PW - Emergence of Initial Public Offers - Opt

www.projectsworlds.blogspot.
com
A
PROJEC
T
REPOR
T
T
G
U
I
D
E
"PROF
.
VAISH
AMPA
YAM"
ON
EMERGENCEOF
INITIALPUBLIC
OFFERSASAN
INVESTMENT
AVENUE
FOR
(A
NG
EL
BR
OK
IN
G
LI
MI
TE
D)
INPARTIAL
FULFILLMENTOFTHE
REQUIREMENTSOF
THE
TWOYEAR
FULLTIME
PGPM
PROGRAMME
(ST.MIRA
VISHWAKARMA
INSTITUTEOF
MANAGEMENT)
BY
KAVIT
A
TALES
ARA
MBA
SEMES
TERIII
OF
SM
VI
M
PU
NE
PROJEC
rlds.blogs
www.projectswo pot.com
www.projectsworlds.blogspot.com
to work with Angel Broking LTD

(Pune). I would like to thank Mr.
Iftikhar Chouhan (Branch Head) for
givingmeanopportunitytoworkasa
summertraineeinAngelBrokingLtd
ACKNOWL
andtherebyfulfillingtherequirement
EDGEMEN
T
ofmyMBAcourse.Iwouldspecially
thank Mr. Sameer Amrute (Chief
Its a great privilegeTechnical Analyst) for giving me
that I have done myinputs on Technical Analysis. The
project in such a wellsuccess of any task lies in the
organized
andeffective input, but this cannot be

diversified
obtained without proper guidance of
organization. It givestheconcernauthorities andtheirco

me great pleasure inoperation.IwouldliketothankProf
presenting the ProjectVaishampayam for guiding me
Report that gives thethroughouttheproject.
details of my project
on Emergence of
IPOsasanInvestment
Avenue in stock
market carried out in
Angel
Broking
Iwouldliketoexpressmy
deepsenseofgratitude
towardsallManagers,
Staff and workers and to all those
whodirectlyorindirectlyhelpedme
insuccessfulcompletionofproject.
Limited. I would like

to thank Miss Dr
Nanwani
KAVITA
TALESARA
(Co
ordinator) & Dr.

SharadJoshi(Director)
of
St
Mira
Vishwakarma Institute
of Management, for
providing me with a
wonderful opportunity
2
lds.blogs
www.projectswor pot.com
INDEX
SERIALNO.
1
3
.
4
.
5
.
6
.
7
.
Business Philosophy
Quality Assurance Policy.
CRM Policy.
Management of the company
Services of Angel Broking.
a. E Broking Services.
b. Investment Advisory
Portfolio Management
c. Services
8 What differentiates angel DP
. from
other DPs?
3
RESEARCHMETHODOLOGY
lds.blogs
2. GlobalI.P.OMarket
3. IndianI.P.OIndustry
5
4. OfferDocument
5. SEBIRequirementsforI.P.O
6. PhasesinI.P.O
6.1 ThepreI.P.O
TransformationPhase
6.2 I.P.OTransactionPhase
6.3 ThePostI.P.OTransaction
Phase
7 PricingofI.P.O
7.1Fixedpricemethod
7.2BookBuildingmethod
6
4
lds.blogs
1. Meaning
2. Eligibility criteria for
IPOS/FPOS
3. Trading Permission
4. Payment of Listing Fees
5. Compliance with Listing
Agreement
6. ProcedureandConditionsfor
Listing
7. ListingperformanceofCairn
IndiaLtd.
7.1Companybackground
7
7.2 ItsBusiness
lds.blogs
I
C
7.3
R
A
7.4
L
t
7.5
8.1 B
u
7.6
s
i
n
7.7
e
s
s
o
f
C
r
e
7.8
d
i
7.9
8.
R
a
t
i
n
atio
ns
8.12 Fin
din
gs
9
8.2
8.3
8.4
8.5
8.6
8.7
8.8
8.9
8.10
8.11
INDIANECONOMY
1. I
n
t
r
o
d
u
c
t
i
o
n
2. H
i
s
t
o
r
y
a
n
d
e
v
o
l
u
t
i
o
n
o
f
t
h
e
www.proje
ctsworlds.blogsp ot.com
CELLULARLTD.&SPICE
COMMUNICATIONSLTD.
1IdeaCellularLimited
2SpiceCommunicationsLimited
3RatiosAnalysis
4ListingofIPOs
5StockMarketPerformance
6Reasonsforpoorperformance
ofSpiceCommunicationsltdas
comparedtoIdeaCellularLtd.
10
11
RECENTNEWSONIPOS
12
FINDINGS&SUGGESTIONS
lds.blogs
13
14
15
lds.blogs
gives
brief
description
about the company where I

did my internship from, which
is Angel Broking Ltd.
EXECUTI
Thenextchaptersexplainthewhole
VE
ofmyresearchwork.
SUMMAR
Y
The conclusion gives the
details about the learning
that I have gained after doing
this research project.
This project is an
attempt
to
understand
the
Operations
&
Importance
of
IPOs
in
stock
Market.
The
chapter
on
introduction
explains
why
have selected this

topic. It mentions
a
step-by-step
detail
of
have
conducted
the
how
whole
research.
The next chapter
lds.blogs
3. Factors affecting IPO
listingPrice.
4. Comparison between
INTRODUCTI
IPOsoftwocompanies
ON
fromthesamesectorfor
Asnowadays IPOs
feasible
investment
decision.
have become a good

investment avenue for
investors So, I have
donetheprojectTitled
EmergenceofIPOas
aninvestmentavenue
at AngelBrokingLtd.
a very well known
stock broking firm.
Theprojectwascarried
out in the Pune office
ofAngelBrokingLtd.
which is located at
Kalyani Nagar. The
durationoftheproject
wastwomonths.
Thestudyhasbeencarriedoutfrom
thepointofviewofinvestorsaswell
as the issuing company. I have
focused on the factors which an
investorhastotakeintoconsideration
whilemakingfeasibleIPOdecision.
In the project, I have also
studiedtheListingPriceperformance
ofIPOswiththehelpofCairnIndia
Ltd.&ICRALtd.
In the process of study of
IPOsinbroadertermsIhavetaken
two companies from the telecom
sectori.e.IdeaCellularLtd&Spice
Communications Ltd and compared

Theobjectives
the performance of both the
ofcarryingout
studyareas
companies in financial terms i.e.
follows:
Ratio analysis, Stock performance
1. To be
comparedwithbenchmarkSensex.
well
versed
Lastly,inordertoupdatewith
with
the current trends in IPO scenario I
concept
ofIPO. have studied some recent news
2. Aspects articlesonIPOs.
of IPO
from
Company
s &
Investor
spointof
view.
10
lds.blogs
offeringorpersonalizedtouchtoour
services. Angel is the only 100%
retailstockbrokinghouseofferinga
COMPA
gamutofretailcentricservices.
NY
PROFIL
1 Ebroking
E
2 InvestmentAdvisory
3 Portfolio
Management
ANG
Services
EL
BROK
4 WealthManagementServices
ING
5 CommoditiesTrading
LTD
AbouttheGroup:
ANGELGROUPCOMPANIES
The Angel Group has

emergedasoneofthe
top 3 retail broking
houses in India.
Incorporated in 1987,
ithasmembershipson
BSE,NSEandthetwo
leading commodity
exchangesinIndiai.e.
NCDEX & MCX.
Angelisalsoregistered
as a depository
participantwithCDSL.
Angel
has
always believed in
offering the best of
services to their
customers. Be it in
form of focused
researchorstateofthe
art technology or
customized product
M
e
m
b
e
r
o
n
t
h
e
B
S
E
a
n
d
D
e
p
o
s
i
t
o
r
y
Participant
AngelCapital&DebtMarketLtd.
with
AngelBrokingLtd.
CDSL
Membership
ontheNSE
Cashand
Futures&
Options
lds.blogs
S
e
g
m
e
n
t
11
3 Always deliver what we
promise.
4 Effective
management
cost
AngelCommodities
BrokingLtd. Member
ontheNCDEX&
QualityAssurancePolicy
MCX
They are committed to being the
AngelSecuritiesLtd.
Memberonthe leader In providing World Class
BSE
Product&ServicesWhichexceedthe
expectations of their customers
AchievedbyteamworkandAprocess
ofcontinuousimprovement.
Vision
ToProvideBest
ValueforMoneyto
CRMPolicy
InvestorsThrough
A Customer is the most Important
InnovativeProducts,
Visitor On the Premises He is not
Trading/
Dependent on us but We are
Investment
dependant on him He is not
Strategies,Stateof
interruption in our work, But is the
theartTechnology
PurposeofitWearenotdoinghima
AndPersonalized
favour by serving He is doing us a
Service.
favourbygivingusanOpportunityto
doso.
BusinessPhilosophy
1 Ethical
Management:Thesenior
practices &managementofAngelBrokingLtd.
transparenc areasfollows:
y in all our
dealings.
1.Mr.DineshThakkar,
ChairmanandManagingDirector
2 Customer
interest
above
our
own.
lds.blogs
12
overall economy in general. He has

alsobeenquotedandpublishedbythe
Mr. Dinesh Thakkar
printmediaseveraltimes.
hails from a reputed

business family with
interest in textiles
trading.
His
entrepreneurial spirit
inspiredhimtoexplore
anopportunityinretail
broking, a much
ignored sector at that
pointintime,sofaras
the clients were
concerned. Therefore,
what began as a mere
2.Mr.LalitThakkar,Director
Mr. Lalit Thakkar has been closely
associated with the group since its
inception and has been instrumental
insettinguptheOperationalandRisk
Management Processes. Though not
actively involved in the daytoday
operations,heishighlyrespectedby
the senior management and is often
consulted on important decisions of
theGroup.
dabbling in stocks to
make money for him
grew into a serious
business venture that
started20yearsago.
first subbroker and

wasamongsttheearly
participants
market
Mr. Amit Majumdar oversees the

entire Operations and Risk
He was the
stock
3.Mr.AmitMajumdar,
ExecutiveDirectorOperations&
RiskManagement
to
computerizehisoffice.
His opinions on the
stock market are
valuedandheisoften
sought by the media
for his comments on
markets, investment
strategies and the
Management functions of the group

and is responsible for the corporate
affairsofthegroup.HeisaChartered
Accountant by qualification and has
anexperienceofmorethan10years
inthefieldofFinance,Consultancy&
Advisoryservices.Hehasworkedas
a financial controller, treasury
managerandaninvestmentbankerin
the past and been associated with
RaboIndiaFinance,AmbitCorporate
FinanceandErnstandYoungpriorto
joiningtheAngelGroup.
Development&HR
4.Mr.Rajiv
Phadke,Executive
DirectorBusiness
lds.blogs
13
ofFinanceandOperations.Hetakes
careoftheEBrokingbusiness,which
Mr. Rajiv Phadke has

industry experience of
morethan31yearsand
has been associated
comprisesofBusinessDevelopment,
ProductDevelopmentandOperations.
He is also actively involved in the
commercialaspectoftechnology.
with companies like

Times
Guaranty
6.Mr.NikhilDaxini,Executive
DirectorSalesandMarketing
Financials, Nagarjuna
Finance Ltd, TataMr.NikhilDaxiniisanMBA

Exports Ltd, Mukandspecializinginfinance.Hehasan
and Motilal Oswal inexperienceofmorethan7yearsin
the past. Educationalthefieldoffinanceandmarketingof
qualificationsincludeafinancialproducts.Hewas
MSC (Physics) and ainstrumentalinintroducingthe
MMS (Finance).Atconceptofprofessionalmarketingof
Angel,hemanagestwobrokingserviceswithinthe
key
functions:organization.HisforteinBusiness
Business DevelopmentOperationsincludesBusiness
and Human ResourceDevelopment,RiskManagement
Development.
andOperationsetc.Hehadearlier
beenassociatedwithHDFCBank
5.Mr.Vinay
Agarwal,
ExecutiveDirector
ECommerce
He is A Chartered
Accountant
by
qualification with 8
years of experience in
the field of Financial
Services.Hebeganhis
career with Angel
Group as a Business
Consultantintheareas
Ltd
7.Mr.KetanShah,Associate
DirectorIT
Mr.KetanShahistheHeadof
TechnologyfortheGroup.Hehasan
industryexperienceofmorethan18
yearsinvariousareasofBusiness
Operations.Heisinvolvedinthe
designingofITPoliciesand
Strategies.Healsolooksfor
Planning,Implementation,and
BudgetingofITrelatedservices.
Milestones
14
lds.blogs
ionof
Angel
December,1997
Capital
IncorporationofAngel
and
BrokingLtd.
N
Debt
Market
Ltd.
March,
2002
Web
enabled
Back
Office
software
develop
ed
Novemb
er,2002
First
ever
Investor
seminar
of
Angel
Group
April,2003Publicationoffirst
ResearchReport
r
a
t
A
p
October,2005Receivedthe
prestigious"MajorVolumeDriver"
awardforFY05March,2005Roll
outof25thbranch
March,2006Crossedthe100,000
markinuniquetradingaccounts
andcompletestherolloutof50th
branch
July,2006Formallylaunchedthe
PMSfunction
n
l
i
n
e
September,
2006
Commence
dMutual
Fundand
IPO
distribution
d"Major
Volume
Driver"
awardfor
FY06
December,
2006
Crossedthe
2,500mark
intermsof
business
associates.
March,
2007
Crossedthe
200,000
markin
unique
trading
accounts.
0
6
ServicesofAngelBroking:
R
e
c
e
i
v
e
EBroking
1 Ebrokingprovides4different
trading platforms suited to
differentindividualneeds
2 Multiple exchanges on a
singlescreen
3 HistoricalCharts&Technical
Tools
15
lds.blogs
team. This team comprises of 12

sectorial special analysts and a
ResearchHead.Theirvastexperience
1 Intraday Calls
&NewsFlash and expertise in spotting great
investmentsopportunitieshasalways
2 24 X 7 web
enabled Backbeenbeneficialforourclients.
office
BenefitsatAngel:
3 Online Fund
1 Expert Advice: Our expert
transferfacility
4 Auto payin of
shares.
investmentadvisorsarebased
at various branches across
Indiato provideassistancein
Investment
Advisory
designing and monitoring

portfolios.
To derive optimum
2 TimelyEntry&Exit: Our
returns from equity as
advisors will regularly
an asset class requires
monitor your investments
professional guidance
andwillguide youtobook
and
advice.
timelyprofits.Theywillalso
Professional assistance
guide you in adopting
will always be
switching techniques from
beneficial in wealth
onestocktoanotherduring
creation. Investment
variousmarketconditions.
decisions
without
expertadvicewouldbe
like treating ailment
without the help of a
doctor.
3 DeRiskingPortfolio:A
diversifiedportfolioofstocks
isalwaysbetterthan
concentrationinasingle
stock.Basedonourresearch,
Research
Department
wediversifytheportfolioin
growthorientedsectorsand
Strong research has
stockstominimizetherisk
alwaysbeenourforte.
andoptimizethereturns.
Our
investment
advisorydepartmentis
backed
by
an
experience research
16
lds.blogs
returnsinthelongrun.
AngelGold:
FeaturesoftheAngelGold:
Inavolatilemarketit
isverydifficultforan
investor to pick up
value stocks which
will give decent
returnsinthelongrun.
We at Angel Gold
realizeyourneedfora
professional financial
advisorandhenceare
here to assist you in
making wise and
profitabledecisions.
Angelstronglybelieve
1 Apremiumserviceforclients
who need professional
guidance on long term
investments.
2 Minimum fund / portfolio of
Rs.1lacandmaximumofRs.
4laceligibleforAngelGold.
3 Appropriate risk profiling
before taking investment
decisions
4 Periodic group meetings and
seminarsinbranches.
5 Monthly Newsletter from the
deskofAngelGold.
6 Browser based backoffice
software.
that right decisions

takenattherighttime
Portfolio
are always beneficial
Management
and that's why our

entire research team
comprising of 12
sectorspecialistsalong
with angels research
head will understand
clients need, return
expectation,
risk
profile and time

horizontodesigntheir
portfolio accordingly.
This portfolio will be
tracked regularly and
angelseffortswouldbe
to optimize clients
Services:
Successful
investingin
CapitalMarkets
demandsever
moretimeand
expertise.
Investment
Managementis
anartanda
scienceinitself.
Professional
Investment
Management
Se
utionalinvestors.
rvi
Portfolio
ce
Management
Services(PMS)is
are
onesuchservice
no
thatisfast
lo
gainingeminence
ng
asaninvestment
er
avenueofchoice
the
forHighNet
pri
worthInvestors
vil
likeyou.PMSis
eg
asophisticated
investment
of
vehiclethatoffers
on
arangeof
ly
specialized
lar
investment
ge
strategiesto
ins
tit
lds.blogs
17
withcompetent
fund
ca
pit
ali
ze
on
op
po
rtu
nit
ies
in
the
ma
rk
et.
Th
e
Po
rtf
management,
dedicated
researchand
technology,
ensuresa
rewarding
experienceforits
clients.
AngelPMSbrings
withityearsof
experience,
expertise,research
andthebackingof
India'sleading
stockbroking
house.AtAngel,
experienced
portfolio
oli
managementisthe
difference.You
willenjoya
an
relationshipwitha
ag
portfoliomanager
em
equippedtodesign
ent
andimplementa
Se
portfolioaround
rvi
youruniqueneeds.
ce
Wewilladviseyou
co
onasuitable
productbasedon
bi
factorssuchas
ne
yourinvestment
horizon,return
expe
ctati
ons
and
risk
toler
ance
.By
entr
usti
ng
the
man
age
men
tof
your
Port
folio
sto
Ang
ity.
PrivateClientGroup
Angel offers personalized advisory
servicestoaffluentHNIinvestorsand
actively assists them in managing
their portfolio. PCG can seek
guidance on specific stocks in their
portfolioandcangetproactiveadvice
fortimelyexitandfreshinvestments.
Here we also design customized
productsandservicesforourclients
based on there risk profile, returns
need and time horizon. Our
experienced research team, indepth
analysisandcustomizedvalueadded
products and services give us an
immense advantage in assisting you
to generate wealth on a longer and
consistentbasis.Features
2. Minimum Portfolio size of
el,
Rs.1Cr. for residents and
you
Rs.1.5Cr for NRIs is the
can
enjo
y
con
veni
ence
with
out
com
pro
misi
ng
on
qual
eligibilityforPCG.
3. Portfoliosarecustomizedafter
a due discussion with clients
andourresearchteam.
4. Deployment of funds can
be among various
investing
avenues
availablewithusincluding
PMS, mutual fund,
advisory.
5. Meetings and oneto one
discussion with our fund
managers,
chief
investment officer and
Research
director.
18
lds.blogs
MCXandNCDEX
2 Application based trading

software
6.Special
Technicaland
Derivative
strategies.
3 Webbasedtradingplatform
4 Online daily, weekly and
monthlyresearchreports
Angel
5 Transparent and fair trade

execution
offers
6 Individualclientattention
trading
opport
unities
in
commo
dities
market
throug
7 24*7onlinebackoffice
8 Training/educationfacilities/
conductofseminars
9 Digital contract notes cum
bill:Viewyouraccountsfrom
anywhere,anytime
10 Competitivebrokeragerates
11 Efficientriskmanagement
h its
DepositoryParticipant
vast
chainof AngelBrokingLtdhasstartedits
branch depository services by registering
with CDSL. There are various
es
spread
across
the
benefits of holding clients demat

accountwithangelbutthebiggest
advantage is that a client shall be
ensuredofariskfree,promptand
country efficientdepositoryprocess.
& state
of theWhatdifferentiatesangelDPfrom
otherDPs?
art
Sinceangelassociationisslated
trading
foralongtime,angelisina
platfor
muchbetterpositiontoknow
m.
yourrequirementregardingyour
1 Trading
onholdingandtransferof
securities.
lds.blogs
19
oftheirdemataccount
alongwithvaluationof
holding.
Nophysical
2. Easiestfacility:Clientcan,
byusingthisfacility,
instructionsare
submittheirowndelivery
requiredforyoursell
instructionsontheinternet
obligations.Angelalso
withouttheinterventionof
offerstotheirclients
theirDP.Thisisinaddition
theautomatedpayin
toallthefacilitiesprovided
facilityfortradedone
undertheEasyfacility.
throughAngelBroking
Ltd/AngelCapital
andDeptMarketLtd.
Thetransaction
chargesthatarebeing
leviedbyusarethe
lowestintheindustry
asangelbelievein
providingquality
servicesatthemost
affordablecosts.
Clientshaveanoption
ofchoosingthe
productsofferedby
CDSL:
1. Easy
facility:
Clientwillenjoythefollowing
distinctivebenefitsbyregistering
withAngel:Noriskofloss,wrong
transfer,mutilationortheftofshare
certificates.Hasslefreeautomated
payinofclientsellobligationsby
theirclearingmembers,ABL/
ACDL
1 Reducedpaperwork.
2 Speedier settlement
process. Because of
faster transfer and
registration
of
securities in clients
Client
account, increased
can
liquidity of clients
view,
securities.
downlo
ad and
print
the
updated
holding
3 Instant disbursement of non

cash benefits like bonus and
rightsintoclientsaccount.
4 Efficientpledgemechanism.
5 Widebranchcoverage.
6 Personalized / attentive
servicesoftrainedhelpdesk.
7 Zero upfront
payment.
8 No charges for
extra
transaction
statement &
holding
statement.
9 AllinonecombinedMonthly
BillcumTransactioncum
Holdingcumledger
statement.
20
lds.blogs
RESEARCH
METHODOLOGY
21
worlds.blo
www.projects gspot.com
form of solution towards the

concerned problem or in
generalization for some theoretical
formulation.
Basic research is also

called as fundamentalInResearchMethodologymainly
or pure research. ItsDataplaysanimportantrole.
primary objective isTheDataisdividedintwoparts:
the advancement of1) PrimaryData.
knowledge and the
2) SecondaryData.
theoretical
Primary Data is the data, which is
understanding of the
collected directly by direct personal
relations among the
interview, interview, indirect oral
variables. It is
investigation, Information received
exploratory and often
through local agents, drafting a
driven by researchers
schedule,draftingaquestionnaire.
curiosityorinterest.
SecondaryDataisthedata,whichis
ResearchMethodology
collected from the various books,
isasystematicmethod
magazine and material, reports The
of discovering new
various information is taken out
facts or verifying old
regarding that subject as well other
facts, their sequence,
subject from various sources and
interrelationship,
stored.Inthisreportthedataplaysa
casualexplanationandverycrucialrole.
thenaturallawswhich
governs
them.Incaseofmyprojectthesourceof
ResearchMethodologydataisonlysecondarydata.
isoriginalcontribution
totheexistingstockofSecondaryDataCollection:
knowledgemakingfor
its advancement. It is
The secondary data was collected
thepuristoftruthwithwith the help of various websites,
the help of study. Injournals,magazines,newspapers and
short also covers theemployeesofthestockbrokingfirm.
systematic method ofThedatacollectedfromthewebsites
finding solution to awas good enough to be included in
problemisresearch.Itthestudyanalyzedandconcluded.
also covers the
systematic approachProspectus: For collecting relevant
concerning
abouttheIPOsIhavereferredtothe
generalization and theFinal Draft Prospectus from the
formulation of thewebsiteofSEBI.
theory.
Annual Report: Majority of
information gathered from data
Different
stagesexhibitedintheannualreportsofthe
involved in researchcompany. These include annual
consistsofenactingthereportsofthecurrentyear200607.
problem,formulatinga
I
hypothesis, collecting
N
the facts or data,
T
analyzingthefactsand
R
reaching
certain
O
conclusioneitherinthe
D
UCTION
lds.blogs
22
investments.Inprovidingan
efficientandrigorousprocessfor
intermediatingtheflowofasociety's
Anysectorthat
savingsintoproductiveuses,the
producesgoodsor
bankingandfinancialsystemisone
servicesiscalledas
ofthecoredeterminantsofthepace
realsector.For
ofacountry'seconomicdevelopment
producinggoodsor
andincreaseinthestandardsof
servicesfinanceis
livingofitscitizens.Furthermore,
required.Hencefor
thebankingandfinancialsystem
realsector,financial
mustfacilitatetransactionsinan
systemisrequired.
economybyensuringthattheycan
FinancialSystemisa
beeffectedsafelyandswiftlyonan
backboneofany
ongoingbasis.Thesignificanceof
economy.The
thefinancialsystemforaneconomy
financialsectorplays
animportantroleinthe
arisesfromatleastthreemajor
sources.First,itperformsvarious
economyofany
transformationfunctionsrelatingto
nation.Awell
intermediationoffundsinthe
regulatedandwell
economy.Secondly,itprovidesthe
developedfinancial
sectorisvitalto
mirrorimageoftheunderlyingreal
achievingthemost
economyandthebasicmacro
basicneedofefficient economicbalances.Thirdly,itisone
allocationofscarce industrywhosebasisofoperationis
underpinnedinpublictrust.
resources.
I
nanymarket
economy,thebanking
andfinancialsystem
playsakeyrolein
mobilizingasociety's
savingsandin
channelingthese
savingsinto
productiveusesand
F IN
AN
C IA
L S
YS
TE
M
u r i t ie
In s ti t u t io n sF /in
ed
i c i a l In s
an
tr u m e n
F in a n c i a l aMrai re ks e t
ts/Sec
23
recordingamonetarytransaction.
between buyers and

sellersinanumberof
waysincluding:theuse
Financial Institutions:Financial
intermediaries provide the link
between the financial and the real
of stock exchanges;sector financial intermediaries

directly betweenperform the roles of resource
buyers andsellers etc.mobilization and allocation, risk
The financial marketsdiversification and liquidity
are markets whichmanagementtofosterdevelopmentof
facilitatetheraisingofthe real sector. In a complete
fundsortheinvestmentinformationdeterministicworldalso,
ofassets,dependingonfinancialintermediariescanhavethe
viewpoint. They alsoimportant role of a temporary
facilitate handling ofresourceproviderwhenthereisatime
lag between the firms' factor
variousrisks.
payments and receipts from sale
Financial
Instruments: As
savings are linked to
investments by a
variety
of
intermediaries
&
through a range of
complex instruments.
They are complex in
terms of the features
like maturity, return
proceeds. This role assumes greater

significance when the firms do not
have enough internal resources to
cover its factor payments and the
financialintermediariescomeinwith
working capital finance. These are
alsoknownasfinancialintermediaries
becausetheybringsavers&investors
together&helpincapitalformation
in the economy. For example
Banks,Mutualfunds,NBFCs.
etc. For example

Treasury
Commercial
bills,
bills,
Cheques, Long dated

securities,
Shares,
Bonds etc. An
instrument
having
monetary value or
CAPITALMARKET
CapitalMarketisapartofFinancial
Market. Capital Market: Capital
marketisamarketforlongtermdebt
andequityshares.Inthismarket,the
capital funds comprising of both
equity and debt areThecapitalmarketplaysacriticalrole

issuedandtraded.Thisin the growth process. It helps to
also includes privateaugmentcapitalformation.
placement sources of
debtandequityaswell
as organized markets
like stock exchanges.
lds.blogs
24
TheprimarymarketinIndiais
1
Definition: unique by world standards in many

"A capitalways. It has been shaped by an
market is aunusual history of regulation. The
series
ofsheer size and scope of the primary
market is enormous and the large
channel
through whichscale direct participation in the

the savings ofprimary market by millions of retail
the communityinvestors is unlike that in any other
are
madecountry in the world. Some of the
available formajor IPOs to have hit the Primary

commercial &marketandtheirreturnsascompared
industrial
enterprises &
totheissuepriceareasbelow:
This deals in those securities
public
whichareissuedtothepublicforthe
authorities
firsttime. IPO isthepartofprimary
(government)". market. In the primary market,

NATURE: securities are offered to public for
1 Longtermduration. subscriptionforthepurposeofraising
2 Mixtureof
capitalorfund.Secondarymarketis
ownership&debt
an equity trading avenue in which
instruments.
alreadyexisting/preissuedsecurities
CapitalMarketis
dividedintotwo
Markets:
are traded amongst investors.

Secondary market could be either
auctionordealermarket.Whilestock
exchange is the part of an auction

PRIMARY
market,OvertheCounter(OTC)isa
MARKET
SECONDARY partofthedealermarket.
MARKET
The primary market in India
(NEWISSUE
hasseenaseachangesinceearly90s.
MARKET) (OLD
New capital raised by the private
ISSUEMARKET)
sectorwasonlyaroundRs.600crores
MEANINGOF
PRIMARY
MARKET:
in198182.Therewasadramaticrise
since the beginning of 1990s. The
newcapitalraisedrose199293andfurtherto
to Rs.20,000 crores in
lds.blogs
25
placements or preferential issues are

relatively simpler. The classification
Rs.26,000 crores in
ofissuesisillustratedbelow:
199495. Since then,

there has been a
decline and it is
reported that the
amountraisedfromthe
marketin199697was
only of the order of
Rs.10,500 crores. The
proportion of debt in
the total capital raised
is also higher than in
the previous years.
Such sudden shifts
have implications for
thefinancingofcapital
formation
Publicissuescanbefurtherclassified
Primarily, issues caninto Initial Public offerings and
be classified as afurther public offerings. In a public
Public, Rights oroffering,theissuermakesanofferfor
preferential
issuesnew investors to enter its
(alsoknownasprivateshareholdingfamily.The
placements). While
publicandrightsissues
involve a detailed
procedure,
private
lds.blogs
26
offer for sale to the public,

through an offer document.
issuercompanymakes
detaileddisclosuresas
pertheDIPguidelines
initsofferdocument
andoffers
itforsubscription.The 3
significantfeaturesare
illustratedbelow:
1
Initial Public
Offering (IPO)
is when an
unlisted
makes either a
fresh issue of
securities oran
offerforsaleof
existing
securities or
both for the
firsttimetothe
scenarioisallowedonlyifitis
made to satisfy listing or
continuouslistingobligations.
Rights Issue (RI) is when a
listed company which
proposes to issue fresh
securities to its existing
shareholders as on a record
date. The rights are normally
offeredinaparticularratioto
company
its
An offer for sale in such
thenumberofsecurities held
priortotheissue.Thisrouteis
bestsuitedforcompanieswho
would like to raise capital
without diluting stake of its
existing shareholders unless
theydonotintendtosubscribe
totheirentitlements.
public. This4
A private placement is an
paves way for
issue of shares or of
listing
and
convertible securities by a
trading of the
companytoaselectgroupof
issuers
persons under Section 81 of
securities.
the Companies Act, 1956
Further
whichisneitherarightsissue
public offering
nor a public issue. This is a
(FPO) is when
faster way for a company to
an
already
raiseequitycapital.Aprivate
listed company
placement of shares or of
makes either a
convertible securities by a
fresh issue of
listed company is generally
securitiestothe
known name of preferential
public or an
allotment.
A Qualified
provisions of Chapter XIIIA
Institutions
ofSEBI(DIP)guidelines.
Placement is a
private
placement of
equitysharesor
securities
convertible in
toequityshares
by a listed
company to
Qualified
Theo
retic
al
Back
grou
nd
on
I.P.O
Institutions
Buyers only in
terms
of
lds.blogs
27
sale of the shares is generally

offeredbystockexchangeorby
regulators. When the company
CONCEPT
OFIPO
starts to offer IPOs, they are

usually required to reveal
1
IPOisan
acronymfor(Initial
PublicOffering).
12
13
financial information about the
TheInitialPublic
Offering or IPO
market as it is
known, received
16
a new lease of
lifeinFY99.
companysothatinvestorsknow
whetherthecompanies
agoodinvestmentornot.
Thispavesthewayforlistingin
stockexchangeinthefirstcase,
AnIPOiswhena
& trading of the issuers
company makes
securitiesinthesecond.
either a fresh17
With high profile issues like
issueofsecurities
Hughes Software and TV18
or an offer for
openingatmorethan3and10
sale of its
times their issue price
existing
respectively, investors are
securities to the
flockingtotheIPOmarketlike
public for the
neverbefore.Companies,which
first time. It
hadearliershiedawayfromthe
referstofirstsale
capital market, are now
of stock by a
returning with a vengeance to
companyto
apublic.
satiatetheappetiteofinvestors.
Thestrengthof
14
IPO MEANS
of Indias economy, stock market,
GOING
PUBLIC
corporate profits, energy sector and
15
Foracompanytoprivate equity has fuelled IPOs in

offer IPOs, they2006and2007.Indiasmarketraised
need to hire aUS$7.23 billion through 78 IPOs in
corporate lawyer2006. The private equity rush into
as well as anIndia is creating the potential for
investment
banker
manyIPOexists.Topglobalprivate
toequity funds such as Carlyle,
underwrite theBlackstone, Texas Pacific and

offer. The actualWarburg Pincus, as well as local
funds, have been keytheIndiansecondhalfperformanceis

drivers of the strengthexpectedtobeevenhigher.
ofIndianIPOmarkets.
India ranks seventh15BigTicketIPOsinIndianstock
overallintheworld,inmarkethistory.
the terms of IPOs in
thefirsthalfof2007&
lds.blogs
28
FlextronicsSoftwareSystemsLtd
630
27.56
IBPCompanyLtd
620
357.01
580
82.36
550
9625
Company HCLTechnologiesLtd
DLFLtd
Priceearningratiobasedonoffer
price.
JetAirwaysLtd
BiggestIPOgainers
ICICIBankLtd
SunTVNetworksLtd Wecanconsidersomeofthestocks'
performancethatgotlistedinfiscal
TataConsultancyServicesLtd
(FY05)todate.
Oil&NaturalGasCorpLtd
PunjLloydLtd
BLKashyap&SonsLtd
AllcargoGlobalLogisticsLtd
UnityInfraprojectsLtd
AllotmentPrice
Indiabulls
19
NDTV
70
BhartiShipyard
66
AdvantaIndiaLtd
SobhaDevelopersLtd
29
lds.blogs
G
l
o
b
a
l
I
P
O
M
a
r
k
e
t.
BiggestIPOlosers
30
lds.blogs
sizes. Reliance Petroleum, which

raised $1.8 billion, featured in the
Globalization
of
capital market has

enhanced
economic
global Top 20 IPOs, which together

raised$84billion,representing35per
centofthetotalcapitalraisedbyall
regional
IPOs.
growth,
cross border trading,

liquidity,
and
stringency of local
I.P.O Market Share (% ) by Nation
Germany, 4.8
regulatory framework,
allofwhichheightens
the ability of local
Hong kong,
3.5
UK, 6.3
Others, 32.8
Brazil, 6.7
exchanges to support
Russia, 11.6
India, 3.3
large IPOs. Stock
China, 13.4
US, 17.6
markets continue to
remainakeyroutefor
corporate's to raise
Hong kong
Germany
UK
Brazil
funds for expansion,
China
US
India
Others
with the worldwide

IPOs space posting a
recordnetproceedsof
$ 246 billion in
2006.the
biggest
number of IPOs came

fromtheUSwith187
offerings, followed by
Japan with 185 and
China with 175 IPOs.
In2007,arichvariety
of high quality
companies continue to
surge through world
IPOspipelinewithlast
years
momentum,
albeitwithsmallerdeal
I
n
d
u
s
t
r
y
I
.
P
.
O
Russia
nalysis.
31
lds.blogs
Document is the prospectus
and covers all relevant
information that will help the
prospectiveinvestortoarriveat
Ind
ian
I.P.
O
Ind
ust
ry 200
7
adecision.
The DraftOfferDocument
is, as the name suggests, the
initialdraftthathastobefiled
with the security & exchange
boardofIndia(SEBI)atleast21
daysbeforethecompanywants
togopublic.SEBImustsuggest
changesindraftofferdocument
which the issuer will have to
incorporate
Industrial
5%
offerdocument.
Red Herring
The
Tech/Communications
19%
before filing the
Prospectusisadocumentthat
doesnotspecifytheexactprice
Financials
2%
of each stock on offer, or the
total value of issue. However,

62%
Consumer
the total numbers of shares on
Products/Services
12%
sale as well as the upper &

lower price bands have to be
mentioned.
Industrial
Tech/Communications
Basic Metals,
Consumer
Products/Services
Financials
In the public issue of already

listed companies, a prospectus
without the price band can be
issued or a price band can be
notified
through
an
advertisementadaypriortothe
OFFER
DOCUMENT:
The
openingoftheissue.
Offer
32
www.projectsworlds.blogsp ot.com
bleassetsofnotless
thanRs3crores
2. AnetworthofRs1
croresormore
Importa
3. Enough money to
distribute as profits
forthreefullyears.
nce of a
Prospectus A
Prospectus is a
legal document
that
Primary issuances are
governed by SEBI DIP
the
(DISCLOSURES
companies use
guidelines. The Lead
securities, they
Managers are required to
areofferingfor
&
INVESTORPROTECTION)
to describe the
issue.
followduediligence&ensure
that all requirements of DIP
prospectus is a
are fulfilled while submitting
document that
the draft offer document to
contains
SEBI.
information
that
Any noncompliance on their

partcanattractpenalaction
3
the
investors needs
about
company.
theWHENACOMPANYCHANGES
ITSNAME:
1
SEBI
REQUIREMENTS
FORIPO:
ST
1 CONDITION:50%ofthe
revenue for the preceding year
shouldhaveaccruedforthenew
activity.
ND
SEBI has laid2
down certain
new offering cannot exceed 5
norms
times the net worth of issue
for
made under the previous
companies
making
CONDITION:Sizeofthe
an
identity.
offering to the
TheFortheinvestorsprotectionSEBIhas
company shouldgivenanimportantguidelinetothe
companythattheyshouldbegraded
have.
public.
1. Net fromtheCREDITRATING
tangi
AGENCIES.
E.g.ICRA,CRISIL,
etc.
lds.blogs
33
e.g. since the main focus of public

companies is to maximize
shareholders value & for this the
companyshouldacquiremanagement
that has experience in doing so.
PHASESOFTHE Further more company should re
examine their organizational
I.P.OWHICHA
COMPANYHASTO processes&makenecessarychanges
toenhancethecorporategovernance
FOLLOW:
&transparencyoforganization.This
phaseactuallytakestwoyears.
TheIPOsiskeptopen
foratleast3working 2.) IPO transaction phase: It is
daysandnotmorethan usually before shares are sold. For
10workingdays.In this the issue is to maximize
caseofbookbuilding investors confidence and credibility
issues,theBidding
to ensure that the issue will be
remainsopenfor37 successful.Offerdocumentisgivento
workingdays.
SEBIandaccordingtoitSEBIgrades
thecompany.
Thereare3phases
3.) The Post IPO Transaction
throughwhicha
Phase: The Company should not
companyhastogo
theyare
strivetomeetexpectationsbut rather
1
The PreIPObeat their expectations. This is the
Transformation pointintimewherecompanieshave
to go and prove to the market that
phase
they are strong performer that will
2
The
IPOlast.
Transaction
phase
3
The PostIPO
transaction
phase
1.) The Pre IPOPRICINGOFTHEI.P.O:

Transformation
Phase: In this stage
Company restructure
its management and
administrativepart.For
lds.blogs
34
price. The Issuer company can

mentionapricebandof20%(capin
The price of the issue

is decided by the
company and the LM
(lead manager) after
mutual consultation
.Although SEBI does
not have any role in
decidingtheprice,the
company and LM are
required to disclose
the price band should not be more

than 20% of the floor price) in the
Draft offer documents filed with
SEBI and actual price can be
determinedatalaterdatebeforefiling
of the final offer document with
SEBI.Inthismethodthepriceofthe
shares is fixed by the company
itself .Thus the investors know the
price of the shares in this case. E.g
parameters consideredRefrexRefrigeratorsLtd.IPO
beforefixingtheprice
2)BookBuildingMethod:
totheformer.
SEBIGuidelinesdefinesBook
Thereare3typeof
PricingoftheIPO
Buildingasaprocessundertakenby
which a demand for the securities
1) Fixedpricemethod proposedtobeissuedbyacorporate
2) Book Buildingbodyiselicitedandbuiltupandthe
method
price for such securities is assessed
3) EIPO
forthedeterminationofthequantum
1)Fixedprice
method:
of such securities to be issued by

means of a notice, circular,
issueradvertisement, document or
companyisallowedtoinformation memoranda or offer
An
freely price the issue.document.Bookbuildingisaprocess

Thebasisofissuepriceof price discovery in case of IPOs.
isdisclosedintheofferWhen Companies come through the
document where thebookbuildingroute,thepriceofthe
issuer discloses inissueisnotfixedbeforehand.Rather
detail about thetheissuedocumentonlygivesafloor
andpriceorthepricebandwithinwhich
quantitative factorsinvestorscanbidfortheshares.
TheIPOapplicantsbid
justifying the issue
qualitative
for the shares being

issuedbythecompany
quoting the price of
their bid and the
quantity that they
would like to bid at.
Only the retail
investors have the
option
35
lds.blogs
institutional buyers & 35% to the

retail investors. Since the retail
ofbiddingatcutoff.
Cutoffmeansthatthe
investorsarenotactive
bidders but they are
willing to accept
whatever price is
gettingarrivedatbased
on bidding done by
other persons. After
the bidding process is
complete, the cutoff
price is arrived and
shares are issued to
successfulapplicants.
Here the company
givesthepricebandin
which minimum and
maximumpricewillbe
mention. Here, the
investorhastojudgeto
which price they
should
apply.
Example: ABC co
fixespricebandofRs
20toRs25.
investors are not able to judge the

pricetowhichtheyshouldapplyso
SEBI has given one concession to
them that they can apply at cutoff
pricegivenbythecompany.
3)EIPOs(ElectronicInitial
PublicOffer)
Acompanyproposingtoissue
capital to public through the online
systemofthestockexchangeforoffer
ofsecuritiescandosoifitcomplies
with the requirements. This is a
technique which is used in issuing
securities which are issued under
fixedpriceaswellasbookbuilding
methods.Hereinvestorhastocontract
its broker for purchasing securities
and the broker will enter the
information in the terminal and
collect the payment from investor
.Then the Company after receiving
theapplicationfromallIndiadecides
the allotment procedure & informs
electronically to the broker whose
application are considered. If a

In the
CompanywantstogoinforEIPOs
process of allotting
then shares should be in demat
securitiesthroughbook
form.NSE&BSEprovidesEIPOs
building method the
facility.
Company have to
allote,50%toqualified
institutional buyers,
15% to nonqualified
36
lds.blogs
orforavalueofnotmorethan
Rs.1,00,000.
3. High net worth individuals

and employees of the
company:15%oftheissue.
PARTICIPANTSIN
ANI.P.O:
Threeclassesof
investorscanbidfor
shares:
The
bids
received by the QIBs over the last

fiveyearshavebeenonarise.Thisis
1. Qualified
clearlyvisiblefromcaseslikeMaruti
Institutional
issuewhichreceived4.80lakhbids,
Buyers: They
buy50%ofthe
issue. Out of
ONGCgot9lakhbids,TCSreceived
13.5lakhbids,NTPCreceived14.70
lakh bids and Reliance Petroleum
this50%,upto
received22lakhbidsallbytheQIB
5% has to beportion. Besides QIB for whom 60
allocated topercentoftheamountisreserved,the
mutualfunds.Itnumber of HNI and the Retail
includes
categorywhomakeupthebalance10
financial
and30percentisalsoincreasing.In
institutions
200405 the number of QIB
such
Commercial
asapplication was in the range of 150

whichhasnowincreasedto350400.
Banks, MutualThe funds are mainly coming from

funds, VentureUSandFarEastPublicinvestorscan
capital
purchaseIPOsthroughtheirregular
registered withinvestment channels, although they

SEBI.
willneedtoactfasttotakeadvantage
2. Retail
of the initial low IPO costs.
investors: 35%Businesses can take advantage of

of the issue.IPOssimplybyofferingpublicshares
Retail
onthemarket.Todothis,theyrequire
individual
a corporate lawyer, transparent
investor meansbusiness and financial practices, and

aninvestorwhoaninvestmentbanker.Theyalsoneed
applies or bidsamediumusuallyastockexchangeto
forsecuritiesofactually sell the shares. Most
businessesadditionally
hire marketers or
someone who canROLEOFLEADMANAGERIN
advertiseormarkettheIPO:
stock.
37
lds.blogs
Investment Banks, DSP Merrill

Lynch, HSBC Securities and Kotak
Itisdifficultto
Mahindraamongothers.
priceanIPOtherefore
the role of lead
manager came into
existences.
The
company appoints the

lead manager .The
LeadManagersactasa
catalystastheyattempt
to bring in some
credibility to the offer
and
their
accountability is also
very high. Remember
thattheleadmanagers
credibility could act
onlyasanindicatorto
theproposedissue,but
does not assure
success. For the
purpose of security,
one can look for
category one lead
managers for judging
ROLEOF
IPOsFOR
ISSUING
COMPANI
ES:
thequalityoftheissue
thatincludesMerchant,
lds.blogs
38
TheProsandConsforthe
Company
In general, companies
offer IPOs inorder to
raise money that they
need for business
expansion and new
business opportunities.
Pros
1. Going public raises cash
which is useful for Capital
Investmentaidinggrowth.They
canthenusethismoneytogrow
theirbusiness.
2. Being publicly traded also opens

many financial doors and more
investors, a company visibility.
By offering shares to
standstobringinalot3. Because of the increased

of money. They canscrutiny, public companies can
thenusethismoneytousually get better rates when
grow their business.theyissuedebt.
The more their4. Itiseasiertocompletemergersand
acquisitions by issuing stock to
business grows, in financethesame.
turn, the higher the5. Open markets provide
share prices grow andliquidity and hence make it
the more money ispossible to implement things
generated by investorslike employee stock ownership
purchasing
Many
companiestalent.
shares.plans, which help attract top
simply see offering6. Being on a major stock

IPOsasthenextstageexchangecarriesaconsiderable
in business growth.amountofprestigewhichagain
Since
publichelps the company image. By

companies oftenenjoybecoming a publicly traded
larger profits and cancompany a business can take
draw on a largeradvantage of new, larger
capital base thanopportunities and can start
private businesses,working towards incorporation
IPOs seem like theandevenworldwideexpansion.
logicalwaytogrowa7. IncaseofIPOsitisinvestors
company for manywhotaketheriskalthoughalso
CEOs.
apotentialgainbuyingshares.If
the
company
withinterest
loses money and
8. IPOsarealsoarelativelylow
they will not
riskforbusinessesandhavethe
have to repay
potentialforhugegainsandfor
their investors,
hugeopportunities.
unlikeinbusiness
Cons
loans,
which
needtoberepaid
39
lds.blogs
huge profit margin. As prices grow

anddemandfortheIPOsgrows,early
investorsstandtomakealotofprofit
1. It will be coming
under pressure toandveryquickly.
performconsistently
TheultimateWatchword
2. The decision
CaveatEmptor!BuyerBeware.This
makingmayslow
shouldbethewatchwordfor
down as the
investors.Anycompanymayoptfor
company may
anIPO.But,ultimatelyitisyour
have difficulties
hardearnedmoneythatisgetting
in getting the
divertedintounproductive
necessary
investments,whichmaynotgiveyou
shareholders
therequiredreturn
approval.
3. The costs ofFactorstokeepinmindbyan
compliance wouldinvestorbeforedecidingtoapplyto
increases costs andanIPO:
canbeaconstraint.
1
Trackrecordofthe
promoters:Backgroundand
ROLEOFIPOs
FORINVESTORS:
experienceofthepromoters,
IPOs are attractive
themanagementteamand
mainly because they
theirexpertiseisoneofthe
may be undervalued.
mainfactorsthatneedtobe
Initially,tomakeIPOs
consideredastheywillbethe
more attractive, many
onesresponsibleforthe
companies will offer
profitabilityofthecompany.
their initial public
Issueswherepostissue
offering ata low rate.
promotersholdingismore
This
to
than80%mayindicatealack
encourage investors,
ofliquidityinthestocksince
andinvestorswilloften
therearefewershareholders
buyIPOs,thinkingthat
tradingfewershares.Be
the new company or
carefulofcompaniesthat
the newly public
haveissuedsharesona
company will be the
preferentialbasisto
next big thing with a
promotersinhigh
helps
proportionate,
soasto
notbenefittotally.
2
increasetheir
stakeinthe
company.
Alsofindout
ifthisisan
offerforsale
oragenuine
InitialPublic
Offering.In
caseofoffer
forsale,the
ParticipationofVenture
Capitals&PrivateEequity
firms:Thiswouldindicate
theriskprofileofthe
companyandtheexpectation
oftheinstitutionfromthe
company.Incaseof
institution,lookfor
nationalizedbanksandall
Indialevelfinancial
institutionsuchasICICI,
issuing
companymay
lds.blogs
40
thatgoesforapublicoffering
hastofilewiththeSEBI.The
prospectus has all the details
IFCIIDBIetc.
1
Financials:
TheCompanys
balancesheetis
a
very
2
important
document and
investors
should
about the company, the risk

factors and the company's
financials.
Issueprice: Investorsneedto
decide if the issue is worth
investinginatthatprice.One
lookatit
wayofcheckingthevaluation
carefully.
istolookatthePriceEarnings
Investors
(P/E) multiple. The P/E
shouldlookat
multiple is the ratio of the
notjustthe
share price to earnings per
currentbalance
share(EPSwhichislistedin
sheetbutalso
thebalancesheet).P/Eofthe
thatofthelast
issueshouldbecomparedwith
threetofour
the industry average and the
yearstogetan
othercompaniesinthatsector.
ideaofthe
Apartfromthesefiveimportant
company's
pointsotherfactorslikeamountto
growthand
bepaidonapplication,thelead
focus.
managersfortheissue,thestock
Prospectus:
exchangesthatissueplanstoliston
Investors
andthecurrentmarketsentiment
shouldreadtheareotherfactorstowatchoutfor.
prospectus for1
the company
carefully. The
prospectus
called as red
herring
prospectus is a
document that
every company
Indian credit rating

agencies: Arealmostready
torateinitialpublicofferings
oflocal firmsafterthecapital
marketsregulatorhasmadeit
a mandatory requirement.
There is agreement on the
methodology to be adopted
andtherationalefortherating
awards. The
andsoon.
agencies will
2
cover the
Estimate Profitability: If
projects of the
company for
which it is
seekingtoraise
funds from the
public. They
willrunacheck
on
the
promoters, the
financials of
thefirm,dothe
valuation, how
the issuer has
the company is utilizing a

portion of issue proceeds
towards
retiring highcost
debts, it would benefit the

company in terms of lower
interestoutflowandtherefore
higher profitability. An
investor should check the
proportion of money that is
beinginvestedinnewprojects
that itis venturinginto. This
wouldgivesomejudgmenton
the
utilized funds
lds.blogs
41
themarketinwhichit
operateshastobeseen.
estimated
profitabilityof
thecompany.
1
5.)Marketshareorthe
projectedmarketsharevis
visdomesticcompetition.
Fundamentals Ifaninvestorhaveanswered
Beforeyestotheabovequestions,
Subscribing forinvestorsareontheirwayto
an IPO anmakingasmartinvestment.
investor should
study
the
fundamentals
Pricingisan
importantfactorand
the
needtobeconsidered
company. One
carefully.Tojustify
should not
pricing,Compare:
subscribeforan
1.)Thepricetoearningsratio
IPO
just
(thisispricethattheissueis
because the
offereduponearningsper
reason he is
share)whichwouldthrow
getting shares
lightonthepricingofthe
atlowerprices.
issue.
Heshouldlook
of
for following
things:
1.)
The
Businessofthe
Company.
2.)Growth
prospectsofthe
company.
2.)Operatingmargins(thisis
theincomefromoperationless
expensesfromoperation).
3.)Marketcapitalization(itis
thenumberofsharemultiplied
bythepriceatwhichitis
offered)withthecurrent
companiesinthesectorthat
3.)Thesector
arelistedinthemarket.
inwhich
TheProsandConsforthe
companyis
doingbusiness. Investor:
4)Thegrowth SimilarlyfortheInvestorthe
ofthecompany followingarethetwosidesofthe
inproportionto
thegrowthof coin.Theadvantagesforthe
Investorare
summarizedas
below:
lds.blogs
42
fixed in the total issue which

enablesthemtohaveashareofthe
1. Usually
IPOs
comewitharigorous
process of Book
buildingandrelevant
disclosures and risks
spelled out in the
pie.
4. Statistics: Of the 15 biggest
IPOsmadeafter1January2006,11
are still in the positive zone. The
four laggards are Cairn India,
Parsvanath, Lanco Infratech and
document Indian Bank. Significantly, even

therebygivingonea here,exceptforCairn,alltheother
offer
fair idea about the three IPOs had given an exit

opportunity at a huge profit after
business.
2. The pricing is listing. On the other hand, several
generally considered IPOs have provided dream returns
to be on the including Tech Mahindra (299%),
conservative side GMR(85%),GujaratStatePetronet
else it might fail to (79%) and Sun TV (69%). People
get
investors have loosen lot of money in

approval and hence secondary market in blue chip
result in a loss of companies.
face for the issuer.
Initial
public
offerings make a
good opportunity to
make a profit
because they are so
inexpensive. In fact,
manyofthedotcom
millionaires of the
1990s made their
money
simply
throughIPOs.
3. The
retail
investors generally
have a proportion
43
www.projectswor
lds.blogspot.com
money.Theycanthen
usethismoneytogrow
their business. The
more their business
grows, in turn, the
highertheshareprices
grow and the more
moneyisgeneratedby
investors purchasing
shares.
6) RegulatoryNorms:
The quality of IPOs
has improved in the
past few years due to
tighterentrynormsand
better vetting, both at
Securities
and
Exchange Board of
India(SEBI)andatthe
two major stock
exchanges.
Since
5) Appr
January 2006, nearly
eciation
10 companies were
in
forced to withdraw
Value.
theirissueplansbythe
By
stockexchangesand
offering
shares
to
investor
s,
compan
ystands
to bring
in a lot
of
44
lds.blogs
price track record
which can give an
SEBI.
Moreov
er,half
ofeach
issue
hasto
be
bought
by
instituti
onal
investor
s,who
indication of the
market perception of
thestock.
2. Companiesmightbe
doing an IPO to
provide an exit
strategy for the
founders. This implies
thatthepromotercant
create value for
shareholders or the
promoters dont see
growthinthebusiness.
runtheir
L
I
S
T
I
N
G
due
diligenc
eonthe
quality
ofthe
issuer
and
Listing means admission of the
priceof
securitiestodealingsonarecognized
the
stockexchange.Thesecuritiesmaybe
issue.
of any public limited company,

Central or State Government, quasi
Thepitfallsare:
governmental and other financial
1. A
institutions/corporations,
compan
municipalities,etc.
y
coming
outwith
Theobjectivesoflistingaremainly
to:
an IPO
1 Provideliquiditytosecurities;
has had
2 Mobilize savings
economicdevelopment;
no past
for
3 Protect interest
of investors by
ensuring full
disclosures.
smallcapcompanies.Alarge
cap company is a company
withaminimumissuesizeof
Rs. 10 crores and market
ELIGIBILITY
CRITERIA FOR
IPOs/FPOs
capitalizationofnotlessthan
Rs. 25 crores. A small cap
company is a company other
1. Companies
have
been
thanalargecapcompany.
classified as
large
cap
companies and
lds.blogs
45
paidupnumberofequity
shares with the issue
1. In respect of Large
CapCompanies
1.
The
price).
2. In respect of Small Cap
Companies
minimum
1.
postissue
paidup capital of the
paidup
CompanyshallbeRs.3
capital of the
crores;and
applicant
2.
Theminimumissuesize
shallbeRs.3crores;and
3.
The minimum market
company
(hereinafter
2.
3.
Theminimumpostissue
referredtoas
capitalization of the
"the
CompanyshallbeRs.5
Company")
crores
shallbeRs.3
capitalization shall be
crores;and
calculated
The
minimum
issue size
shall be Rs.
10 crores;
and
multiplying the post
The
by
equity shares with the

issueprice);and
4.
The
minimum
income/turnover of the
Company should be Rs.
market
3 crores in each of the
capitalization
(market
issuepaidupnumberof
minimum
of
preceding three 12
the
Company
shall be Rs.
monthsperiod;and
5.
Theminimumnumberof
publicshareholdersafter
theissueshallbe1000.
6.
A due diligence study
25 crores
(market
capitalization
maybeconductedbyan
shall
be
independent team of
calculated by
Chartered Accountants
multiplying
or Merchant Bankers
thepostissue
appointed by the
Exchange,
financial institution or a
the cost of
scheduled commercial
whichwillbe
bank has appraised the
borne by the
project in the preceding
company.
12months.
The
requirement
of a due
diligence
studymaybe
waived if a
orlds.blog
www.projectsw spot.com
46
b)Theapplicant,promoters
and/orgroupcompanies,
shouldnotbeindefault
incomplianceofthelisting
agreement.
3. For all
compan
ies:
3) The above eligibility criteria
1) In respect of
SEBI(DisclosureandInvestor
would be in addition to the

conditions prescribed under
therequirement
of
paidup
capital
and
market
Protection)Guidelines,2000.
Trading Permission
As
per
Securities
and
capitalization, Exchange Board of India

theissuersshallGuidelines,
the
issuer
be required tocompany should complete the
include in theformalities for trading at all
the Stock Exchanges where
disclaimer
clause formingthe securities are to be listed

a part of thewithin 7 working days of
offer documentfinalization
Allotment.
thatintheevent
of the market
capitalization
(product of
issue price and
shares)
Basis
company
of
should
scrupulously adhere to the

time limit for allotment of all
securities
the post issueAllotment
number
of
and
dispatch
of
Letters/Share
ofCertificates
and
Refund
Orders and for obtaining the
requirement oflisting permissions of all the

the ExchangeExchanges whose names are
not being met,stated in its prospectus or
thesecuritiesofoffer documents. In the event
the
issuerof
listing
permission
to
would not becompany being denied by any

listed on theStock Exchange where it had
Exchange.
applied
for
listing
of
its
securities,
cannot
itExchange
proceedunder
Section
with the allotmentSecurities

of
However,
Board
22
of
India
of
the
Contracts
shares.(Regulation) Act, 1956.

the
company may file

an appeal before
the Securities and
47
lds.blogs
given hereunder:
SCHEDULE OF
LISTING FEES
FOR THE YEAR
2007-2008
Payment of
Listing Fees
Sr.
All companies
listed on the
Exchange have
No.
1
Particulars
InitialListingFees
to pay Annual
AnnualListingFees
Listing Fees by
(i)Companieswithpaidupcapital*uptoRs.5crores
the 30th April of

every financial
(ii)AboveRs.5croresanduptoRs.10crores
year to the
Exchange as per
(iii)AboveRs.10croresanduptoRs.20crores
the Schedule of
Listing Fees
prescribed from
Companieswhichhavealistedcapital*ofmorethanRs.20cror
additionalfeeofRs.750/foreveryincreaseofRs.1croresorp
time to time.
4
Incaseofdebenturecapital(notconvertibleintoequityshares)o
The schedule of
thefeeswillbecharged@25%ofthefeespayableaspertheab
listing fees for
scales.
the year 2007-
*includesequityshares,preference
2008, prescribed shares,fullyconvertibledebentures,
by the Governing partlyconvertibledebenture
Board of the
Exchange is
48
lds.blogs
acts. As such, the agreement

is of great importance and is
executed under the common

capitalandanyother
seal of a company. Under the
securitywhichwillbe
Agreement,
a
convertedintoequity Listing
shares.
company
undertakes,
Kindly Note the lastamongst
other
things,
to
date for payment ofprovide facilities for prompt

listingfeefortheyeartransfer, registration, subdivision and consolidation of
20072008isApril30,
securities; to give proper
2007. Failure to pay
notice of closure of transfer
thelistingfee(forthe
books and record dates, to
equity and/or debtforward copies of unabridged
segment) before theAnnual Reports and Balance
duedatei.e.April
Sheets to the shareholders, to
Distribution
Schedule
30,2007willattract file
impositionofinterest with the Exchange annually;
@12%perannum
to furnish financial results on
w.e.f.May1,2007.
a quarterly basis; intimate
promptly to the Exchange the
Compliance with
Listing Agreementhappenings which are likely
to
materially
affect
the
The
companiesfinancial performance of the

desirous
ofCompany and its stock prices,
getting
theirto comply with the conditions
securities
listedof Corporate Governance, etc.

required toThe Listing Department of the
are
enter
into
anExchange
monitors
the
agreement
withcompliance of the companies

Exchangewith the provisions of the
the
called the ListingListing Agreement, especially

Agreement
andwith
regard
to
timely
they are requiredpayment of annual listing
to
make
certainfees, submission of quarterly

disclosures
andresults,
requirement
of
perform
certainminimum
number
of
shareholders, etc.market.ListingofanIPOisvery
and
takes
penalimportantforanyinvestorsinceat
action against thethattimehehastotakedecisions

defaulting
ofeithersellingitorholdingitin
companies.
his portfolio. For better
After
the
completion of IPO
process, the next
step is the
allotmentofshares.
Aftertheallotment,
understanding of the factors, I

havetakentwocompaniessothat
one can know how the
fundamentals & Financials of a
company can impact the IPO of
thecompany.
the next step is

listing of IPO's
which links IPO
ListingperformanceofCairnIndia
Ltd.
with secondary
lds.blogs
49
andproductionassetsinIndiaforover
12 years in partnership with the
Government of India, state
Company
background:
governments, regulators and key
CairnIndia(CIL)wasindustryparticipantssuchasONGC.
incorporated on 21A company trading on the Main
August 2006 tomarket of the London Stock
consolidate CairnsExchange in the year 1988. Cairn
business and interestsIndia is one of the few companies,
in India. CIL iswhich have been successful in
acquiringitsassetsanddiscovering reserves in the country
business
throughsince1985,inRajasthan,andnowhas
acquisition of Cairnsmany years of experience in the

subsidiaries: Cairncountry. Its credentials are well
Energy Australia PvtestablishedandCairnislikelytobea
Ltd (CEA), Cairnmajor participant in all future
Energy hydrocarbonsdomesticexplorationactivities.
(CEH) and Cairn
EnergyIndiaHoldingsItsBusiness:
B.V. (CEIH).Cairn isCairn India has a 70 per cent
anindependentoilandoperating interest in the Rajasthan
gas exploration andfields, balance being mandatory
production company.holdingsofONGCasthegovernment
With the companysnominatedentity.Thecompanyhasa
head office in40per cent stake in Lakshmi and
Gauri oil and gas fields in the
Edinburgh.
Its coreCambaybasinoffthewestcoastanda
areaoffocusisSouth22.5percentstakeinRavvaoiland
Asia:itholds materialgas field in the KrishnaGodavari
exploration
andbasin off the East coast. Lakshmi,
production rights inGauri and Ravva are already

India, Bangladesh andoperational,producingbothcrudeoil
Nepal.CairnIndiahasandnaturalgas.
been exploring andThecompanyhassofarmadeatotal
operating developmentof 29 hydrocarbon discoveries,
including
discoveries
18millionbarrels.CairnIndiaestimates
inthat these blocks may contain
Rajasthan alone. Theadditionalcontingencyreservesofup

Rajasthan fields haveto257millionbarrels.Totalinplace
total proved andreserves in the Rajasthan fields are
probable reserves ofestimatedat3.66billionbarrelsofoil
632 million barrels ofandoilequivalents.
oiloroilequivalent,of
which the company's
share would be 442
lds.blogs
50
Plc, at a price band of Rs160 to

Rs190. The issue would raise Rs8,
Other fields in which

the company has
interests hold proved
and probable reserves
of122millionbarrels,
of
which
the
616 crores at the lower end of the

pricebandandRs10,231attheupper
end. At the higher end, Cairn India
wouldbevaluedatRs33,544crores
($7.54 billion) and at Rs28, 248
crores($6.35billion)atthelowerend
company's share is 30Objectsoftheissue:

million barrels. These1 T
outside
Rajasthan may hold
additional reserves of
157 million barrels,
fields
according
to
company's estimates.
Other fields outside
Rajasthan
are
estimatedtohavetotal
inplace reserves of
934millionbarrels.
IPOHighlights:
CairnIndia,oneofthe
most successful oil
exploration companies
in the country, has
z
e
o
f
t
h
e
i
s
s
u
e
r
a
launchedamegaIPO
oneofthebiggestever
in the history of our
primarymarkets.Cairn
India has offered
538,470,588 equity
shares, including an
offer for sale from
parent company Cairn
ri
).
2 The proceeds of the issue
would be utilized to partially
fundthetotalexpenditureset
forthfor200709.
3 To achieve the benefits of

listing.
4 To fund the acquisition of
shares of Cairn India
HoldingsLimitedpartofthe
developmentoftheRajasthan
Block, as well as further
development of other
producingfields.
CairnIndiaLtdIPODetail:
D
e
p
e
n
d
i
n
g
IssueOpen:
December1
IssueType:
100%Book
PublicOffer)
IssueSize:
328,799,67
FaceValue:
Rs10/
IssuePrice:
Rs160/toR
51
Pvt.
35Shares
MarketLot:
Minimum Order
Quantity:
Maximum
4
5
35Shares
Rs100,000/
Subscription
Amount
Tuesday,
January
9,2007
for
BSE,NSE
RetailInvestor: DSPMerrill
Lynch
Listing:
Limited,
LeadManager: ABN
AMRO
Securities
(India),
6
7
Registrar:
JMMorgan
Cairn India Stanley
Limited Listing Bigshare
Date:
Services
over
in in the secondary
subs
itsmarkets, with the
BSEScript crib
Code:532792
ed
NSESymbol: 1.3
CAIRN
time
Listedin:A son
Group
the
ISIN:
ope
INE910H010
ning
17
day
ICICIDirect
ScriptCode: indi
cati
CAIIND
fu Sensex plummeting by
ng
inve
Responseto
stor
theIPO:
conf
The
iden
IPO of Cairn
ce
India was
n 400pointshowever,the
daissue received a strong
m response from foreign
eninstitutional investors
ta (FIIs).Therewerebids
ls, for 42 crores shares
as against the quota of
sh 19.72 crores shares for
ar QIBs.Amajorchunkof
es the subscription has
g come from qualified
ot institutional buyers,
tr investment
bankers
as involvedwiththeoffer.
he
d
52
w
.projectswo ot.com
w
rlds.blogsp
othereasonofpoorresponsefrom
investors,itslistingpricewaseven
All the
bids were from FIIs
and none from banks,
belowthemarketprice.Thereare
severalreasonsforthepoor
response:
financial institutions
1. Investors can expect return from

insurance
theIPOonlyafter2009.There
companies.Inthenon
was only long term growth
institutional category,
expectedoutofthecompany.The
there were bids for
companyisintoalonggestation
40,775sharesagainsta
periodandthereturnsstartfrom
quota of 3.28 crores
2009 onwards. CIL aims to
shares, for retail
commercialize the Mangala field
investors, there were
byMarch2009.Thedevelopment
bids for 15.65 lakh
and commercialization of the
shares against the
Bhagyam, Shakti and Ashwariya
allotment of 9.86
fieldsarescheduledtocommence
croresshares.4.25lakh
within12monthsofproductionat
applications were
theMangalafields.
received from retail
2. Sensitivitytoglobalcrudeprices.
investors.Bidsfor2.17
CIL's operating performance is
crores shares were
to a great extent linked to the
received as against
fluctuations in oil prices. Crude
9.86 crores shares
oil prices are sensitive to the
reserved for the retail
global and regional supply and
segment.
demand, and the expectations
and
ReasonsforPoor
Subscription&Poor
Listing:
TheCairnIndiaIPO
receivedapoor
responsefromthe
investorsnotgetting
fullysubscribed.Duet
regarding the future supply and

demand, for crude oil and
petroleum products. Any adverse
impactoncrudeoilpricesthatis
subject to various uncontrollable
macroeconomic global factors
can adversely affect CIL's
operatingperformance.
3. Under the present
nominee fails to lift the crude. .
productionsharing
Besides, MRPL may ask for
contract, Cairn has
steeper discounts as it has to
tosellallthecrude
transportthecrudeallthewayto
to the government
Mangaloreandifitisrequiredto
nominated
setuptheevacuationpipeline.In
company MRPL
anycase,thediscoveredreserves
in this case and
areofa'waxy'kindandmayfetch
would have the
lower prices because of the
option of selling
difficulty in transporting and
the crude to other
processing.Prices.Thecompany
buyers only if the

government
53
lds.blogs
waxycrudeoilwouldrequirehot
water injection technique that is
is required the
supplythewholeof
its production to a
company
designated by the
government,inthis
case MRPL. The
purchase
price
wouldbebasedon
a basket of prices
of crude oils of
different standards,
to be agreed
between the buyer
and seller only
before six months
likelytoaddtotheoverallcostof
production. The oil from
Rajasthanwasthickandwaxyand
specialheatedpipelineswouldbe
neededtotransportitmaynotbe
easy to extract oil from the
Rajasthan [Largest reserve] and
many incur additional expenses
Ontheotherhand,thewaxycrude
oil would get lower realization.
The company expects realization
of around 510% discount to
Brent. However, it could be
relatively much lower at a
discountof1020%goingbythe
prevailingtrendinthemarket.
from the expected5. Theinvestorsconsideredtheissue

asanexpensiveone:.CairnIndia
production date.
The final agreed
IPO was priced at double the
pricemaybelower
valuationsofstateownedONGC
than the current
Looking at the financials and
projections by the
other peer group comparisons as
company.
statedinvariousresearchreports
4. Quality of oil and

its evacuation:
Theoilreservesin
theRajasthanblock
have reasonably
high viscosity due
to the relatively
higherwaxcontent
in
it.
The
production of such
[CLSA,ShareKhan,JMMorgan
Stanley], the offer price was
expensive.
6. And finally, and the most
important, investors were
shatteredbythe800pointfallin2
days.Thelackofinvestorinterest
fortheCairnIndiaIPOcanalso
be attributed to the sharp
correction in the market on
Monday. Brokers
numbers: The Company need
saidadownturnin
capital market with tremendous
themarkettendsto
enthusiasm but investors'
affect the appetite
enthusiasm was missing. The
for primary issues,
subscription was lower than that
especially among
ofsmallerissuesof2006,which
shortterm
managed subscription of over 2
investors. This is
times.Analystswerealsobullish
because if market
ontheissuebeforeitssubscription
is subdued at the
started due to its goodwill and
time of the listing
name in the market. Though the
ofIPOs,therisein
issuegottremendousresponseon
share price on the
the first day, but that did not
first day may be
reflectonthefinalday.The
checked.
7. Low
over
subscription
lds.blogs
54
financials for the six months ended

June2006werenotexcitingasthey
issue which got

subscription of
around 1.6 times
onthefirstdaysaw
many investors
withdrawing their
bids on the last
day. Due to this,
the issue was
subscribed just
1.14 times. There
was lower over
includeawriteoffoftheunsuccessful
explorationcostofRs236.73croreon
15 wells digged in Rajasthan block
prior to the successful discovery of
the Mangala oil field. On a
comparative valuation basis, at the
upper end of the price band CIL is
offeredatdoublethevaluationofthe
stateowned Oil & Natural Gas
Corporation(ONGC).So,wecansay
that the issue of cairn India is
expensive.
Findings:
subscription
numbersduetoall
From the above IPO, we can
the above reasons.
conclude that listing of Cairn
Due to this the
India was below the issue price
issuegotlistedata
which was due to the above
price much was
mentionedreasonsirrespectiveof
below the issue
the strong fundamentals of the
price.
company. So, before going for
Valuations:
CairnIndiaIPOaprudentinvestor
The offer price band
should have aimed at long term
was Rs 160Rs 190.
returns. rather than expecting
Based
the
listing gains. Since the return of
consolidated financials
Cairnindiawillstartcomingonly
of CEA, CEH and
after2009,Sotheinvestorsshould
CEIH for the year
have invested in IPO keeping in
endedDecember2005,
mind above mentioned factors
profit after tax (PAT)
whichhadaffecteditslisting.
on
standsatRs92crores,
including onetime
income of Rs 230
crore. Also the
(CreditRatingAgency).
Listingperformance
ofICRALtd
lds.blogs
55
3
Requirement for certain

investors to invest not more
thanastipulatedpartoftheir
BusinessofCredit
RatingCompanys
(ICRA)
portfolioinunratedbonds.
4
for all commercial banks to

makefreshinvestmentonlyin
Thefollowingfactors
governtherating
business:
1
Creditratingis
mandatory for
issuance of
debt
instruments by
RBI has made it mandatory
ratednonSLRsecurities.
Nongovernment
PFs,
Superannuationfunds,Gratuityfunds
can only invest in bonds issued by
public
financial
institutions,
public/private sector companies,

providedtheyaredualrated.Further
listed
companieswith said fund houses can only invest in

maturity/conve shares of companies, which have
rtibility of 18 investmentgraderatingfromatleast
months and twocreditratingagencies.
above.
2
Summarizing above, the growth in
SEBI along the rating business hinges on the

with
stock growth of debt securities in the
exchanges
market.In200506,96.25%oftheRs
made ratings 794billionofdebtinstrumentswere

mandatory for rated, signifying high level of
debt
penetration. It is worth mentioning
instruments
herethatinIndia;onlyabout10per
placed under cent of banks corporate exposures

private
areratedbyexternalratingagencies,
placementbasis
and having a
maturityofone
year or more,
whichimplyhugepotentialforrating
agenciesinthedaysahead.
AbouttheCompany
are Best in its Class when it comes to

proposed to be Credit rating, ICRA is the second
which
listed.
largest company next only to

CRISIL.Thecompanyenjoysstrong
market position for

credit ratings in the
financial sector and
ICRALtd.isone
amongstthefourcredit
ratingagenciesinIndia
providingawide
structuredfinance.
56
lds.blogs
BusinessofICRA
rangeofproductsandThe company is primarily
engaged in the business of
services. They were
providing rating and grading
establishedin1991as
services and research based
acreditratingagency
information services. It rates
by a consortium of
rupee-denominated
debt
financial/investment
instruments issued by entities
institutions,
including
Corporates,
commercialbanksandNBFCs, Financial Institutions,
financial
servicesPublic
companies.Itoperatesand
Sector
Municipalities,
as a professionallyothers.
managed commercialstructured
entity with thecredit,
objective
Undertakings
It
also
finance,
project
among
rates
line
of
finance,
ofcorporate governance, issuer

rating, debt fund-credit risk
maximizing
shareholder value.rating, claims paying ability

The company has 3rating. In addition along with
wholly
owned
it subsidiaries, it provides-
subsidiaries, namely,
service:
This
IMaCS, ICTEAS and Consulting
segment contributes 18% to
ICRAOnline.IMaCS
the revenue stream. In this
provides management
space the growth has been
consulting services.
secular at 28% till FY06. But,
ICTEAS is into
in the current year the
providing business
growth has been nearly flat.
solutions
and
IMaCS, a wholly owned
computer aided
subsidiary
provides
engineering services.
management
consultancy
ICRA
Online
services to clients based on
provides mutual fund India and abroad under five
based information business
areas
services
and infrastructure,
outsourcingservices.
banking
and
namely,
energy,
insurance,
corporate
Information
technology
andbased services: This segment
advisory
of business was introduced in
government.
IMaCS
clientsFY06
include
banks,contributes 13% to the top
FIs,
and
currently
NBFCs,line. ICRA, through ICTEAS
manufacturing
(one of its subsidiary) provide
serviceIT solutions in the realm of

business applications and
organizations,
and
andprocesses in the verticals like

sales
and
distributions
governmentmanagement,
franchisee
owned
government
organizations,
service
debt and equityfinancial

business
investors,
regulators
management,
management
and
analytics.
The
andclients
multilateral
agencies.
57
lds.blogs
grading
of
small
scale
enterprises. Here, ICRA has

include
BP
Lubricants
Judge
and
Technical
Staffing. Majority
portion
of
business
not taken big initiative to

grade the SME sector, which
offers huge scope for growth.
The management is preparing
thisa blueprint to delve into this

Currently,
the
aresector.
inherited by ICRA,management feels, incomes

when it acquiredare not commensurate to the
ICTEAS and arecosts
involved.
Besides
quite distinct fromgrading, ICRA also provide

the core businessresearch based information
of rating.
services
also
This
segment
is
small
of
business,
contributes
which
close
to 3% to the top
line.
Here,
the
growth is sedate
even on a lower
base.
In
space,
this
ICRA
provides Grading
Services
in
relation
to
construction
realty
developers,
healthcare
Outsourcing
Fund
services:
Through ICRA Online, ICRA

provides outsourcing services
in the area of KPO, Research,
Data
aggregation
and
technical services to financial

services entities. This is a
very
small
business,
segment
and
due
to
of
low
base, the growth (YoY) looks

very high. Under a standing
agreement
ICRA
provides
Also
services
Investors
ICRA
mutual
Online
information
management
Moodys
companies/entitie
s,
Mutual
based services.
Information
services:
and
Service.
monitors
funds
to
rated
the
by
Moodys Investors Service in

and
maritime
institutions,
equity shares and
Europe and Asia (with the

exception
of
India).
ICRA
Online also provides certain
outsourcing
The objective is to enhance its
services to BSE. position as a leading provider of

But here, ICRA is ratings, research, consulting and
barred to take any outsourcedservices.Itisfocusedon
outsourcing
enhancingshareholdervaluethrough
assignments
of pursuingstrategiesthatincreasethe
other profitability and return on equity.
any
bourses. We feel The key elements of its business

due to this ICRA
strategyareasfollows:
may be loosing
1
Expandthebusinessbyusing
significant
its brand name, core
outsourcing
competencies and strategic
relationship.
services
from
NSE, the biggest 2
exchange.
Expansion of the service

offerings.
BusinessStrategy
lds.blogs
58
withMoodysGroupMoodysIndia,
whichispartoftheMoodysGroup,
is a promoter of ICRA Limited. In

Expansion of
the global addition,MoodysInvestorsService,
capabilities. which is an international rating
Continuing to agency, has entered into the
attract, train Technical Services Agreement with
and retain
thecompanypursuanttowhichithas
employees.
been providing technical services to
ICRAplanstoexpand
ICRA.Further,thecompanyprovides
business by using its

brand
certain outsourcing services to
core
MoodysInvestorsService.
and
3 Richdatabaseandresearchsupport
strategic relationship. itsproductsandservicesportfolio
Toincreaseits market
4 Product and service innovation.
share ICRA plans to
The company believes that part of
concentrate
on
their success lies in their ability to
providing high quality successfully introduce new products
competencies
services and to focus and services. In the last five years,

on its key businesses. they have introduced carious rating
Other
initiatives and grading products such as

include improving its corporategovernanceratings,project
brand
visibility, financeratings,issuerratings,mutual
enhancing its service fundratingsandgradingofmaritime

offering and franchise training institutes, healthcare
amongst the investors, institutionsandrealestatedevelopers
issuers
intermediaries.
& andprojects.
5 Demonstrated track record of its
rating.ICRAbelievesthatforratings
Competitive
Strengths(Reasons
forgood
Subscription)
to be used as reliable indicators of

creditrisk,itiscriticalthatarating
agencybeabletodemonstrate,overa
period of time, strong correlation
1 Oneofthefewcredit betweentheactualperformanceofthe
rating agencies in
ratingsitassignsandwhattheratings
India.
themselves convey. Since 2001, the
2 Close association
company has been assignedbythemshowthathigher

categoryratings
publishing their rating
transition
studies.Theybelieve
thattheratings
lds.blogs
59
bandforthe issue was between Rs

275toRs330perequityshare.The
issuesizeatthehigherpricebandis
demonstratea
at Rs 85.17 crore. It is also an
relativelylower
likelihoodofdefault associate of Moodys Investors
andahigherdegreeof
stabilitywithgreater Services. Moody has 29% stake in
resiliencetochange.
ICRA. Remaining stake is held by
leading financial institutions and

Experiencedand
strongmanagement bankslikeSBI,LIC,IFCIetc.
teamandpoolofhigh
qualityemployee
talent.
DetailsofIssue
TypeofIssue:
ICRAIPO
ICRA Limited has
entered the capital
markets with a issue
of 25.81 Lac Equity
IssueSize:
BookBuilding
2.5mEquityShares
PriceBand: Rs.275Rs.330
IssueOpens:d_
March20,2007
IssueCloses: March23,2007
MinimumBidLot: 20Equity
Sharesatapriceband sharesandin
of Rs. 275330.The Multiplesof20thereafter
company
entered Listing:
BSE&NSE
capital market with a BookRunning:

public issue of MarketsLtd.
SBICapital
equity LeadManagers
KotakMahindra
sharesofRs10each, Co.Ltd.
Capital
forcash,atapriceto
Registrar:
IntimeSpectrum
be decided through a RegistryLimited.
2,581,100
100% book building

process. The price
lds.blogs
60
existing shareholders. Hence, there

arenoproceedstothecompanyout
of the issue. However, the issue
ICRAwouldbethe
secondcompany
goingforlisting
(amongthefours).
would enhance brand name of the

companyandprovidepublicmarkets
tothecompanysequityshares.
Mostoftheexpertshad
recommendedtheICRAIPOdueto
theirfollowingreasons:
Objectiveofthe
Issue
1 The objects of the
offer are to achieve
Experts/Company
Result
ICRAisanexcellentissue.
thebenefitsoflisting
on
the
exchanges
stock
and
Reasons
Thepricebandis
reasonable;counterdemand
isgood.Themain
provide liquidity to
existing shareholders
advantagetothecompany
andemployees.
isthatSebihasmaderating
2 To meet the Issue

Expenses.
compulsoryforthedebt
RSIyer
3 Toavailthelisting
benefits.
(KRChoksey)
The objective of the
(Prabhudas
issues.Investorsmust
Apply
ManishBhatt
subscribetoissue.
ICRAlookstobegood
Apply
issue,atanattractiveprice
issueistoprovidean
exit route to the
61
lds.blogs
investorstoICRA,aleadingprovider
ofinvestmentinformationandcredit
ratingservicesinIndia.Everytypeof
Lilladher)
investor, whether it is FII, retail or

HNI, has given glorious support to
the issue. In total, it has received
more than 19.36 crores bids, out of
which, 76.40% or 4.57 crores bids
wereatcutoffprice.Theissuewas
oversubscribed 75.04 times, as per
NSE website. Qualified institutional
investorshaveputover11.69crores
bids,inthat53.88%bidswerefrom
SPTulsian
FIIs. QIBs portion subscribed 90.65
(Investment
times. Noninstitutional investors'
Advisor)
portionwassubscribed72timesand
retailinvestorsat54times.
ResponsetoIPO
ICRAIPO
oversubscribed75
times.
It was a magnificent
response
from
lds.blogs
62
2. Further,atleast15%oftheoffer
shallbeavailableforallocationona
SubscriptionDetails proportionate basis to non
institutionalbiddersandatleast35%
Investors
of the offer shall be available for

Qualifiedinstitutionalbuyers
allocationonaproportionatebasisto
Noninstitutionalinvestors
retail individual bidders, subject to
Retailindividualinvestors
validbidsbeingreceivedatorabove
Total
the offer price. (ASK): The offer
shall constitute 25.81% of the fully
AllocationofShares: diluted postoffer capital of the
1. QIBs:The offer is company. Book running lead
being made through managerstotheissueareSBICapital
the 100% book Markets & Kotak Mahindra Capital
building
process and registrar is Intime Spectrum
whereinupto50%of Registry.
the offer shall be
allotted
on
proportionate basis to
qualified institutional
buyers(QIBs).Further,
5%oftheQIBportion
shall be available for
allocation to mutual
funds only and the
remainingQIBportion
shall be available for
allocation to the QIB
bidders
including
mutual funds, subject
ReasonsforGoodListing
1.Oneofthefewcreditrating
agenciesinIndia.
ICRAisoneofthefourcreditrating
agencies in India. It is primarily
engagedinthebusinessofproviding
rating, grading and research based
information services. Infiscal 2006,
volume of debt rated by ICRA was
Rs138949croreandthenumberof
published issuers rated by them
outstanding
to valid bids being

received at or above
theofferprice.
lds.blogs
63
theUS,ICRAssubsidiary,ICTEAS
has initiated the process for
as onMarch31,2006
were 398. It enjoys
strong market position
forcreditratingsinthe
incorporatingasubsidiaryintheUS.
Withtheproposedimplementationof
BaselIInorms,thecompanyexpects
the requirement for rating loan
exposures to increase given the

financial sector and
dominanceofbankcreditinIndia.
structural finance. In
India only four3.Improvingmacroenvironmentto
drivebusinessfundamentals.
companysareinrating
spaceandamongthemWe believe the company is an
only one is listedattractive play on the developing
ratingsmarketinIndia.Thedemand
entity.
forratingsstemsfromthedeveloping
2.Expansiontodrive
debt market, increasing leverage of
growth.
ICRAplanstoexpandcorporates and increasing capital
business by using itsrequirements of banks and financial
coreinstitutions. Grading of equity
competencies andissuances, which is currently
strategic relationship.voluntary,ifmadecompulsory,could
brand
To increase its marketlead to increased revenues. Basel II

share ICRA plans towillbeakeyrevenuedriverforboth
onratings and consulting segments.
providing high qualityICRA is present in businesses like
concentrate
services and to focusconsulting,software,outsourcing,and

on its key businesses.information services. Overall
initiativesincrease in resource mobilization
include improving itsfrom the debt markets and recent
Other
visibility,regulations by SEBI to make IPO

enhancing its servicegradingmandatorywillgiveafurther
brand
offering and franchiseboost to the growing rating services

amongst the investors,industry.
issuers
intermediaries.
&4.IndustryDrivers
ToDemandforratingservicesisderived
expand its presence infrom the overall resource
mobilization in thethe last three years. Credit rating

economy particularlyindustryinIndiaisexpectedtogrow
from the growth ofby27%withincreaseddemandfrom
debt markets viz.bigconsumersofconsultingservices
corporate bonds andlikeBankingandfinance,Information
commercial
paperservices, Software and Outsourcing
issuance. The ratingservices.

industry in India has
registered a growth in
lds.blogs
64
6.CloseAssociationwithMoodys
Group.
MoodysIndia,whichispartofthe
MoodysGroup,isthepromoterand
5.Strongdatabaseand
holds29%inthecompany.Moodys
keytoproduct
innovationwilladdto Investor services, which is an
revenue.
internationalcreditratingagency,has
Indepthknowledgeinentered into Technical Services
several
supplemented
sectorsAgreement with the company
bypursuant to which it has been
knowledge
providing technical services to the
management systemscompany.ICRAalsoprovidescertain
has enabled ICRA tooutsourcingservicestoMoodys.
create a rich database7.StrongMarketPositioning.
to address to varied
The company enjoys strong market

of
position for credit ratings in the
differentsectors.Inlast
financial sector and structured
five years, it has
finance.InFY2006,volumeofdebt
introduced various
rated was Rs 1389 billion and the
rating and grading
number of outstanding published
products such as
issuersratedwas398.
corporate governance
8.StrongFinancials.
ratings,projectfinance
requirements
ratings, issuer ratingsThetotalrevenuehasincreasedfrom

mutual fund ratings,Rs 333.67 million in FY03 to Rs
healthcare institution559.09millioninFY06attheCAGR
and real estateof 19 %. During the same period,
developersandprojectsPATincreasedfromRs97.05million
etc. Going ahead it istoRs142.08millionattheCAGRof
expectedtoincreaseits13.5%.
productinnovationand
likelytocatertoother
sectorinadditiontoits
Valuations
present
portfolio.
The stock was priced attractively at
product
18xannualizedFY07Eearnings(post
issue)ascomparedtoCRISILwhich
is trading at 21xsubsidiaries,particularlyits
FY07E
annualized
EPS.
ICRAs
lds.blogs
65
significantly in future, maintaining

its rating business. CRISIL is
outsourcing division,
are in initial stages
and
FY06
consolidated numbers
donotfullyreflectthe
currentlytradingat39.67xitsCY06
EPS of Rs 55.33. The EBIDTA
marginofICRAislowerat33.5%,
compared to 41.2 % in case of
CRISIL.
earnings potential. The cap price of Rs 330 discounts

Internationally, rating 18.22xitsannualized9MFY07EPS
companies
like ofRs18.12.TheMoodyspatronage,
Moodystradeat30x and distinguished shareholder

FY06 EPS. ICRA promoter base, will lend lot of
posted a net profit supportinfutureingettingbusiness
growth of 13.5% and will stand in good stead. The
CAGRoverFY0306, management has given a growth
which is expected to outlook of 25% CAGR for coming
improve with growth threeyears.
in operating income
as well as segmental
income
going
forward.
There is only one
listed company, the
leader CRISIL. The
rating business may
not attract more
playersinfuture,due
to high reputation of
existing
players,
especially CRISIL
and ICRA. It can be
observed that the
other
business
segmentofICRAwill
contribute
Findings:
From the above IPO, we can
concludethatlistingofICRALtd
wasabovetheissuepricedueto
its strong fundamentals & above
mentioned reasons So, before
going for ICRA IPO a prudent
investor should aimed at long
termreturnsaswellasexpecting
goodlistinggains.So,Bymaking
a thorough analysis of the
company, its fundamentals, its
unique position in the business,
financials& its valuations
investorsshouldhaveinvestedin
theIPO
lds.blogs
66
INDIAN
ECONOMY
In1991,the
Historyandevolutionofthe
telecommunicationssector:
GovernmentofIndia
PhaseITakeoffPhase
initiatedaseriesof
Priorto1991,thetelecommunications
comprehensive
industryinIndiawasstateowned.In
macroeconomicand
December 1991, the DoT began the
structuralreformsto
processofintroducingprivatesector
promoteeconomic
participation
in
the
stabilityandgrowth. telecommunicationssectorbyinviting
bidsfromIndiancompanieswithno
Thekeypolicy
reformsthatwere
morethan49%foreignownershipfor
initiatedbythe
nonexclusive licenses to provide
Governmentwere
cellular services in the four
focusedon
metropolitan
deregulatingcertain
Government issued 34 licenses
industrysectors,
covering 18 service areas to 14
acceleratingforeign
companies from 1995 through 1998.
investmentand
In
implementinga
Telecommunication Policy 1999 (
1999,
Circles.
the
The
National
privatizationprogram NTP1999)wasannouncedbythe
fordisinvestmentin
Governmenttoaddressthedifficulties
publicsectorunits.
encountered by licensees under the

initial telecommunications licensing
regime.
67
lds.blogs
withinspecifiedshortdistancecalling
areasinwhichtherelevantsubscriber
isregistered.InOctober2003,TRAI
PhaseIIHigh
GrowthPhase
recommendedtotheGovernmentthat
In January 2001, thefixedlinetelecommunicationsservice

Government publishedprovidersintendingtoprovidelimited
guidelines concerningmobilityservicesbasedonWLL(M)
thefourthlicensetobetechnologypayaspecifiedamountas
awarded for eachanadditionalentryfee.
Circle. The guidelines
further provided thatPhaseIIIRecentPhase
for the entire durationIn November 2005, the Government
of the license, totalraised the foreign direct investment
foreign held equity inlimit
applicable
to
the
the licensee companytelecommunicationssectorfrom49%

shouldnotexceed49%to 74% (held directly or indirectly),
of the paidup capitalsubject to compliance with certain
and that managementconditions,includingthatthemajority
control should vestof the directors and selective key
with an Indiansenior management personnel of a
promoter. Also, incompany operating in the
January2001,basedontelecommunicationssectorberesident
the recommendationsIndian citizens, any shareholder
of TRAI (Telecomagreementsandthememorandumand
Regulatory Authorityarticlesofassociationofthecompany
of
India)
thebe amended to ensure compliance
Government issuedwith the conditions of the relevant

guidelines to permitlicense agreement, and a resident
fixedline
Indian promoter holds at least 10%
telecommunications
equityofthecompany.
service providers to
limitedThekeyreasonsforthesignificant
growthintheindustryinthelast
mobilityservicesusingphaseofgrowthwere:
Wireless Local Loop1
CPP effect on the usage
provide
WLL (M) technology, patternsofconsumers;
2
Intensified
4
Introductionofmicroprepaid
competition due to
plans;and
theentryofReliance
5
Introduction of extended
Televentures
validitycards.
Limited;
3
Introduction of
schemes
like
Monsoon Hangama
byReliance;
lds.blogs
68
consumers.Disposableincomeshave
risenbyaCAGRof10%overthelast
tenyears,resultinginanincreasein
TELECOM
INDUSTRY
GROWTH
DRIVERS
consumption expenditure. According

to the National Center for Applied
Given its low tele

density,
economic
liberalization and the

increasingaffordability
of mobile telephones
and services, the
Indian
mobile
telecommunications
industryisexpectedto
continue to enjoy
growth in terms of
EconomicResearch(NCAER),the
numberofhouseholdsinthemiddle
income,highincomeandrich
categories is expected to increase to
approximately37million,21million
and 23 million, respectively, by
financial year 2007 from
approximately24million,14million
and 12 million, respectively, in
financialyear2002assummarizedin
thediagrambelow:
both subscribers and

usage. The following
factorsareexpectedto
contribute to further
growth:
1 Overall
economic
growth and
continued
development
of the Indian
economy.
The buoyancy of the
Indian economy has
increased
the
purchasing power of
lds.blogs
69
withahigherpropensitytospendwith
increasing disposable income and
withincreasingtrendawareness.
Set out below are details of the
demographicageprofileinIndiafor
Thissignificant
theperiod2001to2010.
improvementin
affluencecoupledwith
thegrowingworking
populationisexpected
tobeoneofthekey
driversforincreased
mobile
telecommunication
penetrationinthe
future.
1 Favourable
Demographics
inIndia.
The
favourable
demographicprofileof
Indiaasreflectedinthe
1 Higher growth rate of
increase in the
serviceoriented
population in the age
sectors, leading to an
groupbetween1544
increased demand for
is a factor for the
mobile
growth in the demand
telecommunications
for
services.
telecommunications
servicessincethis age
group is associated
lds.blogs
70
ten years. Handset costs have also

decreased significantly in recent
Thecontributionofthe
serviceoriented
sectors to the Indian
GDP has increased
significantlyinthepast
five decades. Service
oriented
sectors
contributed
years. This has reduced the entry

barriersfornewsubscribersandthus
expanded the markets available to
telecommunications
service
providers.
1 Fall in incremental capital
expenditure per subscriber
andeconomiesofscale.
approximately 29% ofMobile operators in the Indian

the GDP in 1960 andtelecommunications industry have
contributed
generally attained the necessary
approximately 54% ofnumberofsubscriberstobenefitfrom

theGDPin2005.
various economies of scale and to
This growth isnegotiate better prices from network

primarily due toequipment vendors. As a
enhancements
inconsequence, as well as because of
informationtechnologysignificant subscriber growth,

and
informationincremental capital expenditure per
technologyenabled
subscriber is expected to fall in the
servicesinthelasttwofuture.
decades.Thisshouldin
turn lead to increased
demand for mobile
telecommunications
services.
1 Increase in prepaid
subscribers through micro
prepaid and extended
validitycards
willbeadriverforfuture
growth.
1 Declining
Currentgrowthinthesubscriberbase
tariffs and
ismainlyattributabletogrowthinthe
reduced
handset costsnumber of prepaid subscribers. The
haveenhanced
growth in this segment is primarily
subscriber
due to lower entry costs for
growth.
Tariffs have beensubscribers and the availability of
decliningoverthepastproducts and services. From the
perspectiveofamobilesignificant credit risks as payments

operator,
subscribers
prepaidare received upfront. The latest
areofferingsofmicroprepaidplansand
logistically easier toextended validity cards by mobile

managethanpostpaidoperators have proved popular and
subscribers as they dohavetakensubscribergrowthtonew
not require elaboratelevels.
salesinfrastructurenor
do
they
pose
lds.blogs
71
regulatoryregimehasfosteredhealthy
competition in addition to allowing
significantFDIparticipationofupto
1 Increasing
demand for74% ownership in telecom
valueadded companies.Theseregulatorychanges
telecommunic
andrefinementsinrecentyearshave
ationsservices.
brought greater clarity to existing
As
the
rules and procedures enabling the
telecommunications
operators to focus on improving
needs of subscribers
network
quality
and
become increasingly
telecommunications services. This
sophisticated, we
situation has also made it easier for
expect increased
companiesoperatinginthissectorin
demand for value
India to raise financing and other
added data services
funding on more attractive terms
such as music
giventhegreaterpredictabilityofthe
messaging and voice
operational environment. Since the
recognition products.
regulatoryframeworkis anevolving
This trend will be
processwithintheindustry.
enhanced by the
development
and
supply of new dataIndiantelecommunicationsmarket

canbebroadlyclassifiedintothe
enabled handsets atfollowingsegments:
lowerprices.RevenuesoWireless
from VAS areoWireline
expectedtobridgetheoNationalLongDistance
gapcreatedbythefalloInternationalLongDistance
inARPUstriggeredbyoDataServices.
areductionintariffs.
1 Wireless
1 Increased
regulatory
clarity.
Wireless comprises mobile services

provided by GSM and CDMA
Theregulatorhastakenoperators. Indias population is

proactive steps togeographically spread out in semi
improve
teledensity.
mobile
The
urbanandruralareasandhighcapital
intensity of providing last mile
connectivity to fixedunremunerativetoprovidefixed
linesubscribers makes
it
economically
lds.blogs
72
Airtel and Tata Teleservices started

providingWirelineservices.
lineservicestoalarge
section
of
the
population.Inaddition,
the value proposition
of
wireless
connection
is
significantly higher to
atelecomsubscriberas
compared to a fixed
line service. This
mobilityadvantagehas
expanded the market
for
the
entire
telecommunications
industry. We believe
increased spending
power and changing
demographicprofileof
the population in
favour of the younger
generation have also
contributed to the
growth of wireless
industry.
1 InternationalLongDistance
("ILD")
Stateowned Videsh Sanchar Nigam
Limited(VSNL)hadtheonlyILD
licenceinIndiauntilApril2002the
Government decided to open up the
ILDsegmenttocompetitionwithout
any restriction on the number of
operators. Thus, the monopoly of
VSNLended.DataAccess,Reliance
Infocomm and Bharti Televentures
applied and were issued licences
shortly after the Government issued
the detailed guidelines and licence
conditionsinJanuary2002.Reduced
tariffs, increased globalization,
growth in outsourcing based
industries and increased penetration
have fuelled the growth in usage
minutesintheILDsegmentoverthe
pastyears.
1 National Long Distance (
NLD)
NLDserviceswereastatemonopoly
untilmid2002,withBSNLbeingthe
1 Wireline
sole provider of domestic long
Since2001,whenthedistance services. The NTP 1999

regulations permittedenvisaged the opening up of the
entry of private basic
national longdistance market to
telecom operations,
private players. Subsequently, the
several
players
Government decided to open up the
including Reliance
NLDsegmenttocompetitionwithout
Infocomm, Bharti
any restriction on the number of
players.
IncreasedhasfuelledgrowthinNLDsegment.
competitionowingtoa
Telecomindustryisoneofthe
larger number ofgrowthindustrywhichhasverybright

playershasresultedinfutureoutlookduetoallthereasons
sharp decrease in thementionedabovewhicharefavoring
tariffs paid by thethegrowthofIndiantelecomindustry.
consumers.
LowerSo,
tariffs and increased

telecom penetration
lds.blogs
73
SpiceCommunicationsLtd.
telecom companies
also present a good
opportunity for the
investment since they
are the main growth
driversintheindustry.
However in the same
telecom industry the
performance of the
IPO of Idea cellular
Ltd.
&
Spice
Communications Ltd.
aredifferent.So,even
inthesamesectorthe
investor
analyze
should
the
Fundamentals of the
companies separately
to estimate the future
prices of the stock.
Below lies the
comparisonofIPOsof
Idea Cellular Ltd. &
lds.blogs
74
n
l
e
ComparisonofIPOs
ofIdeaCellularLtd.
&Spice
CommunicationsLtd.
1 Idea Cellular
Limited
r
i
v
ISSUEDETAILS
PriceBand
t
Rs6575
e
NetIssueSize
Rs20,750million
L
GreenShoeOption Rs3,187.5million
i
IssueSizewith
Rs23,937.5million
m
GreenShoeOption
MinimumBid
Quantity
MaximumBid
(Retailers)
90
t
e
d
100,000
.
2 D
LeadManagers
1 J
M
o
r
g
a
n
S
t
a
M
e
r
r
i
l
l
L
y
n
3 U
4 C
t
e
75
lds.blogs
e
d
REGISTRARTO
THEISSUE
ObjectiveoftheIssue
1 B
i
g
s
h
a
r
e
S
e
r
v
i
c
e
s
Inaddition,Companyexpecttoderive
thebenefitsfromthelistingofequity
shares,whichwouldprovideliquidity
toEquitySharesissuedinconnection
withourESOS,whichtheyintendto
issuetotheiremployees,inaddition
to providing a currency for
acquisitions.
Background
Idea Cellular was incorporated in
1995 as Birla Communication Ltd
with licenses for providing GSM
basedservicesintheGujarat.In1996,
thenamewaschangedtoBirlaAT&T
CommunicationsLtdafteritbecamea
joint venture company of Grasim
IndustriesandAT&TCorporation.In
2000,thecompanymergedwithTata
Cellular, thereby acquiring the
original license for the Andhra
Pradesh circle. In 2001, it acquired
RPG Cellular Ltd andobtainedalicenseforprovidingGSM

consequently
thebasedservicesintheDelhicircle.At
licensefortheMadhyathistime,theIdeabrandwasalso
Pradesh (includingcreated.Itisnowisthesixthlargest
Chattisgarh)circleandwireless operator in India with an
changed the name to8.5%
BirlaTataAT&TLtd.
In the same year, it
lds.blogs
76
MumbaiandthecategoryCCircleof
Bihar.Itranksamongstthetopthree
market share in total

wireless subscribers.
The company is
currently operating in
11
circles
(Maharashtra, Uttar
Pradesh
(West),
Madhya
Pradesh,
Haryana,
Gujarat,
Kerala,
Andhra
Pradesh,
Delhi,
Himachal Pradesh ,
Rajasthan , Uttar
operators in six of the Established

Circles.Theyarecurrentlyoneofthe
fastestgrowingmobileoperatorsand
have consistently grown in the
EstablishedCircles andNew Circles
withamarketshareapproximatelyof
16.7% in the period between April
andDecember2006.
They have wellpositioned
GSM service provider with original
licensesinsevenoftheir13Circlesas
a result of which it benefit from
various incumbency advantages.
Pradesh (East) and itCompanybelievesthattheyarewell

hasgotthelicensesforpositionedtocapitalizeonthegrowth
the two more circlesopportunities in the Indian
telecommunications market and will
(Bihar&Mumbai).
be able to leverage their existing
strengths in all their 13 Circles and
Business
Idea cellular Ltd are
amongst the leading
mobile operators and
currentlyoperatein11
Circles
comprise
which
one
metropolitan Circle,
three category A
into additional Circles where it

commence operations. Idea Cellular
Ltd is now part of the Aditya Birla
Group, which is their sole promoter
and is currently amongst the largest
businessgroupsinIndiaintermsof
marketcapitalization.
They are expanding their
Circles,sixcategoryBcoverage in the Established Circles

Circles and oneand the New Circles, and also
category C Circle. Inpursuingnewlicensestocreateapan
addition, it holdsIndiafootprint.Companyhasrecently
licenses for thereceived a UAS License for the
Metropolitan Circle ofMumbai Circle and, through Aditya
BirlaTelecomLimited,telephony interests including the

aUASLicenseforthebenefit of traffic flows with their
Bihar Circle. Theother
Circles,
particularly
Mumbai Circle isMaharashtra, Delhi and Gujarat

attractive for theCircles. They have also recently
company
becauseobtained an NLD license which
Mumbai is theshouldreducetheiroperatingcosts
commercial capital of
Indiaandalsobecause
of the community of
lds.blogs
77
Issue)
1 Spice
ObjectsoftheIssue
Communicatio
TheobjectsoftheIssueareto
nsLimited
achievethebenefitsoflistingon
ISSUEDETAILS
PriceBand
NetIssueSize
MinimumBid
Quantity
MaximumBid
theStockExchangeandtoraise
fundsfor
Rs4146
(1) Part payment of our long term
debt,
113,111,111Equity
(2) Payment for NLD/ILD license
Shares.
fees,
(3) Meet our capital expenditure
requirements,
90(4) For other general corporate
purposesand
(5) MeettheexpensesoftheIssue.
100,000
(Retailers)
PurposeofIssue
Expansion
78
lds.blogs
the name was changed to "Spice

CommunicationsLimited".
LeadManagers
1
Business
EnamFinancial
Spice Communications Ltd are the
Consultants
PrivateLimited second largest cellular services
UBS Securitiesprovider in Punjab and fifth largest
India Private
cellular services provider in
Limited.
Karnataka, measured by the total
Registrarstothe
Issue
1
number of subscribers. On a
combined basis, Company has a
Karvy
market share of 14.49% in these
Computershare
PrivateLimited states,measuredbythetotalnumber
of subscribers. Their customer base
Background
consisted of approximately 2.73
Originallyincorporatedmillion subscribers as of March 31,

as a private limited2007, comprising of approximately
companyonMarch28,2.20millionprepaidsubscribersand
1995 under the nameapproximately 0.53 million postpaid
of"ModicomNetworksubscribers. According to data
Private Limited". Thecompiled by COAI, the Punjab and
CompanysubsequentlyKarnatakacirclesinwhichweoperate
became a deemedaccounted for 11.95% of Indias
public company undertelecommunications market share as
section 43(1A) of theofMarch31,2007,measuredbytotal
Companies Act, 1956numberofsubscribers.Bothofthese
witheffectfromAprilstates are recognized as major
1, 1999 and the nameeconomichubsofIndia,withPunjab
of the Company wasenjoying the highest per capita
changed to "Modicomincomeinthecountry,andKarnataka
NetworkLimited".On(whose major city is Bangalore)
December 28, 2006,known as the Silicon Valley of
the Company wasIndia.
convertedintoapublic
limited company and
79
lds.blogs
services.
To match the
OurPromotersareMr.Dilip
ModiandModiWellvest
PrivateLimited.
existingmarkets,ithasTM, through TMI India, a wholly

recentlyembarkedonaowned subsidiary of TM
panIndia expansionInternational, is an investor in the
strategy by applyingCompany. They expect to benefit
for licences for anfrom TMs operational and
additional 21 circlesmanagement experience both in
throughout India toMalaysia and key Asian regional
provide GSM cellularmarkets,throughthecreationofnew
services,inadditiontoproductsandservices,thesharingof
licences for providingtechnological experience and
NLDandILDservices. implementing and leveraging group
As they are expandsynergies
their business outside
of Punjab andRatiosAnalysis:
Karnataka,theyexpectYear20062007
to supplement thisAratioisanarithmeticalrelationship
local brand strategybetween two figures. Financial ratio
with a national brandanalysisisastudyofratiosbetween
strategywhichfocusesvarious items or group of items in
on Indias relativelyfinancial statements. Financial ratios
youthfulpopulationbyhelp in analyzing the financial
providing marketing,performanceofthefirm.Itishelpful
customerretentionandin assessing corporate excellence,
loyalty programs andvaluing equity shares, assessing
lifestyle features,marketrisk,judgingcreditworthiness.
including valueaddedRatio analysis involves the use of
servicesthatappealtovarious methods for calculating &
younger subscribers.interpretingfinancialratiostoassess
Currently, they alsothe performances & status of the
offer various valuebusiness. It is the tool of financial
added services andanalysis, which not only studies but
international roamingalso reflecting the numerical &
quantitative
analysisisfruitfulinpreparingplans
relationship betweenfor the future. Ratio analysis is

theimportantfinancialprocessofcomparisonofonefigure
againstanother,whichmakesaratio,
variables.
Ratio analysisand appraisal of the ratios to make

facilitates comparisonproperanalysisaboutthestrengthand
between
twoweakness of the firms operation.
companies. It reflectsRatioanalysisisextremelyhelpfulin
thefinancialefficiencyproviding valuable insight into a
&financialpositionofcompanys
a company. Ratio
80
lds.blogs
financial
picture. GrossProfitMargin
24
Ratios provide an
easywaytocompare
present performance
NetProfitMargin
of businesses. Ratios
depict the areas in
which a particular
DebtorTurnoverRatio
22.1
FixedAssetTurnoverRatio
0.71
CurrentRatio
2.04
DebtEquityRatio
1.26
business
competitively
advantaged
or
disadvantaged
through comparing
ratios to those of
other
businesses
within the same

industry.
Ratios
OperatingProfitMargin
lds.blogs
81
OperatingProfitMargin:Asitcan
be seen there is 12% difference in
InterestCoveringRatiooperating profit margin of both the
Companies.Itmeansascomparedto
ReturnOnInvestment
Spice Communications Ltd , Idea

Cellular Ltd is doing exceptionally
wellincommercialoperationsofits
ReturnOnNetworth
business. Idea Cellular Ltd is

managing its day to day business
activities more efficiently &
effectively.
DividendYield
GrossProfitMargin: Thereisvast
difference of 12% in gross profit
margin of both the companies. As
The ratios of Idea gross profitindicates thedifference
Cellular Ltd should between Sales and Cost of
becomparedwithits Production,themarginindicatesthe
competitor
Spice efficiency of Idea Cellular Ltd in
Communications Ltd production operations as compared

torevealwhetherthe toSpiceCommunicationsLtd.
firm is significantly
out of line with its
Competitors.
82
lds.blogs
AverageCollectionPeriod=
360/22.1
360/13.56
=
16da
ys.
NetProfitMargin:As
NetMarginofboththe
=
27da
ys
companies also shows

a
considerable
difference of 4%, it
means Idea Cellular AsaveragecollectionperiodofIdea
Ltd is effectivelyCellular Ltd is less than Spice
managing all itsCommunications Ltd, it means the
Administration,Sellingquality of debtors Spice
&
DistributionCommunicationsLtdisnotasgoodas
Expenses. As Spicecompared to Idea Cellular ltd. Idea

Communications LtdCellular Ltd is turning its debtors
has Net Profit Marginfasterinsales,sinceashortcollection
(10) i.e. negativeperiod implies prompt payments by
whichisduetothefactdebtors.Sothefundsblockedupby
that it has incurredIdeaindebtorsarelesscomparedto
losses. So it impliesspicewhichtheIdeaisusingforother
that even in the sameprofitablepurposes.
sector spice is
incurring significantFixedAssetTurnoverRatio: There
losses whereas Idea isis marginal difference in the Fixed
doing well as evidentAsset Turnover Ratio of Spice
bythebetternetprofitCommunications ltd&IdeaCellular
margins.
Ltdwhichisduetothefactthatthe
fixed asset employed by Spice is
DebtorsTurnover
Ratio:
much lower than Idea Cellular Ltd.

ButthesalesofIdeaCellularLtdare
Idea
much higher than Spice
Cellular
CommunicationsLtd.
Ltd
Spice
Current Ratio: As ideal Current
Commu
nication
Ratiois2:1.So,IdeaCellularLtdis
sLtd
efficientinmanagingits liquidity.It
has more CurrentwhereasSpiceCommunicationsLtdis

Assets to pay offilliquid comparatively as it has only
Current Liabilities.1.26Rscurrentassetsforevery1Re
Idea Cellular Ltd hasofcurrentliabilities
2.04 Rs current assets
for every 1 Re of
current
liabilities
83
lds.blogs
differenceof5%,itmeansthatIdea
CellularLtdisgettingmorereturnson
Debt Equity Ratio:

AsIdeaCellularLtdis
using 1.26 debt as
compared o Spice
CommunicationsLtd(
11.99), it means Idea
Cellular Ltd is taking
advantage of leverage
totalcapitalemployedascomparedto
Spice Communications Ltd which is
givinglessreturnsi.e.18%.Soitis
efficientlymanagingitsassets.
Return on Net Worth: As Idea
CellularLtdisearningveryaverage
returns on its Equity Share Capital,
& the risk of meetingthatwhyitsreturnonnetworthislow

fixed interest ratebutitisatparwithindustryaverages.
obligationsasitissureIncaseofSpiceCommunicationsLtd,
of its earnings. IncaseThereturnonnetworthishighdueto
Spicecomparatively less networth. So the
Communications Ltdreturnonnetworthratioshouldnotbe
thedebtequityratioismisunderstoodjustbecausespicehas
of
negativewhichimpliesmuch higher return on networth as

that it has repaymentcomparedtoIdeaCellularLtd.
burden.
Findings:
Interest CoverageRatio is important criteria for
selecting the company to
Ratio: As there is a
invest. It also provides the
difference of 0.97 in
base for decision-making in
interest coverage ratio
investment. In Ratio analysis
of both companies. It
a companys goodwill, its
means Idea Cellularperformances,
liquidity,
Ltdhasgotsufficientlyleverage,
turnover,
enough earnings toprofitability & financial health

service its debts asare checked & analysis is
compared with Spicecarried for the purpose of
term
CommunicationsLtd. long
investment.
successful
ReturnonInvestmentThis Ratio analysis is helpful

(ROI): As it hasto general investor in many
ways. It providesof
the
important & vitalfurther

information
regarding
financial
of
the
firm
and
future
to
make
projection
regarding financial position.

theRatio
analysis
is
very
positionpowerful analytical tool useful

company.for measuring performance of
The ratio analysisan organization as it

helps the investor
to
analyze
the
past performance
lds.blogs
84
CutoffPrice
75
SharePriceafterthree
monthsfromlisting.
Ason13 June2007
Rs111.60
th
concentrates on
the inter%Gain
48.8%
relationship
among the
figures
appearing in the
StockMarketPerformance
financial and
accounting
statements.
ListingofIPOs
ListingDate
46
IdeaCellularLtd
Idea
Cellular
Ltd
Ason19
Rs50.10
8.91%
140
120
115.7
124.95
124.6
123.95
121.55
100
Price
80
89.85
91.15
60
40
20
0
l
h
M
pr
A
y
a
MonthWise
o
b
er
t
O
c
Septembe
8 5
worl l gpt.com
www.projects ds.b o so
127.3
SpiceCommunicationsLtd.
Spice
Communicatio
ns Ltd
Index
-Sensex
60.65
20000
18000
16000
14000
60
13159.55
12000
Price
Market Prices
62
10000
8000
6000
4000
2000
0
58
56
55.65
54
55.85
54
52
50
July
h
r
August
September
c
a
Month Wise
Month-Wise
86
lds.blogs
October
with the Sensex & as after three

monthsitssharepricehasshowagain
of8.91%.Stockmarketpricesarethe
reflectionofthefundamentalsofany
Inde
xcompany,
so the fundamental
Sen
differences can be evident from the
sex
share prices ofIdea CellularLtd.&
18000
SpiceCommunicationsLtd
17500
Market Price
17000
16500
Reasonsforpoorperformanceof
SpiceCommunicationsltdas
comparedtoIdeaCellularLtd.
16000
15500
15000
14500
14000
1 FinancialPerformance
13500
July
Spice has incurred significant losses
inthepast.AsofJune30,2006,ithad
MonthWise
accumulated losses of Rs. 6,425.43

million which exceeded their entire
From the above stock

market performance it
can be seen that after
the listing of idea in
March2007ithasnot
only listed at better
premium but also has
outperformed
the
Sensex as after three

months its share price
has show a gain of
48.8% whereas Spice
Communications Ltd
net worth at such time, and they

continue to have negative net worth
becauseoftheaccumulatedlossesof
Rs.6,843.57millionasofDecember
31,2006.Theyexpecttocontinueto
have accumulated losses for the
foreseeablefutureastheycontinueto
incur significant expenditures on
account of capital and operational
costsanddebtrepayments.Wecannot
assureyouthatwewillnotcontinue
toincurlossesinfutureorthatournet
worthwillbe
has underperformed
lds.blogs
87
1 PromotersGroups
positiveinthefuture.
Theirfailuretodoso
maymateriallyaffect
theirbusiness,
SpiceCommunicationsLtdCertain
of their Promoter Group companies
haveincurredsignificantlossesinthe
past. Some of their Promoter Group
companiesalsoincurredlossesinthe
prospects,financial
conditionandresultsof
lastthreefiscalyears.
Idea Cellular Ltd is the part of the
operations.
Aditya Birla Group which itself is

very strong & has good business
1 Negative EPS
&P/Eratio
nameinthemarket.
1 Listing
EPSofIdeaCellular
Ltdis1.10&P/E
Spice does not meet the eligibility
Ratiois114.70.
criteria for listing of their Equity
EPS OF Spice
SharesonNSEastheiraccumulated
CommunicationsLtdis
lossesexceedstheirnetworth.Dueto
1.25 as EPS is in
this, company withdrew the
negative so the P/E
applicationforlistingonNSEunder
Ratio is zero. Since
theletterdatedApril10,2007.Their
EPS measures the
inability to list on the NSE may
earnings which the
adversely affect the liquidity and
company is providing
tradabilityoftheirEquitySharesand
onthemoneyinvested
thecompanycannotassureinvestors
in business, it is
thattheirfailuretolistEquityShares
indicating that Ideas
financial position ison the NSE will have an adverse
sound.IncaseofSpiceaffect on their liquidity or
communications ltd.,marketabilityoftheirEquityShares.
losses & negativeButthereisnoproblemwithideaasit
islistedonbothBSE&NSE.
losses is presenting
unfavourable position
in
front
shareholders.
of
88
significant competition in these two

states and they cannot assure
investors that their market share in

1 Area
of
thesestateswillremainatthecurrent
Operation
SpiceCommunicationslevel or that they will be able to
arearegionalplayerinsuccessfully compete with other
the cellular servicesserviceproviders.OnothersideIdea
industry
andhas a high market power in the

significantcompetitiontelecomsectorascomparedtospice
from larger, nationalcommunications. Operations in 11
cellular
serviceCirclesinIndiacoveringalargepart
providers may have aoftheIndianmarket.Ideaisnational

materialadverseeffectserviceproviders.
on our profitability.
TheycurrentlyoperateCustomerBase
exclusively in theSpice
Communications
rely
Punjab and Karnatakasignificantly on a small number of

circles. While theycustomers. Company cannot assure
intend to expand ourinvestorsthatintheeventanyoftheir
geographic networkcustomersfailtopaythemorcloses
coverage outside oftheir accounts with them, company
these circles, they arewill be able to offer ourservices to
currently a regionalnewcustomers tocovertheirlosses.
service provider. MostThe loss of any one of their major
ofourcompetitorsarecustomers or delay or default in
largerthanthem.
payment by them, or decrease in
Inthepast,theyvolumeoftheirminutesofusagemay
lost key corporatehaveamaterialadverseeffectonour
clients, particularly inbusiness, financial condition and
the Karnataka market,results of operations. On other hand
primarily due to ourIdeahasastrongbaseofcustomersas
lack of coverage init is spread all over India. Idea has
certain
geographiccritical mass of 12.44 million
areas.Companyexpectsubscribers. It also has high quality

to continue to facenetwork services which retain their
customersascompared
to its competitor like
SpiceCommunications
Ltd.
89
lds.blogs
1 J
U
D
G
I
N
G
I
P
O
S
:
R
A
T
I
N
G
C
O
S
T
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E
A
D
C
A
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T
I
O
U
S
L
RECENT
NEWSIN
Y
I.P.O
2
0
J
U
N,
2
0
0
7.
Indian credit rating agencies are

almost ready to rate initial public
offerings of local firms after the
capitalmarketsregulatorhasmadeit
a mandatory requirement. There is
agreementonthemethodologytobe
adopted and the rationale for the
rating awards. The agencies will
covertheprojectsthecompanywhich
is seeking to raise funds from the
publicmarkethasonhand.Theywill
run a check on the promoters, the
financials of the firm, do the
valuation,howtheissuerhasutilized
funds and so on. What would be
distinct however is the rating scale.
The rating scale is expected to be
fromonetofivewithfivesignaling
top quality offering. Each rating
agencywouldbefreetocometoits
ownconclusiononthescaleofrating
justasitdoesindebtofferings.But
thisdoesnotimplythatfirmscanget
away by shopping foralowerrating.Itisobviousthatrating

betterratings.
agenciesseetherisksinvolvedinthe
There is anewratingproduct.Legaldisclaimers
difference in the newaresuretobeattachedalongsidethe
equityratinglandscaperatingreportwhichtheyareexpected
unlike what thetoputoutsayingthattheyhavedone
practice has been inthebestbasedonthedatatheyhave
ratingdebt.Itmaywellbeenprovidedwith.Afterall,itisnot
bethatafirmwhichisthattheywerekeenonthisproduct,
aggrieved with thefully aware as they are of the
ratingassignedtoitbyreputationrisksassociatedwithsuch
one agency may wellratings.Therevenuesarentalsovery
approach
anotherpromising,atleasttostartwith.But
rating agency. But thewhenitistheregulatorwhichwants

Indian capital marketsthistobedone,seldomcanaratings
regulatorhasbeenonefirmdecline.Inamonthortwo,the
up on them. It hasfirstratingofanIPOisexpectedtobe
made it clear that theassigned. The big offerings such as
issuer would have toICICIBankorSBIwhichareslated
disclose in the offerfor launch later will not have such
documentthefactthatratings as they arefollow onoffers.
it had approachedOveraperiodoftime,thelatestrating
another rating agency
andhadbeenassigned
lds.blogs
90
FILTERS
ON
IPOS.
product
should
evolve.Ifitdoes,
Indianrating
agencieswillbe
closelywatched.
1 M
A
R
K
E
T
TIMES
NEWS
NETWOR
K
(WEDNE
SDAY,
MAY 09,
2007)
Theissueofimplementingcircuit
filterswhenastockdebutsonthe
bourseshasbeenhangingfirefor
sometimenow.TheSecuritiesand
S
E
E
N
ExchangeBoardofIndia(Sebi)had
recentlyproposedintroducinga
maximumupperlimitonstockson
dayoneoftheirtradingsession,post
N
O
T
demerger,amalgamation,andcapital
reduction,schemeofarrangements
andrevocationofsuspension.Ithas,
R
E
sofar,keptawayfromnewofferings.
A
D
suchstocksonthefirstdayof
Therearenocircuitfiltersappliedto
trading,whichhasoftenresultedin
massivevolumesandswingsinthe
F
O
pricemovement.
marketregulatorhasindicatedthat
C
I
Interestingly,whilethe
itwillatonepointincludeIPO
listingsinthisbracket,merchant
R
C
bankersareoftheviewthatsucha
U
I
quantumofretailinterestinIPOs.
stepwillleadtoafallinthe
Thisisapartfromthefactthatit
wouldaffectthenaturalprice
discovery
firstday,headded.
mechanism.
Inthecurrentcalendar
Sebimightbe
year,morethan30stockshavemade
concernedwith
theirdebutontheboursesandmostof
checkingpriceriseon themhavewitnessedextremevolatility
thefirstday,butitis ondayone.Intherecentpast,stocks
alsoafactthattheday likeICRA,GlobalBroadcastNews,
ofdebutseesmany
MindTreeConsulting,TanlaSolutions,
genuineinvestors
PochirajuIndustries,PyramidSaimira,
exitingthecounterto AkrutiNirmanandRedington(India),
cashinonlisting
amongothershavelistedonthestock
gains,saysa
exchanges.Alltheabovementioned
merchantbankerwith stocksgainedintherangeof20%to
adomesticfirm.
70%onthedayoflisting.
Retailinvestorswho Interestingly,accordingtoasectionof
borrowmoneyto
industryparticipants,theregulators
investinsharesarethe worryalsostemsfromthefactthatthe
oneswhotrytobook firstdaywitnesseshugetrading
listinggains.Inreality, activityalbeitwithadismaldelivery
theyhavenooption
basedvolume.Daytradersareseen
buttoselliftheywant activeinalmostallthestockswhen
tomakemoney.Such
genuineinvestorswill
theydebut.Daytradersarethe
spoilsportwhodealinbulk
beaffectedifcircuit
filtersare
91
implementedonthe
lds.blogs
discoverymechanism,tothecurrent
bookbuilding system. There has
quantityonthefirst
dayandjackupthe
prices.Suchbulkdeals
createanartificial
imagethatthereis
hugedemandforthe
stockandhenceone
seeslargeamountof
buyordersonthefirst
day,saystheresearch
headofabrokerage
house.Hefurtheradds
thatifthedaytraders
arekeptatbayonthe
firstday,thenmore
thanhalfofthe
problemwouldbe
solved.However,he
didaddthatoperators
dobecomeactive
whenthestockgets
listed
been a giant leap from the time of

price setting by the Controller of
Capital Issues to merchant bankers
doingabookbuilding.
Itisdebatablewhetherinvestorsand
marketshavematuredenoughto
movefullytowardsanauctionsystem
whereIPOcutoffpriceisdecided
completelybyauctionandnot
constrainedbyabookbuilding
range.
Therearereasonstobelievethatthe
currentbookbuildingsystemisnot
reallyefficientandweneedto
graduallymovetowardsanauction
system.Inthecurrentsystem,
investorshaveanillusionof
discoveringtheprice.Thatsnottrue
becausetheunderwritingentities
havealreadyestimatedapriceband
forthestockinconsultationwith
otherstakeholderstotheissue.The
investorsoptionsareseverely
circumscribed.
1 OPEN
Merchantbankersusuallyhave
AUCTION
MAY
strongreasonstojustifytheprice
DECIDE IPO
band,butempiricalevidence
PRICE
suggeststhatmostoftheIPOsare
1
OCT,
eitherunderpricedoroverpriced.
2007.
Wehavecomealong Thishasbeenvalidatedbythefact
wayfromthedaysof thatmoststockseventuallyclosed
fixed price IPOs muchhigherthantheirissueprice
where the investor rightonthefirstdayordropped
reallydidnothavea sharply.
transparency and efficiency in

An auction-
share sale. The government
based method for had discussed the proposal

with SEBI after which the
pricing of initial
public offers may
panel was entrusted with the
replace book-
task. Globalexperience
building, with the suggeststhatfirmshaveenriched

investorsingreatermeasurewhen
government
theylettheinvestorsdecidethe
aiming to bring in
more
92
lds.blogs
institutional buyer. Prithvi
Haldea of Prime Database
price(auctionmethod).
Theauction
mechanismworkswell
becausetheinvestoris
inthedrivingseat,not
themerchantbankeror
theissuer.Potential
said.
Open auction has become the
preferred way to discover the
price in Japan and France,
among other countries. In the
US, the concept was
pioneered by venture
capitalist Bill Hambrecht and
investorsareexpected was used in the Google IPO,

topointouttwothings although the concept is yet to
thepriceatwhichthey gain popularity in that
willbuyandthe
country. The governments
quantitythattheyare move to look at alternatives
willingtosubscribeto to book-building method for
atthatprice.The
price discovery comes against
lowestbidistakenas the backdrop of an increase

thepriceandany
in pre-IPO share placements.
oversubscriptionis
In last few years, most
takencareofbypro
companies hitting the capital
rataallotmentof
market have opted for a
shares.
private placement just ahead

In an
auction method,
the issuer gets
of the IPO. In most such

deals, while institutional
investors managed to bag
the right value
shares at a lower price, retail
for shares,
investors, who bought shares
institutional
through the IPO, had to pay a
investors get
higher price. Also, there is a
shares at a price strong view that bookbuilding, which was

they want and
retail investors
introduced in India in 1999 as
can then buy it at an alternative to fixed prices,

the lowest price
did not lead to any real price
offered by a
discovery, since a price band
qualified
is already prescribed. Experts
feel underpricing figureoutwhatisagoodpricefor

is rampant, as the him.Thetimeandcircumstancesare
listing price in
appositetomovetoanauctionsystem
case of most IPOs forIPOpricing

is much higher
Despite the publicity
than the issue
surroundingsomehighprofileDutch
price. Thissystem
auctionIPOs(Google,forexample),
takescareofthe
bookbuilding remains the sales
aspirationsoftheretail methodofchoiceintheUSandother
investorasnormally
countries. Many jurisdictions that
they givethelowest
tried auctions for IPOs have
bid.Needlesstosay, abandoned it in favour of book

thepricequotedinthisbuilding. Book building allows
mannerisprettyclose
tothefairvalueand
ensurespricing
issuers and underwriters to maintain

greatercontrolovertheavailabilityof
information than they can in an
efficiency.Thebottom
line,therefore,isthat
theIndianinvestoris
auction.Theymightusethiscontrol
tomaximizeproceedsorto
nowsmartenoughto
lds.blogs
93
undersubscription or underpricing.
Potential bidders actually may be
persuade investors to
evaluate an issue
carefully and arrive at
a more accurate
aftermarket value. In
an auction, investors
are likely to end at a
less favourable price
than they might in a
more
controlled
environment
that
allows for more

customized solutions.
reluctanttoparticipatebecauseofthe
risksassociatedwithalargenumber
of possible entrants. For the issuer,
multiple bidders could elevate the
risksbyleadingtoinaccuratepricing,
significantaftermarketvolatility,and
unpredictable bidder participation.
Thismayexplainwhysomeauctions
are conducted by invitation only.
Hence,abalancedapproachwouldbe
requiredbeforewedecidetopresson
thebuttontoaccepttheauctionbased
pricingmodelincaseofIPOs.
Auctions increase the

risks for issuers and
investors, as neither
knows how many
bidders
will
participate. Too few

entrants can kill the
offering, while too
many can erode
potential
profits
Contrary to popular
perception,openingan
auctionuptoagreater
number of potential
bidders does not
reduce the risk of
lds.blogs
94
verynecessarytostudythe
stock market behavior at

thattimesinceitcanhave
1 ThoughIPOis
consideredasa
safeinvestment
avenuebutitis
a vital bearing on the

FIN
DINlistingofIPO.
GS
3 Itisveryimportanttostudythe
&
companyindividually
SUG
GES
irrespectiveofthegrowth
TIO
NS potentialofthesector.Itis
evidentfromthedifferentIPO
performancesofIdeacellular
Ltd.&SpiceCommunications
Ltd.evenwhentheybothbelong
tothegrowingTelecomsector.
veryimportantto
makethorough
fundamentalstudy
ofanyIPObefore
takingthe
decision.As
sometimesa
fundamentally
strongcompany
maynotprovide
goodreturnsdue
tosomereasonsas
incaseofCairn
IndiaLtd.
2 Beforetaking
an
IPO
investment
decision it is
95
rlds.blogs
www.projectswo pot.com
issuingcompany,relevantindustry&
economicconditions.
CONCLUSION
Investment in
IPOs is growing day
bydaysinceitallows
retailinvestortoinvest
in challenging Equity
Market at lower risk.
So, it is always
considered as a safe
investmentavenue.But
afterdoingthisproject
I understood that
before investing in an
IPOthereshouldbea
detailed study of the
IPO. So, an investor
shouldconsideranIPO
inaveryrationalway
aftermakingadetailed
study of the IPO
96
lds.blogs
1 Financialjournalslike
BIBLIOGRAPHY
www.angeltrade.com
1. Chartered Financial
Analyst.
2. The
Chartered
Accountant(ICAI July
2006.
3. Advancedge.
www.walletwatch.com
www.icicidirect.com
www.moneypore.com
www.moneycontrol.co
m
www.wikipedia.com
www.nseindia.com
www.sebi.gov.in
www.bseindia.com
www.sharekhan.com
www.krchoksey.com
www.siptech.com
www.thehindubusiness
.com
97
lds.blogs
r
t
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C
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a
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APPLICATION FORM FOR
RESIDENT INDIAN PUBLIC i
AND NRIs/OCBs/FIIs (ON e
REPATRIATION/NON
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REPATRIATION
ANNEXURE
BASIS)
GLOBSYN
TECHNOLOGIE
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Registered Office : E - 993, Chittaranjan Park, New Delhi - 110 019.
Tel: 011-6222123, 6216473, Fax: 011-6230813 E-mail:
ipo@globsyn.co.in Website: www.globsyn.com
Corporate Office: Enkay Tower, B & B1 Vanijya Nikunj, Udyod
Vihar Phase V, Gurgaon - 122016
Tel : 0124 - 6397652 - 54 Fax : 0124 - 6397652 - 54 , Email:
ipo@globsyn.co.in Website : www.globsyn.com
BANKS COUNTERFOIL
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IN FIGURES
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Amount Paid (Rs.)
BANK'S STAM
Address :
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Sole / First Applicant Name Mr/Ms.

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Stockinvest No. _________________ Dated

__________________________
Drawn on (Bank's Name)
____________________________________________
__ Branch _________________________
No. of Equity Shares applied for
IN WORDS
----------------------------------
TEAR HERE
-----------------------------------
APPLICATION FORM (PLEASE READ THE
INSTRUCTIONS CAREFULLY) Application

No. 1001278
Public Issue of 36,93,600 Equity Shares of Rs.10/- each for cash at a premium
OFFER OP
of Rs.30/- per equity share ( price of Rs.40/- )Aggregating Rs.14,77,44,000/-
Tuesday,F
and offer for sale by existing members("offerors") of 17,65,000 equity shares
OFFER CL
of Rs.10/- each for cash at a premium of Rs.30/- Per EQUITY SHARE (PRICE
Tuesday,F
OF RS. 40/-)AGGREGATING RS.7,06,00,000/- (JOINTLY REFERRED TO AS

THE "OFFER")(TOTAL SIZE OF THE OFFER Rs.21,83,44,000/-) .
BROKER'S/ STAMP &
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BANK BRANCH
CODE
STAMP & CODE
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Karvy
Securities
2227
98
lds.blogs
Ltd
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suc provisions of
Type of Instrument
To Be drawn in
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Cheques/Drafts
Stockinvest
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Globsyn Technologies jec me/us to be

Ltd
t to registered as
E-993, Chittaranjan
the the holder(s)
Park,
New Delhi-110 019. ter of the equity
ms shares which
Dear Sir,
On the basis of the
Companys Offer
Document dated
24.01.2001, I/We
hereby apply to you
for allotment/transfer
to me/us of the equity
shares stated below,
out of the above
Offer. The amount
payable on
application as shown
below is remitted
herewith. I/We
hereby agree to
accept the equity
shares applied for, or
APPL
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IN
PAN/GIR NO.
IF
YOU
APPLY
FOR
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DETAILS FOR ROFA

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Rs.20,000/RESO
AND ABOVE
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BE
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WHEREVER
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REFER TO
INSTRUCTIO
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STOCKINVESTMENT
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Total Amount Payable (Rs.in

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[ ] Cheque/DD
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SOLE/FIRST APPLICANT BANK
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Bank Name
_____________
Branch _____
City ________
Type of Acco
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A/c No._____
(Refer instru
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STATUS (Please Tick)
NAME OF SOLE/FIRST APPLICANT

Mr/Ms__________________________ [I] Individual(s)
Age_________
(In Block Letters)
[2]
Hindu
Family(HUF)
NAME OF FATHER/HUSBAND
_____________________________
_________________
[3]
(In Block Letters)
[4]
ADDRESS OF APPLICANT (IN

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[5]Bank and FI
_____________________________
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Mutual Fund
NRI
OCB/FII
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____________
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_______________PIN
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SECOND APPLICANT
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THIRD APPLICANT
Age
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SOLE/FIRST APPLICANT
SECOND APPLICANT
THIRD APPLICANT
Signature of the Applicant(s)
PAN/GIR No.
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(Refer instruction No. b10)
If PAN/GIR not available

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Applied not allotted
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REQUEST FOR SHARES IN ELECTRONIC FORM (Refer instruction h)
Number of
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TO BE
allotment/transfer of Equity
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ANTS
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DUALS
with the Beneficiary Account
---------------------------
details with the above

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certificates will be issued.
________________
________________
______________
---------------------
--------------
NAME OF
AUTHORISE
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------- ---------------------------
TEAR
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Cash
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qu me of
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(+91-040)y.com
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to realisation)
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to work with Angel Broking LTD

andeffective input, but this cannot be

obtained without proper guidance of

organization. It givestheconcernauthorities andtheirco

Limited. I would like

ordinator) & Dr.

about the company where I

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have become a good

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The Angel Group has

A Customer is the most Important

Visitor On the Premises He is not

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hails from a reputed

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Mr. Rajiv Phadke has

with companies like

Finance Ltd, TataMr.NikhilDaxiniisanMBA

team. This team comprises of 12

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switching techniques from

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and that's why our

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investment officer and

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Basic research is also

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of stock exchanges;sector financial intermediaries

payments and receipts from sale

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