CORPORATE LAW 15 CRITICAL DISCLOSURE REQUIREMENTS IN IPO OFFER DOCUMENT August 2013 Under the guidance of: Professor Mr. Anant Amdekar Group- 1 Roll No. 12107A0001 12107A0010 12107A0026 12107A0033 12107A0035 12107A0039 12107A0043 12107A0048 12107A0050 12107A0053 12107A0061 Team Members Ganesh Gite Niveeta Meshram Mayuri Rasal Aditya Bhujbal Samir Gopal Neha Jha Kunal Anardi Rohini Katke Shraddha Desai Shital Thakur Preeti Jain 1|Page Table of Contents Sr. No 1 2 3 4 5 6 Particulars Definitions & Abbreviations The Companies Act, 1956- Prospectus and Allotment, and other matters relating to issue of shares or debentures SEBI- Issue of Capital and Disclosure Requirements (ICDR) Regulations 2009 IPO-1 (Just Dial) IPO-2 (V-Mart) Disclosure’s Heads: Disclosure 1: Capital Structure Disclosure 2: Promoters‟ Contribution Disclosure 3: Basis of Issue Price Disclosure 4: Risk Factors Disclosure 5: Company Business Operations Disclosure 6: Objects of the Offer Disclosure 7: Underwriting Disclosure 8: Government approval/licensing arrangements Disclosure 9: Comparison with Industry Peers Disclosure 10: Restrictions on Foreign ownership of Indian Securities Disclosure 11: IPO Grading Disclosure 12: Dividend Policy Disclosure 13: Minimum Subscription Disclosure 14: Financial Statements Disclosure 15: Litigation Conclusion References Page No. 7 8 2|Page Definitions & Abbreviations Draft Offer document: Draft Offer document means the offer document in draft stage. The draft offer documents are filed with SEBI, at least 21 days prior to the filing of the offer document with ROC/ SEs. SEBI may specifies changes, if any, in the draft offer document and the issuer or the Lead Merchant banker shall carry out such changes in the draft offer document before filing the offer document with ROC/SEs. The draft offer document is available on the SEBI website for public comments for a period of 21 days from the filing of the draft offer document with SEBI. Book Building: means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document; Red herring prospectus: A red herring prospectus (RHP) is a preliminary registration document that is filed with SEBI in the case of book building issue which does not have details of either price or number of shares being offered or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later. In the case of book-built issues, it is a process of price discovery as the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the Red Herring prospectus filed with ROC in terms of the provisions of the Companies Act. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus. Offer document: means Prospectus in case of a public issue or offer for sale and Letter of Offer in case of a rights issue which is filed Registrar of Companies (ROC) and Stock Exchanges. An offer document covers all the relevant information to help an investor to make his/her investment decision. 3|Page Underwriting: Underwriting of shares is a guarantee or insurance given by the underwriter to the company that the shares offered to the public will be subscribed in full. ASBA: Stands for „Applications Supported by Blocked Account‟. It is a process approved by SEBI for providing an alternative mode of payment in issues whereby the application money remains in the investors‟ account till finalization of basis of allotment in the issue. ASBA process would require retail individual investors bidding at cut-off, to apply through Self Certified Syndicate Banks (SCSBs), in which the investors have bank accounts. SCSBs would accept the applications, block the fund to the extent of bid payment amount, upload the details in the electronic bidding system of BSE or NSE, unblock once basis of allotment is finalised and transfer the amount for allotted shares, to the issuer. This would co-exist with the current procedure of investors applying through sub syndicate/ syndicate members with cheque as a payment instrument. Initial Public Offering (IPO): Initial Public Offer (IPO) is a process through which an unlisted Company can be listed on the stock exchange by offering its securities to the public in the primary market. The object of an IPO may be relating to expansion of existing activities of the Company or setting up of new projects or any other object as may be specified by the Company in its offer document or just to get its existing equity shares listed by diluting the stake of existing equity shareholders through offer for sale. Paid up capital: Paid-up capital is money that a company has received from the sale of its shares, and represents money that is not borrowed. A company that is fully paid-up has sold all available shares, and thus cannot increase its capital unless it borrows money through debt or is authorized to sell more shares. In other words, the amount of capital (out of called-up capital) against which the company has received the payments from the shareholders so far. Buy Back: The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buy back shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may be looking for a controlling stake. 4|Page Draft Prospectus: A draft prospectus provides the information on the financials of the company, promoters, background, tentative issue price etc. It is filed by the Lead Managers with the Securities & Exchange Board of India (SEBI) to provide issue details. QIB: A Qualified Institutional Buyer (QIB) is one that owns and invests, on a discretionary basis, at least $100 million in securities; for a broker-dealer the threshold is $10 million. QIBs encompass a wide range of entities, including banks, savings and loans associations, insurance companies, investment companies, employee benefit plans or entities owned entirely by accredited investors. Banks and S&L associations must also have a net worth of at least $25 million to satisfy the QIB criteria. FII (Foreign Institutional Investor): An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. Greenshoe Option: A provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than originally planned by the issuer. This would normally be done if the demand for a security issue proves higher than expected. Legally referred to as an over-allotment option. A greenshoe option can provide additional price stability to a security issue because the underwriter has the ability to increase supply and smooth out price fluctuations if demand surges. Greenshoe options typically allow underwriters to sell up to 15% more shares than the original number set by the issuer, if demand conditions warrant such action. However, some issuers prefer not to include greenshoe options in their underwriting agreements under certain circumstances, such as if the issuer wants to fund a specific project with a fixed amount of cost and does not want more capital than it originally sought. The term is derived from the fact that the Green Shoe Company was the first to issue this type of option. 5|Page INITIAL PUBLIC OFFERING (IPO) An IPO is when a company which is presently not listed at any stock exchange makes either a fresh issue of shares or makes an offer for sale of its existing shares or both for the first time to the public. Through a public offering, the issuer makes an offer for new investors to enter its shareholding family. The shares are made available to the investors at the price determined by the promoters of the company in consultation with its investment bankers. The successful completion of an IPO leads to the listing and trading of the company's shares at the designated stock exchanges.  Going public provides an opportunity to the companies to raise cash for setting up a project or for diversification/expansion or sometimes for working capital or even to retire debt or for potential acquisitions. This is called fresh issue of capital where the proceeds of the issue go to the company.  Companies also go public to provide a route for some of the existing shareholders including venture capitalists to exit fully or partially from the company's shareholding or for promoters to partially dilute their holding. This is called an offer for sale where the proceeds of the issue go to the selling shareholders and not to the company.  It increases the company‟s ability to raise debt at finer rates. The company also gets a continuing window for raising more capital, both from the domestic and overseas equity markets. Acquisitions also become simpler as instead of cash payouts, companies can use shares as a currency. Of course, listing carries a considerable degree of prestige for the company.  Listing also lends liquidity to the stock, which is very critical for the success of employee stock ownership plans, which help to attract top talent. 6|Page Eligibility Norms for IPO’s: SEBI has stipulated the eligibility norms for companies planning an IPO which are as follows:  Net tangible assets of at least Rs. 3 crore in each of the preceding three full years  Distributable profits for at least three out of the immediately preceding five years  Net worth of at least Rs. 1 crore in each of the preceding three full years  The issue size should not exceed 5 times the pre-issue net worth  If there has been a change in the company's name, at least 50% of the revenue for preceding one year should be from the new activity denoted by the new name Alternative Route: Recognizing that many good companies, for one reason or the other, may not be able to comply with all the eligibility norms, two other alternative routes are available to such companies: Alternative I: a) Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs). b) 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 Alternative II: a) 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). b) 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. In addition to satisfying the aforesaid eligibility norms, the company shall also satisfy the criteria of having at least 1000 prospective allotted in its issue. 7|Page Exemptions to certain category of entities from the eligibility norms:  A banking company including a local area bank set up under the Banking Regulation Act, 1949  A corresponding new bank set up under the Banking Companies Act, 1970  An infrastructure company   Whose project has been appraised by a Public Financial Institution (PFI) Not less than 5% of the project cost is financed by any of the PFI  Rights Issue by a listed company Minimum Public Shareholding Requirements: Clause 40A of the BSE Listing Agreement requires at least 25% of the post issue paid up capital to be with the 'public' (i.e. other than promoter and promoter group). As per rule 19(2) (b) of the Securities Contract (Regulation) Rules, a minimum of 25% of each class of security must be offered to the public for subscription. However, at least 10% can be offered if the following 3 conditions are fulfilled:  Minimum 2 MM securities (excluding reservations, firm allotment & promoter contribution) to be offered to the public  Minimum offer size- Rs.100 crores  Issuance through book building with 60% QIB allocation Note: Section 617 of the Companies Act, 1956 defines Government company as followsGovernment Company means any company in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary of a Government company as thus defined. 8|Page COMPANIES ACT, 1956 PROSPECTUS AND ALLOTMENT, AND OTHER MATTERS RELATING TO ISSUE OF SHARES OR DEBENTURES  Dating of prospectus  Powers of Securities and Exchange Board of India  Matters to be stated and reports to be set out in prospectus  Expert to be unconnected with formation or management of company  Expert's consent to issue of prospectus containing statement by him  Deposits not to be invited without issuing an advertisement  Small deposits  Default in acceptance or refund of deposits to be cognizable  Provisions relating to prospectus to apply to advertisement  Penalty and interpretation  Registration of prospectus  Filing of self-prospectus  Information memorandum  Terms of contract mentioned in prospectus or statement in lieu of prospectus, not to be varied  Civil liability for mis-statements in prospectus  Criminal liability for mis-statements in prospectus  Document containing offer of shares or debentures for sale to be deemed prospectus  Interpretation of provisions relating to prospectuses  Newspaper advertisements of prospectus  Construction of references to offering shares or debentures to the public, etc.  Penalty for fraudulently inducing persons to invest money  Personation for acquisition, etc., of shares  Initial offer of securities to be in dematerialised form in certain cases  Prohibition of allotment unless minimum subscription received 9|Page  Prohibition of allotment in certain cases unless statement in lieu of prospectus delivered to Registrar  Effect of irregular allotment  Applications for, and allotment of, shares and debentures  Allotment of shares and debentures to be dealt in on stock exchange  Manner reckoning fifth, eighth and tenth days in sections 72 and 73  Return as to allotments  Power to pay certain commissions and prohibition of payment of all other commissions, discounts, etc.  Restrictions on purchase by company, or loans by company for purchase, of its own or its holding company's shares  Power of company to purchase its own securities.  Transfer of certain sums to capital redemption reserve account.  Prohibition for buy-back in certain circumstances  Application of premiums received on issue of shares  Power to issue shares at a discount  Issue of sweat equity shares  Power to issue redeemable preference shares  Redemption of irredeemable preference shares etc.  Further issue of capital 10 | P a g e SEBI Issue of Capital and Disclosure Requirements (ICDR) Regulations 2009 The issue of capital in India is governed by the SEBI (Issue of Capital and Disclosure Requirements) Regulation, 2009 ICDR regulations are applicable for public issue; rights issue, preferential issue; an issue of bonus shares by a listed issuer; qualified institutions placement by a listed issuer and issue of Indian Depository Receipts. General conditions for public issues and rights issues: 1. If the issuer, any of its promoters, promoter group or directors or persons in control of the issuer are debarred from accessing the capital market by SEBI or 2. If any of the promoters, director or person in control of the issuer was or also is a promoter, director or person in control of any other company which is debarred from accessing the capital market under the order or directions made by SEBI. 3. If the issuer of convertible debt instruments is in the list of willful defaulters published by the RBI or it is in default of payment of interest or repayment of principal amount in respect of debt instruments issued by it to the public, if any, for a period of more than 6 months. 4. Unless an application is made to one or more recognised stock exchanges for listing of equity shares and convertible securities on such stock exchanges and has chosen one of them as a designated stock exchange. However, in case of an initial public offer, the issuer should make an application for listing of the equity shares and convertible securities in at least one recognised stock exchange having nationwide trading terminals. 5. Unless it has entered into an agreement with a depository for dematerialisation of equity shares and convertible securities already issued or proposed to be issued. 6. Unless all existing partly paid-up equity shares of the issuer have either been fully paid up or forfeited. 7. Unless firm arrangements of finance through verifiable means towards 75% of the stated means of finance, excluding the amount to be raised through the proposed public issue or rights issue or through existing identifiable internal accruals, have been made. 11 | P a g e Appointment of Merchant banker and other intermediaries: The issuer should appoint one or more merchant bankers, at least one of whom should be a lead merchant banker. The issuer should also appoint other intermediaries, in consultation with the lead merchant banker, to carry out the obligations relating to the issue. The issuer should in consultation with the lead merchant banker, appoint only those intermediaries who are registered with SEBI. Where the issue is managed by more than one merchant banker, the rights, obligations and responsibilities, relating inter alia to disclosures, allotment, refund and underwriting obligations, if any, of each merchant banker should be predetermined and disclosed in the offer document. Conditions for Initial Public Offer 1) An issuer may make an initial public offer (an offer of equity shares and convertible debentures by an unlisted issuer to the public for subscription and includes an offer for sale of specified securities to the public by an existing holder of such securities in an unlisted issuer) if: a) The issuer has net tangible assets of at least Rs.3 crores in each of the preceding 3 years (of 12 months each) of which not more than 50% are held in monetary assets. If more than 50% of the net tangible assets are held in monetary assets, then the issuer has to make firm commitment to utilize such excess monetary assets in its business or project. b) The issuer has a track of distributable profits in at least 3 out of the immediately preceding 5 years c) The issuer company have a net worth of at least Rs.1 crores in each of the preceding 3 full years (of 12 months each). d) The aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed 5 times its pre-issue net worth as per the audited balance sheet of the preceding financial year. e) In case of change of name by the issuer company within last one year, at least 50% of the revenue for the preceding one year should have been earned by the company from the activity indicated by the new name. 12 | P a g e 2) Any issuer not satisfying any of the conditions stipulated above may make an initial public offer if: a. The issue is made through the book building process and the issuer undertakes to allot at least 50% of the net offer to public to qualified institutional buyers and to refund full subscription monies if it fails to make allotment to the qualified institutional buyers OR At least 15% of the cost of project is contributed by scheduled commercial banks or public financial institutions, of which not less than 10% would come from the appraisers and the issuer undertakes to allot at least 10% of the net offer to public to qualified institutional buyers and to refund full subscription monies if it fails to make the allotment to the qualified institutional buyers. b. The minimum post-issue face value capital of the issuer should be Rs.10 crore; OR the issuer undertakes to provide compulsory market making for at least 2 years from the date of listing of the equity shares and convertible securities subject to the conditions that (i) The Market makers undertake to offer buy and sell quotes for a minimum depth of 300 equity shares and convertible securities and ensure that the bid-ask spread for their quotes should not at any time exceed 10 % (ii) The inventory of the market makers, as on the date of allotment of the equity shares and convertible securities should be at least 5% of the proposed issue. 3) An issuer may make an initial public offer of convertible debt instruments without making a prior public issue of its equity shares and listing. 4) An issuer cannot make an allotment pursuant to a public issue if the number of prospective allottees is less than one thousand. 5) No issuer can make an initial public offer if there are any outstanding convertible securities or any other right which would entitle any person any option to receive equity shares after the initial public offer. However, this is not applicable to: 13 | P a g e  A public issue made during the currency of convertible debt instruments which were issued through an earlier initial public offer, if the conversion price of such convertible debt instruments was determined and disclosed in the prospectus of the earlier issue of convertible debt instruments;  Outstanding options granted to employees pursuant to an employee stock option scheme framed in accordance with the relevant Guidance Note or Accounting Standards, if any, issued by the Institute of Chartered Accountants of India in this regard.  Fully paid-up outstanding securities which are required to be converted on or before the date of filing of the red herring prospectus (in case of book built issues) or the prospectus (in case of fixed price issues), as the case may be. Pricing in Public Issues: The issuer determines the price of the equity shares and convertible securities in consultation with the lead merchant banker or through the book building process. In case of debt instruments, the issuer determines the coupon rate and conversion price of the convertible debt instruments in consultation with the lead merchant banker or through the book building process. Promoters’ Contribution: The promoters‟ minimum contribution varies from case to case. The promoters of the issuer are required to contribute in the public issue as follows: In case of an initial public offer, the minimum contribution should not be less than 20% of the post issue capital; In case of further public offer, it should be either to the extent of 20 % of the proposed issue size or to the extent of 20% of the post-issue capital; In case of a composite issue, either to the extent of 20% of the proposed issue size or to the extent of 20% of the post-issue capital excluding the rights issue component. 14 | P a g e Lock-in of specified securities held by promoters: In a public issue, the equity shares and convertible debentures held by promoters are lockedin for the period stipulated below: (a) Minimum promoters‟ contribution is locked-in for a period of 3 years from the date of commencement of commercial production or date of allotment in the public issue, whichever is later; (b) Promoters holding in excess of minimum promoters‟ contribution is locked-in for a period of 1 year: However, excess promoters‟ contribution in a further public offer are not subject to lock in. Book Building: Book Building means a process undertaken to elicit demand and to assess the price for determination of the quantum or value of specified securities or Indian Depository Receipts, as the case may be in accordance with the SEBI ICDR Regulations 2009. In an issue made through the book building process, the allocation in the net offer to public category is made as follows: i) Not less than 35 % to retail individual investors. ii) Not less than 15 % to non-institutional investors i.e. investors other than retail individual investors and qualified institutional buyers. iii) Not more than 50% to Qualified Institutional Buyers; 5 % of which would be allocated to mutual funds. However, if the issue is made through the book building process and the issuer undertakes to allot at least 50% of the net offer to public to qualified institutional buyers and to refund full subscription monies if it fails to make allotment to the qualified institutional buyers then in that case at least 50% of the net offer to public should be allotted to qualified institutional buyers. In an issue made through the book building process, the issuer may allocate up to 30% of the portion available for allocation to qualified institutional buyers to an anchor investor in accordance with the conditions laid down in ICDR Regulations 2009. 15 | P a g e Company Overview Justdial's Mission: To provide fast, free, reliable and comprehensive information to our users and connect buyers to sellers. Corporate Information:  The company started offering local search services in 1996 under the Justdial brand and we believe that it is a leading player in a rapidly growing local search market in India.  The official website www.justdial.com was launched in 2007.  The search service is available to users across multiple platforms, such as the internet, mobile Internet, over the telephone (voice) and text (SMS).  Justdial believe that their search service bridges the gap between their users and business by helping users find relevant providers of products and services quickly while helping business listed in our database to market their offerings. Justdial Facts:  For the year ended March 31, 2013 we addressed 364 million search requests from millions of users across platforms.  Justdial has 08888888888 as their operator assisted hotline number, across India, which is accessible 24 hours a day, 7 days a week with multi-lingual support.  Justdial Apps are available for the Android, Blackberry and iOS platforms and we have location based service for our mobile Internet users.  Justdial has a database of approximately 9.1 million listings as of March 31, 2013.  Justdial users have contributed 28,461,907 reviews and ratings for various listings, till date. 16 | P a g e  Justdial had approximately 206,500 campaigns as of March 31, 2013. Business owners have the option to list their business on Justdial's database for free.  With the registered & corporate office based in Mumbai, Justdial also had offices across India in Ahmedabad, Bengaluru, Chandigarh, Chennai, Coimbatore, Delhi, Hyderabad, Jaipur, Kolkata and Pune. Key Highlights:  Services offered across various cities and towns in India  Advanced and scalable technology platform  Experienced management team  Large online community for reviews  Long operating history with a proven monetization model Competitive Strength: The company bridges the gap between buyers and sellers by helping buyers find the right providers of products and services while helping sellers improve the efficiency of their marketing channels. Investors: SAIF Partners, Sequoia Capital, Tiger Global, EGCS and SAP Ventures have invested in the company Global Plans: Just Dial has launched its local search service in North America on a toll free number "1-800500-0000". The company will next expand into Canada, UK, Australia, New Zeland, Singapore and Hong Kong. Going forward company intends to leverage the Just Dial brand and know how for an international franchise. 17 | P a g e First incorporated as Varin Commercial Private Limited under the Companies Act in 2002 in West Bengal. Then in 2003, V-Mart opened maiden store in Ahmedabad (Gujarat). In the Year 2004 opened first store in capital city, New Delhi. Further in 2006 crossed 1 lac sq.ft. retail space and subsequently renamed to V-Mart Retail Private Limited. In the year of 2008, hit the base by registering V-Mart Retail as a public limited entity and also crossed the turnover of 1,000 million INR As the time passes by V-Mart took the shape of a renowned family brand that caters the needs of whole family by offering high quality retail products. Along with growing customers, V-Mart achieved a turnover of INR 2,000 million in 2011-12. In the Year 2012 V-Mart crossed the retail space of 5 lac Sq. Ft. V-Mart is a complete family fashion store that provides its customers true value for their money. V-Mart offer their customers a great shopping experience each time they visit V-Mart by offering a vast range of products under one roof. Maintaining high standard s in quality and design, the stores have come up to offer fashion garments at down-to-earth prices and over time emerged as the destination of choice for bargain hunters and the fashionable alike. V-Mart primarily operates in tier II & tier III cities with the chain of “Value Retail” departmental stores. V-Mart stores cater the needs of the entire family altogether by offering apparels, general merchandise and Kirana goods. “Price Less Fashion” is the Main motto through which V-Mart believe in providing the latest trends to the upwardly mobile Indians at the best possible price. V-Mart have 79 stores across 66 cities in 12 states and union territories, with a total area of 6.41 Lac sq.ft(5.95 Thousand Sq mtr.).V-Mart stores are located in prime cities such as New Delhi, Gujarat, Uttar Pradesh, Bihar, Punjab, Chandigarh, Haryana, Uttarakhand, Jammu and Kashmir, Rajasthan and Madhya Pradesh. V-Mart is among the pioneers in setting up modern ambiance stores or large retail malls across various small towns and cities including Sultanpur, Ujjain, Motihari and more 18 | P a g e 15 CRITICAL DISCLOSURES Disclosure 1: Capital Structure The capital structure must be presented in the following manner: (a) Authorised, issued, subscribed and paid up capital (Number of instruments, description and aggregate nominal value). (b) Size of the present issue, giving separately promoters‟ contribution, firm allotment/ reservation for specified categories and net offer to public. After the details of capital structure, the following notes must also be incorporated: (a) Details such as date of issue, number of shares, face value, issue price, nature of allotment. (b) Note relating to promoters' contribution and lock-in period. (c) Details of all ‟buy-back‟ and `stand by‟ and similar arrangements for purchase of securities by promoters, directors and lead merchant bankers. Disclosure Capital Structure Just Dial (IPO-1) Authorised Share Capital: Rs. 1,01,20,00,000 Issued, Subscribed And Paid Up Share Capital: Rs. 69,87,27,500 Present Issue in terms of the Prospectus: Rs. 17,49,74,580 V-Mart (IPO-2) Authorised Share Capital: Rs. 20,00,00,000 Issued, Subscribed And Paid-Up Share Capital: Rs. 1,51,97,778 Present Issue in terms of the Prospectus: Rs. 4,49,60,000 Just Dial has issued more number of shares as compared to V-Mart, Therefore, Just Dial is better than V-Mart Remarks 19 | P a g e Disclosure 2: Promoters’ Contribution The promoters‟ minimum contribution varies from case to case. The promoters of the issuer are required to contribute in the public issue as follows: In case of an initial public offer, the minimum contribution should not be less than 20% of the post issue capital; In case of further public offer, it should be either to the extent of 20 % of the proposed issue size or to the extent of 20% of the post-issue capital; In case of a composite issue, either to the extent of 20% of the proposed issue size or to the extent of 20% of the post-issue capital excluding the rights issue component. Shareholding percentage Promoters (A) Promoter’s group (B) Total (A+B) Just Dial (IPO-1) Pre offer 37.15 00 37.15 Post offer 33.13 00 33.13 V-Mart (IPO-2) Pre offer 40.81 28.70 69.51 Post offer 34.54 24.29 58.83 Remarks: There is not much difference in the promoter‟s contribution of V-Mart as compared to Just Dial. However, the current market price of shares suggests that Just Dial has performed better than VMart. 20 | P a g e Disclosure 3: Basis of Issue Price Issue price is the price at which IPO is offered to the investors. Issue price can either be fixed (fixed price issue) or a price band between floor price and cap price (book-building issue). It is necessary for the company to disclose the basis applicable in calculation of the issue price. (Either in case of book building or fixed price issue). SEBI Guidelines: (a) Earnings per share i.e. EPS pre-issue for the last three years (b) P/E pre-issue (c) Average return on net worth in the last three years (d) Minimum return on increased net worth required to maintain pre-issue EPS (e) Net Asset Value per share based on last balance sheet (f) Net Asset Value per share after issue and comparison thereof with the issue price (g) Comparison of all the accounting ratios of the issuing company as mentioned above with the industry average and with the accounting ratios of the peer group (h) The face value IDR shall also be given. Provided that the projected earnings shall not be used as a justification for the issue price in the prospectus. Provided further that the accounting ratios disclosed in the prospectus in support of basis of the issue price shall be calculated after giving effect to the consequent increase in capital on account of compulsory conversions outstanding, as well as on the assumption that the options outstanding, if any, to subscribe for additional capital will be exercised. 21 | P a g e Quantitative Factors: 1. Basic and Diluted Earnings per Share (“EPS”) Just Dial (IPO-1) V-Mart (IPO-2) 22 | P a g e 2. Price to Earnings Ratio (P/E): Just Dial (IPO-1) P/E Ratio in relation to the Offer Price of Rs.530 per Equity Share V-Mart (IPO-2) Price / Earning (P/E) Ratio in relation to Issue Price of Rs.210 23 | P a g e 3. Return on Net Worth (RoNW) Just Dial (IPO-1) V-Mart (IPO-2) Remarks: EPS, P/E ratio and RONW of Just dial ltd. are better than that of V mart. Therefore, Just dial ltd. is better than V mart depending on quantitative analysis. 24 | P a g e Disclosure 4: Risk Factors: Just Dial (IPO-1) Infrastructure: Just Dial relies on telecommunications and information technology systems, networks and infrastructure to operate their business and any interruption or breakdown in such systems, networks or infrastructure or their technical systems could impair the ability to effectively provide their products and services. Natural calamities: Just Dial business model is IT based website and any natural calamity may affect its business relatively affecting the share price of the company. V-Mart (IPO-2) Infrastructure: India's physical infrastructure is less developed than that of many developed nations. Any congestion or disruption in its port, rail and road networks, electricity grid, communication systems or any other public facility could disrupt normal business activity. Any deterioration of India's physical infrastructure would harm the national economy, disrupt the transportation of goods and supplies, and add costs to doing business in India. These problems could interrupt the company's business operations, which could have an adverse effect on its results of operations and financial condition. Natural calamities: India has experienced natural calamities such as earthquakes, tsunami, floods in recent years. The extent and severity of these natural disasters determine their impact on the Indian economy. Prolonged spells of abnormal rainfall or other natural calamities could have a negative impact on the Indian economy, which could adversely affect our business, prospects, financial condition and results of operation as well as the price of the Equity Shares. Remarks: As both of the companies have their operations, both have equal probabilities of natural calamities hitting them. But Just Dial will have less impact of natural calamities as compared to V-Mart. 25 | P a g e Disclosure 5: Company Business Operations: Just Dial (IPO-1) Just Dial has a very strong brand recall in India as evidenced by the 254.3 million searches of Just Dial database that were conducted in fiscal 2012. Efficient and Profitable Business Model: Fast response: Just Dial intends to continue to invest in technology to make search algorithms more efficient and adaptable to provide its users with faster access to their database. Quality and presentation of database: Just Dial invests in technology to provide their users with more user-friendly access to the growing business database, improve the relevance of the search results, as well as capture and relay other relevant information to their users, such as user reviews and ratings. Enhanced user experience: Just Dial is constantly seeking to combine their technology and the content of their database to innovate new products and services to serve their users‟ needs and preferences. Just Dial have dedicated content focusing on popular activities and subjects (such as movies, restaurants and hotels) and they intend to create additional content focusing on certain sub-categories of general businesses, products and services that they believe will be popular with their users. Broaden and Deepen the Footprint of Just Dial Service Across India: Just Dial had approximately 7.7 million listings and 9.1 million listings across various cities and towns in India as of June 30, 2012 and March 31, 2013, respectively, Just Dial believe that there is significant opportunity to further deepen our presence in the 11 largest cities, increase their search services beyond our 11 largest cities and to increase the proportionate share of paid advertisers listed in the database and increase user traffic. Among other things, Just Dial plan to add new premises and leverage their reseller program to achieve the foregoing. 26 | P a g e Negligible receivables: The Just Dial paid advertisers make payments in advance of their campaigns in the searches, which they believe significantly, reduces their credit risk exposure to their customers. In addition, as a result, they had outstanding trade receivables of Rs. 4.0 million from our customers as of December 31, 2012, while our unconsolidated restated profit after tax from continuing operations was Rs. 470.8 million from total revenue of Rs. 2,716.1 million in the nine months period ended December 31, 2012. No long-term debt: Just Dial has maintained focus on capital efficiency and has grown without incurring material indebtedness. They have been consistently profitable despite growing rapidly over the past few years. As of December 31, 2012, Just Dial had no long-term borrowings (Rs. 0.0), which they believe is a competitive advantage for them and a platform to grow their operations without being constrained by significant reliance on external financing sources. Remarks: The business model of Just Dial is very efficient as it has very strong brand recall in India as evidenced by the 254.3 million searches of Just Dial database that were conducted in fiscal 2012. Just Dial provides faster responses to their users because of their continues improvement in technology. It provides quality and accurate information because of its extensive research and development. Because of their continues progress Just Dial had approximately 7.7 million listings and 9.1 million listings across various cities and towns in India as of June 30, 2012 and March 31, 2013, respectively. 27 | P a g e V-Mart (IPO-2) V-Mart business model is based on the concept of “value retailing”. Just Dial has standardized procurement system that enables them to source quality products from the regions where such products are widely available or manufactured. Just Dial business model is supported by an efficient logistics network and a strong IT infrastructure, systems and processes. 28 | P a g e V-Mart Presence: Remarks: V-Mart business model is critical and more complex. V-Mart does extensive research and development activities to identify the target audience and market segmentation. V-Mart takes feedback from their sales personnel and does modification in its business model accordingly. VMart business model operations is carried out starting from Strategy and Planning, Merchandising, Supply Chain Management, Products, Store Operations and finally meeting customer aspirations. V-Mart business operations are located in northern, western and eastern parts of India. Currently V-Mart owns and operates 62 stores spread out across 53 cities across New Delhi, Gujarat, Bihar, Uttar Pradesh, Punjab, Chandigarh, Haryana, Jammu and Kashmir, Rajasthan and Madhya Pradesh. V-Mart also has four distribution centres, three in New Delhi and one in Ahmedabad, Gujarat. These retail stores occupy over a total area of approximately 5.06 lac Sq. Ft. 29 | P a g e Disclosure 6: Objects of the Offer The object of raising funds through the issue, that is whether for fixed asset creation and/ or for working capital or any other purpose, shall be disclosed clearly in the prospectus. The disclosure should be in reference to the following points Funds Requirement  The requirement for funds proposed to be raised through the issue shall be disclosed clearly.  Where the company proposes to undertake more than one activity, i.e. diversification, modernisation, expansion, etc., the total project cost shall be given activity- wise or project wise as the case may be.  Where the company is implementing the project in a phased manner, the cost of each phase, including the phase, if any, which has already been implemented, shall be separately given. Funding Plan (Means of Finance)  An undertaking shall be given in the prospectus by the issuer company confirming firm arrangements of finance through verifiable means towards 75% of the stated means of finance, excluding the amount to be raised through proposed Public/ Rights issue, have been made  The balance portion of the means of finance for which no firm arrangement has been made shall be mentioned without specification Funds Deployed  Actual expenditure incurred on the project (in cases of companies raising capital for a project) upto a date not earlier than two months from the date of filing the prospectus with the Registrar of Companies, as certified by a Chartered Accountant.  A cash flow statement showing funds which have been brought in as promoters‟ contribution and have been deployed prior to the public issue. 30 | P a g e Just Dial (IPO-1) Offer Expenses V-Mart (IPO-2) 31 | P a g e Remarks: The funds deployed for V-Mart are more and recurring as compared to Just Dial. In the long run of business, even if both the companies perform well in sales, the profit of V-Mart will affected more as compared to Just Dial because of more recurring cost. 32 | P a g e Disclosure 7: Underwriting: Just Dial (IPO-1) Underwriting Agreement After the determination of the Offer Price and allocation of Equity Shares, but prior to the filing of the Prospectus with the RoC, the Company and the Selling Shareholders have entered into an Underwriting Agreement with the Underwriters for the Equity Shares proposed to be offered through the Offer. The Underwriting Agreement is dated May 28, 2013. Pursuant to the terms of the Underwriting Agreement, the obligations of each of the Underwriters are several and are subject to certain conditions specified therein. The Underwriters have indicated their intention to underwrite the following number of Equity Shares: 33 | P a g e V-Mart (IPO-2) Underwriting Agreement After the determination of the Issue Price and Allocation of the Equity Shares but prior to filing of the Prospectus with the RoC, the Company and the Selling Shareholder have entered into an Underwriting Agreement with the Underwriters for the Equity Shares proposed to be offered through the Issue. It is proposed that pursuant to the terms of the Underwriting Agreement, the BRLM shall be responsible for bringing in the amount devolved in the event that their respective Syndicate Member(s) do not fulfill their underwriting obligations. The underwriting shall be to the extent of the Bids uploaded by the Underwriters including through its Syndicate / sub Syndicates. The Underwriting Agreement is dated February 8, 2013, and has been approved by the Board of Directors / committee thereof. Pursuant to the terms of the Underwriting Agreement, the obligations of the Underwriters are several and are subject to certain conditions specified therein. The Underwriters have indicated their intention to underwrite the following number of the Equity Shares: This portion has been intentionally left blank and will be filled in before filing of the Prospectus with RoC. Remarks: The indicated amount to be underwritten of Just dial is more than V mart. This indicates that Just dial has better chances as compared to V mart, in case of under subscription. 34 | P a g e Disclosure 8: Government approval/licensing arrangements: Just Dial (IPO-1) Approvals for the issue 1. In-principle approval dated October 11, 2012 from the BSE. 2. In-principle approval dated September 24, 2012 from the NSE. 3. In-principle approval dated April 12, 2013 from MCX-SX. Approvals applied for but not received The following approval(s) required to be obtained by the Company in respect of their business in India have been applied for but not received yet: Renewal of the certificate of registration under the Bombay Shops and Establishments Act, 1948 for the office situated at 401 and 402, Palm Spring, New Link Road, Malad West, Mumbai. V-Mart (IPO-2) Approvals for the issue 1. Corporate Approvals The Board has, pursuant to a resolution passed at its meeting held on May 21, 2012 authorized the Issue, subject to the approval of the shareholders of the Company under section 81(1A) of the Companies Act; The shareholders have, pursuant to a resolution dated May 22, 2012 under section 81(1A) of the Companies Act, by a special resolution passed in the EGM authorized the Issue 2.   3. In-principal approval from the Stock Exchanges In-principal approval from BSE dated September 05, 2012 In-principal approval from NSE dated August 22, 2012 Selling Shareholder’s approval The Selling Shareholder has, pursuant to resolution of its board of directors, dated May 23, 2012 authorised the sale of up to 1,739,019 Equity Shares as Offer for Sale. 35 | P a g e Approvals pending: Following are the details of registrations applied for pertaining to professional tax in the states of Gujarat. Remarks: The approvals pending for V mart ltd are pertaining to professional tax whereas the approvals pending for Just dial are regarding the renewal of certificate of registration. Therefore, it appears that V mart‟s pending approvals are major as compared to those of just dial. 36 | P a g e Disclosure 9: Comparison with Industry Peers: Just Dial (IPO-1) Performance on the web Remark: The time spent on Just Dial website is more as compared to its industry peers. Also the page viewed per user is more in Just Dial. V-Mart Cost of Raw Materials/Finished Goods Remark: The cost of raw material or cost of production is more as compared to its industry peers, so even if the sales volumes are high V-Mart will have to compromise with the profits. 37 | P a g e Disclosure 10: Restrictions on Foreign ownership of Indian Securities: Foreign investment in Indian securities is regulated through the Industrial Policy, 1991 of the Government of India and FEMA. While the Industrial Policy, 1991 prescribes the limits and the conditions subject to which foreign investment can be made in different sectors of the Indian economy, FEMA regulates the precise manner in which such investment may be made. Under the Industrial Policy, unless specifically restricted, foreign investment is freely permitted in all sectors of Indian economy up to any extent and without any prior approvals, but the foreign investor is required to follow certain prescribed procedures for making such investment. The government bodies responsible for granting foreign investment approvals are FIPB (Foreign Investment Promotion Board) and the RBI. Just Dial (IPO-1) FIIs are permitted to purchase shares of an Indian company in a public offer without the prior approval of the RBI, so long as the price of the equity shares to be issued is not less than the price at which the equity shares are issued to residents. The transfer of shares between an Indian resident and a non-resident does not require the prior approval of the FIPB or the RBI, provided that (i) the activities of the investee company are under the automatic route under the foreign direct investment (“FDI”) Policy and the non-resident shareholding is within the sectoral limits under the FDI policy; and (ii) the pricing is in accordance with the guidelines prescribed by the SEBI/RBI. V-Mart (IPO-2) Under the extant Consolidated FDI Policy, FDI in Indian companies carrying on business in Indian retail and trading sector is restricted. Subject to certain conditions, FDI upto 100% through the government route, in the retail trading of a single brand‟ product is allowed. Subject to certain conditions, FDI upto 51% through the government route, in the retail trading of a multi- brand‟ product is allowed. Pursuant to the above regulations, the Company has decided to offer the Equity Shares under the Issue to domestic investors only. 38 | P a g e Non-residents including FVCIs(Foreign Venture Capital Investor), alternative investment funds registered with SEBI and containing funds from foreign investors, FIIs, QFIs, NRIs, multilateral and bilateral development financial institutions are not permitted to participate in this Issue. As per the existing policy of the Government of India, OCBs cannot participate in this Issue. Remarks: Foreign investors cannot participate in the issue of V-Mart but eligible foreign investors can participate in the issue of Just Dial. Therefore, Just Dial is better than V-Mart as foreign investment will be pumped in the Indian Markets. 39 | P a g e Disclosure 11: IPO Grading: IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering/ follow on public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. Such grading is generally assigned on a five-point point scale with a higher score indicating stronger fundamentals and vice versa as below. IPO grade 1: Poor fundamentals IPO grade 2: Below-average fundamentals IPO grade 3: Average fundamentals IPO grade 4: Above-average fundamentals IPO grade 5: Strong fundamentals IPO grading has been introduced as an endeavor to make additional information available for the investors in order to facilitate their assessment of equity issues offered through an IPO. Just Dial (IPO-1) This Offer has been graded by CRISIL, through letter dated April 16, 2013, as 5/5, indicating that the fundamentals of the Offer are strong relative to the other listed equity securities in India. V-Mart (IPO-2) This Issue has been graded by CARE, SEBI registered credit rating agency and has been assigned a grade of “CARE IPO Grade 3” indicating average fundamentals by way of its letter dated January 4, 2013. Remarks: On the basis of IPO grading, Just Dial is better than V-Mart because Just Dial has strong fundamentals and V-Mart has average fundamentals as per the credit rating agency. 40 | P a g e Disclosure 12: Dividend Policy: Just Dial (IPO-1) The declaration and payment of dividends, if any, will be recommended by the Board of Directors of the company and approved by the shareholders of the Company, in their discretion, subject to the provisions of the Articles of Association and the Companies Act. The dividends, if any, will depend on a number of factors, including but not limited to the earnings, capital requirements, contractual restrictions and overall financial position of the Company. Just Dial Ltd. has no formal dividend policy. However, subject to aforementioned factors the Company may consider declaring and paying dividends in the future. Any amounts paid as dividends in the past are not necessarily indicative of the Company‟s future dividend policy or dividend amounts. The dividends declared by the Company during the last five fiscal years are detailed in the following table: Equity Shares: The Company has not declared a dividend Rs. 0 on the Equity Shares during Fiscals 2009, 2010, 2011 and 2012. Preference shares: The Company has paid dividend of Rs. 0 on Preference Shares Series A during Fiscals 2009, 2010, 2011 and 2012. 41 | P a g e V-Mart (IPO-2) The declaration and payment of dividend will be recommended by the Board of Directors and approved by the shareholders of the Company at their discretion, subject to the provisions of the Articles of Association and the Companies Act. The Company does not have any formal dividend policy for the Equity Shares and the declaration and payment of dividend, if any, will depend on a number of factors, including but not limited to the results of operations, earnings, capital requirements and surplus, general financial conditions, contractual restrictions, applicable Indian legal restrictions and other factors considered relevant by the Board of Directors. The dividends may be paid out of profits of the Company in the year in which the dividend is declared or out of the undistributed profits or reserves of previous Fiscal years or out of both. The Articles of Association of the Company also give the discretion to the Board of Directors to declare from time to time, such interim dividend as in the judgment of the Board of Directors the position of the Company justifies. The dividends declared by the Company during the last five fiscals are set forth below: However, the amounts paid by the Company as dividends in the past are not necessarily indicative of the dividend amounts, if any, or the dividend policy, in the future. Further, the ability to pay dividends in future will depend on the revenues, profits, cash flow, financial condition, capital requirements and other factors. Remarks: Just dial ltd. has not paid a dividend since fiscal 2009 and V-Mart ltd. has paid a dividend of Rs.0.40 per share in fiscal 2011 and 2012. Therefore, Just Dial is better as its retaining its profits for business utilization while V-Mart is trying to create trust among shareholders by distributing dividends. It is also justified from Just Dial‟s growth pattern. 42 | P a g e Disclosure 13: Minimum Subscription : Just Dial (IPO-1) In terms of the SEBI Regulations, the requirement for minimum subscription is not applicable to the Offer. However, the company is required to Allot Equity Shares constituting at least 25% of the post-Offer capital. In the event such minimum Allotment is not made in this Offer, the Company and the Selling Shareholders shall forthwith refund the entire subscription amount received. If there is a delay beyond eight days from the date on which the Company and the Selling Shareholders becomes liable to pay the amount, the Company and the Selling Shareholders shall pay interest as prescribed under Section 73 of the Companies Act. If at least 75% of the Offer is not allotted to QIBs, the entire application money shall be refunded forthwith. Further, Justdial shall ensure that the number of prospective Allotees to whom Equity Shares will be allotted shall not be less than 1,000. The Equity Shares have not been and will not be registered, listed or otherwise qualified in any other jurisdiction, except in compliance with the applicable laws of such jurisdiction. Any expense incurred by the Company on behalf of the Selling Shareholders with regard to refunds, interest for delays, etc., for the Equity Shares being offered in the Offer, will be reimbursed by the Selling Shareholders to the Company. V-Mart (IPO-2) If V-Mart does not receive the minimum subscription of 90% of the Issue through the Prospectus including devolvement of Underwriters within 60 days from the date of closure of the Issue, the Company and the Selling Shareholder shall forthwith refund the entire subscription amount received. If there is a delay beyond eight days after the Company becomes liable to pay the amount, the Company shall pay interest as prescribed under Section 73 of the Companies Act and the rules formulated thereunder. The requirement for 90% minimum subscription is not applicable to the Offer for Sale. In case of under subscription in the Issue, the Equity Shares in the Fresh Issue will be issued prior to the sale of Equity Shares in the Offer for Sale. 43 | P a g e Further, in accordance with Regulation 26(4) of the SEBI (ICDR) Regulations, the Company shall ensure that the number of prospective Allottees to whom the Equity Shares will be Allotted shall not be less than 1,000. Remarks: The minimum subscription for Just Dial ltd. is that at least 75% of the Offer should be allotted to QIBs, whereas in case of V mart ltd., the minimum subscription should be 90% of the issue through the prospectus including devolvement of underwriters. Thus, we can conclude that Just dial is more focused on qualified institutional buyers whereas V mart ltd. has delegated to underwriters. Therefore, just dial ltd. is better than V mart. 44 | P a g e Disclosure 14: Financial Statements Just Dial (IPO-1) Statement of Assets and Liabilities 45 | P a g e 46 | P a g e V-Mart ltd. (IPO-2) Statement of Assets and Liabilities 47 | P a g e Remark: The net worth of Just dial ltd. is increasing year on year whereas the net worth of V mart is decreasing year on year, therefore it appears that Just dial ltd. is in a better position as compared to V mart ltd. also the profit of Just dial is more than V-Mart. Therefore, Just Dial is better. 48 | P a g e Disclosure 15: Litigation: Just Dial (IPO-1) Litigation against the company: Litigation against the director: 49 | P a g e V-Mart (IPO-2) Litigations: Remarks: The number of criminal litigations is more against V mart as compared to Just Dial. Therefore, Just Dial is better than V mart. 50 | P a g e Conclusion After doing the detailed study of SEBI (ICDR) guidelines and analyzing the 15 critical disclosures of two IPOs‟ i.e. Just Dial and V-Mart, we would like to conclude that Just Dial IPO is better than V-Mart‟s IPO. The following table indicates comparison of Listing Price and Market Price of both the IPOs‟ Details Listed On: Listing Price Just Dial May 20, 2013 - May 22, 2013 Rs. 470 - Rs. 543 Per Equity Share Market Price as on This is also justified by the listing price and the current market price of the IPOs‟. V-Mart Feb 01, 2013 - Feb 05, 2013 Rs. 195 - Rs. 215 Per Equity Share 51 | P a g e References http://www.sebi.gov.in/acts/icdrreg09.pdf http://www.sebi.gov.in/sebiweb/home/list/1/3/0/0/Regulations http://www.sebi.gov.in/press/2009/2009271.html www.bseindia.com/ www.moneycontrol.com/ www.sebi.gov.in/cms/sebi_data/attachdocs/1343041803906.pdf www.sebi.gov.in/cms/sebi_data/attachdocs/1313648946814.pdf 52 | P a g e
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