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March 12th, 2008, 05:54 PM


Sr. No. Particulars Page No.

1. Executive Summary 2
2. Financial markets and IPO 4
3. Primary Market 6
4. IPO- Features 9
5. Trends 13
6. Pricing Of Issue 20
7. Book Building 22
8. Cost Of Issue 27
9. Brief Note on Intermediaries 29
10. SEBI and IPO 35
11. Marketing of IPO 46
12. Analysis of Biocon IPO 52
13. Conclusion 63
14. Bibliography 65


When a business entity needs money the general course of action that it follows is that it goes to
the bank. However banks may not be ready to provide huge finance for a long time especially if the
returns are not fixed. The best way to raise money is through offer of shares. The securities which
the companies issue for the first time to the public and other financial institutions either after
incorporation or on conversion from private to public company is called “INITIAL PUBLIC OFFER” or
“IPO”. Raising equity gives boost to economical development of the country.
Raising money through IPO is a very complex process. It requires analysis and implementation of
various commercial laws applicable to IPO-Prospectus. These laws are Companies Act, Income Tax
Act, FEMA, Securities Contract Act and SEBI Guidelines on “Disclosure and Investor Protection”. It is
also necessary to implement circulars from time to time by SEBI. The introduction of SEBI attracted
Foreign Institutional Investors to invest money in stock market in India. It has also helped Indian
Companies to offer securities in most scientific method to Indian and Foreign investors
Therefore to understand this complex subject, I decided to undertake studies by this Project Report.

The basic objective of my study on IPO is mainly as under-

To analyze and evaluate the complex IPO process
To study and incorporate the legal requirements of an IPO
SEBI Norms and Guidelines
Various aspects of IPO like cost, Involvement of intermediaries, pricing of an IPO.
Pricing of an issue through the Book-Building Method
Analysis of the Biocon IPO is the heart of the project.
I have included the prospectus of the latest IPO-TATA Consultancy Services in a compact form. I
have given prospectus to explain applicability of various laws and guidelines.

The limitations with this report are as under-

I have excluded guidelines and procedures relating to ADR/GDR to raise money by issuing
securities abroad.
I have also excluded procedures relating to listing securities in Foreign Stock Exchange
I have excluded provision relating to the stock invest option in the IPO-Application form.
If the company is making IPO just to get securities listed on Stock Exchange and make
disinvestment promoters, then the money will not come to company and pricing method followed
will also be different.
I have not covered how the IPO process is carried out in international markets.


The Financial Market is an amorphous set of players who come together to trade in financial assets.

Financial Markets in any economic system that acts as a conduit between the organizations who
need funds and the investors who wish to invest their money into profitable opportunity. Thus, it
helps institutions and organizations that need money to have an access to it and on the other hand,
it helps the public in general to earn savings.

Thus they perform the crucial function of bringing together the entries who are either financially
scarce or who are financially slush. This helps generally in a smoother economic functioning in the
sense that economic resources go to the actual productive purposes. In modern economic systems
Stock Exchanges are the epicenter of the financial activities in any economy as this is the place
where actual trading in securities takes place.

Modern day Stock Exchanges are most of the centers to trade in the existing financial assets. In this
respect, they have come a long way in the sense that these days, they act as a platform to launch
new securities as well as act as most authentic and real time indicator of the general economic

The zone of activities in the capital market is dependent partly on the savings and investment in the
economy and partly on the performance of the
industry and economy in general. In other words capital market constitutes the channel through
which the capital resources generated in the society and made available for economic development
of the nation.

As such, Financial Markets are functionally classified as having two parts, namely,

1. The Primary Market

2. The Secondary Market

Primary Market comprises of the new securities which are offered to the public by new companies.
It is the mechanism through which the resources of the community are mobilized and invested in
various types of industrial securities. Whenever a new company wants to enter the market it has to
first enter the primary market.

Secondary Market comprises of further issues which are floated by the existing companies to
enhance their liquidity position. Once the new issues are floated and subscribed by the public then
these are traded in the secondary market. It provides easy liquidity, transferability and continuous
price formation of securities to enable investors to buy and sell them with ease. The volume of
activity in the Secondary Market is much higher compared to the Primary Market


When a business entity needs money the general course of action that it follows is that it goes to
the bank. However banks may not be ready to provide huge finance for a long time especially if the
returns are not fixed. The best way to raise money is through offer of shares and for this: PRIMARY
MARKET is the answer
The Primary Market deals with the new securities which were previously not tradeable to the public.
The main function is to facilitate the transfer of resources from savers to entrepreneurs seeking to
establish or to expand and diversify existing events. The mobilization of funds through the Primary
Market is adopted by the state government and corporate sector. In other words the Primary Market
is an integral part of the capital market of a country and together with the securities market. The
development of security as well as the scope for higher productive capacity and social welfare
depends upon the efficiency of the Primary Market.

What is an IPO?
The securities which the companies issue for the first time to the public either after incorporation or
on conversion from private to public company is called “INITIAL PUBLIC OFFER” or “IPO”


Indian capital market was initiated with establishing the Bombay stock exchange in the year that time the main function of stock exchange was to provide place for trading in the
stocks. Now the exchange has completed more than 25 years. It has undergone several changes.

Initially the IPO was called ‘New Issue’ and the issues in the Primary Market were controlled by CCI
(Controller of capital issue). It was working as a department of MOF (ministry of finance). There
were very few issues every year. CCI was highly conservative and hardly allowed any premium
issues. Also, the regulatory framework was inadequate to control several issues relating to Primary
Market. Therefore, in the year 1992 it was abolished.

There was no awareness of new issues among the investing public. In fact, during 1950s-1960s, the
investment in stock market was considered to be gambling. It was prerogative to highly elite
business community to participate in new issues. More than 99% of Indian population never
participated in any issue during CCI regime.

There was tremendous growth in capital market in U.S.A. and Western Europe. In these markets
they had established Security Exchange Commission (SEC). It is most powerful autonomous body.
The Government of India realized the importance of a similar body in India for healthy and fast
growth of Capital Market. Thus Security Exchange Board of India (SEBI) was established with
headquarters in Mumbai in 1992.SEBI is the most powerful body in India.

SEBI has come up with the guidelines for disclosures and investors protection. SEBI has framed
rules for various intermediaries like Merchant Bankers, Underwriters, Brokers, Bankers, Registrars
and Transfer Agents, Depositories, Stock Exchanges etc. These rules are on the line of similar rules
in western world. This has attracted foreign institutional and individual investors to invest money in
India. This has resulted in exponential growth of Capital Market in this last decade.


Late Shri, Dhirubhai Ambani can be considered as ‘Bhishmapita’ of new issues, though initially he
also had to struggle to get subscribers but he always used innovative ides for marketing IPOs. It is
said that investor never lost money in his pricing methods. There are several incidences of the
common man participated in his issues, got allotment, sold shares and created fabulous wealth for
themselves. As on 31-12-2003, Reliance Group has more than 3.5 million shareholders.

The first public offer of securities by a company after its inception is known as Initial Public Offer
(IPO). Going public (or participating in an “initial public offer” or IPO) is a process by which a
business owned by one or several individuals is converted in to a business owned by many. It
involves the offer of part ownership of the company to the public through the sale of equity
securities (stock).
IPO dilutes the ownership stake and diffuses corporate control as it provides ownership to investors
in the form of equity shares. It can be used as exit strategy and finance strategy.
As a financing strategy, its main purpose is to raise funds for the company. When used as an exit
strategy, existing investors can offload equity holdings to the public.


To raise funds for financing8 capital expenditure needs like expansion diversification etc.
To finance8 increased working capital requirement
As an exit route for existing8 investors
For debt financing.8


• Stock holder Diversification As a company grows and becomes more valuable, its founders often
have most of its wealth tied up in the company. By selling some of their stock in a public offer, the
founders can diversify their holdings and thereby reduce somewhat the risk of their personal
• Easier to raise new capital
If a privately held company wants to raise capital a sale of a new stock, it must either go to its
existing shareholders or shop around for other investors. This can often be a difficult and sometimes
impossible process. By going public it becomes easier to find new investors for the business.
• Enhances liquidity
The sock of a closely held firm is not liquid. If one of the holders wants to sell some of his shares, it
is hard to find potential buyers-especially if the sum involved is large. Even if a buyer is located
there is no establishes price at which to complete the transaction. These problems are easily
overcome in a publicly owned company
• Establishes value for the firm
This can be very useful in attracting key employees with stock options because the underlying stock
have a market value and a market for them to be traded that allows for liquidity for them.
• Image
The reputation and visibility of the company increases. It helps to increase company and personal
• Other advantages
Additional incentive for employees in the form of the companies stocks. This also helps to attract
potential employees
It commands better valuation of the company
Better situated for making acquisitions


Cost8 of Reporting
A publicly owned company must file quarterly reports with the Securities and exchange Board of
India. These reports can be costly especially for small firms.
Management may not like the idea or reporting operating data, because such data will then be
available to competitors.
Self dealings8
The owner’s managers of closely held companies have many opportunities for self-transactions,
although legal they may not want to disclose to the public.
Inactive market low price8
If a firm is very small and its and its shares are not traded frequently, then its stock will not really
be liquid and the market price may not be truly representative of the stocks value.
Owning less than 50% of the shares could lead to a loss of control in the management.
Other disadvantages8
The profit earned by the company should be shared with its investors in the form of dividend
An IPO is a costly affair. Around 15-20% of the amount realized is spent on raising the same.
A substantial amount of time and effort has to be invest


Most people label a public offer as a marketing event, which it typically is. For the majority of firms
going public, they need additional capital to execute long-range business models, increase brand
name, to finance possible acquisitions or to take up new projects. By converting to corporate status,
a company can always dip back into the market and offer additional shares through a rights issue.

Let us have a look at the general development of the Primary Markets in the nineties. There have
been many regulatory changes in the regulation of primary market in order to save investors from
fraudulent companies. The most path breaking development in the primary market regulation has
been the abolition of CCI (Controller of capital issues). The aim was to give the freedom to the
companies to decide on the pricing of the issue and this was supposed to bring about a self-
managing culture in the financial system. But the move was hopelessly misused in the years of
1994-1995 and many companies came up with issues at sky-high prices and the investors lost
heavily. That phase took a heavy toll on the investor’s sentiment and the result was the amount of
money raised through IPO route.


With controls over pricing gone, companies rushed to tap the Primary Market and they did so, with
remarkable ease thanks to overly optimistic merchant bankers and gullible investors. Around
Rs20000 crores were raised through 4053 issues during this period. Some of the prominent money
mobilizes were the so called ‘sunrise sectors’-polyester, textiles, finance, aquaculture. The euphoria
spilled over to the Secondary Market. But reality soon set in. Issuers soon failed to meet
projections, many disappeared or sank. Result: the small investor deserted both markets-till the
next boom!

1998-2000: ICE ON A HOT STREAK

As the great Indian software story played itself out, software stocks led a bull charge on the
bourses. The Primary Market caught up, and issues from the software markets flooded the market.
With big IPOs from companies in the ICE (Information Technology, Communication and
Entertainment) sectors, the average issue price shot up from Rs.5 crore in 1994-96 to Rs.30 crore.
But gradually, hype took over and valuations reached absurd levels. Both markets tanked.

There were hardly any IPOs and those who ventured, got a lukewarm response. A depressed
Secondary Market had ensured that the doors for the Primary Market remained closed for the entire
FY 2001-2002.There were hardly any IPOs in FY 2001-2002.


The Primary Market boom promises to be different. To start with, the cream of corporate India is
queuing up, which ensures quality. In this fragile market, issue pricing remains to be conservative,
which could potentially mean listing gains. This could rekindle the interest of small investors in
stocks and draw them back into the capital market. The taste of gains from the primary issues is
expected to have a spillover effect on the secondary market, where valuations today are very


Even as the secondary market moved into top gear in 2003 the primary market too scripted its own
revival story, buoyed largely by the Maruti IPO which was oversubscribed six and a half times. In
2003 almost all primary issues did well on domestic bourses after listing, prompting retail investors
to flock to IPO’s. All IPO’s, including Indraprastha Gas and TV Today Network which was
oversubscribed 51 times showed the growing appetite for primary issues.
Divi Labs hit the market in February followed by Maruti. Initially, the Maruti share price was
considered steep at Rs125 per share for a Rs5 paid-up share. By the end of the year, the stock had
climbed to over Rs355. Close on the heels of Maruti, came the Uco Bank IPO, which attracted about
1mn applicants. The primary issue of Indian Overseas Bank attracted about 4.5mn applicants and
Vijaya Bank over Rs40bn in subscriptions. The last one to get a huge response was Indraprastha
Gas, which reportedly garnered about Rs30bn. TV Today’s public offer was expected to draw in
excess of Rs30bn. In overseas listings, the only notable IPOs were Infosys Technology's secondary
ADR offer and the dull debut of Sterlite Group company Vedanta on the London Stock Exchange.
It was really Maruti Udyog that took the lead with its new issue in June. The issue was heavily over-
subscribed and by the middle of December the share value appreciated 186 per cent. The near
trebling of the investment in less than 6 months inspired the retail investor who is now back again
in the market scouting for good scrips.
After the phenomenal success of Maruti issue, a number of companies have approached the capital
market and a lot more are waiting for SEBI approval.
SEBI has taken enough care to force companies to make relevant disclosures for the investor to
judge the quality of new issues. Besides, the companies themselves have been careful not to over-
price the shares. On the contrary, some of the companies have deliberately under-priced them to let
the issue get over-subscribed and to let the investor share some of the capital gain after listing.
With the care taken by SEBI and the companies it is unlikely that the experience of 1995 will be
In the financial year just ended, 23 companies tapped the primary market and managed to garner
less than Rs200bn.
The latest development in the primary market has been the Indian players thirst for money
satiating offshore


Riding high on the market bull, companies are preparing to lap up investor’s money through Initial
Public Offer’s (IPO’s). The fundamentally good economy makes us very positive about the initial
public offer market. Nearly 600 companies wish to raise over Rs50,000 Crore, for a variety of
reasons—public sector units for capital (Power Finance Corporation and National Thermal Power
Corporation), residual sale (CMC and IBP), divestment (ONGC and Gas Authority of India Ltd),
banks for capital (Central Bank of India and Punjab & Sind Bank), for market valuations (Tata
Consultancy Services), for venture capital exit (UTV and Secure Meters), and for expansion (Biocon
and NDTV).
Among these Biocon the first Indian Biotech company to come with an IPO was oversubscribed by
33% and raised as much as Rs.315 Crore. Other mega issues included TCS which was
oversubscribed 5.46 times and raised Rs.417 Crore. The much awaited government companies
ONGC was oversubscribed by 6 times and raised a whooping capital of Rs.1069.49 Crore another
government company which was a huge success was IPCL which too was oversubscribed by 1.18
times raising a capital of Rs.1010.45 Crore. The media company NDTV was oversubscribed 3 times
its size.Other IPO’s to hit the market this year were Shah Petroleum (31.78 Crore) Crew Bos
Products (12.25 Crore) Texmaco (15.49 Crore) Vishal Export Overseas (27 Crore).
A slew of IPO’s have been lined up in the coming months from the public as well as the private
sector. The IPO’s are estimated to raise Rs25,000-30,000 Crore. The sentiment for IPO’s has been
bolstered after the government came out with fair pricing of its stake sale in IPCL.
Among the companies slated to come out with IPO’s include: SET India, Shoppers Stop, Central
Bank of India, NTPC and Hutchinson Max Telecom.

Company Issue Date Issue Price Current Price % Change

Tata Consultancy Services Ltd 05/08/2004 850 987.50 16.17
New Delhi Television Ltd. 28/04/2004 70 87.55 25.07
Datamatics Technologies Ltd. 19/04/2004 110 136.20 23.81
Dishman Pharmaceuticals & Chemicals Ltd. 07/04/2004 175 459.60 162.62
Biocon Ltd 18/03/2004 315 503.85 59.95
Oil & Natural Gas Corporation Ltd. 13/03/2004 712.50 703.20 -1.30
Power Trading Corporation of India Ltd. 08/03/2004 16 53.05 231.56
Gas Authority of India Ltd. 05/03/2004 185.25 176.10 -4.93
Indian Petrochemicals Corporation Ltd. 27/02/2004 161.50 188.10 16.47
Patni Computer Systems Ltd. 05/02/2004 230 311.75 35.54
T.V. Today Network Ltd. 27/12/2003 95 105.80 11.36
Indraprastha Gas Limited 05/12/2003 48 18.65 -61.14
Maruti Udyog Limited 19/06/2003 125 360.20 188.16
Divi's Laboratories Ltd. 17/02/2003 130 1,136.00 773.85
Canara Bank 18/11/2002 25.00 126.75 407.00
Union Bank of India 20/08/2002 6.00 62.05 934.17
I-Flex Solutions Ltd. 05/06/2002 525.00 573.00 9.14
Punjab National Bank 21/03/2002 21.00 253.20 1,105.71
Moving Picture Company (India) Ltd. 19/02/2001 30.00 6.13 -79.57
Centurion Bank Ltd. 14/02/2001 2.00 6.85 242.50
Birla Corporation Ltd. 17/01/2001 9.00 114.25 1,169.44
Arvind Remedies Ltd. 06/01/2001 90.00 1.38 -98.47
Adlabs Films Ltd. 11/12/2000 115.00 89.10 -22.52
Creative Eye Ltd. 03/11/2000 45.00 8.20 -81.78
Aztec Software & Technology Services Ltd. 02/11/2000 77.00 36.50 -52.60
Balaji Telefilms Ltd. 06/10/2000 120.00 90.55 -24.54
Aksh Optifibre Ltd. 18/07/2000 55.00 16.30 -70.36
Tele Data Informatics Ltd. 20/07/2000 15.00 41.95 179.67
Tata Teleservices (Maharashtra) Ltd 20/09/2000 2.00 18.05 802.50


Controller Of Capital Issue

During the Controller of Capital Issue (CCI) regime the issues were priced by the company and
approved by CCI. Generally the CCI was very conservative and hardly allowed premium issues.

Arrival of SEBI
After the Arrival of SEBI free market policy is followed for pricing of issue. Merchant Bankers are
responsible for justifying the premium. The company was allowed to give future profit projections. A
company can issue shares to applicants in the firm allotment category at higher price than the price
at which securities are offered to public. Further, an eligible company is free to make public/rights
issue in any denomination determined by it in accordance with the Companies Act, 1956 and SEBI

During the booming period stock market issues got oversubscribed beyond imagination. Number of
companies came in with stiff premium and faced investor resistance. This resulted in cautious
approach by the merchant bankers and underwriters for taking up underwriting of the future issues.

Deciding Premium by Bid System

Since year 2000 SEBI has changed pricing formula. The promoters cannot give future projections
and merchant banker alone cannot decide the pricing of IPO.
At present, 50%of the IPO is reserved for the wholesale investors and 50% is for the small investor.
The Lead-Manager starts road show in consultation with Institutional Investors. Then they call for
bid at recommended prices. Once, bids are received pricing is open for discussion. The mean bid
price is accepted and allocation is done. The lead manager has to ensure full subscription of the full
quota. Then the price is declared in the newspapers. The retail investor has to follow this price and
submit application with cheque or demand draft. This part of the issue should also be fully
subscribed. If the issue is not underwritten and subscription received is less than 90% then the IPO
is considered as fail and whatever fund has been received has to refunded. The company looses
money it has spent on IPO.

Thus pricing is most important and difficult aspects of IPO. However in the present scenario most of
the issues are priced by the book building method. Accurate pricing is essential for the success of


The basic motto of Book Building is that “the market knows the best”. Ever since SEBI allowed
companies with no profitability record to come up with IPO via Book Building route, there has been
a good rush of such issues.

What is Book Building?

Book Building is basically a capital issuance process used in Initial Public Offer (IPO), which aids
price and demand discovery. IT is a process used for marketing a public offer of equity shares of a
company and is a common practice in most developed countries. Book Building is so-called because
the collection of bids from investors is entered in a "book". These bids are based on an indicative
price range. The issue price is fixed after the bid closing date.

Persons Involved in the Book-Building Process

The principal intermediaries involved in the Book Building process are the company; Book Running
Lead Managers (BRLM) and syndicate members who are intermediaries registered with SEBI and are
eligible to act as underwriters. Syndicate members are appointed by the BRLM.

How is the book built?

A company that is planning an initial public offer appoints a category-I Merchant Banker as a book
runner. Initially, the company issues a draft prospectus which does not mention the price, but gives
other details about the company with regards to issue size, past history and future plans among
other mandatory disclosures. After the draft prospectus is filed with the SEBI, a particular period is
fixed as the bid period and the details of the issue are advertised. The book runner builds an order
book, that is, collates the bids from various investors, which shows the demand for the shares of
the company at various prices. For instance, a bidder may quote that he wants 50,000 shares at
Rs.500 while another may bid for 25,000 shares at Rs.600. Prospective investors can revise their
bids at anytime during the bid period that is, the quantity of shares or the bid price or any of the bid

Basis of Deciding the Final Price

On closure of the book, the quantum of shares ordered and the respective prices offered are known.
The price discovery is a function of demand at various prices, and involves negotiations between
those involved in the issue. The book runner and the company conclude the pricing and decide the
allocation to each syndicate member.

Payment for the shares

The bidder has to pay the maximum bid price at the time of bidding based on the highest bidding
option of the bidder. The bidder has the option to make different bids like quoting a lower price for
higher number of shares or a higher price for lower number of shares. The syndicate member may
waive the payment of bid price at the time of bidding. In such cases, the issue price may be paid
later to the syndicate member within four days of confirmation of allocation. Where a bidder has
been allocated lesser number of shares than he or she had bid for, the excess amount paid on
bidding, if any will be refunded to such bidder.

Advantage of the Book Building process versus the Normal IPO marketing process
Unlike in Book Building, IPO’s are usually marketed at a fixed price. Here the demand cannot be
anticipated by the merchant banker and only after the issue is over the response is known. In book
building, the demand for the share is known before the issue closes. The issue may be deferred if
the demand is less.
This process allows for price and demand discovery. Also, the cost of the public issue is reduced and
so is the time taken to complete the entire process.

Features Fixed Price Process Book Building Process

Pricing Price at which the Security is offered/allotted is known in advance to the investor. Price at
which the Security will be offered/allotted is not known in advance to the investor. Only an
indicative price range is known.
Demand Demand for the securities offered is known only after the closure of the issue. Demand for
the securities offered can be known everyday as the book is built.
Payment Payment if made at the times of subscription wherein refund is given after allocation
Payment only after allocation.

Guidelines for Issues to be made through 100% Book Building Route

SEBI had issued guidelines in October 1997 for book building which were applicable for 100% of the
issue size and for issues above Rs.100 Crore. The guidelines were revised subsequently to reduce
the limit to issues of Rs.25 crore to encourage the use of this facility. However, no issuer used this
facility. SEBI modified the framework for Book
Building further in October 1999 to make it more attractive. The modified framework does not
replace the existing guidelines. The issuer would have option to issue securities using book building
facility under the existing framework:
1. The present requirement of graphical display of demand at bidding terminals to syndicate
members as well as the investors has been made optional.
2. The 15% reservation for individual investors bidding for up to 10 marketable lots may be merged
with the 10% fixed price offer.
3. Allotment for the book built portions shall be made in demat form only.
4. The issuer may be allowed to disclose either the issue size or the number of securities to be
offered to the public.
5. Additional disclosure with respect to the scheme for making up the deficit in the sources of
financing and the pattern of deployment of excess funds shall be made in the offer document.

Is the process followed in India different from abroad?

Unlike international markets, India has a large number of retail investors who actively participate in
IPO’s. Internationally, the most active investors are the Mutual Funds and Other Institutional
Investors. So the entire issue is book built. But in India, 25 per cent of the issue has to be offered
to the general public. Here there are two options to the company. According to the first option, 25
per cent of the issue has to be sold at a fixed price and 75 per cent is through Book Building. The
other option is to split the 25 per cent on offer to the public (small investors) into a fixed price
portion of 10 per cent and a reservation in the book built portion amounting to 15 per cent of the
issue size. The rest of the book built portion is open to any investor.


The cost of public issue is normally between 8 and 12 percent depending on the size of the issue
and on the level of marketing efforts. The important expenses incurred for a public issue are as

• Underwriting expenses: The underwriting commission is fixed at 2.5 % of the nominal value
(including premium, if any) of the equity capital being issued to public.
• Brokerage: Brokerage applicable to all types of public issues of industrial securities are fixed at
1.5% whether the issue is underwritten or not. The managing brokers (if any) can be paid a
maximum remuneration of 0.5% of the nominal value of the capital being issued to public.
• Fees to the Managers to the Issues: The aggregate amount payable as fees to the managers to
the issue was previously subject to certain limits. Presently, however, there is no restriction on the
fee payable to the managers of the issue.
• Fees for Registrars to the Issue: The compensation to he registrars, typically based on a piece
rate system, depends on the number of applications received, number of allotters, and the number
of unsuccessful applicants.
• Printing Expenses: These relate to the printing of the prospectus, application forms, brouchers,
share certificate, allotment/refund letters, envelopes, etc.
• Postage Expenses: These pertain to the mailing of application forms, brochures, and prospectus to
investors by ordinary post and the mailing of the allotment/refund letters and share certificates by
register posts.
• Advertising and Publicity Expenses: These are incurred primarily towards statutory
announcements, other advertisements, press conferences, and investor’s conferences.
• Listing Fees: This is the concerned fee payable to concerned stock exchange where the securities
are listed. It consists of two components: initial listing fees and annual listing fees.
• Stamp Duty: This is the duty payable on share certificates issued by the company. As this is the
state subject, it tends to vary from state to state.


The process of IPO is highly complex and its success is extremely important for the company. In
this process it is important that all the intermediaries should work cohesively and within a
framework of law. Any serious error by any intermediary can affect the IPO.

The following are the important intermediaries involved in the process-

Eligibility criteria-SEBI issues an authorization letter to the finance companies, which are eligible to
work as merchant bankers. The eligibility criteria depend on network and infrastructure of the
company. The company should not be engaged in activities that are banned for merchant bankers
by SEBI. SEBI issues authorization letter valid for 3 years and the company has to pay necessary
fees. Such merchant banker can be appointed as lead manager for IPO.

Functions-Merchant banker can work as lead manager co lead manager investment banker
underwriter etc.

Responsibility-lead managers are fully responsible for the content and correctness of the
prospectus. They must ensure the commencement to the completion of the IPO. Certain guidelines
are laid down in section 30 of the SEBI act 1992 on the maximum limits of the intermediaries
associated with the issue.
Size of the Issue No of Lead Managers
50 cr. 2
50-100 cr. 3
100-200 cr. 4
200-400 cr. 5
Above 400 cr. 1 or more as agreed by the board

The number of co managers should not exceed the number of lead managers. There can be only 1
adviser to the issue. There is no limit on the number of underwriters.

Informational Asymmetry-in general merchant bankers know the market better than the issuing
company. They would exploit the superior knowledge to under price issues. This makes their job
easier and helps them earn the goodwill of investors.

All the recognized stock exchange members are called brokers and thus any member of a
recognized stock exchange can become a broker to the issue.
The brokers can work as broker and underwriter or both. In India usually a broker not only does his
normal broking business buying and selling securities for brokerage but also works as an
underwriter. They can give underwriting commitment in accordance with their net worth. A broker
offer marketing support, underwriting support, disseminates information to investors about the
issue and distributes issues stationary at retail investor level. The brokers are governed by rules of
SEBI and the respective stock exchange.
The brokers are key to the success of the issue. The brokers appoint sub brokers who are in direct
contact with the investors.

The underwriter is the principle player in the IPO providing the firm with-
Reputation-as the underwriter is legally liable and because he has on going dealing with the
customers to whom he sells shares. The underwriter puts his reputation on the line.

Finding investors-the underwriter first puts together a syndicate of other underwriters to distribute
the shares. The syndicate finds investors willing to put their money into the company. This has
serious implications. Will the investors be institutional or private? Is the company widely held or are
the shares concentrated with just a few investors?

Experience-the underwriter knows the detail of the process better than any other participant since
issuing shares is one of their primary business functions. Underwriters are the ones who provide
proper guidance.

After market support-the underwriter protects investors and thus makes the offer more attractive.
It is important for the firm to have a clear understanding with the underwriter exactly how much
support he plans to provide if the IPO is not fully subscribed and accordingly his underwriting
commission is fixed.

Future services-a good relationship with an underwriter can save time and money in future dealings.

Pre offer assistance-the underwriter will conduct road shows with the company’s management
distribute the prospectus and marketing of the underwriters directly generates talk to potential
investors about appropriate pricing. Some part of the value that the potential shareholders attach to

Underwriting involves a commitment from the underwriter to subscribe to the shares of a particular
company to the extent it is under subscribed by the public or existing shareholders of the corporate.
An underwriter should have a minimum net worth of 20 lakhs and his total obligation at any time
should not exceed 20 times his net worth. A commission is paid to the writers on the issue price for
undertaking the risks of under subscription. The maximum rate of underwriting commission paid is
as follows.
Nature of Issue On amount Devolving on Underwriters On amounts subscribed by the public
Equity shares preference shares and Debentures 2.5% 2.5%
Issue amount upto Rs5 lakhs 2.5% 2.5%
Issue amount exceeding % 2.0% 1.0%

The fees for underwriter and broker are decided by the company within the maximum possible limit
as fixed by the SEBI.


Any scheduled bank registered with SEBI can be appointed as the banker to the issue. Several
commercial banks are working as bankers to the issue. They get fees on amount collected by them.
There are no restrictions on the number of bankers to the issue. The main function of banker
involves collection of duly filed application forms with money (cheque/drafts) maintains a daily
report, transferring the proceeds to the share application money collected with the application forms
to the registrar. The bank provides application forms to the investors. They accept duly filled forms
with cheque/ drafts. They prepare collection reports and transfer funds and applications to the


Registration with SEBI is mandatory to take on responsibilities as a registrar or share transfer
agent. The registrar provides administrative support to the issue process. Each agent is registered
with SEBI. Hey have to maintain net worth and infrastructure criteria. They have to renew their
License periodically. He collects all application from the bank and ensures reconciliation of funds and
of application amount and participates in process of basis of allotment. If the IPO is oversubscribed
they provide computerized program for allotment. They manage refund orders and allotment
letters. They provide the final list of allotees to Lead Manager ROC and stock exchange. If the
company wants they also manage post issue IPO functions relating to shareholders register for the

Since the year 2000 it’s compulsory that all fresh issue of shares must be made only in the
dematerialized format (DMAT). The Depository institute issues unique number of every IPO or
company, when shares are allotted to the company/registrar provides shareholders register to
depository in electronic form. Thus automatically all shareholders get allotment in their DMAT

Normally the company for the purpose of IPO does this appointment. He is responsible legal
compliance of IPO process. There are other intermediaries like Advertising Agents etc. but the
company governs their role.




It should have a pre issue network of a¬ minimum amount of Rs1 crore in 3 out of the preceding 5
financial years. In addition the company should compulsorily need the minimum network level
during the two immediately preceding years.

It should have a track record¬ distributable profits as given in section 205 of companies act 1956
for at least 3 years in the preceding 5 years period.

The issue size (i.e. Offer +¬ Form allotment + Promoters contribution through the offer document)
should not exceed an amount equal to 5 times its pre issue worth.
It should have a track record distributable profits as given in¬ section 205 of companies act 1956
for at least 3 years in the preceding 5 years period.

It should have a pre issue network of a minimum amount of Rs1¬ crore in 3 out of the preceding 5
financial years with the minimum net
worth to be met during the immediately preceding 2 years.


SEBI has come up with Investor Protection and Disclosure Norms for raising funds through IPO.
These rules are amended from time to time to meet with the requirement of changing market

Disclosure Norms.

• Risk Factor-The Company/Merchant Banker must specify the major risk factor in the front page of
the offer document.
• General Risk.-Attention of the investor must be drawn on these risk factors.
• Issuers Responsibility-It is the absolute responsibility of the issuer company about the true and
correct information in the prospectus. Merchant Banker is also responsible for giving true and
correct information regarding all the documents such as material contracts, capital structure,
appointment of intermediaries and other matters.
• Listing Arrangement- It must clearly state that once the issue is subscribed where the shares will
be listed for trading.
• Disclosure Clause- It is compulsory to mention this clause to distinctly inform the investors that
though the prospectus is submitted and approved by SEBI it is not responsible for the financial
soundness of the IPO.
• Merchant Bankers Responsibility-Disclaimer Clause the Lead Manager has to certify that
disclosures made in the prospectus are generally adequate and are in conformity with the SEBI
• Capital Structure- The company must give complete information about the Authorised capital,
Subscribed Capital with top ten shareholders holding pattern, Promoters interest and their
subscription pattern etc. Also about the reservation in the present issue for Promoters, FII`s,
Collaborators, NRI`s etc. Then the net public offer must be stated very clearly.
• Auditors Report- The Auditors have to clearly mention about the past performances, Cost of
Project, Means of Finance, Receipt of Funds and its usage prior to the IPO. Auditor must also give
the tax-benefit note for the company and investors.


• Pricing of Issue-The pricing of all the allocations for the present issue must follow the bid system.
The reservation must be disclosed for different categories of investors and their pricing must be
specified clearly.
• Minimum Subscription- If the company does not receive minimum subscription of 90% of
subscription in each category of offer and if the issue is not underwritten or the underwriters are
unable to meet their obligation, then fund so collected must be refunded back to all applicants.
• Basis of Allotment- In case of full subscription of the issue, the allotment must be made with the
full consultation of the concerned stock exchange and the company must be impartial in allotting
the shares.
• Allotment/Refund- Once the allotment is finalized, the refund of the excess money must be made
within the specified time limits otherwise the company must pay interest on delayed refund orders.
• Dematerialisation of Shares-As per the provisions of the Depositories Act, 1996, And SEBI Rules,
now all IPO will be in Demat form only.
• Listing of Shares- It is mandatory on the part of the promoters that once the IPO is fully
subscribed, and then the underlying shares must be listed on the stock exchange. This provides
market and exit routes to the investors.

The above are the major Guidelines for the Investor Protection and Disclosure Norms. The SEBI has
provided rules for every possible situation.


IPO of Small Companies

Public issue of less than five crores has to be through OTCEI (Over the Counter Exchange of India)
and separate guidelines apply for floating and listing of these issues.

Public Offer of Small Unlisted Companies (Post-Issue Paid-Up Capital upto Rs.5 crores) Public issues
of small ventures which are in operation for not more than two years and whose paid up capital
after the issue is greater than 3 crores but less than 5 crores the following guidelines apply.
1. Securities can be listed where listing of securities is screen based.
2. If the paid up capital is less than 3 crores then they can be listed on the Over The Counter
Exchange of India (OTCEI)
3. Appointment of market makers mandatory on all the stock exchanges where securities are
proposed to be listed.

Size of the Public Issue

Issue of shares to general public cannot be less than 25%of the total issue. Incase of IT, Media and
Telecommunication sectors, this stipulation is reduced subject to the conditions that
1. Offer to the public is not less than 10% of the securities issued.
2. A minimum number of 20 lakh securities is offered to the public
3. Size of the net offer to the public is not less than Rs.30 crores.

Promoters Contribution
1. Promoters should bring in their contribution including premium fully before the issue
2. Minimum promoter’s contribution is 20-25% of the public issue.
3. Minimum lock in period for promoter’s contribution is five years.
4. Minimum lock in period for firm allotment is three years.

Collection Centers for Receiving Applications

1. There should be at least 30 mandatory collection centers, which should include invariably the
places where stock exchanges have been established.
2. For issues not exceeding Rs.10 crores the collection centers shall be situated at:-
• The 4 metropolitan centres viz. Mumbai Delhi Calcutta Chennai
• All such centres where stock exchanges are located in the region in which the registered office of
the company is situated.

Regarding allotments of shares

1. Net Offer the general public has to be atleast 25% of the total issue size for listing on a stock
2. It is mandatory for a company to get its shares listed at the regional stock exchange where the
registered office of the issuer is located.
3. In an issue of more than 25 crores the issuer is allowed to place the whole issue by book-
4. Minimum of 50% of the Net Offer to the public has to be reserved for the investors applying for
less than 1000 shares.
5. There should be atleast 5 investors for every 1 lakh equity offered.
6. Quoting of PAN or GIR No. in application for the allotment of securities is compulsory where
monetary value of investment is Rs.50000/- or above.
7. Indian development financial institutions and Mutual Fund can be allotted securities upto 75% of
the issue amount.
8. A venture capital fund shall not be entitled to get its securities listed on any stock exchange till
the expiry of 3 years from the date of issuance of securities.
9. Allotment to categories of FIIs and NRIs/OCBs is upto maximum of 24%, which can be further
extended to 30% by an application to the RBI-supported by a resolution passed in the General

Timeframes for Issue and Post-Issue Formalities

1. The minimum period for which the public issue is to be kept open is 3 working days and the
maximum for which it can be kept open is 10 working days. The minimum period for right issue is
15 working days and the maximum is 60 working days.
2. A public issue is effected if the issue is able to procure 90% of the total issue size within 60 days
from the date of the earliest closure of the public issue.
3. In case of oversubscription the company may have he right to retain the excess application
money and allot shares more than the proposed issue, which is referred to as “green-shoe” option
4. Allotment has to be made within 30 days of the closure of the Public issue and 42 days in case of
Rights issue
5. All the listing formalities of a Public Issue have to be completed within 70 days from the date of
closure of the subscription list.

Dispatch of Refund Orders.

1. Refund orders have to be dispatched within 30 days of the closure of the issue.
2. Refunds of excess application money i.e. non-allotted shares have to be made within 30 days of
the closure of the issue.

Other Regulations
1. Underwriting is not mandatory but 90% subscription is mandatory for each issue of capital to
public unless it is disinvestment where it is not applicable.
2. If the issue is undersubscribed then the collected amount should be returned back
3. If the issue size is more than Rs500 crores, voluntary disclosures should be made regarding the
deployment of funds and an adequate monitoring mechanism put in place to ensure compliance.
4. There should not be any outstanding warrants for financial instruments of any other nature, at
the time of the IPO.
5. In the event of the initial public offer being at a premium and if the rights under warrants or
other instruments have been exercised within 12 months prior to such offer, the resultant shares
will be not taken into account for reckoning the minimum promoters contribution further, the same
will also be subject to lock-in.
6. Code of advertisement as specified by SEBI should be adhered to
7. Draft prospectus submitted to SEBI should also be submitted simultaneously to all stock
exchanges where it is proposed to be listed.

Restrictions on Allotments
1. Firm allotments to mutual funds, FII and employees are not subject to any lock-in period.
2. Within 12 months of the public issue no bonus issue should be made.
3. Maximum percentage of shares, which can be distributes to employees cannot be more than 5%
and maximum shares to be allotted to each employee cannot be more than 200.

Relaxation of entry norms for infrastructure companies

With a view channelise greater flow of funds to infrastructure companies, SEBI granted a number of
relaxations to infrastructure companies. These included:
Exemption from the re8quirement of making a minimum public offer of 25 percent of securities and
also from the requirement of 5shareholders per Rs.1 lakh of offer made.
Exemption from the minimum subscription of 908 per cent provided disclosure is made about the
alternate source of funding considered by the company, in the event of under-subscription in the
public issue.
Permission to freely price the offer in the domestic market provided8 the promoter companies along
with equipment supplier sand other strategic investors subscribe to 50 percent of the equity at the
same price as the price offered to the public or at a price higher than that offered to the public.
8 Permission to keep the issues open for 21 days to enable the companies to mobilize funds.
Exemption from requirement to create and maintain a8 debenture redemption reserve in case of
debenture issues as provided in the SEBI Disclosure & Investor Protection Guidelines
These concessions are available to them if these are appraised by a Development Financial
Institution, Infrastructure Development Finance Corporation or Infrastructure Leasing and Financing
Services Ltd. and there is a minimum financial participation by them. The minimum participation of
the appraising agency, initially fixed at 10% of project cost, was reduced to 5%. Further, the
minimum participation can be met by any of the appraising agencies, jointly or severally,
irrespective of whether they appraise the project or not.

Eligibility norms for public issues/offers for sale by companies in the IT Sector
Eligibility norms were8 modified to provide that a company in the IT Sector going for IPO/offer for
sale shall have track record of distributable profits as per Section 205 of the Companies Act in three
out of five years in the IT business/from out of IT activities.
It can also access the market through the alternative route of8 appraisal and financing by a bank or
financial institution.
The same8 conditions would apply also to a listed company which has changed its name to reflect
activities in IT sector.


The role of marketing, and particularly promotion, in the pricing and trading of Securities is fairly

The company has to complete all legal requirements, appoint all intermediaries and once they get
SEBI card (approval), the process of marketing of IPO can commence.

This the most important factor for the success of IPO. If, secondary market is depressed, if there is
political unrest, if serious international problems are prevailing then it is considered to be negative
factors for timing of IPO’s. If these factors are favorable then the Company must find out about the
timing of other prestigious IPO’s. Normally in good times many companies are crowding at the same
time .This year more than 29 companies are coming with IPO’s. Around Rs.25,000-30,000crore of
capital is going to be raised this year.

A question of Timing
Timing the issue is critical as it determines the success or failure of an issue to a great extent.
During 1995-96, Primary Market boom, there was a period during which there were two to three
issues in a day. This is a dangerous situation.
The ideal time for marketing an issue is a boom in the Secondary Market, peaceful socio-political-
economic environment and at least two days gap between two issues.

Marketing initial public offers (IPO’s) through the secondary market

SEBI approved a proposal of marketing IPO’s through the secondary market. It proposes to use the
existing infrastructure of stock exchanges (terminals, brokers and systems), presently being used
for secondary market transactions, for marketing IPO’s with a view to get rid of certain inherent
disadvantages faced by issuers and investors like tremendous load on banking and postal system
and huge costs in terms of money and time associated with the issue process. This system would
confirm to all extant statutory requirements.
The investor would approach broker for placing an order for buying shares8 of primary issues.
The registrar in consultation with merchant banker and8 the regional stock exchange of the issuer
will finalize the basis of allotment and intimate the same to the exchanges who in turn shall inform
the brokers.
The brokers will advise the successful allottees to submit the8 application form and the amount
payable towards the shares.
The broker will8 deposit the amount received in a separate escrow account for the primary market
The clearing house of the exchange will debit the primary issue8 account of the broker and credit
the issuer’s account.
Subsequently, the8 certificates would be delivered to the investors or the depository account of the
investor would be credited.
The securities can be listed on the stock8 exchange from the 15th day from the closure of the issue
as against 45-60days at present.
As investors will have to part with their funds only on8 successful allotment, their funds are not
unnecessarily blocked. This would also ensure that refunds are done away with. The system seeks
to reduce the time taken presently for completion of the issue process, as well as the cost of the

The Effects of Marketing on IPO’s

An investment banker’s marketing campaign for an IPO is critical. This campaign, as much as
anything that precedes or follows it, will determine the success or failure of the IPO. The key is to
stimulate investor demand for the stock so that, the demand will exceed the supply. Through the
marketing effort, the underwriter attempts to create an imbalance in the supply/demand equation
for the issue, so that there are more buyers than sellers when the stock is finally released for sale
to the public.
Before a company gets to market through an IPO, it spends a fortune on hype, Paperwork and
publicity to create demand. The buzz is stirred up before the shares are released. So you never get
in cheap. And the ones that are cheap are usually not worth holding five minutes.
To understand the sense of these statements one must understand the relationship between the
marketing of an IPO and its initial returns, and how different parties benefit from this relationship. A
security’s value is an increasing function of the number of investors who know about the security.
Investor knowledge leads to greater value consequently; the efforts taken by an investment banker
to promote awareness in a firm can affect the valuation of its stock by expanding the investor base.
The reputation of an investment banker could expand a firm’s investor base at a lower cost than the
firm can, since the promotional efforts of an investment banker on behalf of the firm would be more
creditable. The efforts of an investment banker to promote an IPO through increased media
coverage will increase retail interest in that stock.
The effects of an investment banker’s promotional efforts are not only important for explaining the
initial returns of some IPO’s, but also for explaining the rankings of investment bankers Promoting
an issue sufficiently to insure a run-up in its early aftermarket prices attracts further investor
interest catches the interest of analysts and helps to maintain or expand the investor base of the
If the sole motivation of a road show were to sell IPO’s to their regular institutional investors and if
those investors were to hold onto these stocks, then there would be no motivation for an
investment banker to do more than a minimal amount of promotion since there would be no need to
attract retail investors in early aftermarket trading. However, research contradict that these
institutional investors do not hold onto the shares allocated to them over the long-term, instead
they sell their allocation, primarily to retail customers in “hot” issues


Promoters and Lead Managers call for press conference in each major investment center. Reporters
are briefed about the issue. They carry it as news-item in their papers.
The prospective investors are called by invitation. The Promoters and Lead Managers give
presentations. They reply to the questions of the investors to boost their confidence.

This is like the investors conference but normally is done abroad for marketing ADR/GDR issues. It
is an expensive process and requires a lot of legal compliances. The company has to observe the
rules of the concerned country. However, road shows are becoming more and more popular in

The company releases statutory advertisements in leading newspapers. The company has to publish
abridges prospectus in leading newspapers. It is the responsibility of the promoters to ensure that
the issuing company and their group companies should not release any commercial advertisement,
which may influence the investor’s decision for investment.

The company has to print approved prospectus and provide enough copies to all intermediaries. If
any investor asks for a copy of prospectus it must be provided to him without any fees. Sufficient
quantities should be maintained at the registered office of the company and with the Lead


Sufficient number of application forms must be printed much before the opening of the issue. Each
form must contain abridged prospectus in SEBI approved format. Sometimes different coloured
forms are issued to FI, FII, NRI and general public. It is compulsory to provide stationery to all
underwriters and brokers. They will arrange distribution to their sub-brokers and other clients.
Sometimes, company makes direct dispatch of forms to prospective investors.

Biocon is India's premier biotechnology company, established in 1978. Headquartered in Bangalore,
Biocon has evolved from an enzyme company to a fully integrated biopharmaceutical enterprise,
focused on healthcare. Biocon's success has been characterized by an enduring set of corporate
values based on innovation, integrity, strong leadership and social responsibility. As India's first and
leading biotechnology company Biocon extends its support to numerous community outreach and
corporate citizenship initiatives with special concentration in the areas of healthcare, education and
environment. Biocon aims to continuously create growth in different areas of the company and will
soon be the first company, globally to manufacture human insulin using a Pichia expression system.
In addition Biocon is positioned to be India's largest producer of human insulin and India's first
company to set up commercial production of monoclonal antibodies.


Details of the Public Offer
The issue size includes 10,000,000 equity shares of Rs.5/-each at a price of Rs. [270-315] the issue
constitutes 10% of the fully diluted post issue paid up capital.
Issue Opens on: March 11, 2004
Issue Closes on: March 18, 2004
Offer price Rs.315. The offer is being made through the 100% book building process.


Biocon India owned by American International Group Inc is the largest biotechnology enterprise in
India was the first biotech company in India to come up with an IPO. It has a market share of

Size of issue-
The issue size includes 10,000,000 equity shares of Rs.5/-each at a price of Rs [270-315] in cash
aggregating to Rs [2700mn- 3150] mn. The issue constitutes 10% of the fully diluted post issue
paid up capital. The ceiling of allocation of equity share capital to various bidders is as follows:
Qualified Institutional Bidders 60%
Non Institutional Bidders 15%
Retail Individual Bidders 25%

Issue Price
The offer is being made through the 100% book building process. The price band was Rs [270-315].
The offer price was fixed at the higher end of the price band at Rs315 per share of Rs 5 each.

Lead Manager to the Issue:

DSP Merrill Lynch Ltd, Kotak Company Capital Ltd., Karvy Consultants Ltd, HSBC Securities and
Capital Markets (India) Pvt Ltd.

Registrar to the issue:

Karvy Consultants Ltd

Bankers to the Issue-

HSBC, State Bank of India, Canara Bank
BSE and NSE stock exchange

Competitive strengths-
Biocon Ltd is the largest biotechnology enterprise in India with presence in biopharmaceuticals,
enzymes, Custom research and clinical research activities. The company believes in non infringing
processes for the manufacture of products targeted at the therapeutic categories of cardiovascular,
immunosuppressant, anti-diabetics and oncology.

Basis for Allotment

Discretionary in case of Qualified Institutional Buyers and proportionate in case of Non-Institutional
Buyers and Retail Investors.

Maximum and Minimum Bid size

For retail ]λ investors- The minimum bid for the Equity shares should be in multiples of [ and the
amount should not exceed Rs.50000.The maximum bid should be in multiples ] and should not
exceed Rs.50000.λ of [
For Non-Institutional Buyers and Qualified Institutional Buyers- The minimum bid for the Equity
shares should be ] and the amount should exceed Rs.50000. The maximum bidλ in multiples of
[ should not exceed the size of the issue.

Who can Apply

Wholesale investors-Public Financial Institutions as specified in the Sec 4A of the Companies Act,
FII`s registered with SEBI, Mutual Funds, Industrial Development Corporation, insurance companies
Retail Investors- Resident Individuals, NRI`s and HUF`s in the name of the Karta

Allotment mode
Compulsory demat mode

Biocon Ltd is the largest biotechnology enterprise in India with presence in biopharmaceuticals,
enzymes, Custom research and clinical research activities. Biocon is the largest Indian
Biotechnology company in terms of fiscal 2003 revenue according to India’s Association of
Biotechnology Led Enterprises. It is the first Indian Biotechnology company to come up with a public
The Total Consolidated Operating Income and Net Profit were Rs.2819.9 million and Rs422.3 million
respectively in fiscal 2003. In the first 9 months of fiscal year 2004 our Total Consolidated
Operating Income and Net Profit Rs.3977.4 million and Rs.949.4 million respectively
The scrip, currently available at the P/E of (23.1 – 26.9) x FY04P earnings of Rs11.7. The P/E is
relatively comparable to peer group P/E average of 25.1. Although Biocon is expensive at the
current price, it is a good buy taking into consideration its promising future prospects.

Scrip Details.

Market Capital (Rs .Cr.)

(at Min. Offer Price) 270-315
P/E (x) –FY04 (annualized) 19.1-22.3
Market Capital/Sales (x) FY04 (annualized) 5.1-5.9
Ent.Val/EBIT(x) FY04 (annualized) 22.6-26.3
Div./Share (Rs.) FY04E -
Div Yield (%)FY04E
Peer Comparison


Biocon India 1 255
Panacea Biotec 2 169.88
Wipro Health Science 3 98.55
Wockhardt 4 74
Haffkine Bio 5 72.90
Eli Lily 6 71.31
Nicholas Piramal 7 70.64
Krebs Biochem 8 64.16
Bharat Serums 9 58
Indian Immunologicals 10 55.31

Objects of the Offer

Plans to expand capacity at Rs 400cr.♣
Develop biological♣ business
Expand capability in drug business♣
Leverage position in the♣ export market
Continue to target APIs for high value growth♣
Launch♣ branded formulations on the domestic market
Grow business through strategic♣ partnership and M&A


Performance Eva

Day One- 11 March 2004, Biocon Ltd. IPO gets oversubscribed
The long awaited issue of Biocon opened on 11 March. The issue got oversubscribed within five
minutes of the opening.This is the first issue by a biotechnology company; the company plans to list
on the BSE and NSE. Biocon had a fixed price band between Rs 270 and Rs 315 per equity share of
a face value of Rs 5, for its IPO with most of the bids being submitted at Rs 315, the upper end of
the price band.

Day two-Biocon IPO gets stronger

The IPO of Biocon Ltd was oversubscribed 10.6 times on Thursday, when it opened, according to its
Strong demand by institutional investors saw the issue get an unprecedented four times the
response for one crore shares of face value Rs 5 each within five minutes of opening. The scrip was
in demand

March 18 Biocon IPO A “hit” with investors

The country’s first biotech IPO by Biocon India received a handsome response from investors, with
the issue being oversubscribed 33 times. The company received bids for more than 330m shares
versus about 10m on offer, with most of the bids being submitted at Rs 315, the upper end of the
price band. Biocon IPO generates overwhelming response. Total demand in excess of Rs.10,000
crores. There was large scale participation
by QIB`s, HNI`s and Retail Investors


Biocon IPO generates “overwhelming” response
The success of Biocon’s IPO set the benchmark for future IPO’s in the sector. For it is the No.1
biotech company in the country and has strong fundamentals. It is also the first biotech company to
go public CRISIL, India’s leading credit rating agency, has maintained its P1+ rating for the Rs 20
crore short-term debt programmes. Several biotech companies plan to go public. Biocon, Shantha
Biotechnics, Amreshwara Agri Bio, Bharat Biotech, etc. are looking to go IPO.
Biocon with its first mover advantage is well positioned to grab the huge opportunity in the global
biopharma market once regulatory norms for biotech are clearly stated by the USFDA for regulated
markets in the next 6-12 months. This will further boost the recent high growth rates in the
revenues and earnings. Also, the company is well positioned to build strong relationships with
existing global players by offer them contract research and manufacturing service. At the higher end
price of the offer band of Rs. 315, the stock is offered at a P/E of 22x on annualized earnings of Rs.
14.1 for FY04.


Shareholding pattern

Share Holding Pattern Pre Offer Post Offer

Kiran Mazumdar 44.05 39.64
John Shaw 0.78 0.70
Glentec International 23.55 21.19
AIG Asian Opportunity Fund 10.00 9.00
Others 21.62 19.47
Public - 10.00

(Rs.Crores) FY01 FY02 FY03 9MFYO4
Revenue 122.31 160.62 254.24 371.22
Other Income 0.21 3.33 0.76 0.66
Total Expenditure 91.1 124.91 189.99 253.77
PBIDT 32.49 40.02 65.53 118.68
Interest Expenditure 4.56 4.69 4.90 1.21
Depreciation 6.2 7.59 11.71 9.81
PBT 21.73 27.74 48.92 107.66
Tax- Current 3.56 4.04 8.90 20.17
Tax- Deferred 3.65 2.21 4.71 1.38
PAT 14.52 21.49 35.31 86.11
Share Capital 1.50 1.82 1.84 45.00
EPS (Rs.) at FV Rs. 5.0 48.40 59.04 95.95 9.57
EBIDTA Margin 26% 24% 26% 32%
Bio pharmaceuticals contribute 81% of total turnover, enzymes 12% and rest is contributed by
customized research. For the first 9 months of FY04, exports of biopharmaceuticals and enzymes
accounted for56% of the total turnover and grew sharply toRs.208.36 compared to Rs.110.08crs in
the previous full year, largely driven by exports to US and Europe. Better realization from export
resulted in operating margin growth of 7bps in 9MFY04 over
FY03. Robust product pipeline ensures sustenance of company’s high growth rate. It has
plannedRs.400crs expansion over next three years.

The current price of a Biocon Share is Rs503. The stock has risen by 188%. This shows that Biocon
is a good buy and good profitable company which is worth investing.


The Indian initial public offer (IPO) market has always had more than its fair share of doomsayers
Right from the Maruti issue, which pundits decried as being overpriced, to the ONGC and TCS
issues, where the huge sizes of the offer drew predictions of calamitous effects on the secondary
markets, the opinions of the “experts” have proved to be wide off the mark.
Not only did the mega issues sail through, but the secondary markets proved to be far more
resilient than anybody had anticipated. The data show that as much as Rs. 23,904 Crore has been
raised from the primary market in the current calendar year, making it obvious that the Indian
investor has far more appetite for equities than most people realise.
Most of the money has been raised by big companies with a long-term track record. A substantial
number of issues—barring that of TCS—also happened during the early part of the year, before the
markets got the shivers. The heavy oversubscriptions in many cases can also be traced to the
availability of bank finance for IPO investment.
Nevertheless, there is no denying the enormous interest retail and other investors have shown in
the primary market, perhaps even more so than in the secondary one.
This interest has been sustained despite the lack of bounce in the secondary market and is not
confined to the big issues; even smaller issues have sailed through with large oversubscriptions.
If investors are gung-ho about IPO’s, there are several reasons for it.
Unlike earlier IPO booms, this one is being driven by a much better quality of offer. Missing in action
so far are the fly-by-night operators of the 1990s who made public offers only to collect the money
and vanish.
Next, most recent IPO’s have resulted in gains on listing for the investor. The listing gains have
probably initiated a kind of virtuous cycle, tempting investors who have already made money to
return to the primary market.
There is also reason to believe that companies are pricing their issues less aggressively this time,
either due to general concerns about a volatile market, or because of a deliberate effort to leave
something on the table for all investors.
Companies have been quick to take advantage of the investor interest in IPO’s, and banks, broking
houses, retail outfits, media houses and government companies such as NTPC and Power Finance
Corporation are lining up issues
Even mutual funds have got into the act, and are tailoring their offer to match current market
fancies—mid-cap funds, dividend yield funds, and what-have-you. If the government wants to get
some money into its kitty through disinvestment programmes, this is the time to make a dash for it.

Books and Magazine-
Indian Capital Markets8
8 Financial management –Prasanna Chandra
Business World8
The Chartered8 Accountant-
Journal of Institute of Chartered Accountants in India
Study modules of ICAI

May 11th, 2008, 08:25 PM


1. R.POWER IPO....HUGE oversubsciption & then DEBACLE on day of listing

2. EMAAR -MGF & WOCKHARDT HOSP. IPO debacle who is responsible ?

3. Are merchant bankers doing there duties ?

4. present state of primary market....steps taken by C.B. BHAVE

August 21st, 2008, 01:25 PM
hiii i need ppt on ipo if anyone have plz upload it its urgent
August 21st, 2008, 01:29 PM
well matter is there u wont get free lunches u have to make 1 on ur own
October 25th, 2008, 01:42 AM
thanks for the info.........but if u have something recent to talk about upload it.......
November 29th, 2009, 11:05 AM
Hello, Here is the full proce:SugarwareZ-090:ss of IPO. [ppt format]
January 3rd, 2010, 01:01 PM
the post lost all formating.
Please uppload as word or pdf file.
Thanks in advance.
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