What is IPO?

An IPO (initial public offering) is referred to a flotation, which an issuer or a

company proposes to the public in the form of ordinary stock or shares. It is
defined as the first sale of stock by a private company to the public. They are
generally offered by new and medium-sized firms that are looking for funds to
grow and expand their business.

It is also referred to as “public offering”

Basics of private and public:

Companies fall into two broad categories:

 Private
 public

A privately held company has fewer shareholders and its owners don’t have to
disclose much information about the company. Most small businesses are
privately held, with no exceptions that large companies can be private too,
like Domino’s Pizza and Hallmark Cards being privately held. Shares of private
companies can be reached through the owners only and that also at their
discretion. On the other hand, public companies have sold at least a portion of
their business to the public and thereby trade on an a stock exchange. This is why
doing an IPO is referred to going public.

Why go public?
The main reason for going public is to raise the good amount of cash through the
various financial avenues that are offered. Besides, the other factors include:

 Public companies usually get better rates when they issue debt due to
increased scrutiny.
 As long as there is market demand, a public company can always issue
more stock.
  Trading in the open markets means liquidity.
 Being Public makes it possible to implement things like employee stock
ownership plans, which help to attract top talent of the industry.

Factors to be considered before applying for an IPO:

There are certain factors which need to be taken into consideration before
applying for Initial Public Offerings in India:

 The historical record of the firm providing the Initial Public Offerings
 Promoters, their reliability, and past records
 Products offered by the firm and their potential going forward
 Whether the firm has entered into a collaboration with the technological
firm
 Project value and various techniques of sponsoring the plan
 Productivity estimates of the project
 Risk aspects engaged in the execution of the plan
The process involved in IPO:

UNDERWRITING:
IPO is done through the process called underwriting. Underwriting is the process
of raising money through debt or equity.
The first step towards doing an IPO is to appoint an investment banker. Although
theoretically a company can sell its shares on its own, on realistic terms, the
investment bank is the prime requisite. The underwriters are the middlemen
between the company and the public. There is a deal negotiated between the
two.
E.g. of underwriters: Goldman Sachs, Credit Suisse and Morgan Stanley to
mention a few.
The different factors that are considered with the investment bankers include:

 The amount of money the company will raise

 The type of securities to be issued
 Other negotiating details in the underwriting agreement

The deal could be a firm commitment where the underwriter guarantees that a
certain amount will be raised by buying the entire offer and then reselling to the
public, or best efforts agreement, where the underwriter sells securities for the
company but doesn’t guarantee the amount raised. Also to off shoulder the risk in
the offering, there is a syndicate of underwriters that is formed led by one and
the others in the syndicate sell a part of the issue.
FILING WITH THE SEBI:
Once the deal is agreed upon, the investment bank puts together a registration
statement to be filed with the SEBI. This document contains information about
the offering as well as company information such as financial statements,
management background, any legal problems, where the money is to be used etc.
The SEBI then requires cooling off period, in which they investigate and make sure
all material information has been disclosed. Once the SEBI approves the offering,
a date (the effective date) is set when the stock will be offered to the public.

RED HERRING:
During the cooling off period, the underwriter puts together there herring. This is
an initial prospectus that contains all the information about the company except
for the offer price and the effective date. With the red herring in hand, the
underwriter and company attempt to hype and build up interest for the issue.
With the red herring, efforts are made where the big institutional investors are
targeted (also called the dog and pony show).
As the effective date approaches, the underwriter and the company decide on the
price of the issue. This depends on the company, the success of the various
promotional activities and most importantly the current market conditions. The
crux is to get the maximum in the interest of both parties.
Finally, the securities are sold on the stock market and the money is collected
from investors.
 Factors of an IPO Price
Speculators can experience lucrative returns, as well as substantial losses, with
initial public stock offerings (IPOs). Before buying, experts suggest researching the
factors used determine the initial price range and then the circumstances that
cause the offering to settle at its final price. When researching the investments,
analysts also recommend examining the risks associated with the issuing firm’s
leadership pool as well as how the firm and its shareholders conduct business.
Several Factors Determine Pricing
Several key components determine IPO prices. These offerings are inherently
riskier than regular stock purchases. Speculators should deeply research firms
before committing their funds and clearly understand how an enterprise intends
to use the raised capital. By investigating company executives, potential stock
buyers can try to predict how those leaders will perform in their current positions.
The company’s financial history is also a key indicator of future performance.
Complex Dynamics Determine the Initial Price Range
To evaluate an IPO’s initial price range, stakeholders should research the facts
that the underwriter – a separate entity that helps firms manage trades – used to
set the rate. The underwriter evaluates complex metrics to arrive at the initial
price. Investors can learn the criteria used to determine this price by reviewing
the preliminary prospectus.
Investors should also consider how much company executives have financially
invested in the enterprise and whether there is room for the company to capture
more market share. Ideally, the firm will detail these plans in the prospectus. As a
loose guide, speculators can also compare the stock value of similar companies to
the IPO. A final factor for investors to consider is general stock market
performance during the offering.
Investor Sentiment Can Set the Final Price
Other factors can increase or decrease an IPOs final price. Once the issuing firm
publishes the preliminary prospectus with the initial IPO price, they will attempt
to increase the offering’s value. Firms traditionally promote their IPOs to
institutional investment companies and large investors. The underwriter will then
use the outcome to determine the IPO final price. If the issuing companies can
generate enough interest in the offering, the demand can increase the final price.
Conversely, if there is not enough interest, the underwriter will devalue the IPO
price.
As a result, investor sentiment – which is not necessarily logic-based – can overly
inflate an offering. Because an enterprise hires a star performer to sit on its board
of directors does not guarantee that the organization is actually under competent
management. These are the types of complex factors that investors must analyze
when deciding whether an IPO’s final price is warranted.
Risk Is an Important Factor
It is also important to valuate a company’s risk profile. Firms publish this
information in the prospectus risk factor section. Experts strongly caution
potential investors to balance risk and earnings potential when considering a buy
in. Political instability at a firm’s primary locale can signal trouble in the near
future, and lack of supplier diversity can cause production problems. Legislators
require each firm issuing an initial public offering to include a detailed risk factor
disclosure in their prospectus. Extensive financial obligations and costly, time-
consuming litigation can indicate future trouble for a firm and its IPO stock.
Some experts suggest observing how a company’s stock performs once the
excitement over the initial IPO announcement subsides. This can prevent
investors from waiting indefinitely to break even if the stock devalues quickly.
Leadership Can Also Make a Difference
Potential IPO buyers should know who runs the company behind the offering.
Executive biographies can provide an accurate performance indicator. If an
executive’s former company filed for bankruptcy, there is a good chance that the
individual is not fiscally adept. Additionally, executive legal histories can suggest
potential pitfalls such as whether the company heads follow compliance
guidelines. Investors should also research a company’s majority shareholders to
gain insight into the firm’s corporate culture and ethics.
Overall, Risk Is the Determining Factor
Failure to actively review and refine corporate governance is an increased
investment risk. An incompetent board of directors can fail to manage company
controls, which then do not suit current operations. Additionally, if a firm does
not indicate corporate governance policies in the prospectus, this can indicate
subversion and, in effect, a high-risk investment. Another warning sign is if a firm
underrepresents its minority shareholders.
Corporate governance is critical for several reasons. Proper controls make it
easier to obtain needed funding and reduces the cost of borrowing. It also
improves an organization’s status and increases a firm’s standard operating
efficiency. Most importantly, enterprises that practice appropriate corporate
governance are more attentive to shareholder concerns.
Investors can win or lose big with an initial public offering. Consequently, financial
experts recommend exercising due diligence before committing funds to an IPO.
To do this, speculators can determine an IPO’s initial price range by reviewing the
preliminary prospectus and then using that information to make sure that the
underwriter’s final appraisal accurately represents the offering’s worth.
Leadership traits as well as a company’s ownership culture can also help investors
identify winners and mitigate risks.
 How to identify good, bad IPO

Look at company’s past, future

Firms which come to public for an IPO issues the red herring prospectus (RHP), which
shows revenue and earnings the company has generated. You should look to see
whether the company is profitable and growing. The company also present its projected
financial statements along with the risk factors. You should read this carefully and make
your own estimation about the projections.
Check promoters holding
As per the law of the land, promoters should have a minimum post-issue stake of 20%.
You should scan through the prospectus and check how much is the percentage
holding by the promoters post IPO. It is generally preferred to invest in those companies
where the promoter and or top management team holds a large position of shares. This
can be inferred as a signal that the top management strongly believes in the company’s
future.
Use IPO money
The prospectus issued by the company state what the company’s plan to use the
money it raises from the IPO. If it uses the cash for its expansion, diversification or
activities related to the growth of the company, it is a good idea to invest in those
companies. But, if it uses the cash to re-pay its long term loan or in other activity which
may not lead to the future growth, it is a good idea to stay away from those IPOs.
Be cautious of over-subscription
Often, you read that a particular IPO is over-subscribed by three times. Don’t get
excited about it as many investors assume that if the IPO is over-subscribed, it must be
a good investment. This may or may not be true. A company gets capital to grow via
bank loans, investments by family members or private investors and private equity
firms. Each time the company raises new money, new investors are willing to pay more
for the stakes as long as the company is performing well. When a company decides to
offer shares to anyone through a public offering, existing shareholders gain a more by
selling their shares post listing. Even if the share price drops from the IPO, these
investors will receive more than what they invested. This may not necessarily be the
case for those investors investing afresh during IPOs.
Do a peer valuation
The most popular method of evaluation of an IPO is through peer valuation. A
comparison of the price of an IPO with the share price of its peers which are already
trading in the market can give you an idea whether a new offer is overvalued or
undervalued. Investors should compare important ratios such as book value, operating
margins of the IPO issuing company with those of other companies in the industry which
are already listed on the exchange. If the company shows strong fundamentals, one
should compare the cost of the IPO with the earnings history and projections. By
comparing earnings multiples, one can easily find if a company is undervalued or
overvalued.
Don’t aim for flipping
Flipping is reselling an IPO share in the first couple of days to earn a quick profit. Don’t
have the motivation to do flipping while subscribing for an IPO. Of course, institutional
investors can flip stocks and make big money. In the past, many IPOs that big gains on
the listing day come down when institutional investors booked their profits. Those who
are looking to make short-term gains should invest in the new offers only when the
markets are bullish because the success of an IPO also depends a lot on the market
sentiments at the time of listing. One should look at many things when evaluating an
IPO’s potential but make sure to check the above points and do your own due diligence
before investing in an IPO.
 Polycab
About the company
PIL was incorporated on January 10, 1996, as a company manufacturing and selling a
diverse range of wires and cables. The company's key products in the wires and cables
segment are power cables, control cables, instrumentation cables, solar cables,
building wires, flexible cables, etc. In 2009, Polycab diversified into the Engineering,
Procurement and Construction (EPC) business. In 2014, the company diversified into
the Fast Moving Electrical Goods (FMEG) segment with key FMEG products
including Electric Fans, LED Lighting and Luminaires, Switches and Switchgear,
Solar Products and Conduits and Accessories.

According to CRISIL research for fiscal 2018, Polycab had a market share of
approximately 18 per cent of the organized wires and cables industry and
approximately 12 per cent of the total wires and cables industry in India. The
company has 24 manufacturing facilities, including their 2 joint ventures with Techno
Electromech and Trafigura located across the states of Gujarat, Maharashtra and
Uttarakhand and the union territory of Daman and Diu.
PIL has pan India presence with distribution network comprises over 2,800 authorized
dealers and distributors and 30 warehouses as of December 31, 2018. The company's
customers include institutional clients such as L&T Construction and government
clients such as Konkan Railway Corporation Ltd. Exports account for around 3.4 per
cent of the total revenue for the company as on December 2018 and the company
exports to more than 40 countries in the world, mostly to the US, EU and Gulf region.
The following table summarises the valuation of the company against its different
peers.

Details ( As
per FY18 )
Company Market Cap Total Mcap/Sale P/B P/E
(Rs Cr) Revenue s Ratio Ratio
(Cr)
Polycab Limited 7997 6,986.13 1.14 2.17 21.42
Havells India Limited 47898 8,269.01 5.79 12.6 59.3
Bajaj Electrical Limited 5564 4,695.96 1.18 5.74 35.16
Crompton Greaves 14615 4,105.12 3.56 16.83 39.51
Consumer Electrical Limited
KEI Industries Limited 3247 3,503.12 0.93 5.01 19.61
V-Guard Industries Limited 9480 2,335.26 4.06 11.82 70.61

Market Cap (Rs Cr)

60000
50000
40000
30000
20000
10000
Market Cap (Rs Cr)
0
 Polycab IPO Details
Issue Open Apr 5, 2019 - Apr 9, 2019
Issue Type Book Built Issue IPO
Issue Size Rs 1337.12 - Rs 1345.91 crore
Eq Shares of Rs 10 (aggregating up to Rs 400.00
Fresh Issue Cr)
17,582,000 Eq Shares of Rs 10 (aggregating up
Offer for Sale to Rs 946 Cr)
Face Value Rs 10 Per Equity Share
Issue Price Rs 533 - Rs 538 Per Equity Share
Employee
Discount 53
Market Lot 27 Shares
Min Order
Quantity 27 Shares
Listing At BSE, NSE

Polycab India Ltd Listing Day Data

Open
 633.00
High
668.00
Close
655.00
Low
630.00
Volume
Rs. 14966662852.00

No of Shares
Promoters GeneralPublic FinancialInstitutions
NBanksMutualFunds ForeignInstitutions Others
3% 2% 2%

11%

13%

69%
About the company
NCL is engaged into manufacturing of bromine and lithium-based specialty
chemicals. It started its business operations in 1991, at Mahape, Navi Mumbai with a
few bromine-based compounds and lithium salts. Over the years company has
expanded its range of products to 198 comprising of 181 organic chemicals and 17
inorganic chemicals.

The company’s product can be broadly divided into two categories that are organic
chemicals and inorganic chemicals.

Organic Chemical: These are chemicals containing carbon in combination with

hydrogen, and, or, other elements. These chemicals find their application in industries
such as pharmaceutical, agrochemical, flavor and fragrance and electronic-chemical.
Company market and sell products in India and exports primarily to Europe, USA and
Japan. For the nine month ending December 2018, organic chemicals recorded
revenue of Rs 126 crore, which forms 78.65 per cent of the total revenue.
Inorganic Chemical: These are chemicals with an ionic bond. The company’s
offering in this segment primarily comprises of Lithium Compounds. These chemicals
are used in Vapor Absorption Machines (VAM) for cooling air/water/process
equipment and find application in industries such as heating ventilation and air-
conditioning (HVAC) and refrigeration, construction chemicals, pharmaceutical and
specialty polymer. For the nine month ending December 2018, inorganic chemicals
recorded revenue of Rs 34.1 crore, which forms 21.35 per cent of the total revenue.
Particulars For 9 For For For For For
months the the the the the
Ended Year Year Year Year Year
Decembe Ende Ende Ende Ende Ende
r 31, d d d d d
2018 Marc Marc Marc Marc Marc
h 31, h 31, h 31, h 31, h 31,
2018 2017 2016 2015 2014
Revenue from operations 159.23 164.0 121.4 108.8 91.48 79.90
1 7 9

Total Income 159.69 164.6 121.7 109.0 92.48 80.31

8 8 5

Depreciation and 2.11 1.94 1.31 1.00 0.94 0.92

Amortization Expenses

Total Expenses 142.77 147.3 110.3 100.5 84.42 74.13

8 1 7

Profit Before Tax 17.05 17.34 11.51 8.48 8.07 6.19

Current Income tax 4.35 6.48 3.91 3.15 2.55 1.83

Deferred Income tax 0.48 0.36 -0.08 0.15 0.43 0.71

Profit for the year/period 12.22 10.50 7.68 5.18 5.09 3.64

Earnings per equity share 6.09* 5.25 3.84 2.59 11.30 8.10
(In INR)

Neogen Chemicals IPO Details

Apr 24, 2019 - Apr 26,
Issue Open 2019
Issue Type Book Built Issue IPO
Equity Shares of Rs 10
Issue Size (aggregating up to Rs
132.35 Cr)
Equity Shares of Rs 10
Fresh Issue (aggregating up to Rs
70.00 Cr)
2,900,000 Eq Shares of Rs
10
Offer for Sale

Face Value Rs 10 Per Equity Share

Rs 212 - Rs 215 Per
Issue Price Equity Share
Market Lot 65 Shares
Min Order 65 Shares
 Quantity
Listing At BSE, NSE

Neogen Chemicals Ltd Listing Day Data

Open
251.00
High
264.00
Close
264.00
Low
251.00
Volume
Rs. 348066292.00
 No of Shares
Promoters GeneralPublic NBanksMutualFunds
ForeignPromoter Others ForeignInstitutions
FinancialInstitutions
2% 1%
4% 3%
10%

14%
66%