A

PROJECT REPORT

ON

“EMERGENCE OF INITIAL PUBLIC OFFERS AS AN INVESTMENT AVENUE”

FOR
(ANGEL BROKING LIMITED)

BY
KAVITA TALESARA
MBA SEMESTER III

PROJECT GUIDE
"PROF. VAISHAMPAYAM"

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE

TWO-YEAR FULL-TIME PGPM PROGRAMME
OF
SMVIM
(ST. MIRA VISHWAKARMA INSTITUTE OF MANAGEMENT)

PUNE

A.Y: 2007 - 2008

1
 ACKNOWLEDGEMENT

It’s a great privilege that I have done my project in such a well organized and diversified
organization. It gives me great pleasure in presenting the Project Report that gives the details of my
project on “Emergence of IPO’s as an Investment Avenue” in stock market carried out in Angel
Broking Limited. I would like to thank Miss Dr Nanwani (Co-ordinator) & Dr. Sharad Joshi
(Director) of St Mira Vishwakarma Institute of Management, for providing me with a wonderful
opportunity to work with Angel Broking LTD (Pune). I would like to thank Mr. Iftikhar Chouhan
(Branch Head) for giving me an opportunity to work as a summer trainee in Angel Broking Ltd and
there by fulfilling the requirement of my MBA course. I would specially thank Mr. Sameer Amrute
(Chief Technical Analyst) for giving me inputs on Technical Analysis. The success of any task lies
in the effective input, but this cannot be obtained without proper guidance of the concern authorities
and their co-operation. I would like to thank Prof Vaishampayam for guiding me throughout the
project.
I would like to express my deep sense of gratitude towards all Managers,
Staff and workers and to all those who directly or indirectly helped me in successful completion of
project.

KAVITA TALESARA

2
 INDEX
SERIAL NO. TOPIC PAGE NO.

1 EXECUTIVE SUMMARY 1

2 INTRODUCTION OF THE STUDY 2

1.Introduction
2. Objective

3 COMPANY PROFILE 3 - 13

1. Introduction of the company

2. Vision of company
3. Business Philosophy
4. Quality Assurance Policy.
5. CRM Policy.
6. Management of the company
7. Services of Angel Broking.
a. E – Broking Services.
b. Investment Advisory
c. Portfolio Management Services
8. What differentiates angel DP from
other DPs?

4 RESEARCH METHODOLOGY 14

3
5 INTRODUCTION OF FINANCIAL 15 - 19
SYSTEM
1. Financial Markets
2. Financial Instruments
3. Financial Institutions
4. Capital Market
a. Meaning of Capital Market
b. Types of Capital Market
c. Meaning of Primary Market
d. Initial Public Offers

6 THEORETICAL BACKGROUND ON 20 - 30
INITIAL PUBLIC OFFERS
1. Concept of I.P.O
2. Global I.P.O Market
3. Indian I.P.O Industry
4. Offer Document
5. SEBI Requirements for I.P.O
6. Phases in I.P.O
6.1 The pre – I.P.O
Transformation Phase
6.2 I.P.O Transaction Phase
6.3 The Post I.P.O Transaction
Phase
7 Pricing of I.P.O
7.1 Fixed price method
7.2 Book Building method

4
 7.3 Electronic –Initial Public
Offer
8 Participants in an I.P.O
8.1 Qualified Institutional Buyers
8.2 Retail investors
8.3 High net worth individuals
and employees of the
company
9 Role of Lead Manager in I.P.O

7 ROLE OF IPO’S 31 - 37
a) For issuing Companies
b) For Investors
8 Listing 37 - 58
1. Meaning
2. Eligibility criteria for
IPOS/FPOS
3. Trading Permission
4. Payment of Listing Fees
5. Compliance with Listing
Agreement
6. Procedure and Conditions for
Listing
7. Listing performance of Cairn
India Ltd.
7.1 Company background
7.2 It’s Business

5
 7.3 IPO Highlights
7.4 Objects of the issue
7.5 Cairn India Ltd IPO Detail
7.6 Response to the IPO
7.7 Reasons for Poor Subscription
&Poor Listing
7.8 Valuations
7.9 Findings
8. Listing performance of ICRA
Ltd
8.1 Business of Credit Rating
Company’s (ICRA)
8.2 About the Company
8.3 Business of ICRA
8.4 Business Strategy
8.5 Competitive Strengths
8.6 ICRA IPO
8.7 Objective of the Issue
8.8 Experts Recommendation
8.9 Response to IPO
8.10 Reasons for Good Listing
8.11 Valuations
8.12 Findings

9 INDIAN ECONOMY 59 - 66
a. Introduction
b. History and evolution of the

6
 telecommunications sector
i. Phase I – Take off
Phase
ii. Phase II – High
Growth Phase
iii. Phase III – Recent
Phase
c. Telecom Industry Growth
Drivers
d. Indian Telecommunication
Market Segments

10 COMPARISON OF IPO’S OF IDEA 67 - 81

CELLULAR LTD. & SPICE
COMMUNICATIONS LTD.
1 Idea Cellular Limited
2 Spice Communications Limited
3 Ratios Analysis
4 Listing of IPO’s
5 Stock Market Performance
6 Reasons for poor performance
of Spice Communications ltd as
compared to Idea Cellular Ltd.

11 RECENT NEWS ON IPO’S 82 - 86

12 FINDINGS & SUGGESTIONS 87

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13 CONCLUSION

14 BIBLIOGRAPHY 88

15 ANNEXURE – IPO FORM 89 - 94

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 EXECUTIVE SUMMARY

This project is an attempt to understand the Operations & Importance of IPO’s in stock Market. The
chapter on introduction explains why I have selected this topic. It mentions a step-by-step detail of how
I have conducted the whole research.

The next chapter gives a brief description about the company where I did my internship from, which is
Angel Broking Ltd.
The next chapters explain the whole of my research work.

The conclusion gives the details about the learning that I have gained after doing this research project.

9
 INTRODUCTION

As nowadays IPO’s have become a good investment avenue for investors So, I have done the project
Titled “Emergence of IPO as an investment avenue” at Angel Broking Ltd. a very well known stock
broking firm. The project was carried out in the Pune office of Angel Broking Ltd. which is located
at Kalyani Nagar. The duration of the project was two months.
The objectives of carrying out study are as follows:-
1. To be well versed with concept of IPO.
2. Aspects of IPO from Company’s & Investor’s point of view.
3. Factors affecting IPO listing Price.
4. Comparison between IPO’s of two companies from the same sector for feasible
investment decision.

The study has been carried out from the point of view of investors as well as the issuing company. I
have focused on the factors which an investor has to take into consideration while making feasible
IPO decision.
In the project, I have also studied the Listing Price performance of IPO’s with the help of
Cairn India Ltd. & ICRA Ltd.
In the process of study of IPO’s in broader terms I have taken two companies from the
telecom sector i.e. Idea Cellular Ltd & Spice Communications Ltd and compared the performance of
both the companies in financial terms i.e. Ratio analysis, Stock performance compared with
benchmark Sensex.
Lastly, in order to update with the current trends in IPO scenario I have studied some recent
news articles on IPO’s.

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 COMPANY PROFILE

“ANGEL BROKING LTD”

About the Group:

The Angel Group has emerged as one of the top 3 retail broking houses in India. Incorporated in
1987, it has memberships on BSE, NSE and the two leading commodity exchanges in India i.e.
NCDEX & MCX. Angel is also registered as a depository participant with CDSL.

Angel has always believed in offering the best of services to their customers. Be it in form of
focused research or state of the art technology or customized product offering or personalized touch
to our services. Angel is the only 100% retail stock broking house offering a gamut of retail centric
services.

• E broking

• Investment Advisory

• Portfolio Management Services

• Wealth Management Services

• Commodities Trading

ANGEL GROUP COMPANIES

Member on the BSE and Depository Participant with

Angel Broking Ltd.
CDSL

Membership on the NSE Cash and Futures & Options

Angel Capital & Debt Market Ltd.
Segment

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Angel Commodities Broking Ltd. Member on the NCDEX & MCX

Angel Securities Ltd. Member on the BSE

Vision
To Provide Best Value for Money to Investors Through Innovative Products, Trading / Investment
Strategies, State-of-the-art Technology And Personalized Service.

Business Philosophy
• Ethical practices & transparency in all our dealings.
• Customer interest above our own.
• Always deliver what we promise.
• Effective cost management

Quality Assurance Policy

They are committed to being the leader In providing World Class Product & Services Which exceed
the expectations of their customers Achieved by teamwork and A process of continuous
improvement.

CRM Policy
A Customer is the most Important Visitor On the Premises He is not Dependent on us but We are
dependant on him He is not interruption in our work, But is the Purpose of it We are not doing him a
favour by serving He is doing us a favour by giving us an Opportunity to do so.

Management: - The senior management of Angel Broking Ltd. are as follows:-

1. Mr. Dinesh Thakkar, Chairman and Managing Director

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Mr. Dinesh Thakkar hails from a reputed business family with interest in textiles trading. His
entrepreneurial spirit inspired him to explore an opportunity in retail broking, a much ignored sector
at that point in time, so far as the clients were concerned. Therefore, what began as a mere dabbling
in stocks to make money for him grew into a serious business venture that started 20 years ago.

He was the first sub-broker and was amongst the early stock market participants to
computerize his office. His opinions on the stock market are valued and he is often sought by the
media for his comments on markets, investment strategies and the overall economy in general. He
has also been quoted and published by the print media several times.

2. Mr. Lalit Thakkar, Director

Mr. Lalit Thakkar has been closely associated with the group since its inception and has been
instrumental in setting up the Operational and Risk Management Processes. Though not actively
involved in the day-to-day operations, he is highly respected by the senior management and is often
consulted on important decisions of the Group.

3. Mr. Amit Majumdar, Executive Director - Operations & Risk Management

Mr. Amit Majumdar oversees the entire Operations and Risk Management functions of the group
and is responsible for the corporate affairs of the group. He is a Chartered Accountant by
qualification and has an experience of more than 10 years in the field of Finance, Consultancy &
Advisory services. He has worked as a financial controller, treasury manager and an investment
banker in the past and been associated with Rabo India Finance, Ambit Corporate Finance and Ernst
and Young prior to joining the Angel Group.

4. Mr. Rajiv Phadke, Executive Director - Business Development & HR

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Mr. Rajiv Phadke has industry experience of more than 31 years and has been associated with
companies like Times Guaranty Financials, Nagarjuna Finance Ltd, Tata Exports Ltd, Mukand and
Motilal Oswal in the past. Educational qualifications include a MSC (Physics) and a MMS
(Finance).At Angel, he manages two key functions: Business Development and Human Resource
Development.

5. Mr. Vinay Agarwal, Executive Director - E-Commerce

He is A Chartered Accountant by qualification with 8 years of experience in the field of Financial

Services. He began his career with Angel Group as a Business Consultant in the areas of Finance and
Operations. He takes care of the E-Broking business, which comprises of Business Development,
Product Development and Operations. He is also actively involved in the commercial aspect of
technology.

6. Mr. Nikhil Daxini, Executive Director - Sales and Marketing

Mr. Nikhil Daxini is an MBA specializing in finance. He has an experience of more than 7 years in
the field of finance and marketing of financial products. He was instrumental in introducing the
concept of professional marketing of broking services within the organization. His forte in Business
Operations includes Business Development, Risk Management and Operations etc. He had earlier
been associated with HDFC Bank Ltd

7. Mr. Ketan Shah, Associate Director - IT

Mr. Ketan Shah is the Head of Technology for the Group. He has an industry experience of more
than 18 years in various areas of Business Operations. He is involved in the designing of IT Policies
and Strategies. He also looks for Planning, Implementation, and Budgeting of IT related services.

Milestones

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December, 1997 Incorporation of Angel Broking Ltd.

November, 1998 Incorporation of Angel Capital and Debt Market Ltd.

March, 2002 Web-enabled Back Office software developed

November, 2002 First ever Investor seminar of Angel Group

April, 2003 Publication of first Research Report

April, 2004 Incorporation of Commodities Broking division

September, 2004 Launch of Online Trading Platform

October, 2005 Received the prestigious "Major Volume Driver" award for FY05 March, 2005 Roll
out of 25th branch

March, 2006 Crossed the 100,000 mark in unique trading accounts and completes the roll out of
50th branch

July, 2006 Formally launched the PMS function

September, 2006 Commenced Mutual Fund and IPO distribution business

October, 2006 Received "Major Volume Driver" award for FY06

December, 2006 Crossed the 2,500 mark in terms of business associates.

March, 2007 Crossed the 200,000 mark in unique trading accounts.

Services of Angel Broking:-

E – Broking

• E broking provides 4 different trading platforms suited to different individual needs

• Multiple exchanges on a single screen

• Historical Charts & Technical Tools

15
 • Intraday Calls & News Flash

• 24 X 7 web-enabled Back office

• Online Fund transfer facility

• Auto pay-in of shares.

Investment Advisory

To derive optimum returns from equity as an asset class requires professional guidance and advice.
Professional assistance will always be beneficial in wealth creation. Investment decisions without
expert advice would be like treating ailment without the help of a doctor.

Research Department

Strong research has always been our forte. Our investment advisory department is backed by an
experience research team. This team comprises of 12 sectorial special analysts and a Research Head.
Their vast experience and expertise in spotting great investments opportunities has always been
beneficial for our clients.

Benefits at Angel:

• Expert Advice: Our expert investment advisors are based at various branches across India to
provide assistance in designing and monitoring portfolios.

• Timely Entry & Exit: Our advisors will regularly monitor your investments and will guide
you to book timely profits. They will also guide you in adopting switching techniques from
one stock to another during various market conditions.

• De-Risking Portfolio: A diversified portfolio of stocks is always better than concentration in

a single stock. Based on our research, we diversify the portfolio in growth oriented sectors
and stocks to minimize the risk and optimize the returns.

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Angel Gold:

In a volatile market it is very difficult for an investor to pick up value stocks which will give decent
returns in the long run. We at Angel Gold realize your need for a professional financial advisor and
hence are here to assist you in making wise and profitable decisions.

Angel strongly believe that right decisions taken at the right time are always beneficial and that's
why our entire research team comprising of 12 sector specialists along with angels research head
will understand clients need, return expectation, risk profile and time horizon to design their
portfolio accordingly. This portfolio will be tracked regularly and angels efforts would be to
optimize clients returns in the long run.

Features of the Angel Gold:

• A premium service for clients who need professional guidance on long term investments.

• Minimum fund / portfolio of Rs. 1 lac and maximum of Rs. 4 lac eligible for Angel Gold.

• Appropriate risk profiling before taking investment decisions

• Periodic group meetings and seminars in branches.

• Monthly Newsletter from the desk of “Angel Gold”.

• Browser based back-office software.

Portfolio Management Services: Successful investing in Capital Markets

demands ever more time and expertise. Investment Management is an art and a
science in itself. Professional Investment Management Services are no longer the
privilege of only large institutional investors. Portfolio Management Services
(PMS) is one such service that is fast gaining eminence as an investment avenue
of choice for High Net worth Investors like you. PMS is a sophisticated
investment vehicle that offers a range of specialized investment strategies to

17
 capitalize on opportunities in the market. The Portfolio Management Service
combined with competent fund management, dedicated research and technology,
ensures a rewarding experience for its clients.

Angel PMS brings with it years of experience, expertise, research and the backing
of India's leading stock broking house. At Angel, experienced portfolio
management is the difference. You will enjoy a relationship with a portfolio
manager equipped to design and implement a portfolio around your unique needs.
We will advise you on a suitable product based on factors such as your investment
horizon, return expectations and risk tolerance. By entrusting the management of
your Portfolios to Angel, you can enjoy convenience without compromising on
quality.

Private Client Group

Angel offers personalized advisory services to affluent HNI investors and actively assists them in
managing their portfolio. PCG can seek guidance on specific stocks in their portfolio and can get pro
active advice for timely exit and fresh investments. Here we also design customized products and
services for our clients based on there risk profile, returns need and time horizon. Our experienced
research team, in-depth analysis and customized value added products and services give us an
immense advantage in assisting you to generate wealth on a longer and consistent basis. Features

2. Minimum Portfolio size of Rs.1Cr. for residents and Rs.1.5Cr for NRIs is the eligibility for
PCG.

3. Portfolios are customized after a due discussion with clients and our research team.

4. Deployment of funds can be among various investing avenues available with us including
PMS, mutual fund, advisory.

5. Meetings and one to one discussion with our fund managers, chief investment officer and
Research director.

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 6. Special Technical and Derivative strategies.

Angel offers trading opportunities in commodities market through its vast chain
of branches spread across the country & state of the art trading platform.

• Trading on MCX and NCDEX

• Application based trading software

• Web based trading platform

• Online daily, weekly and monthly research reports

• Transparent and fair trade execution

• Individual client attention

• 24*7 online back office

• Training / education facilities / conduct of seminars

• Digital contract notes cum bill: View your accounts from anywhere, anytime

• Competitive brokerage rates

• Efficient risk management

Depository Participant
Angel Broking Ltd has started its depository services by registering with CDSL. There are various
benefits of holding clients demat account with angel but the biggest advantage is that a client shall
be ensured of a risk free, prompt and efficient depository process.

What differentiates angel DP from other DPs?

Since angel association is slated for a long time, angel is in a much better position to know your
requirement regarding your holding and transfer of securities.

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No physical instructions are required for your sell obligations. Angel also offers to their clients the
automated pay in facility for trade done through Angel Broking Ltd / Angel Capital and Dept Market
Ltd. The transaction charges that are being levied by us are the lowest in the industry as angel
believe in providing quality services at the most affordable costs.
Clients have an option of choosing the products offered by CDSL:
1. Easy facility: Client can view, download and print the updated holding of their demat
account along with valuation of holding.
2. Easiest facility: Client can, by using this facility, submit their own delivery instructions on
the internet without the intervention of their DP. This is in addition to all the facilities
provided under the ‘Easy’ facility.

Client will enjoy the following distinctive benefits by registering with Angel: No risk of loss, wrong
transfer, mutilation or theft of share certificates. Hassle free automated pay-in of client sell
obligations by their clearing members, ABL / ACDL

• Reduced paper work.

• Speedier settlement process. Because of faster transfer and registration of securities in
client’s account, increased liquidity of client’s securities.
• Instant disbursement of non-cash benefits like bonus and rights into client’s account.
• Efficient pledge mechanism.
• Wide branch coverage.
• Personalized / attentive services of trained help desk.
• ‘Zero’ upfront payment.
• No charges for extra transaction statement & holding statement.
• All in one combined Monthly ‘Bill-cum-Transaction-cum-Holding-cum-ledger’ statement.

20
RESEARCH METHODOLOGY

21
Basic research is also called as fundamental or pure research. Its primary objective is the
advancement of knowledge and the theoretical understanding of the relations among the variables. It
is exploratory and often driven by researcher’s curiosity or interest.
Research Methodology is a systematic method of discovering new facts or verifying old facts, their
sequence, inter-relationship, casual explanation and the natural laws which governs them. Research
Methodology is original contribution to the existing stock of knowledge making for its advancement.
It is the purist of truth with the help of study. In short also covers the systematic method of finding
solution to a problem is research. It also covers the systematic approach concerning generalization
and the formulation of the theory.

Different stages involved in research consists of enacting the problem, formulating a hypothesis,
collecting the facts or data, analyzing the facts and reaching certain conclusion either in the form of
solution towards the concerned problem or in generalization for some theoretical formulation.

In Research Methodology mainly Data plays an important role.

The Data is divided in two parts:
a) Primary Data.
b) Secondary Data.
Primary Data is the data, which is collected directly by direct personal interview, interview, indirect
oral investigation, Information received through local agents, drafting a schedule, drafting a
questionnaire.
Secondary Data is the data, which is collected from the various books, magazine and material,
reports The various information is taken out regarding that subject as well other subject from various
sources and stored. In this report the data plays a very crucial role.

In case of my project the source of data is only secondary data.

Secondary Data Collection:

The secondary data was collected with the help of various websites, journals, magazines, newspapers
and employees of the stock broking firm. The data collected from the websites was good enough to
be included in the study analyzed and concluded.

Prospectus: For collecting relevant about the IPO’s I have referred to the Final Draft Prospectus
from the website of SEBI.

Annual Report: Majority of information gathered from data exhibited in the annual reports of the
company. These include annual reports of the current year 2006-07.
INTRODUCTION

22
Any sector that produces goods or services is called as real sector. For producing goods or services
finance is required. Hence for real sector, financial system is required. Financial System is a
backbone of any economy. The financial sector plays an important role in the economy of any
nation. A well-regulated and well-developed financial sector is vital to achieving the most basic need
of efficient allocation of scarce resources.

In any market economy, the banking and financial system plays a key role in
mobilizing a society's savings and in channeling these savings into productive uses and investments.
In providing an efficient and rigorous process for intermediating the flow of a society's savings into
productive uses, the banking and financial system is one of the core determinants of the pace of a
country's economic development and increase in the standards of living of its citizens. Furthermore,
the banking and financial system must facilitate transactions in an economy by ensuring that they
can be effected safely and swiftly on an ongoing basis. The significance of the financial system for
an economy arises from at least three major sources. First, it performs various transformation
functions relating to intermediation of funds in the economy. Secondly, it provides the mirror image
of the underlying real economy and the basic macro-economic balances. Thirdly, it is one industry
whose basis of operation is underpinned in public trust.

F IN A N C IA L S Y S T E M

F in a n c i a l In s ti t u t io n s / F in a n c i a l In s tr u m e n t s /
F in a n c i a l M a r k e t
I n t e rm e d i a r i e s S e c u r i t ie s

Financial Markets: - .Financial markets could mean organizations that facilitate the trade in
financial products. i.e. Stock exchanges facilitate the trade in stocks, bonds and warrants. The
coming together of buyers and sellers to trade financial products. i.e. stocks and shares are traded

23
between buyers and sellers in a number of ways including: the use of stock exchanges; directly
between buyers and sellers etc. The financial markets are markets which facilitate the raising of
funds or the investment of assets, depending on viewpoint. They also facilitate handling of various
risks.

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 etc. For example –Treasury bills, Commercial bills, Cheques, Long dated securities, Shares,
Bonds etc. An instrument having monetary value or recording a monetary transaction.

Financial Institutions:-Financial intermediaries provide the link between the financial and the real
sector financial intermediaries perform the roles of resource mobilization and allocation, risk
diversification and liquidity management to foster development of the real sector. In a complete
information deterministic world also, financial intermediaries can have the important role of a
temporary resource provider when there is a time lag between the firms' factor payments and receipts
from sale proceeds. This role assumes greater significance when the firms do not have enough
internal resources to cover its factor payments and the financial intermediaries come in with working
capital finance. These are also known as financial intermediaries because they bring savers &
investors together & help in capital formation in the economy. For example – Banks, Mutual funds,
NBFCs.

CAPITAL MARKET

Capital Market is a part of Financial Market. Capital Market: Capital market is a market for long-
term debt and equity shares. In this market, the capital funds comprising of both equity and debt are
issued and traded. This also includes private placement sources of debt and equity as well as
organized markets like stock exchanges. The capital market plays a critical role in the growth
process. It helps to augment capital formation.

24
• Definition: - "A capital market is a series of channel through which the savings of the
community are made available for commercial & industrial enterprises & public authorities
(government)".
• NATURE:-
1 Long-term duration.
2 Mixture of ownership & debt instruments.

Capital Market is divided into two Markets :-

PRIMARY MARKET SECONDARY MARKET

(NEW ISSUE MARKET) (OLD ISSUE MARKET)

MEANING OF PRIMARY MARKET:-

The primary market in India is unique by world standards in many ways. It has been shaped
by an unusual history of regulation. The sheer size and scope of the primary market is enormous and
the large scale direct participation in the primary market by millions of retail investors is unlike that
in any other country in the world. Some of the major IPOs to have hit the Primary market and their
returns as compared to the issue price are as below:
This deals in those securities which are issued to the public for the first time. IPO is the part
of primary market. In the primary market, securities are offered to public for subscription for the
purpose of raising capital or fund. Secondary market is an equity trading avenue in which already
existing/pre- issued securities are traded amongst investors. Secondary market could be either
auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter
(OTC) is a part of the dealer market.
The primary market in India has seen a sea change since early 90s. New capital raised by the
private sector was only around Rs.600 crores in 1981-82. There was a dramatic rise since the
beginning of 1990s. The new capital raised rose to Rs.20,000 crores in 1992-93 and further to

25
Rs.26,000 crores in 1994-95. Since then, there has been a decline and it is reported that the amount
raised from the market in 1996-97 was 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 the financing of capital formation

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

Public issues can be further classified into Initial Public offerings and further public offerings. In a
public offering, the issuer makes an offer for new investors to enter its shareholding family. The

26
issuer company makes detailed disclosures as per the DIP guidelines in its offer document and offers
it for subscription. The significant features are illustrated below:
• Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of
securities or an offer for sale of its existing securities or both for the first time to the public.
This paves way for listing and trading of the issuer’s securities.
• A Further public offering (FPO) is when an already listed company makes either a fresh issue
of securities to the public or an offer for sale to the public, through an offer document. An
offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous
listing obligations.
• Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its
existing shareholders as on a record date. The rights are normally offered in a particular ratio
to the number of securities held prior to the issue. This route is best suited for companies who
would like to raise capital without diluting stake of its existing shareholders unless they do
not intend to subscribe to their entitlements.
• A private placement is an issue of shares or of convertible securities by a company to a select
group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue
nor a public issue. This is a faster way for a company to raise equity capital. A private
placement of shares or of convertible securities by a listed company is generally known name
of preferential allotment.
• A Qualified Institutions Placement is a private placement of equity shares or securities
convertible in to equity shares by a listed company to Qualified Institutions Buyers only in
terms of provisions of Chapter XIIIA of SEBI (DIP) guidelines.

Theoretical Background on I.P.O

27
• CONCEPT OF IPO
1 IPO is an acronym for (Initial Public Offering).
2 The Initial Public Offering or IPO market as it is known, received a new lease of life in FY99.
3 An IPO is when a company makes either a fresh issue of securities or an offer for sale of its
existing securities to the public for the first time. It refers to first sale of stock by a company to
a public.
4 IPO MEANS “GOING PUBLIC”
5 For a company to offer IPOs, they need to hire a corporate lawyer as well as an investment
banker to underwrite the offer. The actual sale of the shares is generally offered by stock
exchange or by regulators. When the company starts to offer IPOs, they are usually required to
reveal financial information about the company so that investors know whether the companies
a good investment or not.
6 This paves the way for listing in stock exchange in the first case, & trading of the issuer’s
securities in the second.
7 With high profile issues like Hughes Software and TV-18 opening at more than 3 and 10 times
their issue price respectively, investors are flocking to the IPO market like never before.
Companies, which had earlier shied away from the capital market, are now returning with a
vengeance to satiate the appetite of investors.
The strength of of India’s economy, stock market, corporate profits, energy
sector and private equity has fuelled IPOs in 2006 and 2007. India’s market raised US$7.23 billion
through 78 IPOs in 2006. The private equity rush into India is creating the potential for many IPO
exists. Top global private equity funds such as Carlyle, Blackstone, Texas Pacific and Warburg
Pincus, as well as local funds, have been key drivers of the strength of Indian IPO markets. India
ranks seventh overall in the world, in the terms of IPOs in the first half of 2007 & the Indian second
half performance is expected to be even higher.

15 Big Ticket IPOs in Indian stock market history.

28
 Company Offer Price Issue Size No. of times P-E*
(In Rs.) (In Rs subscribed
crores)

Jet Airways Ltd 1100 1899.35 16.08 24.45

ICICI Bank Ltd 900 8312.5 11.5 27.37
Sun TV Networks Ltd 875 602.79 46.92 53
Tata Consultancy Services Ltd 850 4713.47 7.69 24.24
Oil & Natural Gas Corp Ltd 750 10694.5 1.58 13
Punj Lloyd Ltd 700 584.86 38.68 25.92
BL Kashyap & Sons Ltd 685 188.38 14.29 25.96
Allcargo Global Logistics Ltd 675 140.33 7.64 29.59
Unity Infraprojects Ltd 675 232.24 2.33 14.32
Advanta India Ltd 640 216.32 3.45 15.78
Sobha Developers Ltd 640 569.17 113.93 27.59
Flextronics Software Systems Ltd 630 27.56 51.52 6.82
IBP Company Ltd 620 357.01 2.5 43.48
HCL Technologies Ltd 580 82.36 12.64 40.67
DLF Ltd 550 9625 3.47 42097
Price-earning ratio based on offer price.

Biggest IPO gainers

We can consider some of the stocks' performance that got listed in fiscal (FY05) to date.

Allotment Price Current Price % change

Indiabulls 19 99 423%
NDTV 70 179 155%
Bharti Shipyard 66 135 104%

29
 TCS 900 1,445 61%
NTPC 62 85 38%
ICICI Bank 295 394 34%
Dena Bank 27 33 21%
Indoco Remedies 245 272 11%
Jet Airways 1,100 1,202 9%
UTV Software 130 136 5%

Biggest IPO losers

Global IPO Market.

30
Globalization of capital market has enhanced regional economic growth, cross border trading,
liquidity, and stringency of local regulatory framework, all of which heightens the ability of local
exchanges to support large IPOs. Stock markets continue to remain a key route for corporate's to
raise funds for expansion, with the worldwide IPOs space posting a record net proceeds of $ 246
billion in 2006.the biggest number of IPOs came from the US with 187 offerings, followed by Japan
with 185 and China with 175 IPOs. In 2007, a rich variety of high quality companies continue to
surge through world IPOs pipeline with last years momentum, albeit with smaller deal sizes.
Reliance Petroleum, which raised $1.8 billion, featured in the global Top 20 IPOs, which together
raised $84 billion, representing 35 per cent of the total capital raised by all IPOs.

I.P.O Market Share (% ) by Nation Hong kong,

3.5
Germany, 4.8
UK, 6.3
Others, 32.8
Brazil, 6.7

Russia, 11.6
India, 3.3
China, 13.4
US, 17.6

Hong kong Germany UK Brazil Russia

China US India Others

Industry I.P.O Analysis.

31
 Indian I.P.O Industry - 2007

Industrial
5%
Tech/Communications
19%

Basic Metals,
Financials 2%
62%
Consumer
Products/Services
12%

Industrial Tech/Communications Basic Metals, Consumer Products/Services Financials

OFFER DOCUMENT:-
The “Offer Document” is the prospectus and covers all relevant information that will help the
prospective investor to arrive at a decision.
The “Draft Offer Document” is, as the name suggests, the initial draft that has to be filed with
the security & exchange board of India (SEBI) at least 21 days before the company wants to go
public. SEBI must suggest changes in draft offer document which the issuer will have to
incorporate before filing the offer document.
The “Red Herring Prospectus” is a document that does not specify the exact price of each
stock on offer, or the total value of issue. However, the total numbers of shares on sale as well
as the upper & lower price bands have to be mentioned.
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 advertisement a day prior to the opening of
the issue.

32
 Importance of a Prospectus - A Prospectus is a legal document that the companies use
to describe the securities, they are offering for issue. A prospectus is a document that
contains information that the investors needs about the company.

SEBI REQUIREMENTS FOR IPO:

• SEBI has laid down certain norms for companies making an offering to the public. The
company should have….
1. Net tangible assets of not less than Rs 3 crores
2. A net worth of Rs 1 crores or more
3. Enough money to distribute as profits for three full years.
• Primary issuances are governed by SEBI DIP- (DISCLOSURES & INVESTOR
PROTECTION) - guidelines. The Lead Managers are required to follow due diligence &
ensure that all requirements of DIP are fulfilled while submitting the draft offer document to
SEBI.
• Any non-compliance on their part can attract penal action

WHEN A COMPANY CHANGES ITS NAME:

• 1ST CONDITION: - 50% of the revenue for the preceding year should have accrued for the
new activity.
• 2ND CONDITION: - Size of the new offering cannot exceed 5 times the net worth of issue
made under the previous identity.

For the investors protection SEBI has given an important guideline to the company that they should
be graded from the “CREDIT RATING AGENCIES”.
E.g. - ICRA, CRISIL, etc.

33
PHASES OF THE I.P.O WHICH A COMPANY HAS TO FOLLOW :

The IPO’s is kept open for at least 3 working days and not more than 10 working days . In case of
book building issues, the Bidding remains open for 3-7 working days.

There are 3 phases through which a company has to go they are

• The Pre-IPO Transformation phase
• The IPO Transaction phase
• The Post-IPO transaction phase

1.) The Pre IPO– Transformation Phase: In this stage Company restructure its management and
administrative part. For e.g. since the main focus of public companies is to maximize shareholders
value & for this the company should acquire management that has experience in doing so. Further
more company should re-examine their organizational processes & make necessary changes to
enhance the corporate governance & transparency of organization. This phase actually takes two
years.

2.) IPO transaction phase: It is usually before shares are sold. For this the issue is to maximize
investors’ confidence and credibility to ensure that the issue will be successful. Offer document is
given to SEBI and according to it SEBI grades the company.

3.) The Post IPO Transaction Phase: The Company should not strive to meet expectations but
rather beat their expectations. This is the point in time where companies have to go and prove to the
market that they are strong performer that will last.

PRICING OF THE I.P.O:

34
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 deciding the price, the company and LM are
required to disclose parameters considered before fixing the price to the former.

There are 3 type of Pricing of the IPO

1) Fixed price method
2) Book Building method
3) E-IPO

1) Fixed price method:

An issuer company is allowed to freely price the issue. The basis of issue price is disclosed in
the offer document where the issuer discloses in detail about the qualitative and quantitative factors
justifying the issue price. The Issuer company can mention a price band of 20% (cap in 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 determined at a later date before filing of the final offer document with SEBI.
In this method the price of the shares is fixed by the company itself .Thus the investors know the
price of the shares in this case. E.g Refrex Refrigerators Ltd. IPO

2) Book Building Method:

SEBI Guidelines defines Book Building as a process undertaken by which a demand for the
securities proposed to be issued by a corporate body is elicited and built up and the price for such
securities is assessed for the determination of the quantum of such securities to be issued by means
of a notice, circular, advertisement, document or information memoranda or offer document. Book
building is a process of price discovery in case of IPOs. When Companies come through the book
building route, the price of the issue is not fixed before hand. Rather the issue document only gives a
floor price or the price band within which investors can bid for the shares.
The IPO applicants bid for the shares being issued by the company quoting the price
of their bid and the quantity that they would like to bid at. Only the retail investors have the option

35
of bidding at ‘cut-off’. Cut off means that the investors are not active bidders but they are willing to
accept whatever price is getting arrived at based on bidding done by other persons. After the bidding
process is complete, the ‘cut-off’ price is arrived and shares are issued to successful applicants.
Here the company gives the price band in which minimum and maximum price will be mention.
Here, the investor has to judge to which price they should apply. Example: ABC co fixes price band
of Rs 20 to Rs 25.
In the process of allotting securities through book building method the Company have
to allote, 50% to qualified institutional buyers, 15% to non-qualified institutional buyers & 35% to
the retail investors. Since the retail investors are not able to judge the price to which they should
apply so SEBI has given one concession to them that they can apply at cut-off price given by the
company.

3) E-IPO’s (Electronic –Initial Public Offer)

A company proposing to issue capital to public through the on-line system of the stock
exchange for offer of securities can do so if it complies with the requirements. This is a technique
which is used in issuing securities which are issued under fixed price as well as book building
methods. Here investor has to contract 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 the application from all India decides the allotment procedure & informs electronically to
the broker whose application are considered. If a Company wants to go in for E-IPO’s then shares
should be in demat form .NSE & BSE provides E-IPO’s facility.

36
PARTICIPANTS IN AN I.P.O:

Three classes of investors can bid for shares:

1. Qualified Institutional Buyers: They buy 50% of the issue. Out of this 50%, up to 5% has
to be allocated to mutual funds. It includes financial institutions such as Commercial Banks,
Mutual funds, Venture capital registered with SEBI.
2. Retail investors: 35% of the issue. Retail individual investor means an investor who applies
or bids for securities of or for a value of not more than Rs.1, 00,000.
3. High net worth individuals and employees of the company: 15% of the issue.
The bids received by the QIB’s over the last five years have been on a rise.
This is clearly visible from cases like Maruti issue which received 4.80 lakh bids, ONGC got 9 lakh
bids, TCS received 13.5 lakh bids, NTPC received 14.70 lakh bids and Reliance Petroleum received
22 lakh bids all by the QIB portion. Besides QIB for whom 60 percent of the amount is reserved, the
number of HNI and the Retail category who make up the balance 10 and 30 percent is also
increasing. In 2004-05 the number of QIB application was in the range of 150 which has now
increased to 350-400. The funds are mainly coming from US and Far East Public investors can
purchase IPO’s through their regular investment channels, although they will need to act fast to take
advantage of the initial low IPO costs. Businesses can take advantage of IPOs simply by offering
public shares on the market. To do this, they require a corporate lawyer, transparent business and
financial practices, and an investment banker. They also need a medium usually a stock exchange to
actually sell the shares. Most businesses additionally hire marketers or someone who can advertise
or market the stock.

ROLE OF LEAD MANAGER IN IPO:

37
 It is difficult to price an IPO therefore the role of lead manager came into existences. The
company appoints the lead manager .The Lead Managers act as a catalyst as they attempt to bring in
some credibility to the offer and their accountability is also very high. Remember that the lead
managers’ credibility could act only as an indicator to the proposed issue, but does not assure
success. For the purpose of security, one can look for category one lead managers for judging the
quality of the issue that includes Merchant, Investment Banks, DSP Merrill Lynch, HSBC Securities
and Kotak Mahindra among others.

ROLE OF IPO’s FOR ISSUING COMPANIES:

38
In general, companies offer IPOs in order to raise money that they need for business expansion and
new business opportunities. By offering shares to investors, a company stands to bring in a lot of
money. They can then use this money to grow their business. The more their business grows, in turn,
the higher the share prices grow and the more money is generated by investors purchasing shares.
Many companies simply see offering IPOs as the next stage in business growth. Since public
companies often enjoy larger profits and can draw on a larger capital base than private businesses,
IPOs seem like the logical way to grow a company for many CEOs.

The Pros and Cons for the Company

Pros -
1. Going public raises cash which is useful for Capital Investment aiding growth. They can
then use this money to grow their business.
2. Being publicly traded also opens many financial doors and more visibility.
3. Because of the increased scrutiny, public companies can usually get better rates when they
issue debt.
4. It is easier to complete mergers and acquisitions by issuing stock to finance the same.
5. Open markets provide liquidity and hence make it possible to implement things like
employee stock ownership plans, which help attract top talent.
6. Being on a major stock exchange carries a considerable amount of prestige which again
helps the company image. By becoming a publicly traded company a business can take
advantage of new, larger opportunities and can start working towards incorporation and even
worldwide expansion.
7. In case of IPOs it is investors who take the risk although also a potential gain buying shares.
If the company loses money and they will not have to repay their investors, unlike in business
loans, which need to be repaid with interest
8. IPOs are also a relatively low risk for businesses and have the potential for huge gains and
for huge opportunities.
Cons -

39
1. It will be coming under pressure to perform consistently
2. The decision making may slow down as the company may have difficulties in getting the
necessary shareholders approval.
3. The costs of compliance would increases costs and can be a constraint.

ROLE OF IPO’s FOR INVESTORS:

IPOs are attractive mainly because they may be undervalued. Initially, to make IPOs more attractive,
many companies will offer their initial public offering at a low rate. This helps to encourage
investors, and investors will often buy IPOs, thinking that the new company or the newly public
company will be the next big thing with a huge profit margin. As prices grow and demand for the
IPOs grows, early investors stand to make a lot of profit and very quickly.

The ultimate ‘Watch word’ Caveat Emptor! Buyer Beware. This should be the watchword for
investors. Any company may opt for an IPO. But, ultimately it is your hard-earned money that is
getting diverted into unproductive investments, which may not give you the required return

Factors to keep in mind by an investor before deciding to apply to an IPO:-

• Track record of the promoters: Background and experience of the promoters, the
management team and their expertise is one of the main factors that need to be considered as
they will be the ones responsible for the profitability of the company. Issues where post-
issue promoters’ holding is more than 80% may indicate a lack of liquidity in the stock since
there are fewer shareholders trading fewer shares. Be careful of companies that have issued
shares on a preferential basis to promoters in high proportionate, so as to increase their stake
in the company. Also find out if this is an offer for sale or a genuine Initial Public Offering.
In case of offer for sale, the issuing company may not benefit totally.

• Participation of Venture Capitals & Private Eequity firms: This would indicate the risk
profile of the company and the expectation of the institution from the company. In case of
institution, look for nationalized banks and all India level financial institution such as ICICI,

40
 IFCI IDBI etc.

• Financials: The Company’s balance sheet is a very important document and investors should
look at it carefully. Investors should look at not just the current balance sheet but also that of
the last three to four years to get an idea of the company's growth and focus.

• Prospectus: Investors should read the prospectus for the company carefully. The prospectus
called as red-herring prospectus is a document that every company that goes for a public
offering has to file with the SEBI. The prospectus has all the details about the company, the
risk factors and the company's financials.

• Issue price: Investors need to decide if the issue is worth investing in at that price. One way
of checking the valuation is to look at the Price-Earnings (P/E) multiple. The P/E multiple is
the ratio of the share price to earnings per share (EPS which is listed in the balance sheet).
P/E of the issue should be compared with the industry average and the other companies in
that sector.

Apart from these five important points other factors like amount to be paid on application, the lead
managers for the issue, the stock exchanges that issue plans to list on and the current market
sentiment are other factors to watch out for.

• Indian credit rating agencies: - Are almost ready to rate initial public offerings of local
firms after the capital markets regulator has made it a mandatory requirement. There is
agreement on the methodology to be adopted and the rationale for the rating awards. The
agencies will cover the projects of the company for which it is seeking to raise funds from
the public. They will run a check on the promoters, the financials of the firm, do the
valuation, how the issuer has utilized funds and so on.

• Estimate Profitability: - If the company is utilizing a portion of issue proceeds towards

retiring high-cost debts, it would benefit the company in terms of lower interest outflow and
therefore higher profitability. An investor should check the proportion of money that is being
invested in new projects that it is venturing into. This would give some judgment on the

41
 estimated profitability of the company.

• Fundamentals: - Before Subscribing for an IPO an investor should study the fundamentals
of the company. One should not subscribe for an IPO just because the reason he is getting
shares at lower prices. He should look for following things:-

1.) The Business of the Company.

2.) Growth prospects of the company.

3.) The sector in which company is doing business.

4) The growth of the company in proportion to the growth of the market in which it

operates has to be seen.

5.) Market share or the projected market share vis-à-vis domestic competition.

If an investor have answered yes to the above questions, investors are on their way to making a
smart investment.

Pricing is an important factor and need to be considered carefully. To justify pricing,

Compare:

1.) The price to earnings ratio (this is price that the issue is offered upon earnings per share)
which would throw light on the pricing of the issue.

2.) Operating margins (this is the income from operation less expenses from operation).

3.) Market capitalization (it is the number of share multiplied by the price at which it is
offered) with the current companies in the sector that are listed in the market.

The Pros and Cons for the Investor:-

Similarly for the Investor the following are the two sides of the coin. The advantages for the
Investor are summarized as below:

42
1. Usually IPOs come with a rigorous process of Book building and relevant disclosures and risks
spelled out in the offer document thereby giving one a fair idea about the business.
2. The pricing is generally considered to be on the conservative side else it might fail to get
investors approval and hence result in a loss of face for the issuer. Initial public offerings make a
good opportunity to make a profit because they are so inexpensive. In fact, many of the dot com
millionaires of the 1990s made their money simply through IPOs.
3. The retail investors generally have a proportion fixed in the total issue which enables them to
have a share of the pie.
4. Statistics: - Of the 15 biggest IPOs made after 1 January 2006, 11 are still in the positive zone.
The four laggards are Cairn India, Parsvanath, Lanco Infratech and Indian Bank. Significantly,
even here, except for Cairn, all the other three IPOs had given an exit opportunity at a huge profit
after listing. On the other hand, several IPOs have provided dream returns including Tech
Mahindra (299%), GMR (85%), Gujarat State Petronet (79%) and Sun TV (69%). People have
loosen lot of money in secondary market in blue chip companies.

43
5) Appreciation in Value. By offering shares to investors, a company stands to bring
in a lot of money. They can then use this money to grow their business. The more
their business grows, in turn, the higher the share prices grow and the more money is
generated by investors purchasing shares.
6) Regulatory Norms: - The quality of IPOs has improved in the past few years due to
tighter entry norms and better vetting, both at Securities and Exchange Board of India
(SEBI) and at the two major stock exchanges. Since January 2006, nearly 10
companies were forced to withdraw their issue plans by the stock exchanges and

44
SEBI. Moreover, half of each issue has to be bought by institutional investors, who
run their due diligence on the quality of the issuer and price of the issue.

The pitfalls are:

1. A company coming out with an IPO has had no past price track record which can
give an indication of the market perception of the stock.
2. Companies might be doing an IPO to provide an exit strategy for the founders. This
implies that the promoter can’t create value for shareholders or the promoters don’t
see growth in the business.

LISTING

Listing means admission of the securities to dealings on a recognized stock exchange. The securities
may be of any public limited company, Central or State Government, quasi governmental and other
financial institutions/corporations, municipalities, etc.

The objectives of listing are mainly to:

• Provide liquidity to securities;

• Mobilize savings for economic development;
• Protect interest of investors by ensuring full disclosures.

ELIGIBILITY CRITERIA FOR IPOs/FPOs

a. Companies have been classified as large cap companies and small cap companies. A large
cap company is a company with a minimum issue size of Rs. 10 crores and market
capitalization of not less than Rs. 25 crores. A small cap company is a company other than a
large cap company.

45
a. In respect of Large Cap Companies

i. The minimum post-issue paid-up capital of the applicant company (hereinafter

referred to as "the Company") shall be Rs. 3 crores; and
ii. The minimum issue size shall be Rs. 10 crores; and
iii. The minimum market capitalization of the Company shall be Rs. 25 crores
(market capitalization shall be calculated by multiplying the post-issue paid-
up number of equity shares with the issue price).

b. In respect of Small Cap Companies

i. The minimum post-issue paid-up capital of the Company shall be Rs. 3 crores;
and
ii. The minimum issue size shall be Rs. 3 crores; and
iii. The minimum market capitalization of the Company shall be Rs. 5 crores
(market capitalization shall be calculated by multiplying the post-issue paid-
up number of equity shares with the issue price); and
iv. The minimum income/turnover of the Company should be Rs. 3 crores in each
of the preceding three 12-months period; and
v. The minimum number of public shareholders after the issue shall be 1000.
vi. A due diligence study may be conducted by an independent team of Chartered
Accountants or Merchant Bankers appointed by the Exchange, the cost of
which will be borne by the company. The requirement of a due diligence
study may be waived if a financial institution or a scheduled commercial bank
has appraised the project in the preceding 12 months.

46
 c. For all companies :

a) In respect of the requirement of paid-up capital and market capitalization, the issuers shall be
required to include in the disclaimer clause forming a part of the offer document that in the
event of the market capitalization (product of issue price and the post issue number of shares)
requirement of the Exchange not being met, the securities of the issuer would not be listed on
the Exchange.
b) The applicant, promoters and/or group companies, should not be in default
in compliance of the listing agreement.
c) The above eligibility criteria would be in addition to the conditions prescribed under SEBI
(Disclosure and Investor Protection) Guidelines, 2000.

Trading Permission

As per Securities and Exchange Board of India Guidelines, the issuer company should complete the
formalities for trading at all the Stock Exchanges where the securities are to be listed within 7 working
days of finalization of Basis of Allotment.

A company should scrupulously adhere to the time limit for allotment of all securities and dispatch of
Allotment Letters/Share Certificates and Refund Orders and for obtaining the listing permissions of all
the Exchanges whose names are stated in its prospectus or offer documents. In the event of listing
permission to a company being denied by any Stock Exchange where it had applied for listing of its
securities, it cannot proceed with the allotment of shares. However, the company may file an appeal
before the Securities and Exchange Board of India under Section 22 of the Securities Contracts
(Regulation) Act, 1956.

47
Payment of Listing Fees

All companies listed on the Exchange have to pay Annual Listing Fees by the 30th April of every
financial year to the Exchange as per the Schedule of Listing Fees prescribed from time to time.

The schedule of listing fees for the year 2007-2008, prescribed by the Governing Board of the Exchange
is given hereunder:

SCHEDULE OF LISTING FEES FOR THE YEAR 2007-2008

Sr. Amount
Particulars
No. (Rs.)

1 Initial Listing Fees 20,000

2
Annual Listing Fees
(i) Companies with paid-up capital* up to Rs. 5 crores 10,000

(ii) Above Rs. 5 crores and up to Rs. 10 crores 15,000

(iii) Above Rs. 10 crores and up to Rs. 20 crores 30,000

3 Companies which have a listed capital* of more than Rs. 20 crores will pay
additional fee of Rs. 750/- for every increase of Rs. 1 crores or part thereof.

4 In case of debenture capital (not convertible into equity shares) of companies,

the fees will be charged @ 25% of the fees payable as per the above mentioned
scales.

*includes equity shares, preference shares, fully convertible debentures, partly convertible debenture

48
capital and any other security which will be converted into equity shares.

Kindly Note the last date for payment of listing fee for the year 2007-2008 is April 30, 2007.
Failure to pay the listing fee(for the equity and/or debt segment) before the due date i.e. April
30, 2007 will attract imposition of interest @ 12% per annum w.e.f. May 1, 2007.

Compliance with Listing Agreement

The companies desirous of getting their securities listed are required to enter into an agreement with the
Exchange called the Listing Agreement and they are required to make certain disclosures and perform
certain acts. As such, the agreement is of great importance and is executed under the common seal of a
company. Under the Listing Agreement, a company undertakes, amongst other things, to provide
facilities for prompt transfer, registration, sub-division and consolidation of securities; to give proper
notice of closure of transfer books and record dates, to forward copies of unabridged Annual Reports
and Balance Sheets to the shareholders, to file Distribution Schedule with the Exchange annually; to
furnish financial results on a quarterly basis; intimate promptly to the Exchange the happenings which
are likely to materially affect the financial performance of the Company and its stock prices, to comply
with the conditions of Corporate Governance, etc. The Listing Department of the Exchange monitors
the compliance of the companies with the provisions of the Listing Agreement, especially with regard to
timely payment of annual listing fees, submission of quarterly results, requirement of minimum number
of shareholders, etc. and takes penal action against the defaulting companies.

After the completion of IPO process, the next step is the allotment of shares. After the allotment,
the next step is listing of IPO's which links IPO with secondary market. Listing of an IPO is very
important for any investor since at that time he has to take decisions of either selling it or holding
it in his portfolio. For better understanding of the factors, I have taken two companies so that one
can know how the fundamentals & Financials of a company can impact the IPO of the company.

Listing performance of Cairn India Ltd.

49
Company background:
Cairn India (CIL) was incorporated on 21 August 2006 to consolidate Cairn’s business and interests
in India. CIL is acquiring its assets and business through acquisition of Cairn’s subsidiaries: Cairn
Energy Australia Pvt Ltd (CEA), Cairn Energy hydrocarbons (CEH) and Cairn Energy India
Holdings B.V. (CEIH).Cairn is an independent oil and gas exploration and production company.
With the company’s head office in Edinburgh.
Its core area of focus is South Asia: it holds material exploration and production
rights in India, Bangladesh and Nepal. Cairn India has been exploring and operating development
and production assets in India for over 12 years in partnership with the Government of India, state
governments, regulators and key industry participants such as ONGC. A company trading on the
Main market of the London Stock Exchange in the year 1988. Cairn India is one of the few
companies, which have been successful in discovering reserves in the country since 1985, in
Rajasthan, and now has many years of experience in the country. Its credentials are well established
and Cairn is likely to be a major participant in all future domestic exploration activities.

It’s Business:
Cairn India has a 70 per cent operating interest in the Rajasthan fields, balance being mandatory
holdings of ONGC as the government nominated entity. The company has a 40-per cent stake in
Lakshmi and Gauri oil and gas fields in the Cambay basin off the west coast and a 22.5 per cent
stake in Ravva oil and gas field in the Krishna-Godavari basin off the East coast. Lakshmi, Gauri
and Ravva are already operational, producing both crude oil and natural gas.

The company has so far made a total of 29 hydrocarbon discoveries, including 18 discoveries in
Rajasthan alone. The Rajasthan fields have total proved and probable reserves of 632 million barrels
of oil or oil equivalent, of which the company's share would be 442 million barrels. Cairn India
estimates that these blocks may contain additional contingency reserves of up to 257 million barrels.
Total in-place reserves in the Rajasthan fields are estimated at 3.66 billion barrels of oil and oil
equivalents.

50
Other fields in which the company has interests hold proved and probable reserves of 122 million
barrels, of which the company's share is 30 million barrels. These fields outside Rajasthan may hold
additional reserves of 157 million barrels, according to company's estimates. Other fields outside
Rajasthan are estimated to have total in-place reserves of 934 million barrels.

IPO Highlights:

Cairn India, one of the most successful oil exploration companies in the country, has launched a
mega-IPO - one of the biggest ever in the history of our primary markets. Cairn India has offered
538,470,588 equity shares, including an offer for sale from parent company Cairn Plc, at a price
band of Rs160 to Rs190. The issue would raise Rs8, 616 crores at the lower end of the price band
and Rs10, 231 at the upper end. At the higher end, Cairn India would be valued at Rs33, 544 crores
($7.54 billion) and at Rs28, 248 crores ($6.35 billion) at the lower end

Objects of the issue:

• The size of the issue ranges from Rs 5,261 to Rs6,247 crores
(Depending on the price band).
• The proceeds of the issue would be utilized to partially fund the total expenditure set forth for
2007-09.
• To achieve the benefits of listing.
• To fund the acquisition of shares of Cairn India Holdings Limited part of the development of
the Rajasthan Block, as well as further development of other producing fields.
Cairn India Ltd IPO Detail:

• Issue Open:- December11,2006toDecember15,2006

• Issue Type:- 100% Book Building Issue (Initial
Public Offer)
• Issue Size:- 328,799,675 Equity Shares
• Face Value:- Rs10/-
• Issue Price:- Rs160/-toRs190/-

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• Market Lot:- 35 Shares
• Minimum Order Quantity:- 35 Shares
• Maximum Subscription Amount for
Retail Investor:- Rs100,000/-
• Listing:- BSE,NSE
• Lead Manager:- DSP Merrill Lynch Limited, ABN
AMRO Securities (India),
JM Morgan Stanley
• Registrar: - Big share Services Pvt.
• Cairn India Limited Listing Date:- Tuesday, January 9, 2007

BSE Script Code: 532792

NSE Symbol: CAIRN

Listed in: A Group

ISIN: INE910H01017

ICICI Direct Script Code: CAIIND

Response to the IPO:

The IPO of Cairn India was oversubscribed 1.3 times on the opening day indicating investor
confidence in its fundamentals, as shares got trashed in the secondary markets, with the Sensex
plummeting by 400 points however, the issue received a strong response from foreign institutional
investors (FIIs). There were bids for 42 crores shares against the quota of 19.72 crores shares for
QIBs. A major chunk of the subscription has come from qualified institutional buyers, investment
bankers involved with the offer.

52
 All the bids were from FIIs and none from banks, financial institutions and insurance
companies. In the non-institutional category, there were bids for 40,775 shares against a quota of
3.28 crores shares, for retail investors, there were bids for 15.65 lakh shares against the allotment of
9.86 crores shares. 4.25 lakh applications were received from retail investors. Bids for 2.17 crores
shares were received as against 9.86 crores shares reserved for the retail segment.

Reasons for Poor Subscription &Poor Listing:

The Cairn India IPO received a poor response from the investors not getting fully subscribed. Due t
o the reason of poor response from investors, its listing price was even below the market price. There
are several reasons for the poor response:-

1. Investors can expect return from the IPO only after 2009. – There was only long term growth
expected out of the company. The company is into a long gestation period and the returns start
from 2009 onwards. CIL aims to commercialize the Mangala field by March 2009. The
development and commercialization of the Bhagyam, Shakti and Ashwariya fields are scheduled
to commence within 12 months of production at the Mangala fields.
2. Sensitivity to global crude prices. - CIL's operating performance is to a great extent linked to the
fluctuations in oil prices. Crude oil prices are sensitive to the global and regional supply and
demand, and the expectations regarding the future supply and demand, for crude oil and
petroleum products. Any adverse impact on crude oil prices that is subject to various
uncontrollable macro-economic global factors can adversely affect CIL's operating performance.

3. Under the present production-sharing contract, Cairn has to sell all the crude to the government
nominated company - MRPL in this case - and would have the option of selling the crude to
other buyers only if the government nominee fails to lift the crude. . Besides, MRPL may ask for
steeper discounts as it has to transport the crude all the way to Mangalore and if it is required to
set up the evacuation pipeline. In any case, the discovered reserves are of a 'waxy' kind and may
fetch lower prices because of the difficulty in transporting and processing. Prices. The company

53
 is required the supply the whole of its production to a company designated by the government, in
this case MRPL. The purchase price would be based on a basket of prices of crude oils of
different standards, to be agreed between the buyer and seller only before six months from the
expected production date. The final agreed price may be lower than the current projections by the
company.

4. Quality of oil and its evacuation: - The oil reserves in the Rajasthan block have reasonably high
viscosity due to the relatively higher wax content in it. The production of such waxy crude oil
would require hot water injection technique that is likely to add to the overall cost of production.
The oil from Rajasthan was thick and waxy and special heated pipelines would be needed to
transport it may not be easy to extract oil from the Rajasthan [Largest reserve] and many incur
additional expenses On the other hand, the waxy crude oil would get lower realization. The
company expects realization of around 5-10% discount to Brent. However, it could be relatively
much lower at a discount of 10-20% going by the prevailing trend in the market.
5. The investors considered the issue as an expensive one:-. Cairn India IPO was priced at double
the valuations of state owned ONGC Looking at the financials and other peer group comparisons
as stated in various research reports [CLSA, Share Khan, JM Morgan Stanley], the offer price
was expensive.
6. And finally, and the most important, investors were shattered by the 800 point fall in 2 days. The
lack of investor interest for the Cairn India IPO can also be attributed to the sharp correction in
the market on Monday. Brokers said a downturn in the market tends to affect the appetite for
primary issues, especially among short-term investors. This is because if market is subdued at the
time of the listing of IPOs, the rise in share price on the first day may be checked.
7. Low over subscription numbers: - The Company need capital market with tremendous
enthusiasm but investors' enthusiasm was missing. The subscription was lower than that of
smaller issues of 2006, which managed subscription of over 2 times. Analysts were also bullish
on the issue before its subscription started due to its goodwill and name in the market. Though
the issue got tremendous response on the first day, but that did not reflect on the final day. The

54
 issue which got subscription of around 1.6 times on the first day saw many investors
withdrawing their bids on the last day. Due to this, the issue was subscribed just 1.14 times.
There was lower over subscription numbers due to all the above reasons. Due to this the issue got
listed at a price much was below the issue price.

Valuations:

The offer price band was Rs 160-Rs 190. Based on the consolidated financials of CEA, CEH and
CEIH for the year ended December 2005, profit after tax (PAT) stands at Rs 92 crores, including
one-time income of Rs 230 crore. Also the financials for the six months ended June 2006 were not
exciting as they include a write-off of the unsuccessful exploration cost of Rs 236.73 crore on 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 offered at double the valuation
of the state-owned Oil & Natural Gas Corporation (ONGC).So, we can say that the issue of cairn
India is expensive.

Findings:

From the above IPO, we can conclude that listing of Cairn India was below the issue price which
was due to the above mentioned reasons irrespective of the strong fundamentals of the company.
So, before going for Cairn India IPO a prudent investor should have aimed at long term returns.
rather than expecting listing gains. Since the return of Cairn india will start coming only after
2009,So the investors should have invested in IPO keeping in mind above mentioned factors
which had affected its listing.

Listing performance of ICRA Ltd -

(Credit Rating Agency).

55
Business of Credit Rating Company’s (ICRA)

The following factors govern the rating business:

• Credit rating is mandatory for issuance of debt instruments by listed companies with
maturity/convertibility of 18 months and above.

• SEBI along with stock exchanges made ratings mandatory for debt instruments placed under
private placement basis and having a maturity of one year or more, which are proposed to be
listed.

• Requirement for certain investors to invest not more than a stipulated part of their portfolio
in unrated bonds.

• RBI has made it mandatory for all commercial banks to make fresh investment only in rated
non - SLR securities.

Non-government PFs, Superannuation funds, Gratuity funds can only invest in bonds issued by
public financial institutions, public/private sector companies, provided they are dual rated. Further
said fund houses can only invest in shares of companies, which have investment grade rating from
at least two credit rating agencies.

Summarizing above, the growth in the rating business hinges on the growth of debt- securities in
the market. In 2005-06, 96.25% of the Rs 794 billion of debt instruments were rated, signifying
high level of penetration. It is worth mentioning here that in India; only about 10 per cent of banks’
corporate exposures are rated by external rating agencies, which imply huge potential for rating
agencies in the days ahead.

About the Company

Best in its Class when it comes to Credit rating, ICRA is the second largest company next only to
CRISIL. The company enjoys strong market position for credit ratings in the financial sector and
structured finance.
ICRA Ltd. is one amongst the four credit rating agencies in India providing a wide

56
 range of products and services. They were established in 1991 as a credit rating agency by a
consortium of financial / investment institutions, commercial banks and financial services
companies. It operates as a professionally managed commercial entity with the objective of
maximizing shareholder value. The company has 3 wholly owned subsidiaries, namely, IMaCS,
ICTEAS and ICRA Online. IMaCS provides management consulting services. ICTEAS is into
providing business solutions and computer aided engineering services. ICRA Online provides
mutual fund based information services and outsourcing services.

Business of ICRA
The company is primarily engaged in the business of providing rating and grading services and research
based information services. It rates rupee-denominated debt instruments issued by entities including
Corporate’s, NBFCs, Financial Institutions, Public Sector Undertakings and Municipalities, among
others. It also rates structured finance, line of credit, project finance, corporate governance, issuer rating,
debt fund-credit risk rating, claims paying ability rating. In addition along with it subsidiaries, it provides-

Consulting service: This segment contributes 18% to the revenue stream. In this space the growth
has been secular at 28% till FY06. But, in the current year the growth has been nearly flat. IMaCS, a
wholly owned subsidiary provides management consultancy services to clients based on India and
abroad under five business areas namely, infrastructure, energy, banking and insurance, corporate
advisory and government. IMaCS’ clients include banks, FIs, NBFCs, manufacturing and service
organizations, government and government- owned organizations, debt and equity investors, regulators
and multilateral agencies.

Information technology based services: This segment of business was introduced in FY06 and
currently contributes 13% to the top line. ICRA, through ICTEAS (one of its subsidiary) provide IT
solutions in the realm of business applications and processes in the verticals like sales and distributions
management, franchisee service management, financial management and business analytics. The clients

57
include BP Lubricants and Judge Technical Staffing. Majority portion of this business are inherited by
ICRA, when it acquired ICTEAS and are quite distinct from the core business of rating.

Information services: This is also a small segment of business, which contributes close to 3% to the
top line. Here, the growth is sedate even on a lower base. In this space, ICRA provides Grading Services
in relation to construction companies/entities, realty developers, healthcare and maritime institutions,
equity shares and grading of small scale enterprises. Here, ICRA has not taken big initiative to grade the
SME sector, which offers huge scope for growth. The management is preparing a blueprint to delve into
this sector. Currently, the management feels, incomes are not commensurate to the costs involved.
Besides grading, ICRA also provide research based information services and Mutual Fund based
services.

Outsourcing 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
segment of business, and due to low base, the growth (YoY) looks very high. Under a standing
agreement ICRA Online provides information management services to Moody’s Investors Service. Also
ICRA monitors the mutual funds rated by Moody’s Investors Service in Europe and Asia (with the
exception of India). ICRA Online also provides certain outsourcing services to BSE. But here, ICRA is
barred to take any outsourcing assignments of any other bourses. We feel due to this ICRA may be
loosing significant outsourcing services from NSE, the biggest exchange.

Business Strategy

The objective is to enhance its position as a leading provider of ratings, research, consulting and
outsourced services. It is focused on enhancing shareholder value through pursuing strategies that
increase the profitability and return on equity. The key elements of its business strategy are as
follows:

• Expand the business by using its brand name, core competencies and strategic relationship.

• Expansion of the service offerings.

58
• Expansion of the global capabilities.

• Continuing to attract, train and retain employees.

ICRA plans to expand business by using its brand core competencies and strategic relationship. To
increase its market share ICRA plans to concentrate on providing high quality services and to focus
on its key businesses. Other initiatives include improving its brand visibility, enhancing its service
offering and franchise amongst the investors, issuers & intermediaries.

Competitive Strengths (Reasons for good Subscription)

• One of the few credit rating agencies in India.

• Close association with Moody’s Group Moody’s India, which is part of the Moody’s Group, is a
promoter of ICRA Limited. In addition, Moody’s Investors Service, which is an international rating
agency, has entered into the Technical Services Agreement with the company pursuant to which it
has been providing technical services to ICRA. Further, the company provides certain outsourcing
services to Moody’s Investors Service.
• Rich database and research support its products and services portfolio
• Product and service innovation. The company believes that part of their success lies in their
ability to successfully introduce new products and services. In the last five years, they have
introduced carious rating and grading products such as corporate governance ratings, project
finance ratings, issuer ratings, mutual fund ratings and grading of maritime training institutes,
healthcare institutions and real estate developers and projects.
• Demonstrated track record of its rating. ICRA believes that for ratings to be used as reliable
indicators of credit risk, it is critical that a rating agency be able to demonstrate, over a period of
time, strong correlation between the actual performance of the ratings it assigns and what the
ratings themselves convey. Since 2001, the company has been publishing their rating transition
studies. They believe that the ratings assigned by them show that higher category ratings

59
demonstrate a relatively lower likelihood of default and a higher degree of stability with greater
resilience to change.
• Experienced and strong management team and pool of high quality employee talent.

ICRA IPO

ICRA Limited has entered the capital markets with a issue of 25.81 Lac Equity Shares at a price
band of Rs. 275-330.The company entered capital market with a public issue of 2,581,100 equity
shares of Rs 10 each, for cash, at a price to be decided through a 100% book building process. The
price band for the issue was between Rs 275 to Rs 330 per equity share. The issue size at the higher
price band is at Rs 85.17 crore. It is also an associate of Moody’s Investors Services. Moody has
29% stake in ICRA. Remaining stake is held by leading financial institutions and banks like SBI,
LIC, IFCI etc.

Details of Issue

Type of Issue: Book Building

Issue Size: 2.5 m Equity Shares
Price - Band: Rs.275 – Rs.330
Issue Opens: d_ March 20, 2007
Issue Closes: March 23, 2007
Minimum Bid Lot: 20 Equity shares and in
Multiples of 20 thereafter
Listing: BSE & NSE
Book Running: SBI Capital Markets Ltd.
Lead Managers
Co. Ltd. Kotak Mahindra Capital
Registrar: Intime Spectrum Registry Limited.

60
ICRA would be the second company going for listing (among the fours).

Objective of the Issue

• The objects of the offer are to achieve the benefits of listing on the stock exchanges and provide
liquidity to existing shareholders and employees.

• To meet the Issue Expenses.

• To avail the listing benefits.

The objective of the issue is to provide an exit route to the existing shareholders. Hence, there are
no proceeds to the company out of the issue. However, the issue would enhance brand name of the
company and provide public markets to the company’s equity shares.

Most of the experts had recommended the ICRA IPO due to their following reasons:-

Experts/Company Result Reasons

ICRA is an excellent issue.
The price band is
reasonable; counter demand
is good. The main
advantage to the company
is that Sebi has made rating
compulsory for the debt
R S Iyer issues. Investors must
(KR Choksey) Apply subscribe to issue.
Manish Bhatt ICRA looks to be good
(Prabhudas Apply issue, at an attractive price

61
 Lilladher) band. On the PE basis, it is
around (ASK):15x while
CRISIL at 40-45x. So
investors have to apply for
this issue.
ICRA is a very good issue.
It is half the size of
CRISIL, but still looks
good. It is proven company
and valuation wise also
good (the PE for ICRA is
SP Tulsian around 13x and CRISIL at
(Investment 30x ). Investors should
Advisor) Apply apply for it.

Response to IPO

ICRA IPO oversubscribed 75 times.

It was a magnificent response from investors to ICRA, a leading provider of investment information
and credit rating services in India. Every type of 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 were at cut off price. The issue was oversubscribed 75.04 times, as per
NSE website. Qualified institutional investors have put over 11.69 crores bids, in that 53.88%
bids were from FIIs. QIBs portion subscribed 90.65 times. Non-institutional investors' portion was
subscribed 72 times and retail investors at 54 times.

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Subscription Details

Investors Times
Qualified institutional buyers 90.65
Non institutional investors 72.12
Retail individual investors 53.99
Total 75.04

Allocation of Shares:-

1. QIB’s:-The offer is being made through the 100% book building process wherein up to 50% of
the offer shall be allotted on a proportionate basis to qualified institutional buyers (QIBs). Further,
5% of the QIB portion shall be available for allocation to mutual funds only and the remaining QIB
portion shall be available for allocation to the QIB bidders including mutual funds, subject to valid
bids being received at or above the offer price.

2. Further, at least 15% of the offer shall be available for allocation on a proportionate basis to non-
institutional bidders and at least 35% of the offer shall be available for allocation on a proportionate
basis to retail individual bidders, subject to valid bids being received at or above the offer price.
(ASK):- The offer shall constitute 25.81% of the fully diluted post-offer capital of the company.
Book running lead managers to the issue are SBI Capital Markets & Kotak Mahindra Capital and
registrar is Intime Spectrum Registry.

Reasons for Good Listing

1. One of the few credit rating agencies in India.

ICRA is one of the four credit rating agencies in India. It is primarily engaged in the business of
providing rating, grading and research based information services. In fiscal 2006, volume of debt
rated by ICRA was Rs 138949 crore and the number of published issuers rated by them outstanding

63
as on March 31, 2006 were 398. It enjoys strong market position for credit ratings in the financial
sector and structural finance. In India only four company’s are in rating space and among them only
one is listed entity.

2. Expansion to drive growth.

ICRA plans to expand business by using its brand core competencies and strategic relationship. To
increase its market share ICRA plans to concentrate on providing high quality services and to focus
on its key businesses. Other initiatives include improving its brand visibility, enhancing its service
offering and franchise amongst the investors, issuers & intermediaries. To expand its presence in
the US, ICRA’s subsidiary, ICTEAS has initiated the process for incorporating a subsidiary in the
US. With the proposed implementation of Basel II norms, the company expects the requirement for
rating loan exposures to increase given the dominance of bank credit in India.

3. Improving macro environment to drive business fundamentals.

We believe the company is an attractive play on the developing ratings market in India. The
demand for ratings stems from the developing debt market, increasing leverage of corporate’s and
increasing capital requirements of banks and financial institutions. Grading of equity issuances,
which is currently voluntary, if made compulsory, could lead to increased revenues. Basel II will be
a key revenue driver for both ratings and consulting segments. ICRA is present in businesses like
consulting, software, outsourcing, and information services. ·Overall increase in resource
mobilization from the debt markets and recent regulations by SEBI to make IPO grading mandatory
will give a further boost to the growing rating services industry.

4. Industry Drivers

Demand for rating services is derived from the overall resource mobilization in the economy
particularly from the growth of debt markets viz. corporate bonds and commercial paper issuance.
The rating industry in India has registered a growth in the last three years. Credit rating industry in
India is expected to grow by 27% with increased demand from big consumers of consulting
services like Banking and finance, Information services, Software and Outsourcing services.

64
5. Strong database and key to product innovation will add to revenue.

In depth knowledge in several sectors supplemented by knowledge management systems has

enabled ICRA to create a rich database to address to varied requirements of different sectors. In last
five years, it has introduced various rating and grading products such as corporate governance
ratings, project finance ratings, issuer ratings mutual fund ratings, healthcare institution and real
estate developers and projects etc. Going ahead it is expected to increase its product innovation and
likely to cater to other sector in addition to its present product portfolio.

6 .Close Association with Moody’s Group.

Moody’s India, which is part of the Moody’s Group, is the promoter and holds 29% in the
company. Moody’s Investor services, which is an international credit rating agency, has entered
into Technical Services Agreement with the company pursuant to which it has been providing
technical services to the company. ICRA also provides certain outsourcing services to Moody’s.

7. Strong Market Positioning.

The company enjoys strong market position for credit ratings in the financial sector and structured
finance. In FY 2006, volume of debt rated was Rs 1389 billion and the number of outstanding
published issuers rated was 398.

8. Strong Financials.

The total revenue has increased from Rs 333.67 million in FY03 to Rs 559.09 million in FY06 at
the CAGR of 19 %. During the same period, PAT increased from Rs 97.05 million to Rs 142.08
million at the CAGR of 13.5%.

Valuations

The stock was priced attractively at 18x annualized FY07E earnings (post issue) as compared to
CRISIL which is trading at 21x FY07E annualized EPS. ICRA’s subsidiaries, particularly its

65
outsourcing division, are in initial stages and FY06 consolidated numbers do not fully reflect the
earnings potential. Internationally, rating companies like Moody’s trade at 30x FY06 EPS. ICRA
posted a net profit growth of 13.5% CAGR over FY03-06, which is expected to improve with
growth 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
players in future, due to high reputation of existing players, especially CRISIL and ICRA. It can be
observed that the other business segment of ICRA will contribute significantly in future,
maintaining its rating business. CRISIL is currently trading at 39.67x its CY06 EPS of Rs 55.33.
The EBIDTA margin of ICRA is lower at 33.5%, compared to 41.2 % in case of CRISIL.

The cap price of Rs 330 discounts 18.22x its annualized 9M FY07 EPS of Rs18.12. The Moody’s
patronage, and distinguished shareholder-promoter base, will lend lot of support in future in getting
business and will stand in good stead. The management has given a growth outlook of 25% CAGR
for coming three years.

Findings:

From the above IPO, we can conclude that listing of ICRA Ltd was above the issue price due to
its strong fundamentals & above mentioned reasons So, before going for ICRA IPO a prudent
investor should aimed at long term returns as well as expecting good listing gains. So, By
making a thorough analysis of the company, its fundamentals, its unique position in the business,
financials& its valuations investors should have invested in the IPO

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 INDIAN ECONOMY

In 1991, the Government of India initiated a series of comprehensive macroeconomic and structural
reforms to promote economic stability and growth. The key policy reforms that were initiated by the
Government were focused on deregulating certain industry sectors, accelerating foreign investment
and implementing a privatization program for disinvestment in public sector units.

History and evolution of the telecommunications sector:-

Phase I – Take off Phase
Prior to 1991, the telecommunications industry in India was state-owned. In December 1991, the
DoT began the process of introducing private sector participation in the telecommunications sector
by inviting bids from Indian companies with no more than 49% foreign ownership for non-exclusive
licenses to provide cellular services in the four metropolitan Circles. The Government issued 34
licenses covering 18 service areas to 14 companies from 1995 through 1998. In 1999, the National
Telecommunication Policy 1999 (“NTP 1999”) was announced by the Government to address the
difficulties encountered by licensees under the initial telecommunications licensing regime.

67
Phase II – High Growth Phase
In January 2001, the Government published guidelines concerning the fourth license to be awarded
for each Circle. The guidelines further provided that for the entire duration of the license, total
foreign held equity in the licensee company should not exceed 49% of the paid-up capital and that
management control should vest with an Indian promoter. Also, in January 2001, based on the
recommendations of TRAI (Telecom Regulatory Authority of India) the Government issued
guidelines to permit fixed-line telecommunications service providers to provide limited mobility
services using Wireless Local Loop WLL (M) technology, within specified short distance calling
areas in which the relevant subscriber is registered. In October 2003, TRAI recommended to the
Government that fixed-line telecommunications service providers intending to provide limited
mobility services based on WLL (M) technology pay a specified amount as an additional entry fee.

Phase III – Recent Phase

In November 2005, the Government raised the foreign direct investment limit applicable to the
telecommunications sector from 49% to 74% (held directly or indirectly), subject to compliance with
certain conditions, including that the majority of the directors and selective key senior management
personnel of a company operating in the telecommunications sector be resident Indian citizens, any
shareholder agreements and the memorandum and articles of association of the company be
amended to ensure compliance with the conditions of the relevant license agreement, and a resident
Indian promoter holds at least 10% equity of the company.

The key reasons for the significant growth in the industry in the last phase of growth were:
● CPP effect on the usage patterns of consumers;
● Intensified competition due to the entry of Reliance Televentures Limited;
● Introduction of schemes like Monsoon Hangama by Reliance;
● Introduction of micro pre-paid plans; and
● Introduction of extended validity cards.

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TELECOM INDUSTRY GROWTH DRIVERS
Given its low tele-density, economic liberalization and the increasing affordability of mobile
telephones and services, the Indian mobile telecommunications industry is expected to continue to
enjoy growth in terms of both subscribers and usage. The following factors are expected to
contribute to further growth:

• Overall economic growth and continued development of the Indian economy.

The buoyancy of the Indian economy has increased the purchasing power of consumers. Disposable
incomes have risen by a CAGR of 10% over the last ten years, resulting in an increase in
consumption expenditure. According to the National Center for Applied Economic Research
(“NCAER”), the number of households in the “middle income”, “high income” and “rich” categories
is expected to increase to approximately 37 million, 21 million and 23 million, respectively, by
financial year 2007 from approximately 24 million, 14 million and 12 million, respectively, in
financial year 2002 as summarized in the diagram below:

69
This significant improvement in affluence coupled with the growing working population is expected
to be one of the key drivers for increased mobile telecommunication penetration in the future.

• Favourable Demographics in India.

The favourable demographic profile of India as reflected in the increase in the population in the age
group between 15 - 44 is a factor for the growth in the demand for telecommunications services
since this age group is associated with a higher propensity to spend with increasing disposable
income and with increasing “trend awareness”. Set out below are details of the demographic age
profile in India for the period 2001 to 2010.

• Higher growth rate of service-oriented sectors, leading to an increased demand for

mobile telecommunications services.

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The contribution of the service-oriented sectors to the Indian GDP has increased significantly in the
past five decades. Service oriented sectors contributed approximately 29% of the GDP in 1960 and
contributed approximately 54% of the GDP in 2005.
This growth is primarily due to enhancements in information technology and information
technology-enabled services in the last two decades. This should in turn lead to increased demand
for mobile telecommunications services.

• Declining tariffs and reduced handset costs have enhanced subscriber growth.
Tariffs have been declining over the past ten years. Handset costs have also decreased significantly
in recent years. This has reduced the entry barriers for new subscribers and thus expanded the
markets available to telecommunications service providers.

• Fall in incremental capital expenditure per subscriber and economies of scale.

Mobile operators in the Indian telecommunications industry have generally attained the necessary
number of subscribers to benefit from various economies of scale and to negotiate better prices from
network equipment vendors. As a consequence, as well as because of significant subscriber growth,
incremental capital expenditure per subscriber is expected to fall in the future.

• Increase in pre-paid subscribers through micro pre-paid and extended validity cards
will be a driver for future growth.
Current growth in the subscriber base is mainly attributable to growth in the number of pre-paid
subscribers. The growth in this segment is primarily due to lower entry costs for subscribers and the
availability of products and services. From the perspective of a mobile operator, pre-paid subscribers
are logistically easier to manage than post-paid subscribers as they do not require elaborate sales
infrastructure nor do they pose significant credit risks as payments are received upfront. The latest
offerings of micro pre-paid plans and extended validity cards by mobile operators have proved
popular and have taken subscriber growth to new levels.

71
 • Increasing demand for value-added telecommunications services.
As the telecommunications needs of subscribers become increasingly sophisticated, we expect
increased demand for value added data services such as music messaging and voice recognition
products. This trend will be enhanced by the development and supply of new data-enabled handsets
at lower prices. Revenues from VAS are expected to bridge the gap created by the fall in ARPUs
triggered by a reduction in tariffs.

• Increased regulatory clarity.

The regulator has taken proactive steps to improve mobile teledensity. The regulatory regime has
fostered healthy competition in addition to allowing significant FDI participation of up to 74%
ownership in telecom companies. These regulatory changes and refinements in recent years have
brought greater clarity to existing rules and procedures enabling the operators to focus on improving
network quality and telecommunications services. This situation has also made it easier for
companies operating in this sector in India to raise financing and other funding on more attractive
terms given the greater predictability of the operational environment. Since the regulatory
framework is an evolving process within the industry.

Indian telecommunications market can be broadly classified into the following segments:
o Wireless
o Wireline
o National Long Distance
o International Long Distance
o Data Services.

• Wireless
Wireless comprises mobile services provided by GSM and CDMA operators. India’s population is
geographically spread out in semi urban and rural areas and high capital intensity of providing last
mile connectivity to fixed-line subscribers makes it economically unremunerative to provide fixed

72
line services to a large section of the population. In addition, the value proposition of a wireless
connection is significantly higher to a telecom subscriber as compared to a fixed-line service. This
mobility advantage has expanded the market for the entire telecommunications industry. We believe
increased spending power and changing demographic profile of the population in favour of the
younger generation have also contributed to the growth of wireless industry.

• Wireline
Since 2001, when the regulations permitted entry of private basic telecom operations, several
players including Reliance Infocomm, Bharti Airtel and Tata Teleservices started providing Wireline
services.
• International Long Distance ("ILD")
State-owned Videsh Sanchar Nigam Limited (“VSNL”) had the only ILD licence in India until April
2002 the Government decided to open up the ILD segment to competition without any restriction on
the number of operators. Thus, the monopoly of VSNL ended. Data Access, Reliance Infocomm and
Bharti Televentures applied and were issued licences shortly after the Government issued the
detailed guidelines and licence conditions in January 2002. Reduced tariffs, increased globalization,
growth in outsourcing based industries and increased penetration have fuelled the growth in usage
minutes in the ILD segment over the past years.

• National Long Distance (“NLD”)

NLD services were a state monopoly until mid-2002, with BSNL being the sole provider of domestic
long distance services. The NTP 1999 envisaged the opening up of the national long-distance market
to private players. Subsequently, the Government decided to open up the NLD segment to
competition without any restriction on the number of players. Increased competition owing to a
larger number of players has resulted in sharp decrease in the tariffs paid by the consumers. Lower
tariffs and increased telecom penetration has fuelled growth in NLD segment.
Telecom industry is one of the growth industry which has very bright future outlook due to
all the reasons mentioned above which are favoring the growth of Indian telecom industry. So,

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telecom companies also present a good opportunity for the investment since they are the main
growth drivers in the industry. However in the same telecom industry the performance of the IPO of
Idea cellular Ltd. & Spice Communications Ltd. are different. So, even in the same sector the
investor should analyze the Fundamentals of the companies separately to estimate the future prices
of the stock. Below lies the comparison of IPO’s of Idea Cellular Ltd. & Spice Communications Ltd.

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Comparison of IPO’s of Idea Cellular Ltd. & Spice Communications Ltd.
• Idea Cellular Limited

ISSUE DETAILS

Price Band Rs 65-75 Allocation to Retail 30% of Net Issue

Net Issue Size Rs 20,750 million Listings NSE and BSE

Green-Shoe Option Rs 3,187.5 million Issue Opens 12-Feb-2007

Issue Size with Rs 23,937.5 million Issue Closes 15-Feb-2007

Green-Shoe Option

Minimum Bid 90 Process Book-building

Quantity

Maximum Bid 100,000 Purpose of Issue Expansion

(Retailers)

Lead Managers
• JM Morgan Stanley
Private Limited.
• DSP Merrill
Lynch Limited.
• UBS Securities India
Private Limited.
• Citigroup Global
Markets India
Private Limited.

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REGISTRAR TO THE ISSUE
• Bigshare Services
Private Limited

Objective of the Issue

In addition, Company expect to derive the benefits from the listing of equity shares, which would
provide liquidity to Equity Shares issued in connection with our ESOS, which they intend to issue to
their employees, in addition to providing a currency for acquisitions.

Background
Idea Cellular was incorporated in 1995 as Birla Communication Ltd with licenses for providing
GSM-based services in the Gujarat. In 1996, the name was changed to Birla AT&T Communications
Ltd after it became a joint venture company of Grasim Industries and AT&T Corporation. In 2000,
the company merged with Tata Cellular, thereby acquiring the original license for the Andhra
Pradesh circle. In 2001, it acquired RPG Cellular Ltd and consequently the license for the Madhya
Pradesh (including Chattisgarh) circle and changed the name to Birla-Tata- AT&T Ltd. In the same
year, it obtained a license for providing GSM based services in the Delhi circle. At this time, the
“Idea” brand was also created. It is now is the sixth largest wireless operator in India with an 8.5%

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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 Pradesh (East) and it has got the licenses for the two
more circles (Bihar & Mumbai).

Business
Idea cellular Ltd are amongst the leading mobile operators and currently operate in 11 Circles which
comprise one metropolitan Circle, three category A Circles, six category B Circles and one category
C Circle. In addition, it holds licenses for the Metropolitan Circle of Mumbai and the category C
Circle of Bihar. It ranks amongst the top three operators in six of the Established Circles. They are
currently one of the fastest growing mobile operators and have consistently grown in the Established
Circles and New Circles with a market share approximately of 16.7% in the period between April
and December 2006.
They have well-positioned GSM service provider with original licenses in seven of their 13
Circles as a result of which it benefit from various incumbency advantages. Company believes that
they are well positioned to capitalize on the growth opportunities in the Indian telecommunications
market and will be able to leverage their existing strengths in all their 13 Circles and 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 business groups in India in terms of
market capitalization.
They are expanding their coverage in the Established Circles and the New Circles, and also
pursuing new licenses to create a pan- India footprint. Company has recently received a UAS
License for the Mumbai Circle and, through Aditya Birla Telecom Limited, a UAS License for the
Bihar Circle. The Mumbai Circle is attractive for the company because Mumbai is the commercial
capital of India and also because of the community of telephony interests including the benefit of
traffic flows with their other Circles, particularly Maharashtra, Delhi and Gujarat Circles. They have
also recently obtained an NLD license which should reduce their operating costs

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 • Spice Communications Limited

ISSUE DETAILS

Price Band Rs 41-46 Allocation to Retail 30% of Net Issue

Net Issue Size 113,111,111 Equity Listings BSE

Shares.

Minimum Bid 90 Issue Opens JUNE 25, 2007

Quantity

Maximum Bid 100,000 Issue Closes JUNE 27, 2007

(Retailers)

Purpose of Issue Expansion Process 100 % Book Building

Issue)

Objects of the Issue

The objects of the Issue are to achieve the benefits of listing on the Stock Exchange and to raise
funds for
(a) Part payment of our long term debt,
(b) Payment for NLD/ILD license fees,
(c) Meet our capital expenditure requirements,
(d) For other general corporate purposes and
(e) Meet the expenses of the Issue.

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Lead Managers
• Enam Financial Consultants Private Limited
• UBS Securities India Private Limited.

Registrars to the Issue

• Karvy Computershare Private Limited

Background
Originally incorporated as a private limited company on March 28, 1995 under the name of
"Modicom Network Private Limited". The Company subsequently became a deemed public
company under section 43(1A) of the Companies Act, 1956 with effect from April 1, 1999 and the
name of the Company was changed to "Modicom Network Limited". On December 28, 2006, the
Company was converted into a public limited company and the name was changed to "Spice
Communications Limited".

Business
Spice Communications Ltd are the second largest cellular services provider in Punjab and fifth
largest cellular services provider in Karnataka, measured by the total number of subscribers. On a
combined basis, Company has a market share of 14.49% in these states, measured by the total
number of subscribers. Their customer base consisted of approximately 2.73 million subscribers as
of March 31, 2007, comprising of approximately 2.20 million pre-paid subscribers and
approximately 0.53 million postpaid subscribers. According to data compiled by COAI, the Punjab
and Karnataka circles in which we operate accounted for 11.95% of India’s telecommunications
market share as of March 31, 2007, measured by total number of subscribers. Both of these states are
recognized as major economic hubs of India, with Punjab enjoying the highest per capita income in
the country, and Karnataka (whose major city is Bangalore) known as the “Silicon Valley” of India.

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 To match the existing markets, it has recently embarked on a pan-India expansion strategy by
applying for licences for an additional 21 circles throughout India to provide GSM cellular services,
in addition to licences for providing NLD and ILD services.
As they are expand their business outside of Punjab and Karnataka, they expect to supplement this
local brand strategy with a national brand strategy which focuses on India’s relatively youthful
population by providing marketing, customer retention and loyalty programs and lifestyle features,
including value-added services that appeal to younger subscribers. Currently, they also offer various
value-added services and international roaming services.
Our Promoters are Mr. Dilip Modi and Modi Wellvest Private Limited.
TM, through TMI India, a wholly-owned subsidiary of TM International, is an investor in the
Company. They expect to benefit from TM’s operational and management experience both in
Malaysia and key Asian regional markets, through the creation of new products and services, the
sharing of technological experience and implementing and leveraging group synergies

Ratios Analysis:
Year – 2006-2007
A ratio is an arithmetical relationship between two figures. Financial ratio analysis is a study of
ratios between various items or group of items in financial statements. Financial ratios help in
analyzing the financial performance of the firm. It is helpful in assessing corporate excellence,
valuing equity shares, assessing market risk, judging creditworthiness. Ratio analysis involves the
use of various methods for calculating & interpreting financial ratios to assess the performances &
status of the business. It is the tool of financial analysis, which not only studies but also reflecting
the numerical & quantitative relationship between the important financial variables.
Ratio analysis facilitates comparison between two companies. It reflects the financial
efficiency & financial position of a company. Ratio analysis is fruitful in preparing plans for the
future. Ratio analysis is process of comparison of one figure against another, which makes a ratio,
and appraisal of the ratios to make proper analysis about the strength and weakness of the firms
operation. Ratio analysis is extremely helpful in providing valuable insight into a company s

80
financial picture. Ratios provide an easy way to compare present performance of businesses. Ratios
depict the areas in which a particular business competitively advantaged or disadvantaged through
comparing ratios to those of other businesses within the same industry.

Ratios Idea Cellular Ltd Spice Communications Ltd

Operating Profit Margin 36 24

Gross Profit Margin 24 12

Net Profit Margin 6 -10

Debtor Turnover Ratio 22.1 13.56

Fixed Asset Turnover Ratio 0.71 0.73

Current Ratio 2.04 1.26

Debt Equity Ratio 1.26 -11.99

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Interest Covering Ratio 2.88 1.91

Return On Investment 23 18

Return On Net worth 11 74

Dividend Yield 0 0

The ratios of Idea Cellular Ltd should be compared with its competitor Spice Communications Ltd
to reveal whether the firm is significantly out of line with its Competitors.

Operating Profit Margin: As it can be seen there is 12% difference in operating profit margin of
both the Companies. It means as compared to Spice Communications Ltd , Idea Cellular Ltd is doing
exceptionally well in commercial operations of its business. Idea Cellular Ltd is managing its day to
day business activities more efficiently & effectively.

Gross Profit Margin: There is vast difference of 12% in gross profit margin of both the companies.
As gross profit indicates the difference between Sales and Cost of Production, the margin indicates
the efficiency of Idea Cellular Ltd in production operations as compared to Spice Communications
Ltd.

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Net Profit Margin: As Net Margin of both the companies also shows a considerable difference of
4%, it means Idea Cellular Ltd is effectively managing all its Administration, Selling & Distribution
Expenses. As Spice Communications Ltd has Net Profit Margin (-10) i.e. negative which is due to
the fact that it has incurred losses. So it implies that even in the same sector spice is incurring
significant losses whereas Idea is doing well as evident by the better net profit margins.

Debtors Turnover Ratio:

Idea Cellular Ltd Spice Communications Ltd
Average Collection Period = 360/22.1 360/13.56
= 16days. = 27days

As average collection period of Idea Cellular Ltd is less than Spice Communications Ltd, it means
the quality of debtors Spice Communications Ltd is not as good as compared to Idea Cellular ltd.
Idea Cellular Ltd is turning its debtors faster in sales, since a short collection period implies prompt
payments by debtors. So the funds blocked up by Idea in debtors are less compared to spice which
the Idea is using for other profitable purposes.

Fixed Asset Turnover Ratio: There is marginal difference in the Fixed Asset Turnover Ratio of
Spice Communications ltd & Idea Cellular Ltd which is due to the fact that the fixed asset employed
by Spice is much lower than Idea Cellular Ltd. But the sales of Idea Cellular Ltd are much higher
than Spice Communications Ltd.

Current Ratio: As ideal Current Ratio is 2:1. So, Idea Cellular Ltd is efficient in managing its
liquidity. It has more Current Assets to pay off Current Liabilities. Idea Cellular Ltd has 2.04 Rs
current assets for every 1 Re of current liabilities whereas Spice Communications Ltd is illiquid
comparatively as it has only 1.26 Rs current assets for every 1 Re of current liabilities

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Debt Equity Ratio: As Idea Cellular Ltd is using 1.26 debt as compared o Spice Communications
Ltd (-11.99), it means Idea Cellular Ltd is taking advantage of leverage & the risk of meeting fixed
interest rate obligations as it is sure of its earnings. Incase of Spice Communications Ltd the debt
equity ratio is negative which implies that it has repayment burden.

Interest Coverage Ratio: As there is a difference of 0.97 in interest coverage ratio of both
companies. It means Idea Cellular Ltd has got sufficiently enough earnings to service its debts as
compared with Spice Communications Ltd.

Return on Investment (ROI): As it has difference of 5%, it means that Idea Cellular Ltd is getting
more returns on total capital employed as compared to Spice Communications Ltd which is giving
less returns i.e. 18%. So it is efficiently managing its assets.

Return on Net Worth: As Idea Cellular Ltd is earning very average returns on its Equity Share
Capital, that why its return on networth is low but it is at par with industry averages. Incase of Spice
Communications Ltd, The return on networth is high due to comparatively less networth. So the
return on networth ratio should not be misunderstood just because spice has much higher return on
networth as compared to Idea Cellular Ltd.

Findings:
Ratio is important criteria for selecting the company to invest. It also provides the base for decision-
making in investment. In Ratio analysis a company’s goodwill, its performances, liquidity, leverage,
turnover, profitability & financial health are checked & analysis is carried for the purpose of long term
successful investment.
This Ratio analysis is helpful to general investor in many ways. It provides important & vital information
regarding the financial position of the company. The ratio analysis helps the investor to analyze the past
performance of the firm and to make further future projection regarding financial position. Ratio
analysis is a very powerful analytical tool useful for measuring performance of an organization as it

84
concentrates on the inter-relationship among the figures appearing in the financial and accounting
statements.

Listing of IPO’s
Idea Cellular Ltd Spice Communications Ltd
Listing Date 13th March 19th July
Cut off Price 75 46
Share Price after three As on 13th June 2007 – As on 19th October 2007
months from listing. Rs 111.60 Rs 50.10
% Gain 48.8% 8.91%

Stock Market Performance

Idea Cellular Ltd

Idea Cellular Ltd

140

120
124.95 124.6 123.95 121.55 127.3
115.7
100
89.85 91.15
80
Price

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 Index -Sensex

20000
18000 17328.62
16000 15550.1314935.7715422.05
Market Prices

14000 14570.75
13159.5512455.3714078.21
12000
10000
8000
6000
4000
2000
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Spice Communications Ltd.

Spice Communications Ltd

62
60.65
60

58
Price

56 55.65 55.85

54 54

52

50
July August September October
Month - Wise

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 Index - Sensex

18000
17500
17328.62
17000
16500
Market Price

16000
15500 15550.13 15422.05
15000 14935.77
14500
14000
13500
July August September October
Month-Wise

From the above stock market performance it can be seen that after the listing of idea in March 2007
it has not 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 has underperformed with
the Sensex & as after three months its share price has show a gain of 8.91%. Stock market prices are
the reflection of the fundamentals of any company, so the fundamental differences can be evident
from the share prices of Idea Cellular Ltd. & Spice Communications Ltd

Reasons for poor performance of Spice Communications ltd as compared to Idea Cellular Ltd.

• Financial Performance
Spice has incurred significant losses in the past. As of June 30, 2006, it had accumulated losses of
Rs. 6,425.43 million which exceeded their entire net worth at such time, and they continue to have
negative net worth because of the accumulated losses of Rs. 6,843.57 million as of December 31,
2006. They expect to continue to have accumulated losses for the foreseeable future as they continue
to incur significant expenditures on account of capital and operational costs and debt repayments.
We cannot assure you that we will not continue to incur losses in future or that our net worth will be

87
positive in the future. Their failure to do so may materially affect their business, prospects, financial
condition and results of operations.

• Negative EPS & P/E ratio

EPS of Idea Cellular Ltd is 1.10 & P/E Ratio is 114.70.
EPS OF Spice Communications Ltd is -1.25 as EPS is in negative so the P/E Ratio is zero. Since
EPS measures the earnings which the company is providing on the money invested in business, it is
indicating that Idea’s financial position is sound. In case of Spice communications ltd., losses &
negative losses is presenting unfavourable position in front of shareholders.

• Promoters Groups
Spice Communications Ltd - Certain of their Promoter Group companies have incurred significant
losses in the past. Some of their Promoter Group companies also incurred losses in the last three
fiscal years.
Idea Cellular Ltd is the part of the Aditya Birla Group which itself is very strong & has good
business name in the market.

• Listing
Spice does not meet the eligibility criteria for listing of their Equity Shares on NSE as their
accumulated losses exceeds their net worth. Due to this, company withdrew the application for
listing on NSE under the letter dated April 10, 2007. Their inability to list on the NSE may adversely
affect the liquidity and tradability of their Equity Shares and the company cannot assure investors
that their failure to list Equity Shares on the NSE will have an adverse affect on their liquidity or
marketability of their Equity Shares.
But there is no problem with idea as it is listed on both BSE & NSE.

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 • Area of Operation
Spice Communications are a regional player in the cellular services industry and significant
competition from larger, national cellular service providers may have a material adverse effect on
our profitability. They currently operate exclusively in the Punjab and Karnataka circles. While they
intend to expand our geographic network coverage outside of these circles, they are currently a
regional service provider. Most of our competitors are larger than them.
In the past, they lost key corporate clients, particularly in the Karnataka market, primarily
due to our lack of coverage in certain geographic areas. Company expect to continue to face
significant competition in these two states and they cannot assure investors that their market share in
these states will remain at the current level or that they will be able to successfully compete with
other service providers. On other side Idea has a high market power in the telecom sector as
compared to spice communications. Operations in 11 Circles in India covering a large part of the
Indian market. Idea is national service providers.

Customer Base
Spice Communications rely significantly on a small number of customers. Company cannot assure
investors that in the event any of their customers fail to pay them or closes their accounts with them,
company will be able to offer our services to new customers to cover their losses. The loss of any
one of their major customers or delay or default in payment by them, or decrease in volume of their
minutes of usage may have a material adverse effect on our business, financial condition and results
of operations. On other hand Idea has a strong base of customers as it is spread all over India. Idea
has critical mass of 12.44 million subscribers. It also has high quality network services which retain
their customers as compared to its competitor like Spice Communications Ltd.

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 RECENT NEWS IN I.P.O

• JUDGING IPO’S: RATING COS TREAD CAUTIOUSLY

20 JUN, 2007.

Indian credit rating agencies are almost ready to rate initial public offerings of local firms after the
capital markets regulator has made it a mandatory requirement. There is agreement on the
methodology to be adopted and the rationale for the rating awards. The agencies will cover the
projects the company which is seeking to raise funds from the public market has on hand. They will
run a check on the promoters, the financials of the firm, do the valuation, how the issuer has utilized
funds and so on. What would be distinct however is the rating scale. The rating scale is expected to
be from one to five with five signaling top quality offering. Each rating agency would be free to
come to its own conclusion on the scale of rating just as it does in debt offerings. But this does not
imply that firms can get away by shopping for better ratings.
There is a difference in the new equity rating landscape unlike what the practice has been
in rating debt. It may well be that a firm which is aggrieved with the rating assigned to it by one
agency may well approach another rating agency. But the Indian capital markets regulator has been
one up on them. It has made it clear that the issuer would have to disclose in the offer document the
fact that it had approached another rating agency and had been assigned a lower rating. It is obvious
that rating agencies see the risks involved in the new rating product. Legal disclaimers are sure to be
attached alongside the rating report which they are expected to put out saying that they have done
the best based on the data they have been provided with. After all, it is not that they were keen on
this product, fully aware as they are of the reputation risks associated with such ratings. The
revenues aren’t also very promising, at least to start with. But when it is the regulator which wants
this to be done, seldom can a ratings firm decline. In a month or two, the first rating of an IPO is
expected to be assigned. The big offerings such as ICICI Bank or SBI which are slated for launch
later will not have such ratings as they are follow on offers. Over a period of time, the latest rating

90
product should evolve. If it does, Indian rating agencies will be closely watched.

• MARKET SEEN NOT READY FOR CIRCUIT FILTERS ON IPO’S.

TIMES NEWS NETWORK (WEDNESDAY, MAY 09, 2007)
The issue of implementing circuit filters when a stock debuts on the bourses has been hanging fire
for some time now. The Securities and Exchange Board of India (Sebi) had recently proposed
introducing a maximum upper limit on stocks on day one of their trading session, post demerger,
amalgamation, and capital reduction, scheme of arrangements and revocation of suspension. It has,
so far, kept away from new offerings. There are no circuit filters applied to such stocks on the first
day of trading, which has often resulted in massive volumes and swings in the price movement.
Interestingly, while the market regulator has indicated that it will at one point include IPO
listings in this bracket, merchant bankers are of the view that such a step will lead to a fall in the
quantum of retail interest in IPOs. This is apart from the fact that it would affect the natural price
discovery mechanism.
“Sebi might be concerned with checking price rise on the first day, but it is also a fact that the day of
debut sees many genuine investors exiting the counter to cash in on listing gains,” says a merchant
banker with a domestic firm.
“Retail investors who borrow money to invest in shares are the ones who try to book listing gains. In
reality, they have no option but to sell if they want to make money. Such genuine investors will be
affected if circuit filters are implemented on the first day,” he added.
In the current calendar year, more than 30 stocks have made their debut on the bourses
and most of them have witnessed extreme volatility on day one. In the recent past, stocks like ICRA,
Global Broadcast News, MindTree Consulting, Tanla Solutions, Pochiraju Industries, Pyramid
Saimira, Akruti Nirman and Redington (India), among others have listed on the stock exchanges. All
the above-mentioned stocks gained in the range of 20% to 70% on the day of listing. Interestingly,
according to a section of industry participants, the regulator’s worry also stems from the fact that the
first day witnesses huge trading activity albeit with a dismal delivery-based volume. Day traders are
seen active in almost all the stocks when they debut. “Day traders are the spoilsport who deal in bulk

91
quantity on the first day and jack up the prices. Such bulk deals create an artificial image that there is
huge demand for the stock and hence one sees large amount of buy orders on the first day,” says the
research head of a brokerage house. He further adds that if the day traders are kept at bay on the first
day, then more than half of the problem would be solved. However, he did add that operators do
become active when the stock gets listed

• OPEN AUCTION MAY DECIDE IPO PRICE

1 OCT, 2007.
We have come a long way from the days of ‘fixed price IPOs’ where the investor really did not have
‘a discovery mechanism’, to the current book-building system. There has been a giant leap from the
time of price setting by the Controller of Capital Issues to merchant bankers doing a book-building.
It is debatable whether investors and markets have matured enough to move fully towards an auction
system where IPO cut-off price is decided completely by auction and not constrained by a “book-
building range”.
There are reasons to believe that the current book-building system is not really efficient and we need
to gradually move towards an auction system. In the current system, investors have an illusion of
discovering the price. That’s not true because the underwriting entities have already estimated a
price band for the stock in consultation with other stakeholders to the issue. The investors’ options
are severely circumscribed.
Merchant bankers usually have strong reasons to justify the price band, but empirical evidence
suggests that most of the IPOs are either under priced or overpriced. This has been validated by the
fact that most stocks eventually closed much higher than their issue price right on the first day or
dropped sharply.

An auction-based method for pricing of initial public offers may replace book-building, with the
government aiming to bring in more transparency and efficiency in share sale. The government had
discussed the proposal with SEBI after which the panel was entrusted with the task. Global experience
suggests that firms have enriched investors in greater measure when they let the investors decide the

92
price (auction method). The auction mechanism works well because the investor is in the driving
seat, not the merchant banker or the issuer. Potential investors are expected to point out two things
the price at which they will buy and the quantity that they are willing to subscribe to at that price.
The lowest bid is taken as the price and any oversubscription is taken care of by pro-rata allotment of
shares.
In an auction method, the issuer gets the right value for shares, institutional investors get shares
at a price they want and retail investors can then buy it at the lowest price offered by a qualified
institutional buyer. Prithvi Haldea of Prime Database 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 was used in
the Google IPO, although the concept is yet to gain popularity in that country. The government’s move
to look at alternatives to book-building method for price discovery comes against the backdrop of an
increase in pre-IPO share placements. In last few years, most companies hitting the capital market have
opted for a private placement just ahead of the IPO. In most such deals, while institutional investors
managed to bag shares at a lower price, retail investors, who bought shares through the IPO, had to pay
a higher price. Also, there is a strong view that book-building, which was introduced in India in 1999 as
an alternative to fixed prices, did not lead to any real price discovery, since a price band is already
prescribed. Experts feel underpricing is rampant, as the listing price in case of most IPOs is much higher
than the issue price. This system takes care of the aspirations of the retail investor as normally they
give the lowest bid. Needless to say, the price quoted in this manner is pretty close to the fair value
and ensures pricing efficiency. The bottom line, therefore, is that the Indian investor is now smart
enough to figure out what is a good price for him. The time and circumstances are apposite to move
to an auction system for IPO pricing
Despite the publicity surrounding some high-profile Dutch auction IPOs (Google, for
example), book-building remains the sales method of choice in the US and other countries. Many
jurisdictions that tried auctions for IPOs have abandoned it in favour of book-building. Book
building allows issuers and underwriters to maintain greater control over the availability of
information than they can in an auction. They might use this control to maximize proceeds or to

93
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. 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, opening an auction up to
a greater number of potential bidders does not reduce the risk of under-subscription or under-pricing.
Potential bidders actually may be reluctant to participate because of the risks associated with a large
number of possible entrants. For the issuer, multiple bidders could elevate the risks by leading to
inaccurate pricing, significant aftermarket volatility, and unpredictable bidder participation. This
may explain why some auctions are conducted by invitation only. Hence, a balanced approach would
be required before we decide to press on the button to accept the auction based pricing model in case
of IPOs.

94
 FINDINGS & SUGGESTIONS

• Though IPO is considered as a safe investment avenue but it is very important to make
thorough fundamental study of any IPO before taking the decision. As sometimes a
fundamentally strong company may not provide good returns due to some reasons as in case
of Cairn India Ltd.
• Before taking an IPO investment decision it is very necessary to study the stock market
behavior at that time since it can have a vital bearing on the listing of IPO.
• It is very important to study the company individually irrespective of the growth potential of
the sector. It is evident from the different IPO performances of Idea cellular Ltd. & Spice
Communications Ltd. even when they both belong to the growing Telecom sector.

95
 CONCLUSION
Investment in IPO’s is growing day by day since it allows retail investor to invest in
challenging Equity Market at lower risk. So, it is always considered as a safe investment avenue. But
after doing this project I understood that before investing in an IPO there should be a detailed study
of the IPO. So, an investor should consider an IPO in a very rational way after making a detailed
study of the IPO issuing company, relevant industry & economic conditions.

96
BIBLIOGRAPHY
www.angeltrade.com www.walletwatch.com
www.icicidirect.com www.moneypore.com
www.moneycontrol.com 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

• Financial journals like

1. Chartered Financial Analyst.

2. The Chartered Accountant(ICAI July 2006.
3. Advanc’edge.

97
 ANNEXURE

APPLICATION FORM FOR RESIDENT INDIAN PUBLIC AND NRIs/OCBs/FIIs (ON REPATRIATION/NON REPATRIATION
BASIS)

GLOBSYN TECHNOLOGIES LIMITED

(Incorporated as a public limited Company under the Companies Act, 1956 on 15 th January, 1996 at New Delhi
and obtained the Certificate of Commencement of Business on 23 rd January, 1996)
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

BANK’S COUNTERFOIL
DATE APPLICATION NO. 1001278
TO BE FILLED IN BY THE SOLE/FIRST APPLICANT

Sole / First Applicant Name Mr/Ms. ______________________________________________________________________

Address : __________________________________________________________________________________________
_______________________________PIN _______________Tel No._______________________Fax No._______________

[ ] Cash [ ] Cheque [ ] DD [ ] Stockinvest No. _________________ Dated __________________________

Drawn on (Bank's Name) ______________________________________________ Branch _________________________

No. of Equity Shares applied for Amount Paid (Rs.) BANK'S STAMP BANK'S SERIAL NO.
IN FIGURES - -
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 OPENS ON:
of Rs.30/- per equity share ( price of Rs.40/- )Aggregating Rs.14,77,44,000/- Tuesday,February 13, 2001
and offer for sale by existing members("offerors") of 17,65,000 equity shares OFFER CLOSES ON:
of Rs.10/- each for cash at a premium of Rs.30/- Per EQUITY SHARE (PRICE Tuesday,February 22, 2001
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 & SUB-BROKER'S BANK BRANCH BANK BRANCH
CODE STAMP & CODE STAMP & CODE SERIAL NO

Karvy Securities 2227

98
 Ltd
06/0074-1

Type of Instrument To Be drawn in Favour of: APPLICATION MUST TO AVOID REJECTION

BE MADE FOR A
Globsyn Technologies MINIMUM OF 100 PLEASE COMPLY WITH ALL INSTRUCTIONS
Cheques/Drafts
Limited-Public Offer EQUITY SHARES AND UNDER "GENERAL INSTRUCTIONS" OF THE
IN MULTIPLE OF FORM,
Globsyn Technologies
Stockinvest 100 THERE AFTER MORE SPECIFICALLY FILL UP THE
Limited FOLLOWING
AMOUNT PAYABLE
A) APPLICATION IN BLOCK LETTERS
ON APPLICATION @
B) PAN/GIR NO. IF YOU APPLY FOR 1300
The Board of Directors Rs.40/-PER EQUITY
SHARES AND ABOVE.
Globsyn Technologies Ltd SHARE(WHICH
C) BANK DETAILS FOR REFUND, IF ANY.
INCLUDES A PREMIUM
E-993, Chittaranjan Park, D) NO CASH OF Rs.20,000/- AND ABOVE
OF RS.30/- PER SHARE
E) MENTION AGE
New Delhi-110 019.
ILLUSTRATIVE F) POWEROFATTORNEY/MOA/RESOLUTION

LIST TO BE ENCLOSED WHEREVER APPLICABLE.

REFER TO INSTRUCTIONS ON
Dear Sir,
Application Amount STOCK-INVESTMENT CAREFULLY
On the basis of the Company’s Offer Document for Equity
payable
dated 24.01.2001, I/We hereby apply to you for Shares
(Rs.)
allotment/transfer to me/us of the equity shares
stated below, out of the above Offer. The 100 4,000
amount payable on application as shown below 200 8,000
is remitted herewith. I/We hereby agree to 300 12,000
accept the equity shares applied for, or such 400 16,000
lesser number as may be allotted to me/us, 500 20,000
subject to the terms of the said Offer
Document, the Application Form, the
provisions of the Companies Act, 1956, and
other applicable laws. I/We undertake that I/we
will sign all such other documents and do all
such acts, if any, necessary on my/our part to
enable me/us to be registered as the holder(s) of
the equity shares which may be
allotted/transferred to me/us. I/We authorize
you to place my/our name(s) on the Register of

99
Members of the Company as holders of the
equity shares that may be allotted/transferred
and to register my/our address as give below.
I/we note that the Board of Directors are
entitled in their absolute discretion to accept or
reject this application in whole or in part
without assigning any reason therefor. In the
event, the amount paid by me/us is found
incorrect, I/we understand that this application
will stand corrected to reflect the amount paid.
I/We confirm that I am/we are Indian
National(s) resident in India and that I am/we
are not applying for the said Equity Shares as
nominee(s) of any person resident outside India
or foreign national(s).
I/We are Indian National(s) resident outside
India/OCB/FII applying through NRE/FCNR
account on repatriation basis.
I/We are Indian National(s) resident outside
India/OCB/FII applying through Rupee/NRO
account on non-repatriation basis.

INVESTMENT
PAYMENT DETAILS SOLE/FIRST APPLICANT BANK
DETAILS

NO. OF EQUITY SHARES Bank Name __________________

APPLIED FOR Total Amount Payable (Rs.in figures)
___________________________
___________________
In Figures Branch _____________________
(in words) _________________
City _______________________
[ ] Cash [ ] Cheque/DD
Type of Account [ ] Savings
[ ] Stock Invest No.__________
[ ] Current
In Words Dated ________ Drawn on (Bank
A/c No._____________________
Branch) ___________________
(Refer instruction No.d7)

APPLICANT DETAILS (in Block Letters) DATE:

100
NAME OF SOLE/FIRST APPLICANT Mr/Ms__________________________Age_________ STATUS (Please Tick)
(In Block Letters)
NAME OF FATHER/HUSBAND ______________________________________________ [I] Individual(s)

(In Block Letters) [2] Hindu Undivided Family(HUF)

ADDRESS OF APPLICANT (IN INDIA) [3] Body Corporate/Company

_________________________________________________ [4] Mutual Fund

(In Block Letters) [5]Bank and FI

______________________________________________________________________ [6] NRI / OCB/FII (Non-repatriable)

- [7] NRI / OCB/FII (repatriable)

____________________________________________PIN CODE__________________ [8]Others (PI. Specify)

Occupation (Please tick) Others (Please

specify)
( ) (for sole/first applicant Service Retired Business Housewife Professional Farmer Student

only)

SECOND APPLICANT
Age
(In Block Letters)
THIRD APPLICANT
Age
(In Block Letters)

SOLE/FIRST APPLICANT SECOND APPLICANT THIRD APPLICANT

-
Signature of the Applicant(s)
-
If PAN/GIR not available Please If PAN/GIR not available Please If PAN/GIR not available Please
Tick Tick Tick
PAN/GIR No.
( ) ( ) ( )

(For 1300 Shares or more)

Not assessed Not assessed Not assessed
(Refer instruction No. b10)

Applied not allotted Applied not allotted Applied not allotted

I.T Circle/Ward/District
(Refer Instruction No. b10)

REQUEST FOR SHARES IN ELECTRONIC FORM (Refer instruction h) SPECIMEN SIGNATURE(S)

-
Electronic Form Physical Form Total
Sole/First -

Number of Shares Applicant's -

Signature -
I/We the undersigned, request delivery of Equity Shares of Globsyn Technoiogies Limited
-
under the offer in electronic form. Details of my/our Benificiary(Electronic)account are given
-
below Second
-
Depository [ ] NSDL [ ] CDSL Applicant's
-
Name (Tick) Signature
-

101
Depository -
Participant
-
Name
T
h
DP – ID I i
N r
Beneficiary d
Account No.
Name of
Applicant
I/We understand that:( i) in case of allotment of Equity Shares to me/us, my/our Beneficiary Account as
mentioned above would get credited to the extent of allotted shares, (ii) In case of allotment/transfer of Equity
Shares to me/us, if shares cannot be credited to my/our Beneficiary Account for any reasons whatsoever, I/we
TO BE FILLED IN BY
will be given Physical Certificate(s) and (iii) if the names of applicants in this application are not identical and
APPLICANTS OTHER THAN
also in the same order with the Beneficiary Account details with the above mentioned DP, only physical
INDIVIDUALS
certificates will be issued.
-----------------------------
-
________________ ________________ ______________
NAME OF AUTHORISED
Sole/First Applicant's Signature Second Applicant's Signature Third Applicant's Signature
SIGNTORY

----------------------------------- TEAR HERE -----------------------------------

ACKNOWLEDGEMENT SLIP FOR Globsyn Technologies Limited

INVESTOR E-993, Chittaranjan Park,
(To be filled in by the Sole/First Applicant)
New Delhi-110 019.
Received
-
Mr/Ms ______________________________
Address____________________________ APPLICATION NO. 1001278 DATE:
___________________________________ -
________________PINCODE________ No. of Equity Shares
Amount Paid (Rs.) Cash
All future communications in connection with this applied for
(Please Tick)
application should be addressed to the Registrar
In Figures
Karvy Consultants Limited(Unit: Globsyn
-
Technologies Limited) Karvy House, 46,Avenue 4,
In Words
Street NO 1, Banjara Hills, Hyderabad-500034.
Tel: (+91-040)3312454,3320751 Fax:(+91-040) Cheque/Demand Draft/Stock Invest Dated ____________ Bank's Stamp & date
3311968 Email : mailmanager@karvy.com quoting
Instrument No. Drawn on (Name of the Bank & Branch)
full name of Sole/First applicant, Application -
Number, No of Equity shares applied for, Date, -
- -
Bank and Branch where application was submitted, -

102
and details of Cash/Cheque/DD/Stockinvest

(Cheques/Drafts are subject to realisation)

103