Kotak Mahindra Group - Project (2003) New

REPORT ON IPO MARKET IN
INDIA
Presented By:
SHELLY
Roll No.: RR1902AO3
REGS. NO.: 10901200
1|Page LOVELY PROFESSIONAL UNIVERSITY

A PROJECT REPORT
ON
IPO ISSUES THROUGH BOOK-

BUILDING PROCESS
UNDERTAKEN AT
KOTAK SECURITIES LIMITED
Submitted To: - Submitted By:-

MR. KAPIL TANDON SHELLY
(Cluster Head) Regs No.-
10901200
MR. AMIT MBA- 3rd
Semester
(Br. Manager)
MR. NITESH MANOCHA
(Relationship manager)
LOVELY PROFESSIONAL UNIVERSITY

TABLE OF CONTENT
SR. NO. CONTENTS PAGE
1. PREFACE 5
2. ACKNOWLEGEMENT 6
3. INTRODUCTION & FEATURES OF STOCK MARKET 7
4. NEED, SCOPE AND OBJECTIVE OF THE STUDY 8-9
5. INTRO – KOTAK MAHINDRA GROUP 10
6. INTRO & FEATURE OF KOTAK SECURITIES 10-11
7. INTRO ABOUT TOPIC - IPO (INITIAL PUBLIC OFFER) 12-14
- REASONS, ADVANTAGES & DISADVANTAGES
FOR GOING PUBLIC
8. EVOLUTION OF INDIAN PRIMARY MARKET 15-16
- EARLY LIBERALIZATION POLICY (1992-95)
- LATE LIBERALIZATION POLICY (1996- 2005)
9. ELIGIBILTY CONDITIONS FOR COMPANY 17
10. ELIGIBILTY NORMS FOR IPO 18
11. FIXED PRICING Vs BOOK-BUILDING 18-19
12. BOOK-BUILDING PROCESS IN US 20-21
- 75% BOOK-BUILDING PROCESS
- 100% BOOK- BUILDING PROCESS
13. BOOK-BUILDING PROCESS IN INDIA 22-23
14. UNDERWRITING PROCESS & PRICING 24-27
15. ROLE OF VARIOUS INTERMEDIARIES 27-29
16. REVERSE BOOK-BUILDING PROCESS 29-31
17. BUY-BACK OF SHARES 32-34
- OBJECTIVES, SOURCES OF BUY-BACK ‘N’
PROCEDURE OF BUY-BACK
18. SUGGESTIONS FOR SHAREHOLDERS 34-35
19. GREEN SHOE OPTION 35-36
20. IPO SCAM OF 2005 36-37
21. IPO GRADING 37-43
- MEANING, PROCESS

22. PRESENT SCENERIO OF IPO’S 44-45
23. REVIEW OF RECENT 5 IPO’s 45-57
24. RESEARCH METHODOLOGY WITH RESEARCH DESIGN 58-60
25. REVIEW OF LITERATURE 60-62
26. DATA ANALYSIS ‘N’ DATA INTERPRETATION 63-75
27. RECOMMENDATIONS 76-77
28. BIBLIOGRAPHY ‘N’ FINDINGS 78-79
PREFACE

This report is result of my 6 weeks summer training at KOTAK
SECURITIES LTD., summer training is integral part of MBA and efficient utilization of
material, time, resources is very important for successful completion of any task. As it is said
“Never stop Listening
Never stop Learning
Never stop Training”
Above to this co-ordination is must which determines the degree of
success. In order to be competent all students are required to take a project on any topic relating
to training institute. So I made a project on INITIAL PUBLIC OFFER. This exposure to
project work has given me chance to know working of stock market as well as know how
academic knowledge is applied into actual business situation. The all rounded encouragement
and support by many persons towards this report has created confidence in me regarding
approval of subject matter.
The project report is well arranged in coherent manner. The main aim of
this report is to compile the subject matter in such a way that anybody who has no prior
knowledge of capital market easily understands the concept.
I have done my best to make it a genuine study. But we all know a maxim”
To Err Is Human” therefore a critical appraisal by anyone will be heartily welcomed.
ACKNOWLEDGEMENT

Stock Market is the veiled treasure to innocent public. In this part of the
country the level of awareness about securities market is not so encouraging. The innocent
investors often loose their hard money because of lack of awareness about securities market.
These incidents stirred me to make up the project of a starting programmed in Kotak Securities
(brokerage firm) at Jalandhar. I sincerely believe that this project will help the readers and will
open their eyes and enlighten their lives by right decision.
I would like to thank almighty, who have given me courage and resources
to undertake this huge exercise of making a project on capital market.
This project would not be completed without active cooperation of Mr.

Kapil Tandon (cluster head), Mr. Amit (br. Manager) and Mr. Nitesh Manocha (RM), Mr.
Chetan Bhanot who provided valuable inputs and precious time. They special admiration for
their cooperation and extended efforts. Mr. Kapil & Mr. Manocha, right from the point of
initiating this idea of writing this project, helped me a lot. They contributed immensely in
materialization of my dream of making this project on IPO - Primary market.
My special thanks to Mrs. Gagandeep Bhatara for her contribution in

editing the manuscripts of this project. My acknowledgements are also to Mr. Lokesh Jasrai,
who also put forward his valuable suggestion during the compilation of this project.
I am also thankful to KOTAK SECURITIES LTD., for giving me the great

opportunity to make this project.
At last, our warmest thanks to our parents, friends for their kind support.
INTRODUCTION ABOUT STOCK MARKET

A stock exchange is that segment of the capital market where the
securities issued by the corporate, are traded, these are organized and regulated markets for various
securities issued by the corporate sector and other institutions. Stock exchange is a platform where
buyers and sellers of securities issued by government, financial institutions, corporate houses etc.
Meet and where trading of these corporate securities take place.
The securities that are traded in stock exchange are shares and
debentures of public companies, port trust utility undertakings and such other securities. Since
buying and selling of different types of securities takes place in stock exchange, the prices of
particulars securities reflect their demand and supply. In fact, stock exchange is said to be a
barometer of economic and financial health. The stock exchanges formation and in raising for the
corporate sector. It provides place for sale and purchase of securities i.e. share, bonds etc. It
provides linkage between the savings of household sector and investment in corporate sector or
economy.
FEATURES OF STOCK EXCHANGES:-
1. The stock exchange provides a ready market for the conversion of existing securities into
cash and vice versa.
2. People having surplus funds invest in the securities and these funds are used for
industrialization and ultimately for the economic development of the country that leads to
the capital formation.
3. Stock exchange act as a center of providing business information relating to an

enterprises whose securities are traded at the listed companies are to present the financial
and other statements to it.
4. It provides a linkage between savings of household and investment in corporate sector or

economy.
5. It provides market quotations for shares, bonds and debentures and serves role as a
barometer not only of the state of health of individual companies, but also of the
economy as a whole.
NEED OF THE STUDY

With the onset of globalized economy in India, the psyche of Indian
investor is changing. In recent scenario instead of putting their money in bank and fixed deposit
where there is minimum risk and minimal return they are investing their money in various other
opportunities where risk is high as well as the returns. Now day’s Indian investor’s are well
versed with various investment opportunities that are available to them or various financial
instruments in which they can invest into. As earlier many researches has been conducted which
are either restricted to a particular age group or to a particular area or not particularly concerned
with IPOs but with financial instruments as a whole. So an urgent need was felt to conduct a
study on investor’s perception regarding IPOs which cover all age groups.
SCOPE OF THE STUDY

This study is related with finding out perception of investors towards
initial public offer, when Issue comes in the market by Book- Building Process. The securities
which the companies issue for the first time to the public and other financial institutions is called
“INITIAL PUBLIC OFFER” or “IPO”. This study emphasizes on finding out what factors affect
the performance of an IPO and what are the factors an investor keeps in mind before investing in
an IPO.
This study includes all those people whore are aware of initial public
offers and who invest their money in initial public offers. The investors covered in the study are
from the cities of Jalandhar and Shahkot .This study tends to explore the investors beliefs,
perceptions and views with regard to IPOs and their investing intention.
OBJECTIVES OF THE STUDY
The main objective of the study is to make the investors know about how the
“IPO IS ISSUED THROUGH BOOK-BUILDING PROCESS”

• To determine the perception of the investor’s regarding initial public offer.
• To know the factors that they keep in mind or which affect their decision regarding
investment in initial public offers
• To know which sector/sector’s they prefer while investing in initial public offers
• To know about the time period for which they invest their money in initial public offers
whether for long, medium or short term.
• To know how they rate the performance of the initial public offers they have invested in.

KOTAK MAHINDRA GROUP - INTRO
Kotak Mahindra is one of the leading financial organizations, offering a

wide range of financial services that encompass every sphere of life. From commercial banking,
to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to
the diverse financial needs of individuals and corporate.
The group has a net worth of over Rs 7,100 crore and has a distribution
network of branches, franchisees, representative offices and satellite offices across cities and
towns in India and offices in New York, London, San Francisco, Dubai, Mauritius and
Singapore. The group services around 6.5 million customer accounts.
KOTAK SECURITIES LIMITED
Kotak Securities is one of the oldest and leading broking house in India with
a market Kotak securities ltd. has also been the largest in IPO distribution. Kotak securities have
a strong presence in retail and institutional segments. It caters to the needs of high net worth
individuals, foreign and Indian Institutional Investors in Indian Equities. Their network spans
over 400 cities with 1113 outlets. Kotak Securities Limited has Rs. 2300 crore of Assets under
Management (AUM) as of 31st March, 2010. The portfolio Management Service provides top
class service, catering to the high end of the market. Portfolio Management from Kotak
Securities comes as an answer to those who would like to grow exponentially on the crest of the
stock market, with the backing of an expert.
10 | P a g e LOVELY PROFESSIONAL UNIVERSITY

FEATURES OF KOTAK SECURITIES LTD.
1. Kotak securities are the 100% subsidiary of kotak Mahindra bank and one of the oldest
and largest stock broking firms in the industry.
2. Kotak securities have been awarded Best Brokerage Firm in 2009, 2008, 2007 & 2006 by
Asia Money.
3. Through its web portal company provides a single platform for investments in equities,
Mutual Funds and Currency Derivatives. Available margin can be used for any of the
three segments.
4. In late 2008 company launched an interesting ‘Smart Order’ feature to its online trading
portal. While placing an order to buy and sell stocks at BSE and NSE, customer can share
this option. Once selected, these options offer customers the best available price between
NSE and BSE. This option available for all the customers of the company.
5. Kotak securities provide daily SMS alerts, market pointers, periodical research reports,
stock recommendations etc.
6. Kotak securities have Citibank, HDFC, UTI bank and Kotak Mahindra Bank as a
designated banks for its trading account. Investors holding account with these banks can
easily integrate the brokerage account with bank.
7. Kotak provides call & trade facility to its customers wherein they can place and track
their orders through phone when they are away from home
NAME OF Other Committee

Other Directorships
DIRECTOR Memberships
Mr. Uday Kotak Kotak Securities Limited Chairman Audit Committee Chairman
Kotak Mahindra Asset
Management Company Chairman Audit Committe Member
Limited
Chairman
Kotak Mahindra Capital
Chairman Audit Committee
Company Limited

INTRODUCTION ABOUT TOPIC
A company can raise capital through issue of shares and debentures. The various types of issues
are:-
• Public issue
• Right issue
• Bonus issue
• Private placement
• Bought out deal
There can be two types of public issue:-
 Initial public offer (IPO)

 Follow On public Offer (FPO)
IPO
An initial public offer is the selling of securities to the public in the primary market. 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
issuer’s securities. The sale of securities can be through book building and normal public issue.
FPO
Further public issues are issued by companies and corporate bodies whose shares are
already being traded in the capital market and they are issuing fresh shares either to fund the
expansion of existing business or to invest into the business activities.
REASONS FOR GOING PUBLIC:
1. Financing of the increased working capital requirement

2. Raising funds to finance capital requirement programs like expansion, diversification,
modernization etc.
3. Debt refinancing
4. Financing acquisitions like a manufacturing unit, brand acquisitions, tender offers for
share of the another firm
5. Exit route for existing investors
ADVANTAGES OF GOING PUBLIC
1. Facilitates future funding by means of subsequent public offering

2. Enables Valuation of company
3. Provides liquidity to existing shares
4. Increase visibility and reputation of the company
5. Command better pricing than placement with few investors
6. Enables the company to offer its shares as purchase consideration or as an exchange for
the shares of another company.
DISADVANTAGES OF GOING PUBLIC
1. Involves substantial expenses

2. Need to make continuous disclosures
3. Listing fees and documentation
4. Cost of maintaining investor relations
5. Takes substantial amount of management time and efforts.
6. Increased regulatory monitoring

An IPO is the first sale of the corporation’s common shares
to investors on the public stock exchange. The main purpose for the IPO is to raise capital for the
corporation. While IPO’s are effective at raising capital, being listed on the stock exchange
imposes heavy regulatory compliance and reporting requirements
An initial public offer occurs when security is sold to the

general public, with the expectation that liquid market will develop. Most companies are starting
out by raising equity capital from a small number of investors, with no liquid market existing if
these investors wish to sell their stock. If a company prospers and need an additional equity
capital, at some point the firm generally finds it desirable to “go public” by selling stock to large
number of diversified investors. Once the stock is publicly traded, this enhanced liquidity allows
the company to raise capital on more favorable terms than if it had to compensate investors for
the lack of liquidity associated with a privately-held company.
In particular, there is certain ongoing cost associated with the

need to supply information on a regular basis to investors and regulators for the publicly-traded
firms. Furthermore, there are substantial one-time costs associated with initial public offerings
that can be categorized as direct and indirect costs. The direct costs include legal, auditing and
underwriting fees. The indirect costs are the management time and efforts devoted to conducting
the offerings and the dilution associated with the selling shares at an offering price that is, on
average, below the price prevailing in the market shortly after the IPO. The direct and indirect
costs affect the cost of capital for firms going public.
The existence of the phenomenon “under pricing” is well established fact for the
common stock initial public offerings (IPO). Research concerning the primary capital market is
found to be unequivocal in its conclusion that initial public offerings are offered at a discount. It
has been found that an average firm goes public with an offer price that is lower than price that
prevails in the immediate aftermarket. As a result, IPOs register significant excess returns on the
very first day of trading. Under pricing is a phenomenon that is largely restricted to the opening
transaction and hence the under pricing is almost entirely “corrected” by the market at opening
transaction.

EVOLUTION OF INDIAN PRIMARY MARKET
To keep pace with the globalization and liberalization process, the

government of India was very keen to bring the capital market in line with international
practices through gradual deregulation of the economy. It led to liberalization of capital
market in the country with more expectations from primary market to meet the growing needs
for funds for investment in trade and industry. Therefore, there was a vital need to strengthen
the capital market which, it felt, could only be achieved through structural modifications,
introducing new mechanism and instruments, and by taking steps for safeguarding the
interest of the investors through more disclosures and transparency.
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 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
There could be firm or preferential allotments to mutual funds, non-

resident Indians etc. but the price in those cases could not be less than that in the public
offer. The post-issue share holding by the promoters could not be less than 25% of the total paid
up capital. Also, at least 25% of the total post issue capital would have to be offered through the
prospectus to the public
The primary market came into its own in the eighties when a large
number of companies came out with public issues. An entire industry of merchant bankers,
brokers, agents and publicity Managers were built around the primary issues market. The interest
in new issues rose so high that investors were willing to pay for application forms.
The trend continued in the early nineties as many large projects

were launched after the economy was liberalized. 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.
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.
Most of the recent issues have been from well established and well known

companies. Though some of these issues were overpriced, investors have made significant
returns in most of the issues. With a number of primary issues coming out, many who have never
invested in stocks before are considering applying for some of these issues. The more
experienced investors are doubtful about participating when the stock markets are at a peak.
Many have had bad experiences investing in new issues during the nineties. But the incredible
returns made by investors in some of the recent issues keep their interest alive.
ELIGIBILTY 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.
Provided further that where the Board has sought any clarification or additional
information from the Lead Manager/s to the Issue, the period within which the Board may
specify changes or issue observations, if any, on the draft Prospectus shall be 15 days from
the date of receipt of satisfactory reply from the Lead Manager/s to the Issue.
 Companies barred not to issue security

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:
a. 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

b. 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:
1. The unlisted company has obtained grading for the IPO from at least one credit rating agency
2. 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 :
 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, atleast 50% of the
revenue for the preceding 1 full year is earned by the company from the activity
Suggested by the new name
 The aggregate of the proposed issue and all previous issues made in the same financial
Year in terms of size (i.e., offer through offer document + firm allotment + promoters’
Contribution through the offer document), does not exceed five (5) times its pre-issue
Net worth as per the audited balance sheet of the last financial year
FIXED PRICES 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 under pricing’. 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
underpriced.
What is needed is a way to engage in serious price discovery in setting the price at
the IPO. No issuer knows the true price of his shares; no merchant banker knows the true
price of the shares; it is only the market that knows this price. In that case, a better and true price
can be obtained only if the system is designed in such a way that the market decides the price of
an IPO.
Imagine a process where an issuer only releases a prospectus, announces the

number of shares that are up for sale, with no price indicated. People from all over India would
bid to buy shares in prices and quantities that they think fit. This would yield a price. Such a
procedure should innately obtain an issue price which is very close to the price at first listing --
the hallmark of a healthy IPO market.
BOOK-BUILDING
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 company’s
potential and the price of its shares.

BOOK- BUILDING PROCESS IN US
Unlike India, in international markets the most active investors are the
mutual funds and other Institutional investors and the entire issue is made through book building
process. In India, on the other, a large number of retail investors participate actively in IPOs
made by the company. In US, book building is called soft underwriting model by
investment bankers which implies that they sell the securities on a best efforts basis and
they are not obliged to take up the unsold stock of securities if there is no demand for such
securities. Public issue through book building process in US takes an average of 75 days to make
a prospectus, file it with SEC, NYSE or NASDAQ, talk to select investors, establish a price
range, print the red herring prospectus and launch the offering. Trading of securities begins on
the 16th day and payment by investors and delivery of shares are completed by the 20th day.
BOOK- BUILDING PROCESS
ISSUER
BOOK RUNNER
LEAD MANAGERS
MUTUAL FUNDS STOCK BROKERS UNDERWRITERS

MERCHANT BANKERS
INVESTORS
MFs financial foreign financial NRIs Corporations HN’s Retail Investors

Institutional institutions

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.
An Issuer Company can issue capital through book building in following two ways:
 75% book- building process:
Under this process 25% of the issue is to be sold at a fixed price and the balance 75%
through the Book Building process. As per Rule 19 (2) b of Securities Contracts (Regulation)
Rules, 1957:
• The NPO shall consist of min of 20 Lakhs shares

• Size of public offer is at least Rs.100cr
• Issue was offered to maximum extend permissible (50%) to QIBs
 100% book-building process:

The process specifies that an issuer company may make an issue of securities
to
the public through prospectus in the following manner:
• 100% of the net offer to the public through book building process, or
• 75% of the net offer to the public through book building process and 25% of the net offer to the
public at the price determined through book building process.
In case of a 100% book built issue:
• Not more than 50% of NPO (Net Public Offer) shall be allocated to QIBs (Qualified
Institutional Buyers)
• Not less than 25% of NPO shall be allocated to non-institutional bidders
• Not less than 25% of NPO shall be available for allocation to retail investors

BOOK-BUILDING PROCESS IN INDIA
Book Building is basically a capital issuance process used in Initial

Public Offer (IPO) which aids price and demand discovery. It is a process used for marketing a
public offer of equity shares of a company. It is a mechanism where, during the period for which
the book for the IPO is open bids are collected from investors at various prices, which are above
or equal to the floor price. The process aims at tapping both wholesale and retail investors. The
offer/issue price is then determined after the bid closing date based on certain evaluation criteria.
The main parties who are directly associated with book building
process are the issuer company, the Book Runner Lead Manager (BRLM) and the syndicate
members (Fig-1.1). The Book Runner Lead Manager (i.e. Merchant banker) and the syndicate
members who are the intermediaries are both eligible to act as underwriters. The steps which are
usually followed in the book building process can be summarized below :
1. 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.
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. BRLM receives the feedback about the investor’s 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, investor’s quality, price aggression, earliness of bids etc.
Thebid 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
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.

THE UNDERWRITING PROCESS
A company that plans an IPO contacts an investment banker

who will in turn call on securities dealers to help sell the new stock issue. This process of selling
the new stock issues to prospective investors in the primary market is called underwriting.
A company that plans an IPO contacts an investment banker

who will in turn call on securities dealers to help sell the new stock issue. This process of selling
the new stock issues to prospective investors in the primary market is called underwriting.
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 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 parties' interest to get as much as possible.
Finally, the securities are sold on the stock market and the money is collected from investors.

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.
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.
Individuals who apply for the IPO put in their bids.

The process is transparent. One can check on the issue subscription at the BSE and NSE Web
Sites.
After evaluating the bid prices, the company will accept the lowest price that will allow it
to dispose the entire block of shares. That is called the cut-off price.
The process can be illustrated with an example:
Number of shares issued by the company = 100.

Price band = Rs 30 - Rs 40.
If individuals have bid for prices as follows:
BID NUMBER OF PRICE PER

SHARES SHARES (Rs)
1 20 40
2 10 38
3 20 37
4 30 36
5 20 35
6 20 33
7 20 30
The shares will be sold at the Bid 5 price of 20 shares for Rs 35.
Why?
 Because Bidders 1 to 5 are willing to pay at least Rs 35 per share.

 The total bids from Bidders 1 to 5 ensure all 100 shares will be sold (20 + 10 + 20 + 30
+20).
The cut-off price is therefore Bid 5's price = Rs 35.

Bidders 1 to 5 get allotments at that price. Bidders 6 and 7 don't get an allotment because their
bids are below the cut-off price.
The bids are first allotted to the different categories and the over-subscription (more shares
applied for than the shares available) in each category is determined.
Retail investors and high net worth individuals get allotments on a proportional basis.
If a retail investor has applied for 200 shares in the issue, and the issue is over-subscribed five
times in the retail category, he qualify to get 40 shares (200 shares/5).
Sometimes, the over-subscription is huge or the issue is priced so high that the bidder can't

really bid for too many shares before the Rs 50,000 limit is reached.
In such cases, allotments are made on the basis of a lottery.
If a retail investor has applied for 5 shares in an issue, and the retail category has been
oversubscribed 10 times, the investor is entitled to half a share.
Since that isn't possible, it may then be decided that every 1 in 2 retail investors will get
allotment. The investors are then selected by lottery and the issue allotted on a proportional basis
among.
Application for an IPO?
To apply to an IPO one has to fill an IPO application form, better known as Bid cum Application
form. These forms are available in stalls outside the stock exchanges and with vendors in
various other areas. One can also get an application form through a share broker or investment
consultant. Else forms are available at various banks. A good idea is to check the Web site of
Karvy Consultants (www.karvy.com) who are often registrars or lead managers for issues. The
other option is to check the SEBI Website (http://www.sebi.gov.in/) for the prospectus of a
particular IPO. The prospectus lists the lead managers for the IPO and one can get a copy of the
application form from their centers.
After filling the form, remitting of the amount is done after calculating the number of shares
applied for in the bank that is designated in the form as collecting centre for that IPO. If one has
a demat account, he can apply for the shares directly through demat account or there is an
option of physical delivery of share certificates.
Some IPOs offer only demat (dematerialized) form of shares, while others offer both demat as
well as regular (physical) shares. SEBI advises investors to get the allotment in demat form as
the shares in IPO are tradable only in demat segment in the stock exchanges. Dealing of
physical shares (allocated in IPO) is not accepted.
ROLE OF VARIOUS INTERMEDIARIES IN IPO
Intermediaries 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. SEBI's various operational guidelines issued during
the year to merchant bankers primarily addressed the need to enhance the standard of
disclosures. It was felt that a further strengthening of the criteria for registration of
merchant bankers was necessary, primarily through an increase in the net worth requirements,
so that their capital would be commensurate with the level of activities undertaken by them.
With this in view, the net worth requirement for category I merchant bankers was raised in 1995-
96 to Rs. 5 crore. In 1996-97, the SEBI (Merchant Bankers) Regulations, 1992 were amended to
require the payment of fees for each letter of offer or draft prospectus that is filed with SEBI.
Part III gives further details of the registration of merchant bankers during 1996-97.
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.
• Post issue activities, like intimation of allotments and refunds, are their responsibility as
Well.
Underwriters
Underwriters are required to register with SEBI in terms of the SEBI (Underwriters)
Rules and Regulations, 1993. In addition to underwriters registered with SEBI in terms of these
regulations, all registered merchant bankers in categories I, II and III and stockbrokers
and mutual funds registered with SEBI can function as underwriters. Part III gives further
details of registration of underwriters. In 1996-97, the SEBI (Underwriters) Regulations, 1993
were amended mainly pertaining to some procedural matters.
Bankers to an Issue
Scheduled banks acting as bankers to an issue are required to be registered with SEBI in terms of
the SEBI (Bankers to the Issue) Rules and Regulations, 1994. These regulations lay down
eligibility criteria for bankers to an issue and require registrants to meet periodic reporting
requirements. Part III gives further details of registration of bankers to an issue.
Portfolio managers
Portfolio managers are required to register with SEBI in terms of the SEBI (Portfolio
Managers) Rules and Regulations, 1993. The registered portfolio managers exclusively carry
on portfolio management activities. In addition all merchant bankers in categories I and II can
act as portfolio managers with prior permission from SEBI. Part III gives further details of the
registration of portfolio managers.
Registrars to an Issue and Share Transfer Agents
Registrars to an issue (RTI) and share transfer agents (STA) are registered with SEBI in terms of
the SEBI (Registrar to the Issue and Share Transfer Agent) Rules and Regulations, 1993. Under
these regulations, registration commenced in 1993-94 and is granted under two categories:
category I - to act as both registrar to the issue and share transfer agent and category II -
to act as either registrar to an issue or share transfer agent. With the setting up of the
depository and the expansion of the network of depositories, the traditional work of registrars
is likely to undergo a change.
REVERSE BOOK-BUILDING
Reverse book-building is a mechanism by which companies listed on

a stock exchange can delist their shares. The reasons for delisting may be several and sometimes
intentional.
The reverse book building is an efficient price discovery

mechanism of de-listing of securities, which is provided for capturing the sell orders on online
basis from the shareholders through respective BRLM. In the reverse book-building scenario, the
acquirer or promoter of a company offers to get back shares from the shareholders. It is a
mechanism where, during the period for which the reverse book building is open, offers are
collected at various prices, which are above or equal to the floor price from the share holders
through trading members appointed by the acquirer or promoter of a company. The reverse book
building price (i.e. final price/ exist price)is determined by BRLM in consultation with the
acquirer or promoter of the company after the offer closing date in accordance with the SEBI
(De-listing of Securities) Guidelines, 2003. This desires to get de-listed, in accordance to book
building process. The offer price has a floor price, which is fixed for de-listing of securities
below which no offer can be accepted. The floor price is the average of 26 weeks traded price
quoted on the stock exchange where the shares of the company are most frequently traded
preceding 26 weeks from the date of public announcement is made. There is no ceiling on the
maximum price.
Why Does Company seeks de-listing of securities?

There are several reasons for seeking de-listing of securities from the stock exchanges.
These can be highlighted as follows:
• When market conditions are so depressed, the acquirer or promoter of a company

can exploit the opportune moment for acquisition of the remaining securities from the
shareholders through de-listing;
• In the liberalized economy, the regulatory framework relating to FDI norms permits
foreign companies to hold 100 per cent equity in many key sectors;
• As per the regulatory framework of FDI norms foreign companies are allowed to
take an opportunity to control entire holdings which give complete flexibility in
operational decisions, and preference of retaining listing only in one place, preferably in
the home country;
• Besides the flexibility in operational decisions, on account of de-listing boards of

companies enjoy the sole decision making powers, greater independence in investment
decisions, freedom from the regulatory environment, possibility of easier repatriation of
profits and tax rebates in the country of their origin.
THE BOOK BUILDING PROCESS
1. The book building process shall be made through an electronically linked transparent
facility.
2. The number of bidding centres shall not be less than thirty, including all stock exchange
centres and there shall be at least one electronically linked computer terminal at all
Bidding centres.
3. The promoter shall deposit in an escrow account, 100 per cent of the estimated amount of
consideration calculated on the basis of the floor price indicated and the number of
Securities required to be acquired. The provisions of clause 10 of the Securities and
Exchange Board of India (Buyback of Securities) Regulations, 1998 shall be applicable
mutatis mutandis to such escrow account.
4. The offer to buy shall remain open to the security holders for a minimum period
of Three days. The security holders shall have a right to revise their bids before the
closing of the bidding.
5. The promoter or acquirer shall appoint ‘trading members’ for placing bids on the on-line
Electronic system.
6. Investors may approach trading members for placing offers on the on-line electronic
system. The format of the offer form and the details that it must contain shall be

specified.
7. The security holders desirous of availing the exit opportunity shall deposit the
shares offered with the trading members prior to placement of orders. Alternately
they may mark a pledge for the same to the trading member. The trading members in turn
may place these securities as margin with the exchanges/clearing corporations.
8. The offers placed in the system shall have an audit trail in the form of
confirmations which gives broker ID details with time stamp and unique order number.
9. The final offer price shall be determined as the price at which the maximum
number of
Shares have been offered. The acquirer shall have the choice to accept the price. If the
price is accepted then the acquirer shall be required to accept all offers upto and
including the final price but may not have to accept higher priced offers, subject to
Clause 15. An illustration is given below:
Offer Quantity Offer Price Remarks

50 120 FLOOR PRICE
82 125
108 130 FINAL PRICE (AS QTY.
OFFERED IS MAXIMUM)
27 135
5 140
10. If final price is accepted the acquirer shall have to accept offers up to and including the
Final price i.e. 240 shares at the final price of Rs. 130/-.
11. At the end of the book build period the merchant banker to the book building exercise
shall announce in the press and to the concerned exchanges the final price and the
Acceptance (or not) of the price by the acquirer.
12. The acquirer shall make the requisite funds available with the exchange/clearing
Corporation on the final settlement day (which shall be three days from the end of the
Book builds period). The trading members shall correspondingly make the shares
Available. On the settlement day the funds and securities shall be paid out in a process
Akin to secondary market settlements.
The entire exercise shall only be available for demat shares. For holders of physical
certificates the acquirer shall keep the offer open for a period of 15 days from the final

settlement day for the shareholders to lodge the certificates with custodian(s) specified by the
merchant banker.
BUY - BACK OF SHARES
It is a process whereby a company purchases its own shares or other

specified securities from the holders thereof for improving the earnings per share (EPS), or to
improve return on capital or return on net worth and to enhance the long-term shareholder value,
among other things.
OBJECTIVES OF BUY - BACK OF SHARES
 To increase promoters holding

 Increase earnings per share
 Rationalize the capital structure by writing off capital not represented by available
Assets
 Support share value
 To thwart takeover bid
 To pay surplus cash not required by business
COMMENT – It is an interesting fact to note that MNCs are using buyback process as the best
strategy to maintain their share price in a bear run by buying back the shares from the open
market at a premium over the prevailing market price.
RESOURCES OF BUY- BACK OF SHARES:-
A Company can purchase its own shares from:-
1.Free Reserves: Where a company purchases its own shares out of free reserves, then a sum
equal to the nominal value of the share so purchased shall be transferred to the
Capital redemption reserve and details of such transfer shall be disclosed in the balance-
Sheet, or
2. Securities Premium Account, or
3. Proceeds of any shares or other specified securities. A Company cannot buyb ack its shares
or other specified securities out of the proceeds of an earlier issue of the same kind of shares or
specified securities.

SOURCES FROM WHERE THE SHARES WILL BE PURCHASED
1. Existing security-holders on a proportionate basis; Buyback of shares may be made by a

tender offer through a letter of offer from the holders of shares of the company or ;
2. The open market through

Book building process;
Stock exchanges or
3. Odd lots, that is to say, where the lot of securities of a public company, whose shares
Are listed on a recognized stock exchange, is smaller than such marketable lot, as may
Be specified by the stock exchange; or
4. Purchasing the securities issued to employees of the company pursuant to a scheme of

stock option or sweat equity.
ISSUE OF FURTHER SHARES AFTER BUY BACK
Every buy-back shall be completed within twelve months from the date of passing the
special resolution or Board resolution as the case may be. A company which has bought back
any security cannot make any issue of the same kind of securities in any manner whether by way
of public issue, rights issue up to six months from the date of completion of buy back.
PROCEDURE FOR BUY-BACK OF SHARES :-
1. Where a company proposes to buy back its shares, it shall, after passing of the
Special/Board resolution make a public announcement at least one English National
Daily, one Hindi National daily and Regional Language Daily at the place where the
Registered office of the company is situated.
2. The public announcement shall specify a date, which shall be “specified date” for the
purpose of determining the names of shareholders to whom the letter of offer has to be sent.
3. A public notice shall be given containing disclosures as specified in Schedule I of the

SEBI regulations.
4. A draft letter of offer shall be filed with SEBI through a merchant Banker. The letter
Of offer shall then be dispatched to the members of the company.

5. A copy of the Board resolution authorizing the buyback shall be filed with the SEBI
And stock exchanges.
6. The date of opening of the offer shall not be earlier than seven days or later than 30
Days after the specified date.
7. The buyback offer shall remain open for a period of not less than 15 days and not more
than 30 days.
8. A company opting for buy back through the public offer or tender offer shall open an
escrow Account.
COMMENT – MNCs are taking advantage of the depressed market conditions to mop up
the shares. There is nothing legally wrong in buying back shares, but it should be by paying a
fair price to minority shareholders.
SUGGESTIONS FOR THE SHAREHOLDERS
 One should check out the previous price pattern of the share. Companies
generally tend
to buy back shares at a higher premium over the market price if they feel that their
Shares are under-priced. This decision to buyback often leads to an increase in share price. One
should analyze the fluctuation in the price of the scrip for a specific time period (one year or
more) and if found that the scrip moved a band lower than the offer price, selling of the scrip
would be a better option.
 Shareholders should also take note of any irrationality. A buyback offer with a
huge premium may appear very attractive. He should investigate and ensure that any
temporary negatives do not affect the share price. If the share prices of the company are
presently undervalued, he should refrain from selling, since a company buying back its
shares is indirectly conveying that its shares are undervalued.
 One should have a long term perspective in the company. If the

fundamentals of the company are strong and if the future growth is well expected, factors
like bonus issues or split shares can be sidelined for the time being and for the long term
scrip should not be sold.
 The share prices of some companies are highly volatile in spite of the strong
Fundamentals of the company. It is better to sell and dispose off such volatile shares.
 Even after buyback is announced, the purchase price need not necessarily be the
Highest if a price band is given. Further, there is no guarantee that all the shares offered
for buyback would be bought. Companies mostly buy about 10% of the equity in buybacks. In
such cases it would be wiser to sell stake in the market at a time when prices of the scrip

are trading at a price equivalent to the highest in the offer band.
COMMENT – There could be instances where some promoters would misuse the buyback
concept and declare shocking results. Consequently, when share prices are depressed, they will
come out with buyback offer, a bit less than the intrinsic value, thereby increasing their stake in
the company at the expense of the shareholders. Because such buybacks reduce equity base but
increase the EPS (Earning per Share). This would result in an increase in share prices.
DIFFERENCE BETWEEN DELISTING AND BUYBACK
De-listing is different from “buy back” of securities in which the

securities of a company are extinguished with consequent reduction of capital of the company.
In the case of de-listing there is no reduction of capital. It is needless to mention that in the case
of buy back securities, the company itself is the acquirer and hence provides the funds for buy
back. In the case of de-listing, the securities are acquired by a person other than the company and
who could be the promoter, majority shareholder or a person in control of the management and
the funds have to be provided by that acquirer.
GREEN SHOE OPTION
A green shoe option is a clause contained in the underwriting

agreement of an initial public offering (IPO). This is an option granted to the investment banker
in most IPOs that allows him to sell additional shares if market conditions warrant. (i.e. if the
market price is higher than the issue price, the investment banker can go back to the firm and
get more stock to sell at the offer price.)
This option is sometimes also referred to as an over-allotment

provision, allows the underwriting syndicate to buy up to an additional 15% of the shares
at the offering price if public demand for the shares exceeds expectations and the stock
trades above its offering price.
The green shoe option provides extra incentive for the underwriters of a new stock offering. In
addition, these investment banks, brokerages and other financing parties also often exercise
the green shoe option to cover some of the short position they may have created in an effort to
maintain a stable market after a new stock begins to trade, as well as to meet aftermarket
demand.

The green shoe option provides extra incentive for the
underwriters of a new stock offering. In addition, these investment banks, brokerages and
other financing parties also often exercise the green shoe option to cover some of the short
position they may have created in an effort to maintain a stable market after a new stock
begins to trade, as well as to meet aftermarket demand.
Investment bankers regularly sell more than the entire

allotment of shares in an IPO (for example they sell 115% of the originally allotted
shares. If the shares drop in the secondary market, the Investment banker will cover the short
position by buying in the secondary market. If the shares rose in the secondary market from
the offer price, the IB will cover the short position buy buying new shares with the Green
Shoe Option from the firm.
IPO SCAM

The IPO scam of 2005 involving irregularities in the
shares of Yes Bank Ltd. And IDFC Ltd. occurred during a bull phases in the stock market.
The initial public offer of Yes Bank Ltd. (YBL) opened on June 15, 2005 and its shares were
listed on the Stock Exchanges namely, Bombay Stock Exchange and National Stock Exchange
on July 12, 2005. IDFC Ltd. came out with an IPO during July 2005. The shares of IDFC Ltd.
Were credited to the allottees on August 5-6, 2005. The shares of IDFC were listed on August
12, 2005.
SEBI, in its Interim Orders dated 15.12.2005 and 12.01.2006

(in the context of examination of irregularities in the IPOs of Yes Bank Ltd. and IDFC Ltd.
respectively) noted that certain entities namely Roopalben Panchal, Sugandh Estates and
Investments Pvt. Ltd., Purshottam Budhwani and Manojdev Seksaria had cornered IPO shares
reserved for retail applicants by making applications in the retail categories through the
medium of thousands of fictitious/benami IPO applicants with each of the application being for
small value so as to be eligible for allotment under the retail citatory
It was alleged by several investors for that several fake

demat accounts giving a common address were opened on a single day, with the connivance
of certain individuals, brokers, bankers and the Depository Participants (DPs). This scheme
was master mined to target several IPOs and to siphon off shares meant for small investors
thereby making a huge amount of illicit gains.
The initial reports stated that the banks involved in the scam continued to
finance the IPO applications to a single person, namely Roopalben Panchal, and here
accomplices, in the name of thousands of fictitious applicants. The DP involved i.e. Karvy
Group of Companies, too processed these applications and in many cases, allotted shares
without even receiving applications. This was considered to be a clear abuse of the very process
of IPO that intends to encourage the participation of Retail Individual Investors (RIIs).
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 issue’s 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 onetime assessment done at the time of the IPO and
meant to aid investors who are interested in investing in the IPO. The grade will not have any
ongoing validity.
IPO grading brings value to issuer, merchant banker and investors in the
following way:
 It provides an independent, unbiased assessment of the fundamentals of the company.

 The grade enables easy comparison between companies, irrespective of the size or the
industry they operate in.
 It is a collaborative initiative to widen and deepen market participation.
 Increasing participation from new and foreign investors necessitates greater
“Awareness” about the company and its fundamentals.
 It will help issuers to benchmark themselves and project their underlying strengths
better.
IPO GRADING: MANDATORY
Earlier IPO-grading was only optional for the company coming out with the issue but
due to various reasons some of which has been discussed in later part of this project, the SEBI
board on March 22, 2007 has made grading of IPOs mandatory. The cost of IPO grading
previously was borne from Investor protection funds administered by stock exchanges or
from Investor Education and Protection Fund (IEPF) administered by the Ministry of
Companies Affairs but now in the wake of IPO-grading becoming mandatory the total cost
shall charged to the respective issuing companies.
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 was said by 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. Till now only 16 IPO has opted for the grading and here is the list.
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 & Poor’s and Moody’s do not perform grading of IPOs at all. While Standard &
Poor’s is the majority stakeholder in CRISIL Ltd, Moody’s 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 Assessment

5/5 Strong fundamentals
4/5 Above average fundamentals
3/5 Average fundamentals
2/5 Below average fundamentals

1/5 Poor fundamentals
How can a company get its IPO graded?

The company needs to first contact one of the grading agencies and mandate it for the grading
exercise. The agency would then follow the process outlined below.
 Seek information required for the grading from the company.

 On receipt of required information, have discussions with the company’s management
and visit the company’s operating locations, if required prepare an analytical assessment report.
 Present the analysis to a committee comprising senior executives of the concerned
grading agency. This committee would discuss all relevant issues and assign a grade.
 Communicate the grade to the company along with an assessment report outlining the
rationale for the grade assigned.

Data-flow diagram showing the entire IPO-grading procedure
This 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.
DIFFERENT PARAMETERS USED IN AN IPO GRADING
The IPO grading report will comprise of assessment on the following parameters:
 Management quality
 Business prospects: Industry & Company
 Financial performance
 Corporate governance
 Project related factors
 Other factors: Compliance track record
Litigation history
Capital history
COST INVOLVED
Though nothing has been declared officially but most of the credit rating have 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
Sometimes a company may not know whether it is performing

well or not. In such a situation, getting a grading by an independent rating agency would come in
handy and may be very much valuable to companies. IPO grading is supposed to be useful
particularly for assessing the offerings of companies accessing the equity markets for the first
time where there is no track record of their market performance. There is no denying the
fact that IPO grading will be helpful to the unlisted issuing companies provided CRAs
prescribe a higher score indicating stronger fundamentals. As stated earlier, the IPO grade
assigned to any issue may represent a relative assessment of the ‘fundamentals’ of that issue in
relation to the universe of other listed equity securities in India. This grading can help the
prospective investor to make a right investment decision. Thus, IPO grading is additional
investor information and investment assistance device to enable more realistic pricing of
shares and assist investors make an informed decision. Truly speaking, if investors respond
better to a graded IPO, it would prove an incentive for promoters to opt for grading in future.
Needless to mention, acquiring a high grading symbol could enable issuing companies command
a better premium on their offer and Issuers having underlying strength can also project
themselves in a better way to their prospective investors.
There are various positive sides of an IPO grading. The most significant factors that go in favor
of IPO grading are:
1. Professional and Independent Appraisal: IPO grading will create awareness

about the fundamentals of the company’s 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.
2. 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.
3. 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.
4. Improved Investors’ Sophistication: It is perceived that an independent and

informed
opinion on the fundamental quality of the company will bring about greater level of
investor sophistication in a scientific manner. In fact, investors may take investment decisions in
a better way on the basis of opinion of CRAs regarding IPO grading. However, the assessment is

not a recommendation to buy or not buy a stock. It is, instead, a powerful tool to assist the
investors in making up their mind about the quality of a company proposing to offer an IPO
investment option.
REFORMS/RECOMMENDATIONS IN IPO PROCESS
The following reforms can take place in the market:
 The pro-rata system of allotment favours investors who bid for relatively large
numbers of shares. Perhaps, the process should be changed such that those applying up to 1,000
shares are allotted in full and beyond this number on pro-rata basis.
 Book-building is preferred because the allotment of shares is generally done at a

price Determined by the lead merchant banker and issuer within the price band. Since QIBs
are the dominant players and bid at somewhat higher prices within the band, the issuer
and merchant banker fix the price at the higher end such that retail investors have to
accept it. Thus, investors chipping in 35 per cent of the capital have little role in price
Discovery. As a matter of fact, the IPO demand curve is skewed by differing demands at
different prices by various bidders. This indicates the need to use multiple pricing for
Allotment.
 The Dutch auction can also be used to protect the interest of retail investors. In
this System, auctioneering begins at a high price, which can be lowered up to the lower limit
Of the price band. All participants pay the last price. This mechanism does not
Discriminate against small investors. This is also favourable for other investors, QIBs or
HNIs. A weighted average price can also be thought of for retail investors; that is, the
Weighted average of the retail investor category bids is accepted as the cut-off price
IPO PERFORMANCE: 1989-90 to 2007-08 (19 years)
YEAR AMOUNT (RS) CRORE NO. OF ISSUE

1989-90 2793 187
1990-91 1,704 141
1991-92 1,898 196

1992-93 6,252 528
1993-94 13,443 770
1994-95 12,928 1,336
1995-96 11,663 1,407
1996-97 11,387 697
1997-98 3,061 62
1998-99 7,911 32
1999-00 7,673 65
2000-01 6,618 119
2001-02 6,423 19
2002-03 5,732 14
2003-04 22,130 34
2004-05 25,526 34
2005-06 23,676 102
2006-07 19,718 93
TOTAL 1,90,536 5806
Thus we see that number of issue in the last 10 years has decreased but issue amount has
increased over the years. The highest number Initial Public Issue came in year 1995-
96(1407 issues with a total issue amount of Rs.11,663 crore only). While in year 2004-05
number of issues were only 34 but issue amount was 25,526 crore.
PRESENT SCENERIO OF IPO’s
IPO ISSUE ISSUE PRICE PROFIT/ CRISIL,CARE,ICRA

OPEN CLOSES BAND LOSS IPO GARDING
(2010) (2010) (1-5)
SKS JUL 28 AUG 2 Rs850/- To 4
MICROFINANCE Rs 985/-
LTD
ENGINEERS JUL 27 JUL 30 Rs 270/-
INDIA LTD To Rs
290/-
MIDFIELD JUL 19 JUL 21 Rs 126/- 2
INDUSTRIES LTD. To Rs
133/-
HINDUSTAN JUL 05 JUL 07 Rs162/- To 8.10% 4
MEDIA Rs 175/-
VENTURES LTD.
ASTER JUN 24 JUN 28 Rs112 /- 61.23% 2
SILICATES LTD. To Rs

116/-
TECHNOFAB JUN 29 JUL 02 Rs 230/- 17.19% 3

ENGINEERING To Rs
LTD 240/-
PARABOLIC JUN 14 JUN 17 Rs75/- To 27.33% 2
DRUGS LTD. Rs 85/-
FATPIPE JUN 07 JUN 09 Rs 82/- To 2
NETWORKS Rs 85/-
INDIA LTD.
STANDARD MAY 25 MAY 28 Rs 100/- 15.29%
CHARTERED PLC To Rs
115/-
JAYPEE APR 29 MAY 04 Rs102/- To 17.99% 3
INFRATECH LTD. Rs 117/-
SATLUJ JAL APR 29 MAY 03 Rs 23/- To 8.08% 4
VIDHYUT NIGAM Rs 26/-
LTD.
TARA HEALTH APR 28 MAY 05 Rs175/- To 2
FOODS LTD. Rs 185/-
REVIEW OF RECENT FIVE IPO’s
HINDUSTAN MEDIA VENTURES LIMITED
COMPANY - PRINT MEDIA
PRICE BAND - Rs 162 – Rs 175
RECOMMENDATIONS - Subscribe (Emkay Global, Angel Broking)

Invest with high risk (Hem Securities)
ISSUE OPENS JUL 05, 2010

ISSUE CLOSES JUL 07, 2010
PRICE BAND Rs 162 – Rs 175
FACE VALUE Rs 10

ISSUE SIZE (Rs Mn. ) 2700
EPS (31/ 12/ 09) 5.11
LISTING BSE, NSE
REGISTRAR KARVY COMPUTER SHARE PVT. LTD.
LEAD MANAGER KATAK MAHINDRA, EDELWEIS S
PROMOTERS H T MEDIA LIMITED
COMPANY BACKGROUND
The Company was incorporated on July 9, 1918 under the

Indian Companies Act, 1913 as a public limited company under the name 'The Behar Journals
Limited' and received the certificate of commencement of business on January 14, 1919. On
November 17, 1987 the name of the Company was changed to 'Searchlight Publishing House
Limited' to reflect to make the name of the Company more in consonance with its publication,
'Searchlight'. Subsequently, the name of Company was changed to its present name 'Hindustan
Media Ventures Limited' to reflect the expanded business activities intended to be undertaken by
the Company and to be in consonance with the prevailing industry trends and a fresh certificate
of incorporation to this effect was issued on November 11, 2008.
One of the leading print media company, which publishes,

among others, ‘Hindustan‘, the third largest daily newspaper in India, in terms of
Readership, with a Readership of 9.3 million readers. ‘Hindustan‘ began publication in
1936, during freedom movement and has been one of India‘s eminent Hindi newspaper
dailies for over 70 years. ‘Hindustan‘ has the largest Readership in key Hindi-speaking
markets of Bihar and Jharkhand, with a strong and growing presence in Delhi NCR and the
states of Uttar Pradesh and Uttarakhand. It is one of the fastest growing Hindi daily newspapers
in India.
‘Hindustan‘is presently printed at 16 locations in the states/regions of Uttar Pradesh, Bihar,

Jharkhand, Uttarakhand, Punjab and Delhi NCR. The distribution of newspapers takes place
through a multi-tiered network of agents and vendors.
They also publish two Hindi magazines, ‘Nandan‘, a children‘s magazine, and
‘Kadambini‘, a general interest magazine. The company also operates the website,
www.livehindustan.com, which focuses on providing news in Hindi with regional content

OBJECT OF THE ISSUE
The objects of the Issue are to raise funds for:-

• Setting up new publishing units (Rs 66cr)
• upgrading existing plant and machinery (Rs 55cr)
• prepayment of loans (Rs153cr)
STRENGTHS
Hindustan – Strong brand recognition.

•
• Emerging as a leading Hindi daily with leadership in key markets.
• Ability to successfully launch ‘Hindustan’ daily - in new markets.
• Strong relationship with Advertisers.
• Ability to provide local, national and international news with quality editorial content.
• Credible editorial team
• Modern and advanced printing and technology infrastructure.
• Synergies with HT Media Limited.
• Strong management team
CHALLENGES:-
The Indian newspaper and magazine industry, particularly the Hindi newspaper and
magazine industry, is intensely competitive. In each of the markets, the company faces
competition primarily from other newspapers and magazines for circulation, readership and
advertising. In addition, there is competition from other alternative forms of media
including, but not limited to, television broadcasters, magazines, pamphlets, flyers, radio
broadcasters and internet websites. These other forms of media compete with newspapers for
advertisers and for the time and attention of the readers. Ad-spend by the advertisers and the
ability to attract new advertisers is influenced largely by the circulation and readership,
the geographical reach, readership demographics of the newspapers and the preference of
advertisers for one media over another. Pricing in the short term may be affected by the
Circulation of the newspapers and magazines among the readers which is an important source of
revenue for the Company since its derives significant revenues from subscriptions and
sales. In addition, circulation and readership significantly influence ad-spend by advertisers and
the advertising rates in the newspapers. Circulation and readership is dependent on the quality
and reach of the publications and the loyalty of the existing readers. Circulation in the Indian
market is also largely affected by price and, therefore, the circulation of the newspapers may
be adversely affected if the company fails to meet any price competition.
Changes in technology may render the current technologies obsolete or require the company to
make substantial capital investments.
CRISIL HAS AWARDED GRADE - 4 FOR THE IPO, INDICATING ABOVE

AVERAGE FUNDAMENTALS.

HMVL is a professionally run company and focuses a lot on adopting good corporate
governance practices. It is a subsidiary of HT Media which has been acknowledged as one of the
top 25 companies adopting good corporate governance practices for 2009 by the Institute of
Company Secretaries of India. HMVL draws its governance practices from HT Media itself and
is expected to have similar robust board practices. HMVL has a completely different senior and
second line of management.
FINANCIALS - RS IN CRORES
08 09 31-12-09
REVENUE 16.85 17.73 52.14
NET PROFIT 0.28 0.19 3.57
EPS 0.70 0.28 5.11
RONW 2.54% 1.74% 21%
TECHNOFAB ENGINEERING IPO
COMPANY – ENGINEERING PROCUREMENT AND CONSTRUCTION (EPC)

PRICE BAND - Rs 230 – Rs 240
RECOMMENDATION - SUBSCRIBE
ISSUE DETAILS
EPS 25.49
FACE VALUE Rs 10
ISSUE CLOSES JUL 02, 2010
ISSUE OPENS JUN 29, 2010
ISSUE SIZE 29,90,000 (Eq)
LEAD MANAGER Collins Stewart INGA Pvt. Ltd.

LISTING BSE, NSE
PROMOTERS Avinash c. Gupta, Arjun Gupta & Nakul
Gupta
REGISTRAR Link Intime India Pvt. Ltd.
COMPANY BACKGROUND
Technofab Engineering provides EPC services to domestic and

overseas markets across a number of industrial and infrastructure sectors, which includes
conventional power, nuclear power, oil & gas, water & waste-water treatment, electrical
distribution & rural electrification and other industrial, & infrastructure sectors. Apart from
India, the company has presence in international markets like Ethiopia, Kenya and Fiji.
The Company is in the EPC business for the last thirty-eight years and has developed expertise
in the line of operations by to minimizing overheads, cost control and prevent overruns on
project schedules along with strong skills in construction and contract management. This has
contributed towards securing multiple orders received from customers like Lanco Infrastructure,
BHEL, NPCIL, NTPC, amongst others. The company has a record of accomplishment in
designing, manufacturing, procuring, constructing, commissioning and servicing various systems
and equipments.
OBJECTS OF THE ISSUE :-
OBJECTS OF THE ISSUE RS IN CRS
Long Term Working Capital Requirements 30
Procurement of construction Equipments 16.23
Setting up of maintenance & Storage Facility 4.99
Setting up of Training Centres for Employees 5.4
General Corporate and Issue Expenses 0
Sources :- DRHP, NB Research

MATTERS OF CONCERN / RISK
• Company relies substantially on government-owned and government-controlled entities for our

work orders. Political or financial pressures may cause a decrease in Government spending on
public sector projects, which could adversely affect the growth.
• The standard conditions in contracts typically awarded by clients including government-

owned and government-controlled entities are that they have the right to terminate the contract
at any time, without assigning any reason.
• Technofab is exposed to significant risks on fixed-price or lump sum turnkey contracts and
high working capital requirements.
• The Company is presently carrying out projects in Ethiopia, Fiji and Kenya and is bidding in
several other African countries; some of them are unstable political economies.
Strong Execution Capability
Over last 4 decades TEL has successfully executed more than 120 projects both across India and
abroad in different segments and gained technical expertise and skills for effective and efficient
project management capabilities. Its track record of execution capabilities can be judged from
repeated orders from customers like BHEL, NTPC, NPCIL and others. Strong Execution
capability contributes to growth and profitability of any EPC company.

FINANCIALS:
The company has achieved a turnover of Rs 200.37cr, PAT of Rs 19.09 cr for FY 2010, as
against the turnover of Rs 149.56 cr and PAT of Rs 11.68 cr for the FY 2009.
ASTER SILICATED LIMITED
COMPANY – SODIUM SILICATE MANUFACTURER
PRICE BAND - Rs 112 to Rs 118
RECOMMENDATIONS - AVOID
ISSUE DETAILS

ISSUE CLOSES JUN 28, 10
FACE VALUE Rs 10
ISSUE SIZE 5310 lakhs
EPS 2.97
LISTING BSE, NSE
REGISTRAR Sharepro Servives (India) Pvt. Ltd.
LEAD MANAGERS Saffron Capital Advisors Pvt. Ltd.
PROMOTERS Mr. Mahesh A. Maheshwari,, Mrs. Namrata
Mahesh Maheshwari
COMPANY BACKGROUND

Aster Silicates Limited (ASL) commenced manufacture of Sodium
Silicate in 1997. The Company now operates two units in Gujarat at Kheda and Bharuch
having a capacity of 100 metric tones per day (MTPD) and 50 MTPD respectively. Kheda
unit has three furnaces and Bharuch has one furnace. These are triple pass regenerative and
recuperative end fired glass furnace with multiple fuel arrangement capable of using bio gas,
natural gas and coal.
ASL manufactures sodium silicate which includes food, special

drilling and detergent grade silicate in glass and liquid form. Food grade sodium silicate
is used in the manufacturing of Silica precipitate and gel which finds its applications in
toothpaste, salt, cosmetics, glucose powder, tire & rubber and pesticides etc. Sodium silicate,
(special drilling grade silicate) is also used in offshore drilling, for reactivation of old oil, and gas
fields.
OBJECTS OF THE ISSUE:
The funds are intended to be used for - Expansion of Manufacturing facilities and to meet the
additional Working Capital Requirements.
RISKS / MATTERS OF CONCERN:
• Basic raw material constitute major portion of cost of production in the chemical
industry. Indian chemical industry uses either natural gas or crude oil as feedstock for
manufacturing process. The fluctuations in oil prices therefore affect the growth
projections.
• The objects of the Issue for which funds are being raised have not been appraised by any
bank or financial institution.
• The company is yet place orders for Plant and Machinery aggregating Rs. 744.99 Lacs.
• The Company has a negative cash flow in the past 5 years.
• Top five clients contributed approximately 80.90% of sales for FY 2009. High business
risks.
• Company has no history of dividend payment.
• Company has history of related party transactions.
• IPO grade -2 by Brickworks, indicating below average fundamentals.

• Criminal case to the tune of Rs. 4.69/- lacs and excise case to the tune of Rs. 21.05 lacs
has been filed against the company and arbitration proceedings to the tune of Rs. 371.07
lacs have been initiated by the Company against Gas Authority of India Ltd.
• The company has also revalued the fixed assets and increased the value by Rs 492.01
lacs in the FY 09.
RECOMMENDATIONS:-
Risks associated with the project / company are very high. The issue is irrationally
priced. Investors are advised to stay away from the issue.
FINANCIALS:
The company achieved a turnover of Rs 32.09cr and net profit of Rs 2.54cr for the FY09. For the
six months ended Sept -09 the revenue recorded is Rs 30.09cr and a net profit of Rs 2.32cr.
PARABOLIC DRUGS LIMITED
COMPANY – BULK DRUGS MANUFACTURER
PRICE BAND - Rs 75- Rs 85
RECOMMENDATIONS - AVOID
ISSUE DETAILS
ISSUE CLOSES JUN 17, 2010
PRICE BAND Rs 75- Rs 85
FACE VALUE Rs 10
ISSUE SIZE 20,000 lacs
EPS
LISTING BSE, NSE
REGISTRAR Link Intime India Pvt. Ltd.
LEAD MANAGER Avendus Capital Pvt. Ltd. & ICICI Securiries
Ltd.
PROMOTERS Pranav Gupta, Vineet Gupta, PNG Trading
Private Ltd. & Parabolic Infracture Private ltd.
COMPANY BACKGROUNG

The company is engaged in the manufacturing of Active Pharmaceutical Ingredients (API) and
API intermediates for the domestic market as well as for exports. APIs, also known as bulk
drugs‘ or bulk actives‘ are the principal ingredient used in making finished dosages in the
form of capsules, tablets, liquid, or other forms of dosage, with the addition of other APIs
or inactive ingredients. The company also produces the Semi Synthetic Penicillin(SSP) and
Cephalosporin range of antibiotics in oral and sterile form, along with their intermediates.
Parabolic Drugs own and operate two manufacturing facilities at Derabassi, Punjab, and in
Panchkula, Haryana. The company commenced commercial operations in February 1998 by
setting up a unit at Sundhran, Derabassi, to manufacture SSPs. It has six units at Sundhran,
Derabassi, for manufacturing the oral and sterile range of Cephalosporin APIs and intermediates.
The facility at Sundhran, Derabassi, is WHO-GMP and ISO-14001 certified. The second facility
at Panchkula was established in fiscal 2005. Currently, the Panchkula facility has two units
manufacturing SSPs and API intermediates such as 6 Amino Penicillin Acid. The company is in
the in the process of setting up a custom synthesis and research and development centre
at Barwala, Haryana, for development and scale-up of new APIs and APIs intermediates
in all therapeutic segments, including non-antibiotic products. This facility is expected to
commence operations in the last quarter of fiscal 2010, to focus on providing contract research
services to innovator companies. In addition, the company is in the process of setting up another
manufacturing facility at Chachrauli, Derabassi, to manufacture the non-antibiotic range of APIs,
which is expected to commence commercial operations in the third quarter of fiscal 2011.
OBJECTS OF THE ISSUE
The company intends to utilize the funds for the following purposes:
1. Multi-purpose blocks III at Derabassi;

2. Sterile cephalosporin plant at Derabassi;
3. Establishment of manufacturing at Chachrauli.
4. Custom synthesis and manufacturing site.
5. Repayment / prepayment of identified loan facilities.
MATTERS OF CONCERN.
• The company operates in a competitive business environment, both globally and

domestically. Competition from existing players and new entrants and consequent
pricing pressures will adversely affect the business..
• The pharmaceutical industry is highly regulated and the success of the company’s
strategy of entering regulated markets is dependent on a number of factors beyond the
control of the company.

• Highly indebted company with floating rate of interest. As at September 30, 2009, the
secured loan funds aggregated Rs. 30,385.83 lacs, all of which were at floating rates of
interest which exposes the company to interest risk.
• Significantly dependent on imports of raw materials, particularly from China, and

are to that extent exposed to risks including duties placed on imports from other
countries.
• The name, business and logo of ‘Parabolic’ are not registered trademarks in the
name of the Company.
• The funds requirement and funding plans are as per the company’s own estimates, and
have not been appraised by any bank / financial institution.
• The average cost of acquisition of shares by promoters are as follows:
No. of shares Rs
Mr. Pranav Gupta 8, 24,100 3.50

Mr. Vineet Gupta 7, 01,550 3.42
Parabolic Infrastructure 58, 06,620 3.3

PNG Trading pvt ltd 1, 35, 70,800 3.43
FINANCIALS:
The total revenue earned has increased from Rs. 15,056.33 lacs in fiscal 2007 to Rs. 39,693.70
lacs in fiscal 2009, and profit after tax has increased from Rs. 1,358.98 lacs to Rs. 2,109.20 lacs
during this period. The total income and profit after tax as at September 30, 2009 were Rs.
23,342.56 lacs and Rs. 1,241.23 lacs, respectively. The net sales have increased at a CAGR
of 62.50% from fiscal 2007 to fiscal 2009. Direct exports constituted 27.65% of our net
sales in fiscal 2009, and 32.25% as at September 30, 2009.
IPO Grade – 2 by CARE
The grading is constrained by company’s unfavorable capital structure, project stabilization risk,
volatility in prices of imported raw material along-with exposure to exchange risk because of
imports and liabilities denominated in foreign currency, though partially mitigated because of
direct exports. The grading factors in the strong growth in revenue reported in past,
experienced management, approvals and certificates of suitability for few products from
regulatory authorities in USA, EU and other regulated markets, reputed client base, strong
focus on R&D activities and the company’s strategy towards diversification.
VALUATION AND RECOMMENDATIONS

For the FY 10 the company reported a net profit of Rs 21.10cr. The EPS on the post bonus and
post issue equity works out to Rs 3.70. At the upper price band of Rs 85 the company demands
valuation in excess of 20 PE. Companies like Neuland Lab and Nector life, who are in the
similar line of business, are available at less than 9 PE. Grossly overpriced. AVOID.
MANDHANA INDUSTRIES LIMITED
COMPANY : TEXTILE/ GARMENT MANUFACTURER
PRICE BAND : Rs 120 – Rs 130
RECOMMENDATIONS : SUBSCRIBE
ISSUES DETAIL
ISSUE OPENS APR 27, 10

ISSUE CLOSES APR 29, 10
PRICE BAND RS 120 – RS 130
FACE VALUE RS 10
ISSUE SIZE 83,00,000
EPS
LISTING BSE, NSE
REGISTRAR LINK INTIME INDIA PVT LTD
LEAD MANAGER EDELWEISS CAPITAL LIMITED AND
AXIS BANK LIMITED
PROMOTERS Purushottam Mandhana, Biharilal Mandhana,
Manish Mandhana, Priyavrat Mandhana and

Purushottam Mandhana (HUF).
COMPANY’s BACKGROUND
Mandhana Industries Limited (MIL) is a vertically integrated textile and garment manufacturing
company having presence across operations ranging from yarn dyeing to garment manufacturing.
The operations and facilities enable the company to manufacture a wide variety of value-added
fabrics and garments through the integrated operations comprising of dyeing of yarns and
fabrics, weaving operations for fabrics, processing solutions for both, fabrics and garments,
garment manufacturing, domain expertise in providing sampling and designing for both fabrics
and garments.
MIL has positioned itself as a multi-product, multi-fibre and multi-market

player ensuring the targeted markets with diverse mix of domestic fabrics and garments as well
as the international garment markets.
OBJECTS OF THE ISSUE
• Setting up of new garment manufacturing facility at MIDC, Tarapur Maharashtra.

• Expansion of yarn dyeing and weaving facility at MIDC, Tarapur.
• Margin Money for Working Capital;
• Funds for General Corporate Purpose.
RISKS AND CONCERNS
• Potential conflict of interest with promoters having other companies in the same line of
business.
• Some of the independent directors have been issued shares at a discount as compared to
other shareholders
• The degree of competition is very high on both, fabrics as well as garments side, with
many small and large players. Margin expansion is extremely difficult in an industry with
a large number of players. The company will have to continuously innovate producing
new designs and focus on improving the operational efficiency through technological
improvements in order to maintain margins.
FINANCIALS --RS IN CRORES
07 08 09
TOTAL INCOME 240.33 406.95 463.25

NET PROFIT 19.43 35.30 36.56
EPS (RS) 9.25 15.89 16.14
VALUATION AND RECOMMENDATIONS
MIL has a healthy revenue growth at a CAGR of 47 per cent driven by increased weaving,
dyeing and garmenting capacities over the past 3 years. The business model is focused on low
volume and high value products, which provide higher margins. At Rs 120-130 price band, the
company demands a valuation of less than 10 PE of its FY 09 earnings, on the fully diluted post
issue equity. REASONABLY PRICED. APPLY AT LOWER BAND.
RESEARCH METHODOLOGY
Research
Research is a procedure of logical and systematic application of the fundamentals of science to
the general and overall questions of a study and scientific technique, which provide precise tools,
specific procedures, and technical rather philosophical means for getting and ordering the data
prior to their logical analysis and manipulation different type of research designs is available
depending upon the nature of research project, availability of manpower and circumstances.
Research Design
Research Design is an arrangement of conditions for collection and analysis of data in a manner
that aims to combine relevance to the research purpose with economy on procedure. The
research problem having been formulated in clear-cut term helps the researcher to prepare a
research design. The preparation of such a design facilitates in conducting it in an efficient
manner as possible. It is a blue print for the fulfillment of objectives and answering questions
.this research is:
 Descriptive research:
Descriptive research includes surveys, facts, finding and inquiries of different kinds.
Descriptive research is that kind of research where the researcher has no control over the
variables. Reporter can only report what has happened or what is going to happen. But these

incidents cannot be changed by the researcher. This is descriptive research because in this
research data is collected from respondents and is described as it is.
 Conclusion oriented research:

Conclusion oriented research is that in which we conclude on basis of research we do. While
doing conclusion oriented research a researcher is free to pick up a problem regarding the
inquiry and can conceptualize as he wishes. Present research is conclusion oriented because in
this research aims to know the perception of investor towards initial public offers
Sample Design
The following factors have to decide within the scope of sample design:
i) Universe of study: universe of the study means the area or the limits of the study in which it is
to be conducted. Universe of this study is all those people who invest there money in initial
public offers.
ii) Sample Size: A sample of minimum respondents has been selected from various areas of
Jalandhar and Ludhiana. An effort has been made to select respondents evenly. The survey is
carried out on 50 respondents.
iii) Sample Unit: It indicates who is to be surveyed. In this project sampling unit is all the students,
businessman, serviceman, etc of Jalandhar and Ludhiana who invest there money in initial public
offers.
iv) Sampling Technique: For the purpose of this research Convenient Sampling is being used.
Different people were contacted for required information. Every respondent has his different
view point about the topic and they filled in questionnaire accordingly.
Data Collection
In this study data is collected from following sources:
i) Primary data:

Primary data are those, which are collected afresh and for the first time, and thus happen to be
original in character. It is the backbone of any study. It is obtained from respondents with the
help of widely used and well-known method of survey, through a well-structured questionnaire.
In this study primary data from respondents was collected through a well structured
questionnaire.
ii) Secondary data:

Secondary data are those which have already been collected by someone else and which have
already been passed through the statistical process. In this case one is not confronted with the
problems that are usually associated with the collection of original data. Secondary data either is
published data or unpublished data. In this study secondary data is collected from web sites
Limitations of the study:

i) Inadequate data: The data provided was not up to the mark due to which we faced
problems in our research.
ii) Problem of conceptualization: There was problem of conceptualization and also

problem relating to the process of data collection and related things.
iii) Time and cost factor: There as the difficulty of timely availability of published and
relevant data this led to increase in cost.
iv) Lack of scientific method: The lack of scientific training in methodology of research
was great impediment in our research program, which led to the delay of research.
v) No response by the respondent: Problem arises in sensitive issues like getting

information about the financial position of the respondent.

REVIEW OF LITERATURE
1. “Chemmanur T.J.”(1999) in his study “A Theory of the Going-Public Decision”

concluded that “At what stage in its life should a firm go public rather than undertake its
projects using private equity financing? In our model a firm may raise external financing either
by placing shares privately with a risk-averse venture capitalist or by selling shares in an IPO to
numerous small investors. The entrepreneur has private information about his firm's value, but
outsiders can reduce this informational disadvantage by evaluating the firm at a cost. The
equilibrium timing of the going-public decision is determined by the firm's trade-off between
minimizing the duplication in information production by outsiders (unavoidable in the IPO
market, but mitigated by a publicly observable share price) and avoiding the risk-premium
demanded by venture capitalists. Testable implications are developed for the cross-sectional
variations in the age of going-public across industries and countries.”
2. “Pichler P.”(2001) in his study “Technological Innovation and Initial Public Offerings ”
concluded that: “This article shows how both technological and competitive risks affect the
timing of private and initial public offerings in an emerging industry. Early private financing
occurs in industries that are perceived to be risky, with high development costs and low
probability of being displaced by technologically superior rivals. Early public financing occurs
in industries perceived to be viable, with low development costs and low probability of
displacement. Due to feedback effects between financial and product markets, the value of
investors' proprietary information is greater in private than in initial public offerings. This has
implications for under pricing. ”

3. Muhammad Khalid Sohail* and Mohamed Nasr (jun, 2007) in their study “International
Review of Business Research Papers” concluded that : We have studied the short-run and long-
run performance of 50 IPOs listed on Karachi Stock Exchange (KSE) from 2000 to 2006. We
found that the average under-pricing is 35.66%; and that the average market-adjusted cumulative
abnormal return and buy-and-hold abnormal return over the one year after listing are -19.67% &
-38.10% by using market adjusted model and are -53.30% & -65.73% by using capital asset
pricing model, respectively, which are negative and significant at the 5% and 1% levels
respectively. The year-wise and sector-wise analysis of IPOs is also documented. We used also a
cross-sectional analysis to explain the level of under-pricing of Pakistani’s IPO and found that
the level of under-pricing is determined by ex-ante uncertainty, offer size, market capitalization
and oversubscription variables while a little power of explaining the underpricing by percentage
of shares offered, price earning ratio, secondary issue and market volatility variables.
4. “Kandel E.”(2007) in his study “Shareholder Diversification and the Decision to Go

Public ” concluded that “Less diversified shareholders have more to gain from taking their firm
public, and are more willing to accept a lower price for shares. We test these hypotheses using
the data on all IPOs in Sweden between 1995 and 2001. Using detailed information on the
portfolio composition of shareholders in private and public firms, we construct several proxies of
their portfolio diversification and relate them to the probability of the IPO and the under pricing.
We show that the less diversified individual shareholders, especially those with lower wealth,
sell more of their shares at the IPO. Firms held by less diversified controlling shareholders are
more likely to go public, and exhibit higher under pricing. These effects are economically and
statistically significant, while the diversification of non controlling shareholders has no effect.
Our findings suggest that diversification of controlling shareholders plays a prominent role in the
IPO process”
5. “Jones H.”(2008) in his study “IPO Pricing and Allocation: A Survey of the Views of
the Institutional Investor” concluded that: “Despite the central importance of investors to
all initial public offering (IPO) theories, relatively little is known about their role in practice.
This article is based on a survey of how institutional investors assess IPOs, what information
they provide to the investment banking syndicate, and the factors they believe influence

allocations. We find that investor characteristics, in particular brokerage relationships with
the book runner, are perceived to be the most important factors influencing allocations,
which supports the view that IPO allocations are part of implicit quid pro quo deals with
investment banks. The survey raises doubts as to the extent of information production or
revelation”
6. “Fowler L.”(2008) in his study “Short Term Equity Returns of Chinese IPOs”
concluded that: “IPOs are most often characterized as a reflection of state policy acting with
a view to longer-term economic gains and sound social policy .The sample IPOs were found
to be oversubscribed by 243 times the share offered. Such a level of excess demand is a
major factor in high initial returns to Chinese IPOs. Regression analysis indicated other major
factors associated with these high initial returns including company size, offer size, general
market conditions in the period of lead up to the first listing, the proportion of tradable-A
shares available and the signal PE ratio at the time of offer. In addition, the paper emphasizes
the potential for very significant wealth effects, capital formation and development of a
private capital market which arises from private sector gains linked to the IPO”

DATA ANALYSIS AND INTERPRETATION
In this chapter the data collected from the respondents with the help of questionnaire is analyzed
and interpretations are made on basis of that analysis.
1. Awareness about Initial Public Offer (IPO)
Table-4.1: Awareness about IPOs

Responses No of Respondents %age
Yes 50 100
No 0 0
Total 50 100
Figure-4.1: Awareness about IPOs

Interpretation:
The above data shows that 100% of respondents are aware initial public offers.
This means that majority of people are aware of concept of initial public offers as a financial
instrument in which they can invest their savings.
2. Source of information regarding IPOs
Table-4.2: Source of information regarding IPOs

Responses No of Respondents (%age)
Electronic media 26
Print media 20
brokers 15
Financial advisor / CA 15
Friends\
24
Colleagues
Total 100

No of Respondents (%age)
INTERPRETATION
This conclude that nearly 26% investors come to know about IPO and Capital market through
electronic media, 20% through print media, 15% from brokers and nearly 24% through friends.
The number of responses in this is 100 and they are free to choose any among of them. In this
Electronic Media is most preferred sources among all of them sources.
4. Recent IPO’s in which money is invested.

Table 4.3- Recent IPOs in which money is invested
RESPONSES PERCENTAGE (%)
HINDUSTAN MEDIA VENTURES LTD. 23
ASTER SILICATES LTD. 12
PARABOLIC DRUGS LTD. 10
TECHNOFAB ENGINEERING LTD. 25
MANDHAWA INDUSTRIES LTD. 19
FATPIPE NETWORKS LTD. 11

INTERPRETATION
The above data tells us that nearly 23% investors invest in the Hindustan media
venture ltd. And nearly 25% people invest in the Technofab engineering ltd. 19% people
invested in the Mandhawa industries ltd. They are free to invest in any of the above. But they are
invested in it according to their experts recommendations and through electronic media.
5. Time period of investment in IPO
Table-4.4: Time period of investment in IPO
Short Term 7 14
Medium Term 20 40
Long Term 23 46
Total 50 100

Interpretation:
The above Data shows that 14% of respondent invest their money for short term , 40% for
medium term and 46% for long term
The above data tells that maximun number of Investor invest their money for long term followed
by medium term and least number of investor invest their money for short term.
6. Sectors preferred while investing in IPOs
Table-4.5: Sectors preferred while investing in IPOs

Banking 14 12
Telecom 13 11
Pharma 13 11
Real Estate 20 17
IT 16 14
Power 40 35
Total 116 100

Figure-4.5: Sectors preferred while investing in IPOs
Interpretation:
The above data shows that 12% of respondent prefer to invest money in banking sector, 11% in
telecom sector, 11% in pharma sector, 17% in real estate sector, 14% in IT sector and 35 % in
power sector. Total numbers of responses in this question are 116 because in this respondents
were free to choose more than one option
The above data shows that most preferred sector for investment in IPOs is Power sector followed
by real estate and IT sector and least preferred are Telecom and Pharma.
7. Factors on which decision regarding investment in IPOs is based upon
Table-4.6: Factors on which decision regarding investment in IPOs is based upon

Own Analysis 26 35
Advice by friend/relative 11 15
Advice by broker 21 28
Advice by Security
17 22
analyst

Total 75 100
Figure-4.6: Factors on which decision regarding investment in IPOs is based upon
Interpretation:
The above data shows that 35% of respondent invest their money in IPOs on their own analysis ,
15% follows advice of a friend or a reletive . 28% on advice of broker and rest 22% on
recommendation of securtiy analyst . Total numbers of responses in this question are 75 because
in this respondents were free to choose more than one option
This shows investor make a careful study befaore investing their money in initial public offers
and in most of cases their decision to invest in a particular IPO is driven by their own analysis.
8. Factors affecting the choice of IPO :
Table-4.7: Factors affecting the choice of IPO :

Responses Absolute Very Important Least Indiffrent Total
S.N Importance Important (3) Important (1) Score
(5) (4) (2)
o
Issue
7.1 Price 29 15 5 1 0 222
Informatio
7.2 n 8 22 16 3 1 182
availabilit
y
Secondary
7.3 Market 8 16 20 5 1 175
situation
Lead
7.4 Manager’s 7 10 13 13 7 147
Image
Fundamentel
7.5Of the 27 13 4 3 3 208
company
Maximum score: 50 x 5= 250
Neutral score : 50 x 3= 150
Minimum score : 50 x 1= 50
Interpretation:
On the basis of these scores the above statements can be interpreted as follows:
1 The summated score of this statement is 222. It lies between Maximum and Neutral score.
So this factor is of absolute importance to the respondents.
2 The summated score of this statement is 182. It lies between Maximum and Neutral score.
So this factor is of absolute importance to the respondents
3 The summated score of this statement is 175 it lays between Maximum and Neutral score.
4 The summated score of this statement is 147 it lays between Neutral and Minimum score.
So this factor is of importance to the respondents
5 The summated score of this statement is 208 it lays between Maximum and Neutral score.
9. Perception of respondents regarding IPOs in which they have invested:
Table-4.8: Perception of respondents regarding IPOs in which they have invested:

Above Average 6 12
Average 26 52
Below Average 18 36
Total 50 100
Figure-4.7: Perception of respondents regarding IPOs in which they have invested:
Interpretation:
Above data shows that 12% of respondent feels that the IPOs in which they have invested their
money are performing above average 52% feels they are performance is average and 36% feels
that their performace is below average.
Above data shows that majority of investors feels that the performane IPOs in which they have
invested their money is average whereas least number of investeos perceive the preformance of
the IPOs above average.
10: Awareness regarding credit rating agencies:
Table-4.9: Awareness regarding credit rating agencies

Yes 28 56
No 22 44
Total 50 100
Figure-4.8: Awareness regarding credit rating agencies
Interpretation:
The above data shows that 56% of the respondent are aware of the ratings given to the IPOs by
credit rating agencies like CRISIL and ICRA etc. where as 44% of respondent do not know
about rating given to IPOs by credit rating agencies.The above data shows that majority of
investors were aware of ratings given to IPOs by credit rating agencies but still there are large
chunck of investors who are not aware of such ratings.
10. Considration to the ratings By Credit Rating Agencies
Table-4.10: considration to the ratings By Credit Rating Agencies
Yes 24 86
No 4 14

Total 28 100
Table-4.9 considration to the ratings By Credit Rating Agencies
Interpretation:
The above data shows that 86% of the respondents keep in mind the rating given to the IPOs by
credit rating agencies while making the investment decision regarding IPOs while 14% do not
follow these ratings.The above data shows that out of those respondent who are aware of the
rating given to IPOs by credit rating agencies majority of respondent follow or keep in mind
those ratings while taking decision relating to investing money in IPOs
11. Effect of US slowdown on Indian IPOs
Table-4.11: Effect of US slowdown on Indian IPOs

Yes 48 96
No 2 4

Total 50 100
Graph-4.10: Effect of US slowdown on Indian IPOs
Interpretation:
The above data shows that 96% of respondent feels that recent slowdown in US economy and
fall in global indices had affected the performance of IPOs by indian companies while 4% of
respondent do not feel in the same way.The above data shows that majority of investors feels
that recent slowdown in US economy and fall in global indices had affected the performance of
IPOs by indian companies.
12. Comparision of IPOs with Secondary Market
Table-4.12: Comparision of IPOs with Secondary Market
Both are at par 15 30

IPOs are better 18 36
Secondary market is
17 34
better
Total 50 100
Figure-4.11: Comparision of IPOs with Secondary Market

\
Interpretation:
The above data shows that 30% of respondent feels that performance of IPOs and secondary
market is at par while 26% of respondent feels that IPOs are better and rest 34% of investors
feel that performance of secondary market is better .The above data shows that majority of
respondent feels that performance of secondary market is better . than initial public offers
CONCLUSION OF THE STUDY
The psyche of Indian investor is changing. In recent scenario

instead of putting their money in bank and fixed deposit where there is minimum risk and
minimal return they are investing their money in various other opportunities where risk is high as

well as the returns. Now day’s Indian investor’s are well versed with various investment
opportunities that are available to them or various financial instruments in which they can invest
into.
A survey was conducted over 50 respondents regarding their

perception towards initial public offers. Report shows that majority of investors are aware of
IPOs as a financial instrument in which they can invest their money. Majority of them get
information regarding IPOs from TV news & newspapers. Most of the invest money in IPOs for
long time period and their decision regarding investment in IPO is based on their own analysis
and most of them give more weight to factors like issue price and fundamentals of the company
rather than the factors like lead managers image. Majority of investors prefer power sector while
investing in IPO.
Survey also tells that out of all the IPOs in year 2010 the most
preferred IPO was by HINDUSTAN MEDIA VENTURE LTD. & TECHNOFAB
ENGINEERING LTD. Most of people feel that performance of the IPO in which they have
invested is average. They also feel that recent fall in global markets have affected the
performance of IPOs by Indian companies. Majority of investors are also aware of ratings given
by ICRA to the IPOs and they do take into consideration these ratings while making their
decision regarding investment in IPOs. They also feel that performance of IPOs is better than
secondary market.
On the basis of research we can conclude that with the increase in

awareness of Indian investors and rapid growth of Indian economy more and more investors are
willing to invest their money into primary markets especially in initial public offerings.
RECOMMENDATIONS:
•Companies must insure Latest and easy availability of information to the investors which
will facilitate them to take their decision.
•Companies must Improve awareness of investors in the primary market

•SEBI should insure Immediate Action against issue managers, analysts and company for
providing over optimistic and wrong information
•SEBI should allow only Stable companies to enter the market
•SEBI must have control over the issue price which is currently being decided by companies
themselves
•Bogus companies not to be allowed to raise funds for these stringent measures must be
taken by SEBI.
•Investors should fully understand the risk associated with investment in primary market.
•Investor should do a detail study regarding company’s fundamentals , promoters
background and project implementation before investing into any IPO.
•Transparency in the system should be insured both by the company as well as by SEBI.
•Companies should insure adequate returns to shareholders on the money they have
invested and should also insure Security of investment Investors should Renew faith in
the long-term
BIBLIOGRAPHY
Electronic Sites

• Chemmanur TJ and Fulghieri P, (1999). “A Theory of the Going-Public Decision”,
Oxford Journals, 12: 249-279, available at:
http://rfs.oxfordjournals.org/cgi/content/abstract/12/2/249
Accessed on: 25 July 2008
• Pagano M. and Ellul A., (2006). “IPO Under pricing and After-Market Liquidity” oxford
journals, 19(2):381-421; available at:
http://rfs.oxfordjournals.org/cgi/content/abstract/19/2/381
• Kandel E., Massa M. and Simonov A. (2007). “Shareholder Diversification and the
Decision to Go Public” Review of Financial Studies available at:
http://rfs.oxfordjournals.org/cgi/content/abstract/hhm036v1
• Jones H. and Jenkinson T (2008).“IPO pricing and allocation: a survey of the views of
the institutional investor” Review of Financial Studies , available at:
http://rfs.oxfordjournals.org/cgi/content/abstract/hhn079v1
• Gangadhar V and Reddy N G , “Book-Building Process: An Efficient Mechanism for

Management of Mega Public Issues in India”, available at :
http://icai.org/icairoot/publications/complimentary/cajournal_nov05/676-683.pdf
• http://www.chittorgarh.com/ipo/ipo_ratings.asp?FormIPORating_Page=2
Posted by K A PRASANNA at 9:27 AM
lables: : fitch ipo grade-3, forthcoming ipo, ipo analysis

• http://www.firstchoiceipoanalysis.com/2010/07/po-analysis-hindustan-media-
ventures.html
Labels: fitch ipo grade-3, forthcoming ipo, ipo analysis

Posted by K A PRASANNA at 11:41 AM
• About kotak securities at:

http://www.kotaksecurities.com/invest/index.html
• Regarding IPO grading, recommendation, capital market rating and performance

http://www.chittorgarh.com/ipo/ipo_ratings.asp
http://www.chittorgarh.com/ipo/ipo_perf_tracker.asp
• For current and past IPO issues

http://www.nseindia.com/
• “CRISIL IPO Ratings” Available at :

http://www.crisilalumni.com/research/CRISIL-Research_equity-insights_outshines-
IPOs.pdf
• “Book building process ”, available at:

http://in.rediff.com/money/2005/jul/11perfin.htm
• For IPO & BOOK BUILDING PROCESS

http://www.moneycontrol.com/

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REPORT ON IPO MARKET IN

1|Page LOVELY PROFESSIONAL UNIVERSITY

IPO ISSUES THROUGH BOOK-

KOTAK SECURITIES LIMITED

Submitted To: - Submitted By:-

LOVELY PROFESSIONAL UNIVERSITY

3|Page LOVELY PROFESSIONAL UNIVERSITY

4|Page LOVELY PROFESSIONAL UNIVERSITY

5|Page LOVELY PROFESSIONAL UNIVERSITY

This project would not be completed without active cooperation of Mr.

My special thanks to Mrs. Gagandeep Bhatara for her contribution in

I am also thankful to KOTAK SECURITIES LTD., for giving me the great

INTRODUCTION ABOUT STOCK MARKET

6|Page LOVELY PROFESSIONAL UNIVERSITY

FEATURES OF STOCK EXCHANGES:-

3. Stock exchange act as a center of providing business information relating to an

4. It provides a linkage between savings of household and investment in corporate sector or

NEED OF THE STUDY

7|Page LOVELY PROFESSIONAL UNIVERSITY

SCOPE OF THE STUDY

OBJECTIVES OF THE STUDY

8|Page LOVELY PROFESSIONAL UNIVERSITY

9|Page LOVELY PROFESSIONAL UNIVERSITY

Kotak Mahindra is one of the leading financial organizations, offering a

KOTAK SECURITIES LIMITED

10 | P a g e LOVELY PROFESSIONAL UNIVERSITY

NAME OF Other Committee

11 | P a g e LOVELY PROFESSIONAL UNIVERSITY

There can be two types of public issue:-

 Initial public offer (IPO)

12 | P a g e LOVELY PROFESSIONAL UNIVERSITY

REASONS FOR GOING PUBLIC:

1. Financing of the increased working capital requirement

ADVANTAGES OF GOING PUBLIC

1. Facilitates future funding by means of subsequent public offering

DISADVANTAGES OF GOING PUBLIC

1. Involves substantial expenses

13 | P a g e LOVELY PROFESSIONAL UNIVERSITY

An initial public offer occurs when security is sold to the

In particular, there is certain ongoing cost associated with the

14 | P a g e LOVELY PROFESSIONAL UNIVERSITY

To keep pace with the globalization and liberalization process, the

Early Liberalization Phase: 1992-1995 (Fixed Pricing)

The initiation of the process of reform in India also would not

SEBI came to be recognized as a regulatory body for the capital

The issue process was smoothened, procedures were simplified and

There could be firm or preferential allotments to mutual funds, non-

The trend continued in the early nineties as many large projects

Late Liberalization Period: 1996-2005 (Book Building)

16 | P a g e LOVELY PROFESSIONAL UNIVERSITY

ELIGIBILTY CONDITIONS FOR COMPANIES ISSUING SECURITIES

The companies issuing securities offered through an offer document shall

 Filing of offer document

 Companies barred not to issue security

 Application for Listing

 Issue of securities in Dematerialized form

a. the company enters into an agreement with a depository for dematerialization of

17 | P a g e LOVELY PROFESSIONAL UNIVERSITY

ELIGIBILITY NORMS FOR IPO

FIXED PRICES VERSUS TRUE PRICING (BOOK-BUILDING)

18 | P a g e LOVELY PROFESSIONAL UNIVERSITY

Imagine a process where an issuer only releases a prospectus, announces the

Book building process is a common practice used in most developed