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INITIAL PUBLIC OFFERING (IPO)

GROUP MEMBERS

HETAL DATTANI SIDDESH KOTIAN LATA NADAR RONEY RODRIGUES SRIRAM SRINIVASAN ANAND SINGH

09 19 28 37 46 54

INDEX
Sr.No.

TOPIC
INTRODUCTION PROCEDURE FOR SALE OF ISSUES IPO GRADING CATOGORIES OF ISSUES ARRANGING AN IPO EROS INTERNATIONAL Background OBJECTS OF THE ISSUE INVESTMENT THESIS INVESTMENT CONCERN IPO DETAILS OF THE COMPANY BIDDING STATUS STRUCTURE & PATTERN CONCLUSION ACKNOWLEDGEMENT & BIBLIOGRAPHY

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

INITIAL PUBLIC OFFERING


INTRODUCTION:
Initial public offering (IPO) is an offering of stock or shares to the general public by a company which wants to raise capital for the first time. Following an IPO, the company gets listed and its shares are traded on stock exchanges. Sometimes, the owner of a company, who holds most of the shares in a company, sells his/her holdings in the market to raise money for himself /herself through offer for sale of shares. Such offer for sale of shares is also known as IPO if this is happening for the first time and will lead to listing of the company on stock exchanges. Many a time, the government might be offering IPOs under its disinvestment policy . In a disinvestment, government sells a part or the entire holding in a public sector company through offer for sale of shares to public. The money paid by investors for an IPO goes directly to the company. However, in the offer for sale of shares in the course of disinvestment, the money goes to the government. Once the permission to trade these shares are granted to shareholders, the profit or loss incurred on the transactions accrues to the shareholders. The future profits made by a company are also distributed among shareholders as dividend. IPOs can be made through the fixed price method, book building method or a combination of both. In the fixed price method, the price at which the securities are offered is fixed in advance. In the book building method, the investors have to bid for shares within a price band specified by the issuer and the final price is decided after observing the result of the bidding. The fixing of the band and the bidding process are done with the help of a book runner, typically an investment bank or a group of several companies specializing in securities. While most companies that are eligible to make a public issue are free to price their shares, a few like infrastructure companies are subject to compliance with SEBI norms

and banks are required to get RBIs permission. The prices are decided by the companys board of directors, which fixes the band after consulting the book runner. In India, the issuer is allowed a price band of 20% (that is the cap of band should not be more than 20% above the floor price).

 PROCEDURE FOR SALE OF ISSUES


IPOs generally involve one or more investment banks as "underwriters." The company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares. The sale (that is, the allocation and pricing) of shares in an IPO may take several forms. Common methods include:
y y y y y

Dutch auction Firm commitment Best efforts Bought deal Self Distribution of Stock

A large IPO is usually underwritten by a "syndicate" of investment banks led by one or more major investment banks (lead underwriter). Upon selling the shares, the underwriters keep a commission based on a percentage of the value of the shares sold. Usually, the lead underwriters, i.e. the underwriters selling the largest proportions of the IPO, take the highest commissionsup to 8% in some cases. Multinational IPOs may have as many as three syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions. For example, an issuer based in the E.U. may be represented by the main selling

syndicate in its domestic market, Europe, in addition to separate syndicates or selling groups for US/Canada and for Asia. Usually, the lead underwriter in the main selling group is also the lead bank in the other selling groups. Because of the wide array of legal requirements, IPOs typically involve one or more law firms with major practices in securities law, such as the Magic Circle firms of London and the white shoe firms of New York City. Usually, the offering will include the issuance of new shares, intended to raise new capital, as well the secondary sale of existing shares. However, certain regulatory restrictions and restrictions imposed by the lead underwriter are often placed on the sale of existing shares. Public offerings are primarily sold to institutional investors, but some shares are also allocated to the underwriters' retail investors. A broker selling shares of a public offering to his clients is paid through a sales credit instead of a commission. The client pays no commission to purchase the shares of a public offering; the purchase price simply includes the built-in sales credit. The issuer usually allows the underwriters an option to increase the size of the offering by up to 15% under certain circumstance known as the overallotment option.

 IPO

GRADING:

IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. Such grading is generally assigned on a five-point point scale with a higher score indicating stronger fundamentals and vice versa.

CATOGORIES OF ISSUES:

ARRANING AN IPO:
1. Select Underwriter - Provides procedural, financial advice - Ultimately buys issue from company (at issue price) - Ultimately sells it to public (at offer price) 2. Prepare Registration Statement:- For approval of SEC (in accord with Securities Act of 1933). Formal summary that provides information on an issue of securities.

3. Prepare Prospectus:- Streamlined version of registration statement, for consideration by potential investors.

4. Set price:-

 Road show Talks organized to introduce company to potential investors, before the IPO.  Book building Book Building means 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 the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document.

5. Selling the shares:-

 Best efforts offering: IPO method in which underwriter promises to sell as much as possible, give best effort, not commit to selling all of issue.  Firm commitment offering: Method in which underwriter buys the whole issue, bears all risk.  Syndicate: Group of underwriters formed to sell a particular issue.  Spread: Difference between public offer price and price paid by underwriter (issue price). Biggest part of underwriter compensation.

EROS INTERNATIONAL MEDIA LIMITED

Eros

International

Media

Ltd.,

also

known giant,

as Eros

Entertainment, in the

is

an Indian media

and

entertainment

involved

production,

acquisition and distribution of filmed entertainment across in movie theaters, on video and television, and in new media. Established in 1977, the company operates in over 50 countries, with offices in India, UK, USA, Dubai, Australia, Fiji, and Isle of Man. It releases 30 to 40

films annually, and has a film library containing more than 1,300 titles. Its catalog has more than 900 films and more than 5,000 music videos. As of 2011, Komal Nahta is the director and chairman, Kishore Lulla is the CEO, Sunil Lulla is the president of the India division, and Jyoti Deshpande is chief operating officer and commercial director Eros International Media Ltd is part of the Eros Group, which has global presence in Indian media and entertainment arena. The Eros Group operates on a vertically integrated studio model controlling content as well as distribution & exploitation across all formats globally, including cinema, digital, home entertainment and television syndication.

Background:
Eros International Media Limited (Eros) is a part of the Eros Group, a global player within the Indian media and entertainment sector having a track record of around three decades. Eros Group is in the business of sourcing Indian & other film content and exploiting it worldwide through its offices in India, UK, USA, UAE, Singapore, Australia, the Isle of Man and Fiji. Eros has various rights to over 1,000 films which include Hindi, Tamil and other regional language films which is its competitive advantage. Eros plc, the holding company of Eros Group, is the promoter of Eros & is listed on the Alternative Investment Market of the London Stock Exchange. Eros sources content primarily through acquisitions from third parties & through co-productions and occasionally, through its own productions. The company acquires films from third party producers at various stages of a films production for an agreed contractual value, & also co-produce films from inception with certain producers for a pre-agreed fixed budget. Eros distributes Indian film content within India, Nepal & Bhutan through multiple formats such as theatres, home entertainment, principally in the form of DVDs, VCDs and audio CDs and licenses the broadcasting rights to major satellite television

broadcasting channels and cable television channels. Eros also exploits and distributes content via digital new media such as mobile ring tones, wallpapers and downloads, IPTV, DTH and other internet channels and also licenses films to airlines for in-flight viewing. In 2007, Eros set up a visual effects facility, EyeQube. Renowned visual effects expert Charles Darby who has been associated with films like Matrix, Harry Potter and the Prisoner of Azkaban and Harry Potter & the Goblet of Fire, is the Creative Director of EyeQube. Eros Music Publishing, a wholly owned subsidiary, signs up artists and composers and it has a strategic tie-up with EMI, for the administration & collection of music publishing royalties for EMIs catalogues in India. Eros has entered into a joint venture agreement with Universal Music India through which it intends to discover and manage new acting and singing talent and provide them film and music platforms to showcase their talent.

 OBJECTS OF THE ISSUE:


The issue compromises of issue of 2.0 Crs equity shares of face value of Rs.10 within a price band of Rs.158 and Rs.175. The issue size is Rs.316.0 Crs at the lower price band and Rs.350.0 Crs at the upper price band. Post issue the holding of promoter will reduce to 78.12% from the current holding of 100%.  Proceeds of the issue will be used for: - Eros intends to use up to Rs.280.0 Crs for acquiring and co-producing Indian films, including primarily Hindi language films as well as certain Tamil and other regional language films which the company plans to release in fiscal 2011 and 2012. Eros will utilize the balance proceeds for growth and expansion

through organic and inorganic route like acquisitions as well as general corporate purposes.

INVESTMENT THESIS:

 Extensive content library of over 1,000 film titles: The Eros India Library comprises of over 1,000 film titles which includes Hindi, Tamil and other regional language films. The diverse content library is constantly updated by the addition of Eros new releases as well as further library acquisitions. This extensive library is Eros key competitive advantage and enables it to exploit the increasing number of existing and new distribution channels in the Indian entertainment market. The Eros India Library also allows it to take advantage of technological developments and re-monetize the same films across different formats such as VCD, DVD, DTH, IPTV, cable, BluRay as technologies advance over time.  Widespread content distribution network: Eros has a well developed distribution network which enables it to monetize on its film content without solely relying on sub-licensing to third parties. The company has a national theatrical distribution network, in-house music distribution capability having its own music record label, Eros Music, an inhouse television syndication team as well as home entertainment distribution division. The companys own distribution network enables it to have more control and greater flexibility over the distribution process and also provides higher revenue margins. Eross music and home entertainment distribution allows it monetize library films and new films across traditional and new formats as long as it holds the rights rather than limiting revenue to a one-off sale.

 Plans to strengthen the regional presence: As of now, in addition to English and Hindi film titles, Eros India library has movies in few regional languages like Punjabi, Marathi and Tamil too in its content library. The company plans to enrich its content library by acquiring movies in other Indian regional languages as well as International languages other than English. The portfolio of films in Eros India Library generates diversified revenues and reduces reliance on the box-office success of individual films. Eros typically follows a bundle model for distributing its films in television, home entertainment and digital new media wherein it bundles different categories of films including new releases and catalogue films.

 Sustained growth in performance:


Though the film distribution business is considered risky because of the inherent risk of some movies not doing well on the box office, Eros has shown a sustained performance over the last 5 years. For the period of FY 2006-10, Eros had a CAGR of 58.3% in revenues and a CAGR of 156.5% in the bottom line. This consistent performance results from the strategy of choosing profit driven film distribution model rather than hit film driven business model. Eros as a co-producer of films lowers the cost of production by asking the top stars to lower their professional fees in lieu of profit sharing after the release. Also, because of the wide number of projects in which Eros is involved, it reduces its dependency on a single movie and assures sustained profitability.  Strong long standing relationships with talent within the

industry:The strong relationships Eros enjoys with various production houses and top acting talent, having worked with most of them, provides the company with sustained access to talent and content. To cite a few notable associations, Eros has ongoing relationship with talent such as Shah Rukh Khan and with

production houses such as Nadiadwala Grandson Entertainment Private Limited and Venus Films Private Limited. In Indian film industry, which has been traditionally driven by talent and family-owned production houses, such relationships gives an edge to Eros.

INVESTMENT CONCERNS: Risk of a big budget movie not being a hit:


Even though, Eros at a time is involved in many projects, there is a risk that one or more of its big budget movies may not do well on the box office. It will negatively impact the profitability.  Increasing Competition from larger players: The company is facing increasing competition from both domestic and international players who have either entered the film distribution and/or production business or planning to do the same. Eros might lose its market share in such scenarios.  Dependence on Indian Box Office: Over 45% of revenues of Eros are derived by releasing the movies in Indian box offices. In case of events like forthcoming commonwealth games to be hosted by India, theatres may see a fall in the number of viewers. Also recurrence of past events like stand offs with multiplex owners will hamper the distribution and sales collection of new releases.

 Peer Comparison:
We have compared Eros International Media Limited with UTV Software Communications and Shree Ashtavinayak Cine Vision Ltd as they operate in similar kind of business. Eros had the highest CAGR at 58.3% in revenues

among its peers over the past five years. While UTV Software Communications had a CAGR of 33.60% in revenues, Shree Ashtavinayak Cine Vision had a CAGR of 41.7% in revenues during the same period. It has much better EBITDA margins than UTV Software Communications while bit lower than that of Shree Ashtavinayak Cine Vision.

EROS INTERNATIONAL IPO DETAILS:THE FACE VALUE PER EQUITY SHARE IS RS.10. THE ISSUE PRICE PER EQUITY SHARE IS RS.175 AND IT IS17.5 TIMES THE FACE VAULE. The Company has allotted 36,00,000 Equity Shares to Anchor Investors at Rs 175 per Equity Share in accordance with the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended ("SEBI ICDR Regulations"). The Equity Share of the Company are proposed to be listed on the Bombay Stock Exchange Limited ("BSE") and the National Stock Exchange ("NSE") and the trading is expected to commence on or about October 6,2010. In terms of Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957 (which was in existence as of the date of filing of the Draft Red Herring Prospectus), as amended (the "SCRR"), this is an Issue for less than 25.0% of the post Issue paid-up equity capital, therefore, the Issue Is made through the Book Building Process wherein at least 60.0% of the Issue would be allocated to Qualified Institutional Buyers ("QIBs") on a proportionate basis (such portion, the "QIB Portion"), provided that our Company would allocate up to 30.0% of the QIB Portion to Anchor Investors, on a discretionary basis (the "Anchor Investor Portion"). Further, 5.0% of the QIB Portion (excluding the Anchor Investor Portion) would be available for allocation on a proportionate basis to Mutual Funds only. The remainder would be available for allocation on

a proportionate basis to QIBs and Mutual Funds, subject to valid Bids being received from them at or above the Issue Price. If at least 60.0% of the Issue cannot be allocated to QIBs, the entire application money would be refunded forthwith. Further, not less than 10.0% of the Issue would be available for allocation on a proportionate basis to Non-Institutional Bidders and not less than 30.0% of the Issue would be available for allocation on a proportionate basis to Retail Bidders, subject to valid Bids being received at or above the Issue Price. Bidders (other than Anchor Investors) may participate In the Issue through the ASBA process by providing the details of their respective bank accounts in which the corresponding Bid amounts would be blocked by Self Certified Syndicate Banks ("SCSBs"). For more information, see "Issue Procedure" on page 301 of the Prospectus. The Issue received 197,214 applications for 490,412,960 equity shares resulting in 24.52 times subscription. The details of the applications received in the Issue from Qualified Institutional Buyers, Non-institutional, Retail Individual, Anchor Investor categories are as under: (Before technical rejections)

Category

No. of No. of Applications Shares 84 265 196,856 9 248,937,080 157,749,640 78,762,440 4,963,800

Qualified Institutional Buyers (excluding Anchor Investors) Non Institutional Investors Retail Individual Investors Anchor Investors

No. of times subscription 29.64 78.87 13.13 1.38

EROS INTERNATIONAL MEDIA LTD IPO GRADING / RATING:

CARE has assigned an IPO Grade 4 to Eros International Media Ltd IPO. This means as per CARE company has 'Above Average Fundamentals'. CARE assigns IPO grading on a scale of 5 to 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals. Click here to download the CARE IPO Grading Document for Eros International Media Ltd.

Eros International Media Limited Issue details:


Eros International Media (EIML) is coming out with a 100% book building; initial public offering (IPO) aggregating to Rs. 350 crore of face value Rs. 10 each in a price band of Rs. 158-175 per equity share. Up to 60% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, 10% would be available for the non-institutional bidders and the remaining 30% for the retail investors. The issue will open on September 17, 2010 and will close on September 21, 2010. The shares will be listed on BSE as well as NSE. The face value of the share is Rs. 10 and is priced 15.8 times of its face value on the lower side and 17.5 times on the higher side. The minimum order quantity for bidding has been fixed at shares and thereafter in multiples of shares. Book running lead managers to the issue are Enam Securities, Kotak Mahindra Capital Company, Morgan Stanley India Company and RBS Equities (India).

Allocation to Retail Individual Investors (After Technical Rejections) including ASBA Applications. The Basis of Allocation to the Retail Individual Investors, who have bid at cut off and the Issue Price of Rs. 175 per Equity Share, was finalized in consultation with BSE. The category was over subscribed 12.95 times. The total number of shares allotted in this category is 6,000,000 Equity Shares to 140,681 successful applicants. Allocation to Non Institutional Investors (After Technical Rejections) including ASBA Applications. The Basis of Allocation to the Non Institutional Investors, who have bid at the Issue Price of Rs. 175 per Equity Share, was finalized in consultation with BSE. The category was oversubscribed 78.86 times. The total number of shares allotted in this category is 2,000,000 Equity Shares to 224 successful applicants. Commencement of Trading: The Company is taking steps to have the Equity Shares admitted for trading on BSE and NSE within 12 working days from the Bid Closing Date. Issue Date Details:

 Issue Open: Sep 17, 2010 - Sep 21, 2010  Issue Type: 100% Book Built Issue IPO  Issue Size: 20,000,000 Equity Shares of Rs. 10  Issue Size: Rs. 350.00 Crore  Face Value: Rs. 10 Per Equity Share  Issue Price: Rs. 158 - Rs. 175 Per Equity Share  Market Lot: 40 Shares  Minimum Order Quantity: 40 Shares  Listing At: BSE, NSE

BIDDING STATUS (IPO SUBSCRIPTION DETAIL):


Shares 9,691,140 2,215,189 6,645,569 18,551,898 Offered / Reserved Day 1 - 0.1800 3.7400 0.6900 0.7900 Sep 17, 2010 17:00 Day 2 - 0.8200 4.6300 2.0400 1.7100 Sep 20, 2010 17:00 Day 3 - 25.7900 73.4000 11.9500 26.5100 Sep 21, 2010 21:00

CAPITAL STRUCTURE - EROS INTERNATIONAL MEDIA LTD.


Instrument Authorized Capital Issued Capital -PAIDUP-

Period

From

To

(Rs. cr)

(Rs. cr)

Shares (nos)

Face Capital Value (Rs. Cr)

2009

2010

Equity Share

125.0

71.4

71407000 10.0

71.4

 SHAREHOLDING

PATTERN

- EROS

INTERNATIONAL

MEDIA LTD.
Holder's Name Promoters Foreign Promoter Foreign Institutions General Public Other Companies N Banks Mutual Funds Others Foreign NRI Financial Institutions No of Shares 21707000 49700000 7522165 7331221 2779673 1825685 413026 117450 10780 % Share Holding 23.75% 54.37% 8.23% 8.02% 3.04% 2.00% 0.45% 0.13% 0.01%

CONCLUSION
In this project we have been able to come free and understand the IPO of EROS INTERNATIONAL MEDIA LIMITED. It was an IPO initiated for the purpose of funding the activities of their daily course of producing films and distributing in the Indian economy. We also derive to a conclusion that there are various procedures and guidelines to be followed for opening an IPO. We have also noticed that brand power helps in the subscription of IPO at certain times. If there is a brand well known in the market then there is a possibility that a good pre-issue management can influence good or sometimes over-subscription for the issue which provides a boost to the company in performing its functions. Thus fulfill its objectives for the issue.

ACKNOWLEDGEMENT

It is great pleasure for us to thank our co-ordinator Mrs. Aarthi Kalyanaraman and especially our subject teacher Mrs. Divya Krishnan Naik for providing us constant support and guidance throughout the working of the project. She has been a very good support for us without which it would have been possible for us to make a good project like this. Her help and assistance helped us to come out with flying colours.

We would also thank the University of Mumbai for initiating this course and enable us to show out our skills.

BIBLIOGRAPHY
Listed below are different sites that have been referred for this project: y y y y y www.google.com www.wikipedia.com www.erosintl.com www.rediff.money.com www.moneycontrol.com

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