52

210/Bharti Infratel Limited IPO

Dec 11, 2012

Dec 14, 2012

to

IPO-BB

240/125/PC Jeweller Ltd IPO

Credit Analysis & Research

Ltd IPO
Veto Switchgears and Cables
Ltd IPO

Dec 10, 2012

Dec 12, 2012

to

4,155.8
0

IPO-BB

609.30

IPO-BB

539.98

IPO-BB

25.00

135/700/Dec 07, 2012

Dec 03, 2012

Dec 11, 2012

Dec 05, 2012

to
750/48/- to
50/-

62

Case Study On Just Dial:

Issue Detail:
Issue Open
Issue Type
Issue Size

Issue Size
Face Value
Issue Price

Market Lot
Minimum Order Quantity
Listing

May 20, 2013 - May 22, 2013

100% Book Built Issue IPO
17,497,458 Equity Shares of
Rs.
Rs.
Rs.
Rs.

10
822.38 - 950.11 Crore
10 Per Equity Share
470 - Rs. 543 Per Equity

Share
25 Shares
25 Shares
BSE, NSE, MCX-SX

Incorporated in 1996, Justdial Limited (Just Dial) is popular local search service
provider in India. Just Dials search services are available to users through Internet,
mobile Internet, telephone and text (SMS).
Just dial is a 24/7 Free Search service on a single national number 08888888888 that
receives over 130 Million Calls every year. It provides reliable information about
local businesses, products and services to the users in over 2000 cities in India. They
have more than 300 million customers using JustDial Services.
Selling advertisement and qualified leads is the main source of earning for Justdial.
They have more than 145,000 paid advertisers. Companies promote their brand across

63

the Just Dial network and reach millions people who are actively looking for
information about the products and services. There are 4 ways available to promote
brand or advertise on JustDial including Listing on Web, Listing on Phone Search,
Listing on Mobile Search and Placing Video Ads.
Key milestones
Yer Event

1993 A&M Communications Pvt. Ltd was incorporated

1996 Commencement of local search services in Mumbai with the telephone number 888 8888
1997 The brand Just Dial was registered
2000 Secondary sale of 50% stake by promoters to Indiainfo.com Pvt. Ltd
2006 Investment of ~Rs 546.9 mn by SAIF II Mauritius Company Ltd (SAIF)
2006 Change of companys name from A&M Communications Pvt. Ltd to Just Dial
Pvt. Ltd
2007 Launch of the companys website http://www.justdial.com
2007 Investment of ~Rs 40.1 mn by Tiger Global Four Holdings and Tiger Global
Principals Ltd and second round of investment of ~Rs 8.2mn by SAIF
2007 Launch of mobile internet and SMS-based search service
2009 Investment of Rs 383.5 mn by Sequoia Capital India Investments III (Sequoia
Capital), Investment of 308.8 mn by Tiger group andInvestment of Rs 95.9 mn by
SAIF
2011 Investment of Rs166.9 mn by SAPV (Mauritius) and Rs166.9 mn by EGCS
Investment Holdings
Source: DRHP

64

Strengths
Riding the Growth in Online Advertising The online advertising market is
growing rapidly since it reaches the target audience at a cheaper cost as
compared to traditional media. Justdial has taken advantage of this shift as the
number of campaigns on its platform have grown from 40,500 in March, 2009
to 195,100 in March, 2013.
Positive Cash Flows Justdial has shown consistent and continuous revenue
growth every year. The companys negative working capital cycle and
impressive operating leverage have helped it deliver a steady growth in cash
flows and a high return on equity.
Risks
Emergence of Disruptive Technologies Justdial needs to be ahead of the curve
in anticipating changes in technologies and predicting user behavior to
maintain its market share. New technologies enabled by rising data usage on
mobiles could disrupt its business.

65

Grade
CRISIL IPO Grade 5/5: This grade indicates that the fundamentals of the issue are strong, relative
to other listed equity securities in India. However, this grade is not an opinion on whether the issue
price is appropriate in relation to the issue fundamentals.

Grading summary
CRISIL has assigned a CRISIL IPO grade of 5/5 (pronounced five on five) to the
proposed IPO of Just Dial Ltd (Just Dial). This grade indicates that the fundamentals
of the IPO are strong relative to the other listed equity securities in India. However,
this grade is not an opinion on whether the issue price is appropriate in relation to the
issue fundamentals. The grade is not a recommendation to buy, sell or hold the graded
instrument, its future market price or suitability for a particular investor.
The assigned grade reflects Just Dials strong position in the local search market
across India. Leveraging its first mover advantage in phone-based search engine, Just
Dial has created Indias largest local search database (~7.2 mn products and service
providers) and a business model which has been difficult to replicate. Its search
volume has grown multi-fold, thanks to its fast service, relevant search results,
updated database and technology, whereby it has created a strong brand image. It has
successfully grown its paid campaigns by more than four times over FY09-12 to
171,000 in end- FY12, and enjoys 100% advance payments from its clients, who are
mostly micro, small and medium enterprises (MSMEs).
The grade is further strengthened by Just Dials experienced and proactive
management, who has enabled the company to meet users expectations on two fronts:
technology and search content. Having initiated with phone-based search, it was quick
to embrace the new-era media of the mobile phones (SMSes), internet and mobile

66

internet. Further, the company has indigenously developed its technology platform
and search algorithm which enables it to provide search results that are relevant to
users requirements. The number of search requests across all search platforms was
~254 mn in FY12 up from 26 mn in FY07.
While Just Dial has consistently innovated itself and stayed ahead of its competitors,
who are mostly loss making, any aggressive move by larger players, like Google
India, remains a key monitorable. As the company grows, maintaining management
bandwidth to oversee the growth will be a monitorable, particularly in the backdrop of
global expansion through a different promoter entity. Also, Just Dial has to keep itself
abreast of new technologies and new applications to stay ahead of the pack. Just Dial
has grown its revenues at a four-year CAGR of ~40% to Rs 2,621 mn in FY12 and
improved its PAT margin to 20.0% in FY12 from 3.3% in FY07. Accordingly RoE
improved to 52.2% in FY12 from 14.6% in FY07. It reported EPS of Rs 9.4 in FY12.
The company is debt free with negative working capital cycle.

67

68

Conclusion / Investment Strategy

We recommend that investors subscribe to Just Dial Ltds IPO for listing gains.
The company has built a strong brand in the local search space which is being
monetized by capturing marketing spends of local businesses. We expect heavy
institutional interest for this issue due to its unique business model and rapid revenue
growth.
It appears that as promoters have to honour the "Safety Net" they too have opted for
some dilution of stake to keep some buffer with them so that in the event of "Safety
Net" clause application, it can pay from the buffer created and hence the issue size has
more than doubles of its original plans and even higher than the CRISIL's
consideration.
On the performance front, the company has posted an average EPS of Rs. 6.05 (on
consolidated and fully diluted basis-with a CAGR of 40.2% in top and 135.1% in
bottom-line respectively) and its NAV as on 31.12.2012 is Rs. 57.51. For the first 9
months of the fiscal 2012-13 it has clocked turnover of Rs. 271.61 crore with a net
profit of Rs. 47.08 crore and as the equity capital post IPO remains the same due to
offer for sale, this translates into an annualized EPS of Rs. 8.99 and thus the asking
price is at a P/E of 52 to 60 and at a P/BV of 8.2 to 9.4 based on lower and upper price
band. Thus issue is aggressively priced. The company has no listed peer for
comparison.
The company is now facing competition from Askme, Asklaila, Getit, Sulekha etc and
hence the first mover gains made in the past may see diminishing pattern going
forward.
On BRLM's front, Citi Group and Morgan Stanley had mandate for 17 and 11 IPOs
and out of them 4 IPOs failed to give listing gains to investors from both of them.
Remark: Apply at the lower price band at Rs. 423 per share (with upfront 10%
discount to retail investors) for a lot as applicable under "safety net". (i.e. one can
apply for a maximum of 100 shares or 4 lots to qualify for Safety Net)
Why to apply for just dial IPO.?

Just dial is a debt free company

Strong Market Presences across the country

Reserves Payment in Advance

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Good Expansion Planes

http://investmentguruindia.com/Researcharticles/IPO%20Note%20-%20Justdial170513.pdf
Just Dial Ltd Stock Quotes & Charts:

Interpretation:
" Just Dial looks good for about Rs 1,250 but it is more of a trailing the stoplosses in
the stock rather than taking a fresh view. So largely any dip towards Rs 850-900 will
give some idea of going long in it. The trend continues to remain strong but right now
it is more of a level where one would look to take profits." At 15:11 hrs Just Dial was
quoting at Rs 960.20, up Rs 77.15, or 8.74 percent. It has touched an intraday high of
Rs 999.90 and an intraday low of Rs 884. The share touched its 52-week high Rs
1,046.05 and 52-week low Rs 530.00 on 07 October, 2013 and 04 June, 2013,
respectively. Currently, it is trading 8.21 percent below its 52-week high and 81.17
percent above its 52-week low. Market capitalisation stands at Rs 6,726.46 crore.

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Findings & Conclusion

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Findings
An IPO company is difficult to analyze since there isn't a lot of historical info.
An IPO is the first sale of stock by a company to the public.

An analysis of the BSE-listed companies shows that as many as 44

out of the 69 stocks are trading below their issue prices fixed after
their initial public offers.
Just Dial looks good for about Rs 1,250 but it is more of a trailing the
stoplosses in the stock rather than taking a fresh view. So largely any dip
towards Rs 850-900 will give some idea of going long in it.
On BRLM's front, Citi Group and Morgan Stanley had mandate for 17 and 11
IPOs and out of them 4 IPOs failed to give listing gains to investors from both
of them.
Remark: Apply at the lower price band at Rs. 423 per share (with upfront
10% discount to retail investors) for a lot as applicable under "safety net".
The costs of an initial public offering are small as compared to the costs of
borrowing large sums of money for ten years or more,
An IPO is a costly undertaking. A typical firm may spend about 15-25% of the
money raised on direct expenses. Even more resources are spent indirectly
(management time, disruption of business).
Investors evaluate an IPO maximum from Promoters of the company,
prevailing Market Trend & Recent IPO performance & Issue Size of the IPO
and minimum from Suppliers of the company, Listing in Well Known Stock
exchanges & Media Advertisements.

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Conclusion
Broadly speaking, companies are either private or public. Going public means
a company is switching from private ownership to public ownership.
Getting in on a hot IPO is very difficult, if not impossible.
The process of underwriting involves raising money from investors by issuing
new securities.

Thus we have studied about the organisation and various forms of

organisations. How the funds can be raised is studied so as to know the
effective way of accessing capital for the organisation.

The study about IPO and its methods helped us to know the different ways of
going for an IPO.
Analysis of financial markets helped to know about the various types of
markets.
The advantages and disadvantages of going for an IPO are studied.
Thus the overall knowledge about IPO is gathered.
An IPO company is difficult to analyze since there isn't a lot of historical
info.

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.

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 The new issue market failed to mobilize adequate savings from the house
hold secor only 10.8% of financial savings was mobilized one reason for such
failure is lack of awareness.

SUGGESTIONS

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Suggestions
Government raises threshold for public shareholding in listed companies: The
Indian government today amended the Securities.
Contracts (Regulation) Rules, making it mandatory for listed companies to
have a minimum public holding of 25%.
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.
For example- we can take the example of Reliance power. The Investors
invested in huge amounts with the faith that they will get good returns but
nothing happened so when the IPO got listed. So one should think and invest
in IPO.
Primary market is more volatile than the secondary market because all the
companies are listed for the first time in the market so nothing can be said
about its performance.
If higher risk is taken, it is 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.
Initial return given by the IPO should not be treated as indication of its success
or failure in the long run.

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 Investors of the secondary market must take part in the primary markets as it
has been seen that IPO activity in Indian Stock Market has been tremendously
growing. And IPO is the safest stock market investment.
Over subscription should be treated as indication of success of the issue.
Investors must analyze all the sectors before investing in the IPO, in order to
get maximum returns.
Investors should take into consideration the promoters of the business, the
prevailing market trend & Recent IPO performance before investing in an
IPO.

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

to make thorough fundamental study of any IPO before taking the decision. As
sometimes a fundamentally strong company may not provide good returns due
to some reasons as in case of Cairn India Ltd.
Before taking an IPO investment decision it is very necessary to study the
stock market behavior at that time since it can have a vital bearing on the
listing of IPO.
It is very important to study the company individually irrespective of the
growth potential of the sector. It is evident from the different IPO
performances of Idea cellular Ltd. & Spice Communications Ltd. even when
they both belong to the growing Telecom sector.
Companies issue their shares information through newspapers prospectus.
Theis nis not reached to illiterate persons. Then illiterate person also become
the investors in the company this is useful to be company as well as public.
As per SEBI the IPOS must be listed in stock exchange with in 5 days.

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GLOSSARY

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IPO GLOSSARY
A
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.

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

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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.

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 over allotment 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
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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.
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
Market Capitalization
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
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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.

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.

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

BIBLIOGRAPHY

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REFERENCES

BOOKS

1. Khan M. Y .and Jain. P.K (2005). Financial management. Pearson publications

WEBSITES

1) http://www.google.com
2) http://www.crisil.com
3) http://iporatings.in
4) http://www.ipostatus.com
5) http://www.mandhana.com
6) http://www.jpinfra.com
7) http://www.unitedbankofindia.com
8) http://www.moneycontrol.com
9) http://money.rediff.com
10) www.nseindia.com
11) www.sebi.gov.in

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12) www.capitalmarket.com

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