Executive Summary

The main objective of the research is to see why DMRC needs to raise more funds
except for the funds it is obtaining from the Government. Then to see what are the
different sources of funds which are feasible, giving due emphasis to IPO mode.
Then analyzing the current market trend, and recommending that should DMRC Ltd
should go for IPO or not, what can be the possible Price band, is this the right time
to go for IPO.

For this exploratory research will be undertaken. Research will be undertaken on the
bases of secondary data collected from various sources.

If we summarize the result obtained from the exploratory research we can conclude
that if DMRC Ltd can obtain more funds through other sources than it can provide
better service and can undertake various activities that it is presently not able to
undertake due to lack of funds.

Various sources of funds has been analysed and then the feasibility of each source
has been checked and finally concluded, what all sources suits DMRC Ltd., giving
due emphasis to IPO mode. The feasibility of IPO mode has also been analysed for
DMRC Ltd.

Research has been done on the current market condition. The volatility of the current
Stock Market has been studied and study has also been done on various companies
who are PSUs and had earlier gone for IPO, also the companies which had launched
their IPO currently and the companied planning to cone out with IPO in the coming
future.

Suggestion can be given to DMRC Ltd, to come out with IPO ( that will be the best
mode), with the price band of Rs. 60-100, , some tine later next year or when the
market will stabilize, with a growing trend.

1
 Objective

• To analyse the current market trend and see the feasibility for IPO.

• To look for various sources of funds DMRC Ltd can opt, for raising funds for
future Metro Corridors.

• To see the feasibility of raising funds through IPO mode for DMRC Ltd.

• To study various companies who have recently gone for IPO or are planning
to go for IPO in the coming future .

• Also to study some of the PSUs , who had earlier gone for IPO and analyzing
how feasible it is for an PSU to go for IPO.

• To see what can be the price band and what can be the timing for the launch
of IPO for DMRC Ltd.

• To check the feasibility of other resources.

2
 Methodology

• Exploratory Research will be con ducted.

• The theoretical aspect will be analyses, which will include obtaining

knowledge from various books, research papers, magazines, newspapers,
material provided by DMRC Ltd., etc.

• Various constraints and other legal aspects will be addressed. In this,

consultation with DMRC Ltd officials has to be done along with secondary
research.

• Then secondary research will be conducted through various available

resources, which will focus on the present market scenario for IPOs and
response to the IPOs by other PSUs.

3
 Method of Data Collection

Primary Data

Primary data has been collected from the Face to Face Interview with the officials of
Delhi Metro, including Industry Guide and Faculty Guide.

Secondary Data
Secondary data has been collected by:

• The material provided by the DMRC staff including Annual Reports of the
company.

• Data is collected by going through various books.

• Other major source of secondary data collection is Internet.

• A lot of data will be gathered from magazines, journals, research papers and
news papers.

4
5
 Company History
National Capital Territory of Delhi today covers an area of 1486 sq Kms and is a Union Territory
with all powers of State Government. The history of planning a Metro Project for Delhi dates back
to 70's. The Central Road Research Institute (CRRI) undertook the first exhaustive study on traffic
and travel characteristics of Delhi in 1969-70. While bringing out extensive data describing the
traffic and travel characteristics, it developed mathematical models to project travel demand. By
examining several alternatives, it recommended for a Mass Rapid Transit Network for Delhi.
Metropolitan Transport Team (MTT), Indian Railways, has reviewed the above schemes. MTT
sought for some modifications to recommendations of CRRI and planned for a well knit Mass
Rapid Transit System for the capital city of India. The system comprised of 36 Km of underground
corridors aligned two axes North-South and East-West Corridors and 96 Kms of surface rail
corridors. Metropolitan Transport Project (MTP-R, set up by the Ministry of Railways,
Government of India) prepared an engineering plan to construct the MTR system.

Since CRRI proposal was based on transport demand projection upto the year 1981, it was
assigned to Town & Country Planning Organisation the work of further projection of demand to
the year 2001. It's concept plan envisaged a network of 58 km underground & 195 km surface
corridors. As a part of the techno-economic feasibility study, subsoil exploration were conducted
on four specific trunk routes and by the side of existing railway tracks and recommended for
taking up pilot projects.

Delhi Development Authority (DDA) prepared a perspective plan for Delhi (MPD-2001) in 1984
and recommended for a multi modal transport system comprising of 200 km of Light Rail Transit
System, 10 Km of Tramway, an extension to surface rail system and extensive road network. The
Urban Arts Commission suggested some modifications to the proposal of DDA and recommended
for the development of the existing Ring Railway with three radial underground MRT corridors.

Due to rapid growth especially along the western and eastern parts of the city, a study group was
appointed by the Ministry of Railways, Govt. of India to recommend a precise alignment for the
East-West corridor and in 1987 further appointed a Task Force for assessing the choice of exact
construction technology. While suggesting some changes to the alignment of study group, it
recommended for pilot project based on M-Bahn Magnetic Levitation System in case of negation
suggested for replacement by Light Rail Transit System.

Feasibility Report on Integrated Multi Modal Mass Rapid Transport System of Delhi (IMMRTS)
prepared by RITES recommended for three-component system comprising of Rail corridors, Metro
corridors and dedicated bus way totaling to 184.5 Km and further addition of 14 km increased to
198.5 km. The total network contains 16 sections to be implemented in a sequence based on
passenger kilometer carried per kilometer length of each section. The first phase of the network,
now under execution comprises of 65.11 km of route length with 13.01 km underground called
Metro corridor and 52.10 km surface / elevated called Rail Corridor.

For implementation and subsequent operation of Delhi MRTS, a company under the name DELHI
METRO RAIL CORPORATION was registered on 03-05-95 under the Companies Act, 1956.
DMRC has equal equity participation from GOI and GNCTD.

6
 Mission of DMRC Ltd

• To make the first phase of the MRTS fully operational by

March 2006.

• To complete the project within the estimated cost (except for

inflation).

• To make it a world class Metro - A vehicle to promote dignity

and discipline in the city.

7
 CORPORATE CULTURE

1. Total dedication and commitment to the corporate mission.

2. Integrity of executives and staff should go beyond doubts.

3. Punctuality is the key to our culture-targets are the most sacrosanct.

4. Organization must be lean but effective.

5. Corporation must project an image of efficiency, transparency, courtesy.

6. There should be “we mean business” attitude.

7. Construction activities should not inconvenience or endanger public or leave

unsightly scars in the city.

8. All our structures should be aesthetic and merge well with the surroundings.

9. Construction should not lead to ecological or environmental degradation.

10. Dignity is in performing our duty well.

11. Public complaints are to be immediately attended to.

8
 Phase-I of Delhi MTRS Project

Shahdara-Inderlok - Rithala Corridor (Line-I)

Shahadara-Inderlok-Rithala Corridor (Line-I), covering a distance of 22.06 kms, was opened in
three stages with the first section between Shahdara and Tis Hazari opened on 24th December,
2002 and the last section from Inderlok to Rithala opened on 31st March, 2004.

On account of low development on the Rithala- Barwala Section, it had been decided that instead
of going beyond Rithala, extending line no. 3 from Barakhamba Road to Inderprastha, a distance
of 2.27kms would be more useful to the city. The Group of Ministers has approved this proposal.
Consequently, civil work on this corridor has been started and cumulative physical progress on this
section is 32%.

Vishwavidhalaya – Kashmere Gate – Central Secretariat

Corridor (Line-II)
The commercial operations on Vishwavidyalaya – Kashmere Gate – Central Secretariat Corridor
(Line – II) has been successfully commenced in two stages. The first underground section of Delhi
Metro between Vishwavidyalaya and Kashmere Gate covering a distance of 4 kms with two
intermediate stations located at Vidhan Sabha and Civil Lines was inaugurated by Dr. Manmohan
Singh, Hon’ble Prime Minister of India on 19th December, 2004 and commercial services started
with effect from 20th December, 2004. the second section of the underground corridor between
Kashmere Gate and Central Secretarait war inaugurated by Mrs. Sonia Gandhi, Chairperson,
National Advisory Council on 2nd July, 2005. Kashmere Gate station on this corridor is an
interchange station where the passengers can change from Line-I to Line-II and vice versa.

The underground section of the metro, which is now fully operational, has following special
features:

• All underground metro stations are air-conditioned.

• Extremely Modern Train Operation and signaling system with Automatic Train Operations
(ATO) being introduce for the first time in India.

• Lifts and Escalators at all stations. The carrying capacity of the lifts has been increased to
13 persons in the underground section.

• Close circuit Television coverage of underground stations to ensure safety and security of
commuters.

9
 • Mobile connectivity while traveling inside the Train and at the
station.

Barakhamba Road – Connaught Place – Dwarka Corridor

(Line – III)
Civil work on the entire 3rd line are in advance stage of completion. Till August, 2004,
approximately 90% civil work on this line have been completed. System installation works on this
line is also in the advance stage of completion. This line had been opened for commercial
operations on December, 2005.

The proposal to extend Line-III in Dwaraka Sub-city has been approved by the Group of Ministers.
This section had already been opened for the commercial operations.

The overall cumulative progress of the project at the end of the financial year 2004-05 stands at
84%.

10
 Benefits of Phase – I of the Project
• 1.5 million Commuter trips per day siphoned off the roads.

• 1,650 less buses on the roads.

• Increase in average speed of road buses from 10.5 km/h to 14 km/h.

• Saving of 2 million man hours per day.

• Saving of fuel cost of approximately US $ 150 million per year.

• Reduction in pollution level by 30%.

• Reduction in road accidents by 30%

• Economic rate of return – 23.8%

11
 Phase-II of Delhi MTRS Project

Phase-II of Delhi MTRS project has been approved by the Group of Ministers.
Phase-II of the project will consist of six lines, which are ei9ther extension of the
existing lines or linked to these lines, with 45 stations covering 53.02 kms out of
which 44.09 kms is elevated and 8.93 kms is underground. Total capital outlay
approved for Phase-II is Rs. 8118 Crore. As it was done in Phase-I, it has been
proposed to open different lines of Phase-II for Commercial Operations in phases,
beginning with the first section from Shahdara to Dilshad Garden to be opened in
June 2008 and all lines to be opened well before the Common Wealth Games in
2010.

12
 Present Funding of DMRC Ltd.

 28% of the project cost is to be financed through Equity Contributions

subscribed equally by the Central Government and the State Government.

 The two Governments have also agreed to give an interest free subordinate
loan to cover the cost of land acquisition which roughly works out to 5% of
the project cost.

 The Japanese Government has agreed to finance about 64% of the cost by way
of a soft loan through the Japan bank for International Cooperation (JBIC).

 The balance 3% of the project cost is to be met by raising funds through

Property Development.

Present Funding of DMRC

Equity Contribution
64%
Japanese Government

Interest-free Subordinate
28% Loan
Property Development
3% 5%

13
 Some of the Financial Highlights
 Total project cost of the Phase – I of Delhi MTRS is Rs. 10,571 Crores.

 Total estimated project cost of the Phase – II of Delhi MTRS is Rs. 8,118
Crores.

 Currently DMRC Ltd. has taken loan at the following rate of Interests:
1.) 0% 2.) 1.3% 3.) 1.8% 4.) 2.3%

 Details of Unsecured Loan:

 Interest free Subordinate Loan from Government of India for Land is

amounted Rs. 252 Crores.

 Interest free Subordinate Loan from Government of National Capital

Territory of Delhi for Land is amounted Rs. 252.087 Crores.

 2.3% Loan from Government of India for JBIC portion amounted Rs.
600.8 Crores (approx).

 1.8% Loan from Government of India for JBIC portion amounted Rs.
2,704.3 Crores (approx).

 1.3% Loan from Government of India for JBIC portion amounted Rs.
1005.3 Crores (approx).

 Interest free Loan from GNCTD for P.D. – IT Park amounted Rs. 20
Crores.

14
 Utilization of funds in Phase – I of Delhi
MTRS
( Figures in Crores ) ( Rs )
Description Estimated Expenditure (accrued) Progress in %
Amount till 31.5.2005 terms
Civil 5278 5,129.1 97.18%
Electrical 698 488.42 69.97%
Signal and telecom 924 636.02 68.83%
Rolling Stock 1892 923.77 48.83%
Land 505 492.67 97.56%
Consultancy/ Project 733
Admin
Contingencies 310
IDC 231 866.77 68.04%
TOTAL 10571 8536.75 80.75%

Estimated Amount Spent On Phase-I

of Delhi MTRS
2%
Civil
3%
Electrical
7%
Signal and telecom
5%
Rolling Stock

18% 49% Land

9% 7% Consultancy/ Project
Admin
Contingencies

IDC

15
16
 Securities Market

The securities market is the market the market for equity, debt, and derivatives. The
debt market in turn may be divided into three parts i.e. government securities
market, the corporate debt market, and the money market. The derivative market, in
turn may be divided into two parts, i.e. the options market and the futures market.

Except the derivatives market each of the above market has two components i.e. the
primary market and the secondary market. The market where new securities are
issued is primary market and the market where outstanding securities are traded is
called secondary market.

The structure of the securities market is shown in the figure given below:

Securities
Market

Equity
Market Debt Market Derivatives
Market
Debt Market

Government Corporate
Money Options Futures
Securities Debt
Market Market Market
Market Market

Equity Market
17
 Capital market is the market for financial assets that have
long or indefinite maturity. When a company wishes to raise
capital by issuing securities it goes to the primary market which is a segment of
capital market where issuers exchange financial securities for long term funds. The
primary market facilitates the formation of capital.

Primary Market
The primary market is that part of the capital markets that deals with the issuance
of new securities. Companies, governments or public sector institutions can obtain
funding through the sale of a new stock or bond issue. This is typically done through
a syndicate of securities dealers. The process of selling new issues to investors is
called underwriting. In the case of a new stock issue, this sale is called an initial
public offering (IPO). Dealers earn a commission that is built into the price of the
security offering, though it can be found in the prospectus.

There are four ways in which a company may raise equity capital in the primary
market-
1] Public issue
2] Rights Issue
3] Private placements.
4] Preferential allotment.

Secondary Market
The secondary market is the financial market for trading of securities that have
already been issued in an initial private or public offering. Alternatively, secondary
market can refer to the market for any kind of used goods. The market that exists in
a new security just after the new issue, is often referred to as the aftermarket. Once
a newly issued stock is listed on a stock exchange, investors and speculators can
easily trade on the exchange, as market makers provide bids and offers in the new
stock

18
 Public Issue
By far it is the most important mode of issuing securities, a public issue involves
sale of securities to the public at large. The company making a public issue has to go
through a fairly elaborate process which involves the following-

• Approval by the board.

• Appointment of lead managers.

• Appointment of other intermediaries like co-managers, advisors, underwriters,

bankers, brokers, and registrars.

• Preparation of the prospectus.

• Filing of prospectus with the registrar of companies.

• Printing and dispatch of prospectus with the registrar of Companies.

• Printing and dispatch of prospectus and application form.

• Filing the initial listing application.

• Promotion of the issue.

• Statutory announcement.

• Collection of applications

• Processing of applications.

• Determination of the liability of underwriters.

• Allotment of securities.

• Listing of the issue.

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 Other Aspects of Public Issue

A) Stock Investment Scheme

This is a condition when public issue gets heavily over-subscribed. A large number of investors
lose interest money on the subscription money locked with the company while the company enjoys
the benefit of float money. To prevent this SEBI has come out with this scheme.

1) An investor who has a saving account or current account with a bank( participating in
stock investment scheme) applies in a prescribed form for issue of a certain number of
stockinvests of requisite denomination.

2) The bank issue the stockinvests, which are properly dated, and marks a lien in the account
of the investor for the amount of stockinvest issued.

3) The investor submits the application form for a public issue along with the requisite
stockinvest (which are duly filled in with details like the company’s name, the number of
shares/ debentures applied for and the amount) to the collecting banker.

4) The collecting banker transmits the application form with the stockinvest to the registrar of
the issue.

5) After the allotment is finalized, the registrar fills up the right side of the stockinvest form
indicating the entitlement of the investor.

6) The registrar presents the stockinvest to the controlling branch of the collecting bank for
the public issue, claiming whatever amounts are relevant according to the allotment.

7) The collecting bank gives credit to the company’s account as stockinvests are guaranteed
instruments.

8) After the company’s account is credited, the registrar proceeds with formal allotment. In
case of full and partial allotment, the registrar intimates the successful applicants through
allotment advice. In case of unsuccessful applicants, the registrar returns the application
form along with cancelled stockinvests to the controlling bank, which in turn advises the
issuing bank.

9) The issuing bank intimates the applicant about the release of lien on the account as the
sequel to non-allotment.

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 B) Book Building

A company can use the process of book building to fine tune its price determination.
When a company employs book building mechanism it does not predetermine the
issue price (in case of equity shares) or interest rate (in case of debentures) and
invite subscription to the issue. Instead it starts with an indicative price band (or
interest rate band) which is determined through a consultative process with its
merchant banker and asks its merchant banker to invite bids from prospective
investors at different prices (interest rates). Those who bid are required to pay the
full amount.

Based on the response received from investors the final price is selected. Investors
who have bid a price equal to or more than the final price selected are given
allotment at the final price selected. Those who have bid for a lower price will get
refund.

21
 Rights Issue
When doing a Secondary Market Offering of shares to raise money, a company can
opt to do a rights issue to raise equity. With the issued rights, existing shareholders
have the privilege to buy a specified number of new shares from the firm at a
specified attractive price within a specified time.
Rights can be renounceable or non-renounceable.

A rights issue involves selling securities in the primary market by issuing rights to
the existing shareholders. When a company issues additional equity capital, it has to
be offered in the first instance to the existing shareholders on a pro rata basis. This
is required under section 81 of the Companies Act 1956. The shareholders, however
may be a special resolution forfeit this right, partially or fully, to enable a company
to issue additional capital to the public.

To issue rights the financial manager has to consider:

• Subscription price per new share

• Number of new share to be sold
• The value of rights
• The effect of rights on the value of the current share
• The effect of rights to existing and new shareholders

22
 Private placement
A private placement is a direct offering of securities to a limited number of sophisticated
institutional investors. It is the opposite of a public offering. Investors in privately placed
securities include insurance companies, pension funds, mezzanine funds, stock funds and trusts.
Securities issued as private placements, including debt, equity or hybrid securities.

A well-written private placement memorandum will follow the cover page with a summary of the
offering. This section corresponds to a term sheet, except that the language is usually spelled out,
not abbreviated. The important points are covered briefly: a description of the terms of the
offering, the company’s business, risk factors, additional terms (i.e., antidilution protection,
registration rights, control features), expenses of the transaction and summary financial
information. The purpose of the summary is to make the offering easy to read and understand. As
stated, suppliers of capital are inundated with business plans and private placement memoranda;
the sales-conscious issuer must get all the salient facts in as conspicuous a position as possible if
he hopes to have them noticed.

Private placement refers to sale of security or security related instruments of an unlisted company
or sale of debentures of a listed or unlisted company. Private placement in India is mostly of equity
or equity related instruments of unlisted companies and debt-instruments of listed companies.

Benefits of Private Placement

 High degree of flexibility in amount of financing ranging from 100 thousand to 10-20 million
with combinations of debt, equity, or debt and equity capital.

 Investors are more patient than venture capitalists, often seeking 10 to 20% return on
investments over a longer term of 5 to 10 years.

 Much lower costs than approaching venture capitalists or selling the stock to the public as an
IPO (Initial Public Offering).

 Quicker form of raising money than usual venture capital markets.

Benefits over Public Issue

• The cost associated with public issue is high.

• The uncertainty associated with public issue is high.

• Sophisticated investors like mutual fund and private equity investors are likely to pay a
higher price.

23
 Preferential Allotment
Among the many ways by which companies can raise capital is preferential issue -- an issue of
fresh shares or convertible debentures allotted to a select set of people, whether promoters, their
relatives, or institutional investors.

One could call it a wholesale equity market since the retail investors or shareholders are not invited
to participate. The issue is currently governed by section 81(1A) of the Companies Act and is
similar to the issues made by companies in the US under Rule 144A of the US Securities Act.

Promoters have used preferential allotments as a means for raising their stake in their companies --
whether through shares or equity warrants, which can be converted at a later date.

Unfortunately, however, allegations abound that the system has been misused by unscrupulous
promoters, who initially sell their existing holdings at a higher price in the secondary market, and
then build up their stakes through such issues at a lower price.

Definition

An issue of equity by a listed company to selected investors at a price which may or may not be
related to the prevailing market price is preferential allotment in context of Indian capital market.
A preferential allotment is not related to a public issue and should not be confused with
reservations that may be made on preferential basis for certain categories of investors in a public
issue. Preferential allotment in India is given mainly to promoters or friendly investors to ward off
the threat of take-over.

MISUSE OF PREFERENTIAL ALLOTMENT OF SHARES

There are no restrictions on sale of shares by the preferential allottees in the open market other
than lock-in requirements. Companies can make preferential allotment by passing a special
resolution of shareholders under Section 81 (1A) of the Companies Act, 1956 and in compliance
with conditions imposed by Securities and Exchange Board of India (SEBI), such as, minimum
pricing, disclosure to shareholders and lock-in of shares allotted on preferential basis, if they desire
to seek listing of Stock Exchanges. Companies have been making such preferential issue to
persons including overseas entities.

SEBI and Department of Company Affairs (DCA) have been receiving queries and suggestions
from various quarters regarding abuse and misuse of preferential allotment and how to prevent
them. In this connection, SEBI has already strengthened the guidelines for preferential issues in
August, 2000 stipulating that preferential shares are eligible for listing only if disclosures specified
in the guidelines are made, the shares are locked in and the consideration fully paid on allotment.

24
 Bonds
In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to
repay the principal and interest (the coupon). Other stipulations may also be attached to the bond
issue, such as obligation for the issuer to provide certain information to the bond holder, or
limitations on the behavior of the issuer. Bonds are generally issued for a fixed term (the maturity)
longer than one year.

A bond is just a loan, but in the form of a security, although terminology used is rather different.
The issuer is equivalent to the borrower, the bond holder to the lender and the coupon to the
interest. Bonds enable the issuer to finance long-term investments with external funds.

Bonds and stocks re both securities, but the difference is that stock holders own a part of the
issuing company (have an equity stake), whereas bond holders are in essence leaders to the issuer.
Also bonds usually have a defined term, or maturity, after which the bond is redeemed whereas
stocks may be outstanding indefinitely. An exception is a Consol Bond, which is a perpetuity, a
bond with no maturity.

Types of Bond

• Fixed rate bonds have a coupon that remains constant throughout the life of the bond.

• Floating rate notes (FRN's) have a coupon that is linked to a money market index, such
as LIBOR or EURIBOR, for example three months USD LIBOR +0.20%. The coupon is
then reset periodically, normally every three months.

• High yield bonds are bonds that are rated below investment grade by the credit rating
agencies. As these bonds are relatively risky, investors expect to earn a higher yield, hence
the name high yield bonds. Those market participants that want to emphasize the risky
nature of the bonds, also call them junk bonds.

• Zero coupon bonds do not pay any interest. They trade at a substantial discount from
par. The bond holder receives the full principal amount as well as value that has accrued on
the redemption date. An example of zero coupon bonds are Series E savings bonds issued
by the U.S. Government. Zero coupon bonds may be created from fixed rate bonds by
financial institutions by "stripping off" the coupons. In other words, the coupons are
separated from the final principal payment of the bond and traded independently.

• Inflation linked bonds, in which the principal amount is indexed to inflation. The
interest rate is lower than for fixed rate bonds with a comparable maturity. However, as the
principal amount grows, the payments increase with inflation. The government of the
United Kingdom was the first to issue inflation linked Gilts in the 1980s. Treasury
Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds
issued by the U.S. Government.

25
 • Asset-backed securities are bonds whose interest and principal payments are backed
by underlying cash flows from other assets. Examples of asset-backed securities are
mortgage-backed securities (MBS), collateralized mortgage obligations (CMO) and
collateralized debt obligations (CDO).

• Subordinated bonds are those that have a lower priority than other bonds of the issuer
in case of liquidation. In case of bankruptcy, there is a hierarchy of creditors. First the
liquidator is paid, then government taxes, etc. the first bond holders in line to be paid are
those holding what is called senior bonds. After they have been paid, the subordinated bond
holders are paid. As a result, the risk is higher. Therefore, subordinated bonds usually have
a lower credit rating then senior bonds. The main examples of subordinated bonds can be
found in bonds issued by banks, and asset-backed securities. The latter are often issued in
tranches. The senior tranches get paid back first, the subordinated tranches later.

• Perpetual bonds are also often called perpetuities. They have no maturity date. The
most famous of these are the UK Consols, which are also known as Treasury Annuities or
Undated Treasuries. Some of these were issued back in 1888 and still trade today. Some
ultra long-term bonds (sometimes a bond can last centuries: Weat Shore Railroad issued a
bond which matures in 2361 (i.e. 24th century)) are sometimes viewed as perpetuities from
a financial point of view, with the current value of principal near zero.

• Bearer bond is an official certificate issued without a named holder. In other words, the
person who has the paper certificate can claim the value of the bond. Often they are
registered by a number to prevent counterfeiting, but may be traded like cash. Bearer bonds
are very risky because they can be lost or stolen. Bearer bonds are not common today in the
United States.

Warrants
A warrant is a security that entitles the holder to buy or sell a certain additional quantity of an
underlying security.

A warrant is a security that entitles the holder to buy or sell a certain additional quantity of an
underlying security. This transaction takes place over an agreed-upon price, exercised within a
period of time and at the holder's discretion. The right to buy the underlying security is referred to
as a call warrant; the right to sell it is known as a put warrant. In this way, a warrant is very similar
to an option. When a warrant is exercised, a new share of stock is created, whereas when an option
is exercised, the owner of the option receives an existing share that is delivered by a counterparty
(except in the case of employee stock options, where new shares are created and issued by the
company upon exercise).

26
 Convertible Bond
A convertible bond is type of bond that can be converted into shares of stock in the issuing
company, usually at some pre-announced ratio. A convertible bond will typically have a lower
coupon rate for which the holder is compensated for by the value of the holder's ability to convert
the bond into shares of stock. In addition, the bond is usually convertible into common stock at a
substantial premium to its market value.

Other convertible securities include exchangeable bonds -where the stock underlying the bond is
different from that of the issuer, convertible preferred stock (similar valuation-wise to a bond, but
lower in seniority in the capital structure), and mandatory convertible securities (short duration
securities, generally with high yields, that are mandatorily convertible upon maturity into a
variable number of common shares based on the stock price at maturity).

From the issuer's perspective, the key benefit of raising money by selling convertible bonds is a
reduced cash interest payment. However, in exchange for the benefit of the reduced interest
payment, the value of shareholder's equity is reduced due to the expected dilution should the
convertible bondholders convert their bonds into new shares.

From a valuation perspective, a convertible bond consists of two assets: a bond and a warrant.
Valuing a convertible requires an assumption of 1) the underlying stock volatility to value the
option and 2) the credit spread for the fixed income portion that takes into account the firms credit
profile and the ranking of the convertible within the capital structure. Using the market price of the
convertible, one can determine the implied volatility (using the assumed spread) or implied spread
(using the assumed volatility).

This volatility/credit dichotomy is the standard practice for valuing convertibles. What makes
convertibles so interesting is that, except in the case of exchangeables (see above), one cannot
entirely separate the volatility from the credit. Higher volatility (a good thing) tends to accompany
weaker credit (bad). The true artists of convertibles are the people who know how to play this
balancing act.

27
 American Depositary Receipt

An American Depositary Receipt (ADR) is how the stock of most foreign companies trades in
United States stock markets.

Each ADR is issued by a U.S. depositary bank and represents one or more shares of a foreign stock
or a fraction of a share. If investors own an ADR they have the right to obtain the foreign stock it
represents, but U.S. investors usually find it more convenient to own the ADR. The price of an
ADR is often close to the price of the foreign stock in its home market, adjusted for the ratio of
ADRs to foreign company shares.

Depository banks have numerous responsibilities to the holders of ADRs and to the non-U.S.
company the ADRs represent. The largest depositary bank is The Bank of New York.

Individual shares of a foreign corporation represented by an ADR are called American

Depositary Shares (ADS).

Global Depository Receipt

Global Depository Receipt (GDR) - certficate issued by international bank, which can be subject
of worldwide circulation on capital markets. GDR's are emited by banks, which purchase shares of
foreign companies and deposit it on the accounts. Global Depositry Receipt facilitates trade of
shares, especially those from emerging markets. Prices of GDR's are often close to values of
realted shares. Very similar to GDR's are ADR's.

GDR's are also spelled as Global Depositary Receipt.

28
 Other Sources

There are other sources for raising long term Funds as:

• Preference shares.
• Retained earnings.
• Loans from financial institutions.
• Loan from State Financial Corporation.
• Loans from commercial banks.
• Venture capital funding.
• Asset securitisation.
• International.
• Syndicate loan.

29
30
 Entry Norms for IPO
Any company or a listed company making a public issue or a rights issue of value of more than Rs
50 lakhs is required to file a draft offer document with SEBI for its observations. The company can
proceed further only after getting observations from SEBI. The company has to open its issue
within three months from the date of SEBI's observation letter.

Through public issues, SEBI has laid down eligibility norms for entities accessing the primary
market. The entry norms are only for companies making a public issue (IPO or FPO) and not for
listed company making a rights issue.

The entry norms are as follows

Entry Norm I (EN I): The company shall meet the following requirements

• Net Tangible Assets of at least Rs. 3 crores for 3 full years.

• Distributable profits in atleast three years.
• Net worth of at least Rs. 1 crore in three years.
• If change in name, atleast 50% revenue for preceding 1 year should be from the new
activity.
• The issue size does not exceed 5 times the pre- issue net worth.

SEBI has provided two other alternative routes to company not satisfying any of the above
conditions to provide sufficient flexibility and also to ensure that genuine companies do not suffer
on account of rigidity of the parameters, for accessing the primary Market. They are as under

Entry Norm II (EN II)

• Issue shall be through book building route, with at least 50% to be mandatory allotted to
the Qualified Institutional Buyers (QIBs).
• The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a
compulsory market-making for at least 2 years.

OR
Entry Norm III (EN III)

• The "project" is appraised and participated to the extent of 15% by FIs/Scheduled

Commercial Banks of which at least 10% comes from the appraiser(s).
• The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a
compulsory market-making for at least 2 years.

31
 Note :- The company should also satisfy the criteria of having at least
1000 prospective allotees.

The following are exempted from the Entry Norms

• Private Sector Banks
• Public sector banks
• An infrastructure company whose project has been appraised by a PFI or IDFC or IL&FS
or a bank which was earlier a PFI and not less than 5% of the project cost is financed by
any of these institutions.
• Rights issue by a listed company

32
 Pricing of issues
A listed company can freely price equity shares/ convertible securities through a public/rights
issue. An unlisted company eligible to make a public issue and desirous of getting its securities
listed on a recognized stock exchange can also freely price shares and convertible securities.

Differential pricing- listed/unlisted companies may issue shares/convertible securities to

applicants in the firm allotment category (i.e. allotment on a firm basis made to Indian and
multilateral development finance institutions, Indian mutual funds, foreign institutional investors
including non resident Indians/oversees corporate bodies and permanent regular employees of the
issuing company) at a price different from the price at which securities are offered to public.

Price band- the issuing company can mention a price band of 20 per cent( cap in the price band
should not exceed should not exceed 20 per cent of the floor price) in the offer document filed with
SEBI and the actual price can be determined at a later date before filing it with the ROC’s.
If the board of directors of the issuing company has been authorized to determine the offer price
within a specified price band, a resolution have to be passed by them to determine such a price.
The lead merchant bankers should ensure that in the case of listed companies, a 48 hours notice of
the meeting of the BOD, for passing the resolution for determination of price, is given to the
designated stock exchange. The final offer document should contain only one price and one set of
financial projections, if applicable.

Payment of discount/commissions- any direct/indirect payment in the nature of discount /

commission/allowance or otherwise cannot be made by the issuer company/promoters to any firm
allottee in a public issue.

Denomination of shares- public/rights issue of equity shares can be made in any

denomination in accordance with Section 13(4) of the Companies Act and in compliance with
norms specified by the SEBI from time to time. The companies that have already issued shares in
the denomination of Rs 10 or Rs 100 may change their standard denomination by splitting/
consolidating them. The issue of shares in any denomination or change in the standard
denomination is subject to the following-
1] The shares should not be issued in the denomination of a decimal of a rupee.
2] The denomination of the existing shares should not be altered to a denomination of a decimal of
a rupee.
3] At any given time, there would be only one denomination for the shares of a company.
4] The companies seeking to change the standard denomination may do so only if their
memorandum and article of association permit.
5] The company should adhere to the disclosure and accounting norms specified by SEBI from
time to time.

33
 SEBI Guidelines amended to introduce IPO
Grading

The Securities Exchange Board of India has amended the Disclosure and Investor Protection
Guidelines, 2000 making it optional for unlisted companies going for IPOs to get IPO Grading
from Rating Agencies. The amendment also contains the disclosures to be made in the offer
documents regarding IPO Grading. The Text of the circular is given hereunder:

SEBI/CFD/DIL/DIP/21/2006/24/4 April 24, 2006

To All Registered Merchant Bankers / Stock Exchanges

Dear Sirs,

Sub.: Amendments to SEBI (Disclosure and Investor Protection) {DIP} Guidelines, 2000.

I. In exercise of the powers conferred under sub-section (1) of Section 11 of the Securities and
Exchange Board of India Act, 1992, it has been decided to amend the SEBI (DIP) Guidelines,
2000 as under:

CHAPTER V

PRE-ISSUE OBLIGATIONS

1. After clause 5.6A.1, the following clauses shall be inserted:

“5.6B IPO Grading

5.6B.1 An unlisted company making an IPO of equity shares or any other security which may be
converted into or exchanged with equity shares at a later date may opt to obtain grading for such
an IPO from one or more credit rating agencies.

5.6B.2 Where an issuer opts to obtain IPO grading under clause 5.6B.1, it shall disclose all grades
so obtained by it, including unaccepted grades, in the prospectus and abridged prospectus.”

CHAPTER VI

CONTENTS OF THE OFFER DOCUMENT

SECTION I - CONTENTS OF THE PROSPECTUS

34
 2. Sub-clause (x-a) shall be inserted after sub-clause (x) of clause
6.4.2.2 as under:

“(x-a) Statement indicating whether IPO grading has been opted for. If yes, disclosure of all grades
so obtained, including unaccepted grades, as provided under clause 5.6B.2 and reference of the
page number where details of IPO grading, as provided under clause 6.8.2.9A, are given.”

3. Clause 6.8.2.9A shall be inserted after clause 6.8.2.9 as under:

“6.8.2.9A IPO Grading:

(a) Name of the credit rating agency from which grading has been obtained for the proposed IPO
of equity shares or any other security which may be converted into or exchanged with equity
shares at a later date and the grading so obtained, including unaccepted grades.

(b) If grading has been obtained from more than one credit rating agency, disclosure shall be made
of all the grades so obtained, including unaccepted grades.

(c) The rationale / description of the grading/s so obtained, as furnished by the credit rating
agency/ies.”

4. Sub-clause (c) shall be reinserted after sub-clause (b) of clause 6.13.2.14 as under:

“(c) Bidders’ bank account details.”

5. Clause 6.17.3A shall be inserted after clause 6.17.3 as under:

“6.17.3A Statement indicating whether IPO grading has been opted for. If yes, disclosure of all
grades so obtained, including unaccepted grades, as provided under clause 5.6B.2 and the rationale
/ description of the grading/s so obtained, as furnished by the credit rating agency/ies, may be
given.”

35
 Amendments Regarding Book Building
Process
Book building is a facility given to issuer companies and merchant bankers to ascertain the
demand and indicative price before the actual opening of the issue. The companies have now been
given a flexibility of indicating a movable price band or a fixed floor price in Red Herring
prospectus. Definition of QIBs has been enlarged to include Insurance companies, Provident and
Pension funds with minimum corpus of Rs. 25 crores. Gap between the closure of books and
listing/ trading of securities is reduced to 6 days.

• The book building process is being integrated with stock exchange procedures.
Transactions will be routed through brokers. Brokers will be responsible for defaults in
payment of their clients.
• The issuer company shall enter into an agreement with one or more of the Stock
Exchange(s) which have the requisite system of on-line offer of securities [clause
11.3.1(iv)(a)]. - - Company does not have much choice. It will have to go to NSE or BSE.
• The Book Runner(s)/syndicate members shall appoint brokers of the exchange, who are
registered with SEBI, for the purpose of accepting bids, applications and placing orders
with the company. They will ensure that the brokers so appointed are financially capable of
honouring their commitments arising out of defaults of their clients/investors, if any.
[clause 11.2.1(vii)(a)]. The brokers, appointed for accepting applications and application
monies, shall be considered as ‘bidding/collection centres’ for purpose of book building
process. [clause 11.2.1(vii)(b)]
• The broker may collect an amount to the extent of 100% of the application money as
margin money from the clients/investors before he places an order on their behalf. The
margin collected from categories other than Qualified Institutional Buyers shall be uniform
across the book runner(s)/syndicate members, for each such category [clause 11.3-1(xvii)
(a)]
• Broker can ask for 100% deposit from their clients, before accepting bid/offer from them.
However, even if they don’t do so, they will be liable for defaults. Clause 11.3.1(vii)
(c)states that the broker/s so appointed, shall collect the money from his/their client for
every order placed by him/them. In case the client/investors fails to pay for shares allocated
as per the guidelines, the broker shall pay such amount.
• The red herring prospectus shall disclose, either the floor price of the securities offered
through it or a price band along with the range within which the price can move, if any.
[clause 11.3.1(viii)(a)]. If price band is indicated, required conditions should be fulfilled.
• Prescribed accounting ratios shall be given under the basis for issue price for each of the
accounting periods for which the financial information is given: * EPS, pre-issue, for the
last three years (as adjusted for changes in capital) * P/E pre-issue * Average return on net-
worth in the last three years * Net-Asset value per share based on last balance sheet.

36
 • The investors shall have the right to revise their bids provided
that Qualified Institutional Buyers shall not be allowed to
withdraw their bids after the closure of the bidding. [clause
11.3.4.1(vii)].

Amendments pertaining to issue of Debt

Instruments
The role of debenture trustees and also the provisions pertaining to issue of debt instruments have
been revised. The amendments include prohibition on a willful defaulter to make a debt issue,
requirement of investment grade credit rating for making a debt issue, relaxation in the existing
provisions of promoters contribution in IPO of debt issue etc. The major changes are as follows -

• In case of a debenture issue, the lead merchant banker shall also furnish to the Board a due
diligence certificate given by the debenture trustee in the format specified in Schedule IIIA
along with the draft offer document. [clause 5.3.3.1A].
• In case of a debenture issue, the company shall give prescribed undertakings in the offer
document [clause 6.5.6.2]
• A contribution of at least 20% of the project cost (i.e., objects proposed to be financed
through the issue), shall be brought in the form of equity. Such equity participation may be
brought by the promoter from his own funds or from other sources, subject to the condition
that at least 20% of the issue size is brought by way of equity by the promoter from his
own funds. [clause 8.2.1(b)]
• No company shall make a public issue or rights issue of debt instruments (whether
convertible or not), unless credit rating of not less than investment grade is obtained from
not less than two registered credit rating agencies and disclosed in the offer document
[clause 10.1.1].
• No company shall issue a prospectus or a letter of offer to the public for subscription of its
debentures, unless the company has appointed one or more debenture trustees for such
debentures in accordance with the provisions of the Companies Act, 1956 [clause 10.2.1]
• The merchant banker shall, along with the draft offer document, file with SEBI, certificates
from the bankers of the Company that the security is adequate [clause 10.2.5]
• Roll over of PCD/NCD is at the option of investor and subject to prescribed conditions.
• The company issuing debt instrument should not be in the list of willful defaulters of RBI
Moreover, the company should not be in default of payment of interest or repayment of
principal in respect of debentures issued to the public, if any, for a period of more than 6
months [clause 2.5.1A] [Can such a company get a ‘investment grade’ credit rating ?]
• An issuer company shall not make an allotment of non-convertible debt instrument
pursuant to a public issue if the proposed allottees are less than fifty (50) in number.
[clause 2.5.1B]
• In case of the rights issue where the aggregate value of the securities offered is less than
Rs.50 Lakhs, the company shall prepare the letter of offer in accordance with the disclosure
requirements specified in these guidelines and file the same with the Board for its
information and for being put on the SEBI website. [proviso to clause 1.4(i) inserted] - -

37
Intimation to SEBI is required if issue is less than Rs 50 lakhs, but
permission is not required.

38
 Air Deccan
Air Deccan, airlines, set up in 2003, planned to raise about $250-300m to fund its expansion plans
by offloading about 25% stake through an Initial Public Offering. Air Deccan, opened its maiden
share sale for subscription May 18. Deccan Aviation, the promoters of low-cost carrier Air
Deccan, rewrote capital market history by lowering the price band of its initial public offering
hours after its issue closed with a very weak response.

The IPO has been extended by three days till May 26. The IPO, which opened for subscription
through the book building process on May 18 in a price band of Rs 150 to 175 per share, was
scheduled to close on 23rd May, 2006.

However, with investors adopting a cautious approach to new issues in the wake of a savage
market correction over the past three trading sessions, Deccan Aviation scaled back the price
band to Rs 146 to Rs 175 per share. Deccan’s IPO had hit an air pocket with only 30 per cent of
the issue being subscribed till late afternoon of 23rd May, 06. It seemed that lead managers to the
issue — ICICI Securities and Enam Financial Consultants — would be forced to lift the unsold
shares, thus giving the IPO the dubious distinction of being the first undersubscribed flotation in
recent times. However, lead managers to the issue heaved a sigh of relief in late evening of 23rd
May, 2006 when figures from both the exchanges showed that the IPO was subscribed fully. As
against the total issue size of 2.45 crore shares, the bids received for the issue were 2.59 crore.

Most of the interest came from foreign institutional investors (FIIs) who bid for over 90 lakh
shares against 1.22 crore shares reserved for this category. Retail investors on the other hand bid
for more than 19 lakh shares. But Banks, Mutual Funds, FIs and Insurance Companies did not bid
for even a single share.

Sources connected with the IPO informed that the date was extended to give more opportunity to
investors. As the date was extended, the price band had to be brought down in tune with Sebi
guidelines. They indicated that the lukewarm response to the issue was the result of the
massive market correction.

There has also been a lukewarm response to issues of three other companies: Unity
Infraprojects, Gangotri Textiles and Rathi Udyog. The IPO of Unity Infraprojects, scheduled to
close on May 24, has been subscribed only one time. Rathi Udyog’s issue, which will close on
May 25, has seen only 32 per cent subscription, while Gangotri Textiles, whose IPO closed today,
also saw the issue being subscribed by only one time.

However, few observers have another story to tell about the response to the issue of Deccan
Aviation. They aver that capital markets have been wary of aviation stocks due to rising fuel costs.
A case in point is that of Jet Airways. The share price of the leading private airline, which fixed

39
 the issue price for its IPO at Rs 1,100 last year, is now ruling at Rs
753.15, a discount of 31 per cent to the cut-off price.

Sources were optimistic that there would a good response to the IPO over the next couple of days
as the secondary markets had now shown signs of a smart recovery.

Vigneshwara Exports withdrawn IPO

The equity market's meltdown is beginning to have an impact on the primary market with
two companies, Bluplast Industries and Vigneshwara Exports, being forced to withdraw their
initial public offerings, IPO, due to poor response.

Despite bringing down the price band from Rs 121-140 range to Rs 110-124 band, Vigneshwara
Exports could get only 89% subscription. When contacted, an official of Vigneshwara Exports said
the company has decided to withdraw the issue, as most applicants submitted their bids at the
bottom price of Rs 110.

"We feel the company deserved a better valuation than Rs 110," he said. The company had
received another 20% through physical format, but due to technical reasons this could not be
uploaded, he added. The company was planning to mobilise about Rs 55-60 crore through this
IPO. Karvy Investor Services was the lead book runner for the IPO.

But then Vigneshwara Exports IPO opened for subscription. Its public issue is of 47,60,000 equity
shares of Rs 10 each through book building process.

It has been subscribed 0.11 times, as per the NSE website dated June 13.

Its retail portion has been subscribed 0.11 times. Its non-institutional investors’ portion has been
subscribed 0.41 times. Its employee portion has been subscribed 0.25 times.

The issue will close on June 16, 2006. The price band has been fixed at Rs 121 to Rs 140 per
equity share of Rs 10 each.

Bluplast Pulls Out IPO

Bluplast Industries has become the first victim of the market meltdown, reports DNA India.

The company has withdrawn plans to raise Rs 35.2 crore (Rs 352 million) through a public issue.

This is after it had got clearance from the Securities and Exchange Board of India and the

40
 Registrar of Companies. If at all it plans to raise money from the
markets later, it will have to file its prospectus afresh.

Prime Focus closes below its Issue Price

Post-production company, Prime Focus closed below its issue price of Rs 417.

Its BSE ID is 532748 and the NSE ID is PFOCUS. It had been subscribed 1.53 times.

On the BSE, the stock closed at Rs 325.35 with volumes of 30,52,930 shares. It touched an
intraday high of Rs 374 and an intraday low of Rs 291.

On the NSE, the stock closed at Rs 320.55 with volumes of 32,49,599 shares. It touched an
intraday high of Rs 363.50 and an intraday low of Rs 280.

Prime Focus is India’s integrated end-to-end post production and visual effects service house.

The company planned to set up infrastructure in various markets in India and abroad, and to serve
end-to-end facilities for these various segments of the business. Starting from Hyderabad, the
company planned to set up a facility to serve the Telugu Film Industry and it will be taking it all
the way to Dubai, which is an emerging commercial industry.

Blueplast Industries pulls out its IPO

Bluplast Industries was forced to pull out its Rs 30-crore IPO due to weak investor sentiment, said
Shashinand Nagori, its compliance officer. He said the company was exploring other funding
options, including private placement of shares and even the debt option, to mobilise Rs 32 crore
(Rs 320 million) required for the expansion plans. The Mumbai-based Allianz Securities was the
lead manager for the issue.

Several recent public issues including Deccan Aviation, Patel Engineering, D S Kulkarni
Developers and Unity Infraprojects are trading below the issue price. Prime Focus, which came out
with an issue at Rs 417 per share, had a dismal opening day on Tuesday. Investment bankers said
that good issues would sail through despite weak market sentiment.

For instance, Allcargo Global Logistics' IPO, priced at Rs 675 per share, was oversubscribed by
seven times when the issue closed on June 6. "We don't see any problem for good IPOs. They will
attract interest from investors," said an official of Enam Financial Consultant, the lead manager for
Allcargo Global's IPO.

41
 IPOs slated to hit the market in the next couple of months include
DLF, MCX and Power Finance Corporation.

Cox & Kings postpones IPO plans

Tour operator Cox & Kings, C&K, India has postponed its initial public offering, IPO, plans
by 6-12 months, reports Business Standard.

According to a company spokesperson, the ongoing volatile market scenario is a major factor for
the company’s decision. The company had plans to get listed by early 2006.

Indian operations being the most remunerative for the group, C&K has plans to shift its
headquarters from UK to India, Good had said earlier.

C&K registered a total revenue of Rs 700 crore in 2005, more than 50 per cent of which was
generated by its Indian operations.

Currently, C&K India is a subsidiary of C&K UK. C&K India has plans to buy out C&K UK to
become the promoter company. Automatically, the stake of C&K UK in its sister concerns in
Japan, US, Italy, Turkey and Australia will be transferred to C&K India, post-buyout.

The Kerkar family (of hotelier Ajit Kerkar) and C&K UK are major stakeholders in C&K India.
C&K, established in 1758, is one of the oldest existing companies in the world.

Rathi Udyog lists below its issue price

Rathi Udyog, a leading manufacturer of long steel products in Northern India, has listed
today on the Bombay Stock Exchange. Its BSE ID is 504903.

At 10:30 am, the stock was trading at Rs 33.7 with volumes of 34,969 shares. It has touched an
intraday high of 37 and an intraday low of Rs 33.

Its issue price had been fixed at the lower end of the price band of Rs 50 per share. The issue
oversubscribed by 1.27 times.

The company had entered the capital market with a follow-on public issue of equity shares to raise
an aggregate amount of Rs 98 crore (Rs 980 million), of which the promoter’s contribution was Rs
40 crore (Rs 400 million) and the net issue to public Rs 58 crore (Rs 580 million). The issue,
which was done through the book building process, which was opened for subscription/bids on
May 19, 2006 and closed on May 25, 2006.

42
 The book running lead manager to the issue was UTI Securities and
BOB Capital Markets acted as the Co BRLM.

Allcargo Logistics IPO subscribed 7.89 times

Allcargo Global Logistics, a logistics service provider involved in Multimodal Transport
Operations, MTO, owning and operating Container Freight Station, CFS and handling of project
cargo, closed for subscription. The public issue was of 2,079,000 equity share of Rs 10 each
through book building process.

The issue has been subscribed 7.89 times, as per the NSE website.

The qualified institutional investor’s portion has been subscribed 12.01 times. The non institutional
investor’s portion has been subscribed 5.91 times. The retail investor’s portion has been subscribed
0.92 times.

The price band was at Rs 625-725 per equity share of Rs 10 each. The issue will constitute 10.26%
of the post issue paid- up capital of the company.

The company intends to deploy the net proceeds of the issue for setting up of CFS/ICD,
prepayment of loan availed from Yes Bank, and general corporate expenses including acquisitions.
The company intends to set up CFS/ ICD at Chennai, Mundra and NCR. The CFS near Chennai
Port is intended to cater to the container traffic in the southern region. Chennai port is second
largest in terms of container traffic in India. It plans to set up the CFS in two phases.

Enam Financial Consultants was the BRLM, IL&FS Investsmart was the Senior Co-BRLM and
Inga Advisors was the co- BRLM for the issue.

Bharat Hotels to go slow on maiden float

Bharat Hotels is going slow on its maiden issue plan following the recent volatility in the
equity markets . The company had filed its draft red herring prospectus, DRHP, on March 23,
2006, with the Securities and Exchange Board of India, Sebi.

Lalit Suri, chairman and managing director, said he was waiting for clearances from Sebi. He,
however, said the firm would adopt a wait-and-watch attitude before hitting the market.

Suri's outlook could be justified by the weak response generated by IPOs of those companies that
got listed around May 18. Since filing the prospectus, Bharat Hotel executives said the company's
valuation has gone up with the purchase of a four-acre hotel site in Chandigarh. This land was
bought in equal partnership with DLF for Rs 75 crore (Rs 750 million).

43
 Also, the Rajasthan government has in principal agreed to allot three
acres to Bharat Hotels in Jaipur. Of the total investment, Suri hoped to raise
Rs 600 crore (Rs 6 billion) from an initial public offer and the remaining Rs 500 crore (Rs 5
billion) from 1:1 debt equity ratio.

Textile companies defer IPOs amid wild market

swings
A NUMBER of textile companies which were earlier planning big-ticket initial public offers
(IPOs) are putting their plans on the backburner, steering clear of the volatile stock market.

Apparel exporter Orient Craft (OCL) which had planned to raise about Rs 300 crore through an
IPO and private equity has deferred its plan, sources said. KS Doshi, vice-president (finance),
Texport Garments, said the Rs 300-crore company which was looking to raise Rs 75 crore to fund
the expansion of its manufacturing facilities has also postponed its entry to ’08. Other big
exporters, including Shahi Exports, which had in place a similar roadmap to raise finances are also
shelving it for the moment.

“Unless the market stabilises, one cannot expect people to invest. Most companies across sectors
have deferred their IPO plans indefinitely,” reasons Prithvi Haldea, MD, Prime Database, the New
Delhi-based firm that tracks primary markets.

Analysts point out that while textile exporters with bigger turnover are staying away from the
market, many small and medium companies are still raising money. Some companies like
Abhishek Mills and Minar International are pressing ahead with their action plans. All they are
waiting for is the Sebi nod to raise Rs 50 crore and Rs 85 crore from the market.

As many as 15 companies had announced their intention of turning to the capital market to fund
their business activities in ’06 expecting the momentum to be sustained. Though textile companies
are witnessing a lot of activities, the deal sizes are not as large as other industry heavyweights like
oil and gas or telecom, sources said. “Though market interest in IPOs had generally picked up, a
large number of textile IPOs underperformed,” they added:- No textile company has raised over Rs
500 crore from the market. Last year, Gokuldas Exports mopped up about Rs 132 crore.

44
45
 Tech Mahindra IPO to hit market soon
IT solutions company Tech Mahindra will stick to its schedule for the initial public offer,
despite the turbulent stock market and decreasing demand for IPOs.

"After we get the approval from Sebi, we will check with the investment bankers. The market
doesn't make difference... During bad markets, demand for good scrips is very high. We will past
muster," Tech Mahindra CEO Vineet Nayyar told media.

He said Sebi clearance was likely to come by the third week of July and the company will
approach the market soon after.

The company would offer 11% of equity through the IPO to mobilise funds for expansion of its
services delivery infrastructure.

Tech Mahindra is planning to have centres in Noida, Chennai, Hyderabad, Kolkata and
Chandigarh with an investment of Rs 350 crore (Rs 3.5 billion). The centres in Kolkata,
Chandigarh and Noida will have capacity to seat 2,000 professionals each. In the last three years,
the company's revenue has grown by around 30% from Rs 742 crore (Rs 7.42 billlion) in 2004 to
Rs 1,245 crore (Rs 12.45 billion) in 2006. Its net profit has grown from Rs 64 crore (Rs 640
million) to Rs 235 crore (Rs 2.35 billion) during the same time.

Vishal Mega Mart plans IPO, to offload 20-25%

stake
Vishal Mega Mart, which is planning an IPO later this year, said it would offload 20-25% stake
through the public issue. At present, the promoters hold 80-85% stake in the company.

The company plans to raise about Rs 125-150 crore (Rs 1.25-1.50 billon) from the IPO to fund its
expansion plans, which includes opening around 40 stores by the next year. Industry watchers
point out that the stake purchase in Vishal may be a sign of further investments in the booming
retail sector by the Burman family. There has been speculation that the Burmans have been in talks
with a South-based retail chain, apart from scouting for other opportunities in this sector.

The Burman family, through its investment firms, has made significant investments across a wide
range of sectors in the last few years. The family invested in tractor business late last year by

46
 picking up 11.19% stake in Chandigarh-based Punjab Tractors. It
upped its stake in Punjab Tractors to about 13.5% subsequently.

The family has also invested in the financial services and life insurance sectors, and holds stakes in
ABN Amro Securities, Lord Krishna Bank, Fidelity Mutual Fund Management and Aviva Life
Insurance Company.

Indian Bank to come out with IPO next year

Indian Bank announced that it will come out with an Initial Public Offer some time next
year.

"We are on the recovery path. The final punch will come with the IPO next year," bank chairman
and managing director K C Chakraborty told reporters. The bank, he said, would file the
prospectus in October or November this year.

"It (Public Issue) will hit the market sometime in 2007," he said, adding, it would be through the
book building process.

Asked about overseas expansion, he said the bank was looking at Vietnam and Indonesia but it
depended on receiving regulatory approvals.

He said the bank had more than doubled its disbursement to agriculture in two years, as against the
three-year period stipulated by the Central government. It also disbursed educational loans
amounting to Rs 260.14 crore (Rs 2.60 billion) during 2005-06 to 24,809 students, which was
expected to reach 30,000 this year. The bank's plan for 2006-07 included 25% rise in net profit,
NPA recovery of more than Rs 500 crore (Rs 5 billion) and covering the entire bank by Core
Banking Solutions, he said.

Central Bank plans to list in the next few months

Central Bank of India, CBI, has approached the Reserve Bank of India, RBI, seeking
sanction to restructure its present capital base and allow it to get listed in the market within the
next few months. The bank needs sufficient capital to shore up its capital adequacy ratio, CRR,
for the future along with keeping pace with its targeted credit growth in the current fiscal, reports
DNA India.

The bank’s CRR, which stood at 12.15% as on March 31, 2006, fell to 11.10% over the last couple
of months. “We have targeted a 20% growth in credit and propose to take our total business to 1.27
lakh crore in 2006-07.” She, however, did not divulge the size of the issue that the bank was
looking at and the proposed break-up of the current capital. The bank’s advances and deposits
grew by 34% and 14% respectively in 2005-06. CBI raised Rs 600 crore (Rs 6 billion) as Tier II
capital at the end of March and may chose to raise some more if it fails to receive the permission to

47
 restructure its capital base and hit the market.
Earlier during the day, Daruwalla laid threadbare problems faced by public
sector banking. The worst part was corporates going out literally on a
“window shopping” exercise for getting loans at ‘sub-PLR rates’, but in contrast asking for best
rates in case of deposits, she said.

DLF IPO to hit market by July 15

Unfazed by the controversy over the issue of conversion of debentures and the prevailing
volatile market conditions, real estate company DLF said its initial public offering, IPO to raise
about Rs 13,500 crore (Rs 135 billion) is on schedule and would hit the market by July 15, reports
The Hindu Business Line.

"We are on schedule as far as the IPO is concerned and it will hit the market in early July between
July 10-15. There will also be no dilution as far as the number of shares to be issued are concerned
or the amount that we plan to raise. The valuation is a product of discovery of price through the
book-building route.

We will determine the price of the shares in consultation with the merchant bankers after we get
Sebi's go ahead," Saurabh Chawla, Senior Vice-President-Finance, DLF said.

SPS aims to raise Rs 70cr from IPO

SPS Steel & Power, a part of the SPS Group, will raise Rs 70 crore (Rs 700 million) from its
initial public offer, IPO, which is likely to be floated within a month, a company official said,
reports Business Standard.

SPS Group chairman Bipin Vohra told that the company was negotiating with Yes Bank and Enam
Financial Consultants for this purpose.

The money raised would be used to part finance a 240-mw captive power plant to be set up at its
plant in Orissa.

He said that the NTPC was currently doing the DPR for the project. The draft prospectus would be
shortly filed with Sebi, Vohra said.

Vohra said that the issue would be made through the book-building process. The company, which
makes TMT Bars, is also setting up a new steel plant at Himachal Pradesh with a capacity of 0.5
million tonnes. SPS has one plant in Durgapur also.

48
 SPS steel clocked revenue of Rs 1200 crore (Rs 12 billion) in the last
financial year. The target for the current year is Rs 2000 crore (Rs 20
billion), he said.

PowerGrid looks at IPO to fund expansion

Power Grid Corporation India plans to borrow Rs 2,500 crore (Rs 25 billion) for its outlined
capital expenditure of Rs 6,000 crore (Rs 60 bilion) this fiscal, reports The Hindu Business Line.

The company is looking at an IPO by December this year, which would fund its expansion
programme. The debt, according to J Sridharan, executive finance director, will be raised through
loans or bonds.

Meanwhile, PowerGrid has reported 28.4% increase in net profit at Rs 1,009 crore (Rs 10.09
billion) during 2005-06 compared to Rs 786 crore (Rs 7.86 billion) during the corresponding
previous period.

Malwa group to bring out IPO of 2 cr shares

Ludhiana-based Malwa Industries Limited, a part of Rs 540-crore Malwa Group of
Companies, which is one of the leading players in the textile industry, will soon bring out an Initial
Public Offering (IPO) for 2 crore shares. The Malwa group has varied interests in textiles ranging
from cotton, yarn, denim, woollen garments and sewing thread

Apart from integrated operations in India, Malwa Industries Limited has recently acquired a denim
garment manufacturing facility in Jordan and also a denim garment finishing facility in Italy.1

“We are coming out with an IPO for 2 crore shares in the current fiscal and we intend to raise
market capital worth Rs 200 crore from it. Out of that money, Rs 60 crore will be used for
expansion purposes, Rs 50 crore to pay off the debt of our Jordan and Italy plants, Rs 50 crore for
working capital and Rs 28.5 crore for setting up a 6 Mw power plant where power will be
generated from rice husk. This power plant will feed the entire complex and will start its
production this July. Some of that money will also be used for acquisition of properties, as well as
promotion of our own brands.”

The company’s installed capacity is 20 million meters per annum for denim fabric and 8.5 million
pieces of denim garments comprising 4.5 million pieces per annum in India and 4 million pieces
per annum in Jordan.

49
 It also has high-end finishing capacity for 2.5 million pieces per
annum in Italy. “The company plans to double the denim production capacity
from 20 to 40 million meters per annum,” said Oswal

BSNL dropped the plan of IPO

State-run BSNL has initiated the process of appointing an advisor for its proposed
initial public offer (IPO) by inviting bids from the merchant bankers.

"Many advisors including SBI Capital Markets are being considered for the proposal
on IPO but things have not been finalised yet," BSNL Director (Finance) S D
Saxena.

The decision to launch an IPO was taken after the Government decision to sell a
small shareholding in profitable and non-navratna public sector PSUs.

In fact, the Cabinet has already decided to list the unlisted PSUs with revenues more
than Rs 200 crore.

Conservative estimates value BSNL at around $15 billion. Though the exact
percentage of equity divestment has not been announced yet, indications suggest it
can be up to 10 per cent.

During 2004-05, BSNL's net profit of Rs 10,183 crore, and expects to post a profit
of around Rs 8,000-10,000 crore during 2005-06 also.

End Result:

State-owned Bharat Sanchar Nigam Limited has dropped plans for its
proposed initial public offering during the current financial year.

Government informed that they have taken advise from bankers and they have
suggested that this is not an appropriate time to go for an IPO

Asked by when the company would be ready to hit the capital market, S.D. Saxena,

50
 Director (finance) said "we need 12 to 18 months to clean up
our accounts." Earlier, BSNL had initiated the process of
appointing an advisor for its proposed IPO and had invited bids
from the merchant bankers.

HPCL planning to go for IPO

Hindustan Petroleum Corporation Ltd (HPCL) has decided to implement the

Bhatinda refinery project on its own. Speaking to presspersons after the British oil
giant, BP Plc, announced the decision to pull out of the joint venture, Mr M.B. Lal,
said that HPCL will implement the project as planned.

Stating that HPCL would go ahead with the implementation of the project despite
the set back, Mr Lal said the company was in touch with other multinationals
including Total of France, and foreign partners could join the project at a latter date.
The company may subsequently go for an initial public offering (IPO) closer to
the completion of the project in 2010.

After the equity portion of about Rs 5,000 crore was tied-up, Guru Govind Singh
Refineries Ltd (GGSRL), the company implementing the project, would consider an
IPO.

The nine-million-tonnes refinery at Bhatinda in Punjab is proposed at an investment

of about Rs 13,000 crore.

"BP, however, remains interested in investing in oil and gas exploration and was
looking at bidding for blocks offered under NELP-VI," he said.

BP has also told HPCL that it was not looking at any other refining and marketing
opportunity in India or in its immediate neighbourhood.

51
 Kingfisher Air plans to raise $200m via IPO or
FCCB route
Kingfisher Airlines will wait for the market to stabilise before firming up its plans to raise
around USD 200 million either through an IPO or through the foreign currency convertible bonds,
FCCB, route, reports.

In another development, the airline is learnt to be in talks with four US-based airlines to use their
air rights to start operations from the US to India. Sources close to the airline said that the talks
were at a preliminary stage, as the first of the wide-bodied A340-500, which the airline has
ordered, will joint the fleet in 2008.

"We have given ourselves one year to raise funds. Hopefully, the market will stabilise soon," the
Kingfisher Airlines chairman, Vijay Mallya, told. The airline is planning to raise funds worth USD
200 million either through the FCCB route or through the private equity route. An initial public
offering is another option the airline is looking at.

Buy orders

Early this year, the airline announced that it has placed orders for five ultra long haul A340-500s,
which will joint the fleet in 2008. Another five aircraft are on option basis. Once Kingfisher
Airlines gets these aircraft, it plans to get a US-based operator to fly them under the airline's brand
from the US to India. Mallya has been critical of the current aviation policy, which does not allow
Indian carriers to fly international routes until they complete five years of operations in the
country.

Part of the USD 200-million, which will be raised, will be used to finance the purchase of more
aircraft. The airline expects to have a total of 21 aircraft, including six ATRs in its fleet by the end
of 2006.

52
 Kingfisher Airlines will get first of the five A380s it has ordered by
2010. The list price of the 555-seater aircraft is around USD 230
million.

53
 Maruti
The auto leader Maruti Udyog's public issue got a warm response from the market, getting
oversubscribed by nearly 10 per cent on the first day. The company's initial public offer (IPO),
aimed at reducing Government equity by 25 per cent, is boosting hopes that subsequent IPOs by
public sector enterprises could be given an equally enthusiastic response.

The floor price of the shares with a face value of Rs. 5 has been fixed at Rs. 115, but over 85 per
cent bids were at Rs. 120 per share or higher, according to data available from the stock
exchanges.

Despite the good response on the first day with the issue being oversubscribed within three
hours of the launch, the sources assured that the issue which is being conducted through the book-
building route would remain open till the scheduled date of June 19, 2003.

Shares of Maruti had been 12.4 times oversubscribed and had produced a bull run on public-
sector stocks .

The IPO made an offer of 7.2 crore shares but bids for Rs. 7.89 crores had been received on the
first day. Under the existing provisions, up to 60 per cent would be offered to qualified
institutional buyers. In addition, at least 15 per cent of the offer would be given to wholesale
bidders and 25 per cent to retail bidders. Allocation for retail investors, however, may be raised in
view of the aim to make the company more broad based.

The Japanese partner, the Suzuki Motor Corporation (SMC), which has had a fruitful tie up with
the Indian Government to make MUL the market leader in this country, had agreed to underwrite
the IPO at Rs. 2,300 per share of face value of Rs. 100. Instead, the company opted to split each
share into 20 of Rs. 5 each, bringing the floor price to Rs. 115 per share.

54
 IOC's IPO, a huge hit in Lanka

The Indian Oil Corporation had attempted to raise $35 million for its Sri Lanka
operation had been a huge success with the company's initial public offering being
oversubscribed by over six times.

Lanka IOC had hoped to issue 100 million 10-rupee shares at a premium of Rs 13 to
17 under a unique bidding scheme where investors could ask for shares at prices
ranging from Rs 23 to 27 a share.

"Initial indications are that the IPO is at least six times oversubscribed," the
secretaries to the issue, SSP Corporate Services, said even as more applications
received in the mail were being processed.

The objective of the IPO was to raise money to fund the company's capital
expenditure commitments during the next two years. The company wants to spend
$15 million on improving filling stations while another $15 million will go to
refurbish 35 to 40 oil storage tanks at the China Bay in Trincomalee.

The balance $5 million will be used to set up a blending plant for lubricant oils and
vehicle fuel additives in Trincomalee. Any shortfall in funding will be met with
internally generated cash and debt. Lanka IOC enjoys a 10-year tax holiday in Sri
Lanka. All its capital goods imports are also duty free.

As per last update on November 30, 2004.

55
 NTPC IPO a huge Success

National Thermal Power Corporation’s (NTPC) initial public offer (IPO) opened for
subscription on October 7, 2004 and close on October 14, 2004.

NTPC offered 866.83 million shares, amounting to 10.5 per cent of the post-issue
expanded capital, with a face value of Rs10 each. The shares were offered at a price
band of Rs52 to Rs62.

The issue comprised of fresh issue of 432.91 million shares and an offer for sale of
equivalent number of shares held by the government, which is part of the
government's disinvestment plan. Post-issue, the government holding in the
company had come down to 89.5 per cent of the expanded capital of the company.

NTPC IPO was a huge success.

At the upper level of the price band, the IPO expected to raise Rs5,369 crore, the
second largest public offer after TCS, which received a record Rs5,420 crore.

This puts NTPC's valuation at Rs51,135 crore, making it the country's third most-
valuable firm after ONGC and Reliance, edging out Indian Oil from the third spot in
terms of market capitalisation.

ICICI Securities, Enam Financial Consultants and Kotak Mahindra Capital

Company were the lead managers for the NTPC issue. The proceeds from the issue
will be utilised to augment NTPC's long-term resources.

56
57
 How the mkt crash has hit the IPO space
The correction that has gripped the secondary markets since May 11 seems to have cast a
dark spell on the IPO markets. Also, a good 57% of the IPOs listed since April 1, 2005 were
quoting below their issue price as on June 9. Nevertheless, IPO experts believe that the ‘deep
correction’ in the secondary markets will influence the IPOs that are waiting in the wings.

Their words almost sound prophetic when one takes into consideration what happened to two
issues that listed today. Deccan Aviation and Unity Infraprojects listed at discounts of 22% and
20% respectively to their issue price.

Both these companies came out with their IPOs when the secondary markets were going through
one of their worst turmoil ever. While Deccan Aviation’s IPO sailed through only after the IPO
date was extended for three more days, Unity Infraprojects sailed through with ease, having being
subscribed 2.37 times over in a market that was undergoing a steep and violent correction.

These developments, incidentally, seem to have forced companies like DLF, GMR Infrastructure
and Parsvnath Developers to reconsider the timing of their IPOs. DLF was supposed to hit the
markets sometime in early June but has yet to decide on its IPO. The ‘deep correction’ in the
secondary market has taken away the retail interest in IPOs. Investment advisor, S P Tulsian
explains the reason behind retail investor apathy towards such IPOs.

“When you are getting such an impressive array of stock in the secondary market at such as
attractive valuation then why would anyone go to the primary market. Number two, primary
market issues were by and large aggressively priced because of the booming secondary market.
Now, since the secondary market has collapsed and has corrected sharply, IPOs will not evince
much interest from investors.”

R S Iyer of K R Choksey agrees with Tulsian’s explanation. He feels, “Many of the recently listed
IPOs are quoting below their offer price. In such a bad market we cannot tell clients to wait for the
long term as their sentiment seems to have badly bruised by the recent carnage.”

58
 So will companies like DLF and others wait till the storm has passed
by and then enter the secondary market as an IPOs future is largely decided
by the market sentiment and investors confidence, both of which is badly dented due to the violent
stock market gyrations. “Power Finance Corporation, DLF and some more forthcoming issues are
likely to be held back due to the poor market sentiment,” says Manish Bhatt of Prabhudas
Lilladher.

However, there is a silver lining to this dark IPO clouds. 43% of them are still above their issue
price. While some of these gainers are just about managing to float above their issue price, there
are seven stellar performers that have given returns above 100%.

This list includes Era Constructions (up 288%), Shree Renuka Sugars (up 174%), Educomp
Solutions (up 161%), Tantia Constructions (up 146%), Saksoft (up 140%), Vivimed Labs (up
129%), Everest kanto (up 108%) and Tulip IT (up 104%).

Explaining the Recent Stock Market Volatility

In an accelerated climb, the Bombay Sensex rose from 5,054 points on July 22, 2004 to 6,017 on
November 17, 7,077 on June 21, 2005, 8,073 on November 2, 9,067 on December 9, 10,082 on
February 7, 2006, 11,079 on March 27, 12,219 on May 2, 2006 and 12,435 on May 11. The
implied price increase of more than 37 per cent over the last five months is indeed remarkable. The
rise in the first four-and-half months of 2006 alone was around 14 per cent (Chart 1).

A reasonable assessment would have been that this rise was unsustainable and unwarranted by
actual corporate performance. A correction, therefore, was in order and did occur in the second
half of May, even if to an inadequate extent. The Sensex fell from its May 11 peak of 12,435 to
10,482 on May 22, only to rise once again to 10,809 on May 26.

59
 One response to this minor correction has been that the obstacles set
by the Government to the advance of economic reform have generated
uncertainty in the markets, leading to the loss of paper wealth which should
not have been accumulated in the first place. This response is in keeping with the overall
perception that liberalisation policies that speculative fever of the kind seen in the markets should
not be tempered in any way, as it hurts investors and can trigger a retreat that can be damaging.

The problem with this argument is that it ignores the fact that the May downturn was not restricted
to India alone but was a global phenomenon. As Chart 2 shows, recent movements in the Sensex
have closely followed the Nasdaq index. Further, the decline witnessed in May was not confined to
India, but affected many emerging markets, including Russia, Turkey, Indonesia South Korea and
Taiwan.

Global downturn
Many analysts have argued that this global downturn was triggered in the first instance by
expectations of a rise in US interest rates. With GDP growth rates in the US placed at well above 5

per cent in the first quarter of 2006, the Federal Reserve was expected to cool the economy by
raising interest rates. This was because of the perception that in a global environment where high
oil prices were already raising costs and prices, buoyant domestic demand leading to high growth
rates would also result in inflation that the monetary authorities would be forced to contain.

In the event, the expectation of a possible rise in interest rates had resulted in a retreat from
speculative investments in equities and commodities. The result was the downturn in stock
markets, initially in the US and then across the globe, with emerging markets such as India,
Russia, Turkey, Indonesia South Korea and Taiwan being hit hard. So when the first revision of
the preliminary estimate of GDP growth in the US during the first quarter of 2006, released on
May 25, placed the revised first-quarter growth rate at 5.3 per cent (not 6.2 per cent as originally

60
 expected) and news was out that consumer spending and the US
housing market were cooling, "investors" ostensibly heaved a sigh of
relief.

One factor that accounts for the synchronisation of market movements is that a few global players
drive all markets, centralising in themselves the funds available for investment. Since these
financial entities tend to behave in herd-like fashion, rushing into particular markets and
instruments when the going seems good and withdrawing together when uncertainty strikes, their
decisions determine the buoyancy or lack of it in most markets.

In all the emerging markets, the downturn since the middle of May and the collapse on May 22
were related to withdrawal of investments by foreign investors. According to the Financial Times
(May 26), about $5 billion of foreign funds had flowed out of Asian emerging markets over the
previous week, with around three quarters of them coming from South Korea and Taiwan. The
other market to be afflicted badly by this syndrome was India. By May 26 the Sensex had fallen by
as much as 16 per cent relative to its May 11 peak. Foreign institutional investors are estimated to
have pumped in $10.7 billion into India's markets in 2005 and a further $5 billion by May 11 this
year. So when they decided to pull out around $2 billion between May 11 and May 25, a sharp
downturn ensued.

FII pullout
While it has been acknowledged that FII investments have been primarily responsible for the surge
in India's stock market, it is true that domestic investors including mutual funds have sought to
profit from the stock market boom. As a result while earlier, cumulative FII investments in the
Indian market closely tracked movements in the Sensex, more recently the index has tended to
outstrip growth in cumulative foreign institutional investment. But, as Chart 3 shows, the FII
pullout has played a dominant role in explaining the decline in the Sensex.

This being the case, what is puzzling about recent market behaviour is the fact that global investors
have gone bearish on all markets, resulting in the generalised downturn.

61
 The Indian market is driven by global decisions, which in turn are
determined by the speculative activities of key investors the
government seeks to attract.

Once we recognise that financial volatility is the result of the speculative behaviour of these firms,
measures to reduce the presence and influence of these investors seem to be the need of the day.

Analysis of the given Cases

On the basis of the analysis made from the study of the related cases given, we can
conclude:

• That currently market fluctuation is very high and a lot of uncertainty is there.

• Many companies/s shares are being heavily undersubscribed and of many its
being oversubscribed, while others are delaying their IPO, because of market
fluctuations.

• But in spite of highly volatile market many companies who are confident
enough are planning to take out IPO in the coming future, but many have
delayed their IPO.

• Study made on PSUs, which had earlier gone for IPO concludes that earlier
also IPO of companies like Maruti, IOC, NTPC, etc had been a great success.
Amd the issues were not only fully subscribed but also oversubscribed 6 to 12
times.

62
 • So DMRC Ltd being an PSU will not face any
problem if it comes out with IPO on the Right time with a
right Price Band

Why DMRC Ltd. needs to raise more funds

DMRC Ltd., a PSU, is engaged in setting up and making Metro Train Project
operational in Delhi.

DMRC has successfully accomplished Phase-I of the Delhi MTRS Project. And now
it is heading towards its Phase –II, for which it again needs lots of funds. Earlier
DMRC Ltd. has spent total sum of Rs. 10,571 Crores for the successful completion
of Phase –I. Now the current need for Phase –II is 8,118 Crores.

DMRC Ltd. is getting lot of funds in the form of Equity, Interest free loans and
subsidised loans from Government of India and Delhi and also from JBIC. But still
it needs to raise lot more funds which will not only help in expansion and smooth
functioning of DMRC Ltd but also will help DMRC in undertaking all those
creative projects which are there on papers and in the minds, but they can’t
undertake them due to limited funds.

63
 There are so many ideas which DMRC can implement
which will not only help DMRC Ltd. in Raising Revenue
( as currently it is going in losses ) but will also transform the
whole look and perception of the concept of Metro.

DMRC by investing more into the business can develop more infrastructures which
can be used for raising revenue from Property Development. As many Metros of the
world does. In some of the Metros abroad the revenue from Property Development is
more than the revenue from ridership. That’s what DMRC Ltd. should aim at. It
should not be dependent on revenue from ridership only but should make itself
capable to raise more revenue from other sources as Consultancy and Property
Development.

But for reaching this stage DMRC Ltd. need to raise more funds then its getting by6
Government sources. Now the question arises what are be the feasible sources for
raising funds for DMRC Ltd.?

Feasible Sources of Funds for DMRC Ltd.

Once DMRC Ltd. decides to raise more funds by going for other sources than
Government Funding, or by being Privatise, then the next question arises is, What is
the source which is most feasible for DMRC Ltd.?

Currently DMRC Ltd is getting funds in the form of loan on the interest of 0%,
1.3%, 1.8%, and 2.3% . And currently DMRC has not even reached Break-Even,
(though it has reached operational Break-Even but not Financial Break-Even), so it’s
not earning lot of profit. So in this condition DMRC need such a source by which it
can get Long term funds and in the initial years it does not have to pay lot of interest
or return.

64
 If DMRC Ltd. will go for Bonds or Debentures, it will have
to give a high interest to the investors. And as currently it is
getting loan on such a low interest (1.3%, 1.8%, 2.3%) then it is
not wise to raise money through debenture or bonds, on which interest is so high and
are so risky also ( as DMRC is in losses ). So Debentures and Bonds are not very
feasible.

International sources are also not feasible as , DMRC is not a listed Company, so
till it does not Make a hold in India , its not very feasible for it to raise money from
abroad, so there is no question of going for ADRs and GDRs.

But DMRC can go for IPO, Convertible Bonds and Private Placements. Out of these
three, best option is IPO. As on Equity shares company does not have to necessarily
give returns in the initial years.

DMRC Ltd. going for IPO

Currently DMRC is an unlisted company. For going for IPO it has to be listed in the
Stock Exchange. Before that it should go through all the legal procedures and take
permissions from the concerned authorities in this regard.

DMRC Ltd. should go for Book-Building Process for IPO.

PRICING OF THE ISSUE

DMRC have to decide the price band for the Book-Building process. In consultation
with the Company Secretary it is agreed on that the price band for DMRC can be

65
 fixed anywhere between Rs 60-100. Final price band will be
decided when DMRC will actually go for IPO according to
Market Condition then. Right now according to the given market
conditions Price band can be fixed between Rs 60-100.

TIME FOR THE ISSUE

Studying the market conditions this can be said, as currently market is fluctuating
very frequently so it is not very advisable to DMRC Ltd to come out with IPO. As
still many company’s shares are being oversubscribed, but still there are many
companies whose shares are going undersubscribed. So it may be risky for DMRC to
come out with IPO in the current scenario. Though DMRC Ltd. has gain a lot of
name and fame in a very short span of time and according some of the famous
magazines DMRC is among the top five companies in the terms of world class
technology. But still as DMRC Ltd. is not very strong on the profit front so it should
not take any risk and should wail for the market to stabilize.

It can come out with IPO as soon as market gets stabilize, showing a forward trend.

How can DMRC Ltd. use extra funds

acquired by IPO

• Through property development schemes, some recreation centers may be

developed in and around metro stations.

• Metro stations and near around areas can be converted into commercial hubs.
This will not only put a direct effect on the ridership but also increase the non-
operational revenue generated.

• Conducting shows in association with various organizations which might

provide them an opportunity to conduct different campaigns and make metro

66
 journey not only comfortable as it is but also add
excitement to it.

• As metro has already introduced the idea of “IT Parks”, it can develop more
of them in the coming future..

• Land outside metro station which is used for parking is generally a very big
area and can be exploited by converting it to a multistory building with
underground parking.

• These building which will be developed can be use for renting out as offices
to big and small companies.

• Proper commercial complexes like Malls can be developed which can be

exploited for raising non operational revenue. In this way non operational
revenue can contribute a major part to the total revenue.

• Also more coaches can be ordered to support the increasing traffic flow of
Metro.

Bibliography

• Investments by M.Y. Khan

• Investment and portfolio Management by Prasana Chandra

• Corporate finance by Braile and Myres

• Reports given by DMRC staff

• Business line

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 • Economics time

• Internet , etc

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