An initial public offering (IPO), referred simply as an "offering" or "flotation", is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. An IPO can be a risky investment. For the individual investor it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

A privately held company has fewer shareholders and its owners don¶t have to disclose much information about company. When a privately held corporation needs additional capital, it can borrow cash or sell stock to raise needed funds. Often ³ going public´ is the best choice for a growing business. Compared to the costs of borrowing large sums of money for ten years or more, the costs of an initial public offering are small. The capital raised never has to be repaid. When a company sells its stocks publicly, there is also the possibility for appreciation of the share price due to market factors not directly related to the company. It usually isn¶t possible to buy shares in a private company. one can approach the owners about investing , but they are not obligated to sell you anything . public companies,

on the other hand , have sold at least a portion of themselves to the public and trade on a stock exchange. This is why an IPO is also referred to as ³ going public´ 2 Why go public? Going public raises cash, and usually a lot of it. Being publicly traded also opens many financial doors:

Because of the increased scrutiny, public companies can usually get better rates when they issue debt. As long as there is market demand, a public company can always issue more stock. Thus, mergers and acquisitions are easier to do because stock can be issued as part of the deal. Trading in the open markets means liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent.




BENEFITS OF GOING PUBLIC y Access to Capital : The principal motivation for going public is to have
access to larger capital. A company that does not tap the public financial market may find it difficult to grow beyond a certain point for want of capital.

y Stockholder 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 offering, the founders can diversify their holdings and thereby reduce somewhat the risk of their personal portfolios.

y Easier to raise new capital : If a privately held company wants to raise
capital a sale of a new stock, it must either go 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.

y Enhances liquidity : The stock 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 . These problems are easily overcome in a publicly owned company.

y 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.

y Image : The reputation and visibility of the company increases.

y Other advantages :  Window of opportunity.  It commands better valuation of the company.  Better situated for making acquisitions


A public company, of course is not an unmixed blessing. There Are several disadvantages of going public. y Disclosure : A public company is required to discloses information to investors and others. Hence , it cannot maintain a strict veil of secrecy over its expansion plans and product market strategies as its non- public counterpart can do . Management may not like the idea of reporting operating data, because such data will then be available to competitors. y Dilution: When a company issues shares to public, existing shareholders suffer dilution of their proportionate ownership in the firm.

y Loss of flexibility : The affairs of a public company are subject to fairly comprehensive regulation. Hence, when a non- public company is transformed into a public company there is some loss of flexibility. y Public pressure : Because of its greater visibility a public company may be pressurized to do things that it may not otherwise do .

y Adverse slection : Investors , in general, know less than the issuers about the value of companies that go public. Put differently, they are potential victims of adverse selection. Aware of this trap, they are reluctant to participate in public issues unless they are significantly underpriced. Hence, a company making an IPO typically has to underprice securities in order to stimulate investor interest and participation.

6 y Self dealings : The owners managers of closely held companies have many opportunities for self- transactions, although legal they may not want to disclose to the public

y Inactive market low price : If a firm is very small 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. y Control : Owning less than 50% of the shares could lead to a loss of control in the management . y Costs : Apart from the cost of issuing securities, a public company has to incur recurring costs for providing investors with periodical reports , holding shareholder meetings communicating with institutional investors and financial analyst , and fulfilling various statuory obligations like filing quarterly reports with the SEBI . These reports can be costly especially for small firms.

y Other disadvantages : y The profit earned by the company should be shared with its investors in the form of dividend y An IPO is a costly affair. Aroung 15-20% of the amount realized is spent on raising the same. y A substantial amount of time and effort has to be invest.


Initial public offering is a cheap way of raising capital , but all the same it is not considered as the best way of investing for the investor. Before investing , the investor must do a proper analysis of the risks to be taken and the returns expected. He must be clear about the benefits he hope to derive from the investment. The investor must be clear about the objective he has for investing, whether it is long- term capital growth or short- term capital gains. The potential investors and their objectives could be categorized as: 

INCOME INVESTOR : An ³ income investor´ is the one who is looking for steadily rising profits that will be distributed to shareholders regularly. For this, he needs to examine the companys potential for profits and its dividend policy. 

GROWTH INVESTOR : A ³growth investor´ is the one who is looking for potential steady increase in profits that are reinvested for further expansion. For this he needs to evaluate the companys growth plan , earnings and retained earnings. 

SPECULATOR : A ³speculator´ looks for short ± term capital gains. For this he needs to look for potential of an early market breakthrough or discovery that will send the price up quickly with little care about a rapid decline.

8 INVESTOR RESEARCH : It is imperative to properly analyze the IPO the investor is planning to invest in he needs to do a thorough research at his end and try to figure out if the objective of the company match his own personal objectives or not. The unpredictable nature of IPO¶S and volatility of the stock market add greatly to the risk factor. So, it is advisable that the investor does his homework, before investing.

The investor should know about the following :  BUSINESS OPERATION :      What are the objectives of the business? What are its management policies? What is scope for growth ? What is the turnover of the labour force? Would the company have long-term stability?

It is very important to note that management of the company plays very important role in running business operation . A well qualified management team with decades of experience would play very beneficial to the company . 

FINANCIAL OPERATIONS :       What is the company¶s credit history? What is the company¶s liquidity position? Are there any defaults on debts? Company¶s expenditure in comparison to competitors? Company¶s ability to pay- off its debts What are the projected earnings of the company ?

9  MARKETING OPERATIONS :      Who are the potential investors? What is the scope form success of the IPO? What is the appeal of the IPO for the others investors? What are the products and services offered by the company? Who are the strongest competitors of the company?


Investing in IPOs is much different than investing in seasoned stocks. This is because there is limited information and research on IPOs prior to the offering .and immediately following the offering , research opinions emanating from the underwriters are invariably positive.

There are some of the strategies that can be considered before investing in the IPO: 

UNDERSTAND THE WORKING OF IPO : The first and foremost step is to understand the working of an IPO and the basics of an investment process. Other investment options could also be considered depending upon the objective of the investor. 

GATHER KNOWLEDGE : It would be beneficial to gather as much knowledge as possible about the IPO market , the company offering it, the demand for it and any offer being planned by a competitor.

11  KNOW YOUR BROKER : This is a crucial step as the broker would be the one who would majorly handle your money . IPO allocations are controlled by underwriters . the first step to getting IPO allocations is getting a broker who underwrites a lot of deals. 

MEASURE THE RISK INVOLVED : IPO investments have a high degree of risk involved. It is therefore, essential to measure the risks and take the decision accordingly. 

INVEST AT YOUR OWN RISK ; Finally, after the homework is done , and the big step needs to be taken . all that can be suggested is to µ invest at your own risk¶. Do not take a risk greater than your capacity.



Who decides the IPO Price? Company with the help of lead managers decides the price or price band of an IPO. Merchant bankers or syndicate members are acting as the lead managers of companies. Registrars to the Issue Registrar plays an important role in an IPO process. Their main job involves processing of IPO applications, allocation of shares to the applicants on the guidelines provided by SEBI, processing refunds and also allocating shares in the account of the applicants Lead managers in an IPO Lead managers are the independent financial institutions which are appointed by the companies generally involving big IPO s. Their main responsibility is to initiate the IPO process, help the company in road shows, creating draft offer document and also getting the same approved by the SEBI and Stock exchanges and also helping the company in getting its shares listed on the stock exchanges.

13 Life cycle of IPO Prospectus There are three stages in the life cycle of an IPO Prospectus such as;y Draft offer document Offer document y Red Herring prospectus Stage 1:- Draft offer document Issuing company and the Book building lead managers prepare the draft offer document which is submitted to SEBI for the review. Now the SEBI may ask the lead managers to either make any changes if required or approve it. Issuing company and the Book building lead managers prepare the draft offer document which is submitted to SEBI for the review. Now the SEBI may ask the lead managers to either make any changes if required or approve it. Stage 2:- Offer document Once the Draft offer document gets cleared by SEBI it becomes offer document, offer document is a modified version of Draft offer document after SEBI s suggestion. Stage 3:- Red Herring prospectus Once the offer document gets clearance from SEBI the issuing company adds number of shares and the price on the document which is then offered to the public. The issue prospectus is now called the red herring prospectus.

14 Life cycle of an IPO There are eight major steps in the life cycle of an IPO such as:  IPO process initialization  Pre Issue Role - Part 1  Prospectus Review  Pre Issue Role - Part 2  Bidding for the public issue  Price Fixing  Processing IPO Applications  StockListing IPO process initialization - Issuing Company Lead managers are appointed as book runners Registrar to the issue are appointed Syndicate members are appointed . Pre Issue Role - Part 1 - Lead Manager's Draft offer prospectus document for IPO is prepared Filing of draft offer prospectus with SEBI. Road shows are conducted. Prospectus Review -S EBI Reviewing draft offer prospectus by SEBI If any changes are required in the document it is sent back The draft offer prospectus becomes Offer Prospectus after the approval of SEBI .

15 Pre Issue Role - Part 2 - Lead Manager Submitting the offer documents to SEBI Decision on the issue date & issue price band is taken Offer Prospectus modification with respect to date and price band if any. Document is now called Red Herring Prospectus. Printing and distribution of red herring prospectus and IPO document to syndicate members . Bidding for the public issue - Investor Public Issue Open for investors bidding. Filling of application form by the investor Providing bidding information to BSE/NSE Sending the cheques collected to the registrar by syndicate Members. Revision of bid by investor if any Updating stock exchanges with latest data Closing of public issue. Price Fixing - Lead Manager Lead managers evaluate the final issue price. Red Herring Prospectus is updated with the final issue price and sent to SEBI and Stock Exchanges . Processing IPO Applications - Registrar All cheques and application forms are received by registrar Applicant data is feeded into systems Cheques are sent for clearance. Looking out for all bogus application Finalizing the pattern for share allotment Preparing 'Basis of Allotment' Transferring shares in the demat account of investors. Refunding the remaining money though ECS or Cheques.

Stock Listing - Lead manager After the completion of all the above process lead managers decide the listing date with stock exchanges


PRICING OF AN IPO  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 vert conservative and hardly aloowed 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 norms. 

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 recommend prices. Once, the 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 investors 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 17 received has to refunded. The company losses 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 IPO .


The basic motto of Book Building is that µ 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 for 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 . It is a mechanism where, during the period for which the book for the IPO is open , bids are collected from investors at various prices, which are above or equal to the floor price. The process aims at tapping both wholesale and retail investors. The offer/issue price is then determined after the bid closing date based on certain evaluation criteria. Book Building is so- called because the collection of bids from investors is entered in a µbook¶. These bids are based on an indicative price range. The issue price is fixed after the bid closing date.

The Process :  The Issuer who is planning an IPO nominates a lead manger banker as a ³book runner ³.  The Issuer specifies the number of securities to be issued and the price band for orders.  The Issuer also appoints syndicate members with whom orders can be placed by the investors.  Investors place their order with a syndicate member who inputs the orders into the ³electronic book´ . This process is called µ bidding´ and is similar to open auction. 

A Book should remain open for a minimum of 5 days.  Bids cannot be entered less than the floor price.  Bids can be revised by the bidder before the isuue closes. 19  On the close of the book building period the ³ book runner´ evaluates the bids on the basis of the evaluation criteria which may include ± y Price Aggression y Investor quality y Earliness of bids, etc 

The book runner and the company conclude the final price at which it is willing to issue the stock and allocation of securities.  Generally , the number of shares are fixed, the issue size gets frozen based on the price per share discovered through the book building process.  Allocation of securities is made to the successful bidders  Book Building is a good concept and represents a capital market which is in the process of maturing.

The Initial Public Offering can be made through the fixed price method, book building method or a combination of both.

In case the issuer chooses to issue securities through the book building route then as per SEBI guidelines, an issuer company can issues securities in the following manner.

1) 100% of the net offer to the public through the book building route. 2) 75% of the net offer to the public through the book building process and 25% through the fixed price portion. 3) Under the 90% scheme, this percentage would be 90 and 10 respectively.

20 Persons Involved in the Book - Building Process : The principle 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 Book Built? A company that is planning an initial public offer appoints a category- 1 Merchant Banker as a book runner. Initially, the company issues a draft prospectus which does not mention the price , but give other details about the company with regards to issue size, past history and future plans among other mandatory disclosures. After the draft prospectus is field 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 anytime during the bid period that is, the quantity of shares or the bid price or any of the bid options.

Basis of deciding the Final Price On the 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.

21 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 a 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.

Difference between shares offered through Book Building and offer of shares through normal public issue : Features Pricing Fixed Price Process Price at which the security is offered/allotted is known in advance to the investor. Book Building Process 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 for the securities offered can be known everyday as the book is built. Payment only after allocation.



Demand for the securities offered is known only after the closure of the issue. Payment if made at the times of subscription wherein refund is given after allocation.

22 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 shares 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 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. Market Players :       Co-managers and advisors Underwriters Lead manager Bankers Brokers and principal brokers Registrars 

Stock exchanges



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 the requirement of changing market conditions. Disclosure Norms :  Risk factor ± The company / merchant banker must specify the major risk factor in the front page of the document  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 tough the prospectus is submitted and approved by SEBI it is not responsible for the financial soundness of the IPO.  Merchant Bankers Responsibility ± Disclosure Clause the Lead Manager has to certify that disclosures made in the prospectus are generally adequate and are in conformity with the SEBI guidelines. 

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. 24  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.

Investor Protection Norms 

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 specifies 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 on 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 specifies 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 role of marketing, and particularly promotion, in the pricing and trading of securities is fairly limited.

PRELIMINARY REQUIREMENTS 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.

TIMING OF IPO This is 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. A question of Timing Timing the issue is crucial 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.

26 Marketing of Initial Public Offers (IPO¶s) through the secondary market : SEBI approved a proposal of marketing IPO¶s through the secondary market. It process to use the existing infrastructure of stock exchanges , 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 requirements.  The investor would approach broker for placing an order for buying shares of primary issues.  The registrar in consultation with merchant banker and 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 the application form and the amount payable towards the shares.  The broker will deposit the amount received in a separate escrow account for the primary market issue.  The clearing house of the exchange will debit the primary issue account of the broker and credit the issuer,s account.  Subsequently, the certificates would be delivered to the investors or the depository account of the investor would be credited.  The securities can be listed on the stock exchange from the 15th day  As investors will have to part with their funds only on 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 issue.


PRESS CONFERENCE 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.

INVESTORS CONFERENCE 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.

ROAD-SHOW 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 India.


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.

28 PRINTING STATIONERY ±PROSPECTUS 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 Managers.

PRINTING APPLICATION FORMS 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 colored 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.



Investing in IPO is often seen as any easy way of investing, but it is highly risky and investment advisors advise against it unless you are particularly experienced and knowledgeable. The risk factor can be attributed to the following reasons :  UNPREDICTABLE The Unpredictable nature of the ipo,s is one of the major reasons that investors advice against investing in IPO¶s. Shares are initially offered at a low price , but they significant changes in their prices during the day . It might rise significantly during the day, but then it may gall steeply the next day.  NO PAST TRACK RECORD OF THE COMPANY No past track record of the company adds further to the dilemma of the shareholders as to whether invest in the IPO or not. 

POTENTIAL OF STOCK MARKET Returns from investing in IPO are not guaranteed. The Stock Market is highly volatile. Stock market fluctuations widely affect not only the individual and household, but also economy as a whole. The volatility of the

stock market makes it difficult to predict how the shares will perform over a period of time as the profit and risk potential of the company depends upon the state of the stock market at that particular time.

30 RISK ASSESSMENT The possibility of buying stock in a promising start-up company and finding the new success story has intrigued many investors. But before taking the big step, it is essential to understand some of the challenges , basic risks and potential rewards associated while investing in an IPO.

This has made risk assessment an important part of Investment Analysis . Higher the desired returns. Higher would be the risk involved. Therefore , a thorough analysis of risk associated with the investment should be done before any consideration.

For investing in an IPO, it is essential not only to know about the working of an IPO we also need to know about the company in which we are planning to invest. Hence , imperative to know ± 


The fundamental of the business The policies and the objectives of the business Their products and services Their competitors Their share in the current market The scope of their issue being successful


BUSINESS RISK It is important to note whether the company has sound business and management policies , which are consistent with the standard norms Researching business model involves examining the business model of the company .  FINANCIAL RISK Is the company solvent with sufficient with capital to suffer short-term business setbacks? The liquidity position of the company also needs to be considered. Researching financial risk involves examining the corporation¶s financial statement, capital structure and other financial data.  MARKET RISK It would beneficial to check out the demand for the IPO in the market, i.e., appeal of the IPO to other investors in the market. Hence, researching market risk involves examining the appeal of the corporation to current and future market conditions.


India's initial public offer (IPO) market has emerged as the eighth largest in the world. The year 2007 saw 105 public offerings raising Rs 39,387.72 crore (Rs 393.877 billion). Accodring to some estimates, the total value of public issues in 2008 could be as high as Rs 75,000 crore (Rs 750 billion).

Top ten IPO¶s in India 1) Coal India ltd.
IPO SIZE ± 15000 Crore Year of issue - 2010 The Government has announced that it will be fixing the price of Coal India Ltd¶s (CIL) initial public offering (IPO) at the upper end of the price band at Rs. 245 per share.This decision was taken yesterday in view of the high demand the IPO witnessed.The IPO of Coal India was oversubscribed by more than 15.28 times. The Coal India. IPO issue recieved bids for almost US$ 53 billion worth of equity shares as against issue size of US$ 3.5 billion.This is one of the biggest IPO¶s to ever hit the Indian Capital Markets . The portion for Qualified institutional buyers (QIBs) for whom there was a reservation of 50 per cent of the shares has been oversubscribed by as much as 24.7 times.The retail segment saw more than 16.45 lakh applications received, which is a new record and the highest that any PSU¶s IPO has so far attracted.The government has has stated that the amount of Rs.

15,200 crore that it will mop from this disinvestment will be utilised for infrastructure and development programmes in the rural areas of India. Coal India Limited is the holder of the world¶s largest coal reserves and also the largest producer.It is ranked as one of the lowest cost coal mining firms in the world. The issue price of Coal India is far lower than what it¶s global peers are valued at and this has prompted the huge retail and FII interest in the company. Experts and analysts expect Coal India to list above Rs 300 on it¶s day of listing. In the grey market the shares are already trading and deals are being made at a premium of Rs 30 ± Rs 40 per share. 33 Some experts believe Coal India¶s fair value is at least Rs 316 per share as coal prices are unlikely to come down in India.This assessment of fair value of Rs 316 is based on the Discounted Cash Flow valuation. At an issue price of Rs 245 per share , Coal India will enjoy a valuation of more than US$ 35 billion, which will make it the seventh highest among India¶s listed firms. 2) Relaince Power ltd. IPO size: Rs 11,700 crore Year of issue: 2008 Anil Dhirubhai Ambani Group-promoted Reliance Power Ltd's Rs 11,700 crore (Rs 117 billion) initial public offering has set many a record: it started off with a bang on January 15 with the share sale -- India's biggest-ever -- getting fully subscribed within a minute of opening. The Reliance Power IPO of 26 crore (260 million) equity shares is worth $3 billion. Most of the bids came at Rs 450, the upper end of the price band, making it the country's largest IPO with estimated proceeds of Rs 11,700 crore. The Qualified Institutional Bidder (QIB) portion was subscribed 17.5 times and high net worth investor (HNIs) segment was subscribed 6.7 times. The company was offering the equity shares at a price band of Rs 405-450 per share. The bidding for allotment of shares in the IPO was to close on January 18.

3) Oil and natural gas Corporation (ONGC) IPO size: Rs 9,500 crore Year of issue: 2004 ONGC's public offering opened on March 5, 2004. The IPO was oversubscribed within half an hour of its opening, with estimated proceeds of Rs 9,500 crore (Rs 95 billion). Till the Reliance Power IPO was launched, the ONGC offering was the largest IPO by any company ever in the Indian capital markets with 142.59 million shares being sold through the book-building route in a price band of Rs 680-750. 34 4) DLF LTD. IPO size: Rs 9,188 crore Year of issue: 2007 DLF Universal's IPO hit the markets on June 11, 2007 and closed on June 14. Although scheduled for June 2006, the IPO ran into rough weather with minority investors create a furore with 'chating' allegations against the company. DLF managed to settle this issue and filed a new prospectus with the Securities and Exchange Board of India. The Sebi approval for the same was received soon after. DLF Universal priced its IPO between Rs 500 and Rs 550. It was earlier expected to price the issue around Rs 600. The issue raised about Rs 9,188 crore (Rs 91.88 billion). The IPO was oversubscribed a modest 3.45 times.

5) Cairn India Ltd. IPO size: Rs 5,788 crore Year of issue: 2006 Cairn, the oil and gas exploration company, entered the Indian capital market with a public issue of 328,799,675 equity shares of Rs 10 each at a premium decided through a 100 per cent book-building process.

The share was issued in a price band of Rs 160-Rs 190. The construction and development work for the oil major's Rajasthan oil field was partly funded by the IPO. The company raised about Rs 5,788 crore (57.88 billion) through the IPO.

35 6) Tata Consultancy Services ltd. (TCS) IPO size: Rs 5,420 crore Year of issue: 2004 India's largest IT comapny, Tata Consultancy Services Ltd, offered 5.54 crore (55.4 million) equity shares of Re 1 each, including a fresh issue of 2.27 crore (22.7 million) shares, in its initial public offering through a book-building route. The Rs 5,000-crore (Rs 50 billion) IPO opening coincided with the birth centenary of JRD Tata, who was at the helm of the Tata group for over four decades before Ratan Tata took charge. The issue also comprised an offer for sale of 3.26 crore (32.6 million) shares by Tata Sons Ltd and certain other shareholders of TCS, and a further greenshoe option by Tata Sons for 831,000 shares each. The company raised about Rs 5,420 crore (Rs 54.20 billion) through the IPO.

7) NTPC Ltd. IPO size: Rs 5,368 crore Year of issue: 2004

The National Thermal Power Corporation offered a public issue of equity shares of Rs 10 each by offering 865,830,000 equity shares in a price band of Rs 52 to Rs 62. The issue was made through 100 per cent book building process. The offer was made for 10.5 per cent of NTPC's enlarged capital. The issue raised about Rs 5,368 crore (Rs 53.68 billion) at the top end of the price band. Post offer, the government's stake in NTPC reduced to 89.5 per cent. The issue opened on October 7, 2004 and closed on October 14.

36 8) Reliance Petroleum ltd. IPO size: Rs 2,700 crore Year of issue: 2006 Reliance Petroleum opened for bidding on April 13, 2006. The price band was fixed at Rs 57 to Rs 62 and the bidding closed on April 20, 2006. This was the second time in the market for the petrochem major, after 1993 when it first came out with an IPO. The company offered 45 crore (450 million) equity shares for subscription. Retail investors could bid for up to 1,600 shares at the upper end of the price band and they needed to pay only Rs 16 per share at the time of bidding. The balance amount was to be payable on allotment. The company raised Rs 2,700 crore (Rs 27 billion) through the IPO.

9) Idea Cellular ltd. IPO size: Rs 2,443 crore Year of issue: 2007

The company fixed the price band between Rs 65 and Rs 75 per Rs 10-share. The premium was decided through a 100 per cent book-building process. The issue opened for subscription on February 12, 2007 and closed on February 15, 2007. The company raised Rs 2,443 crore (Rs 24.43 billion) through the IPO.

37 10) Jet Airways ltd. IPO size: Rs 1,899 crore Year of issue: 2005 The initial public offer by Jet Airways met with overwhelming response on the very first day -- February 18, 2005. The issue was fully subscribed within five minutes of opening and was oversubscribed 4.4 times. The issue received a total 7.5 crore (75 million) bids for the 1.72 crore (17.2 milllion) shares on offer at a price band of Rs 950-1,125. The The Qualified Institutional Bidder (QIB) category was oversubscribed almost eight times. Of the total shares, 60 per cent had been reserved for this category of buyers, while 90 per cent of the bids came in at Rs 1,125 per share, the top end of the price band. The company raised Rs 1,899 crore (Rs 18.99 billion) through the IPO.

WORLD¶S LARGEST IPO,s ± 1) Agricultural bank of China ltd.

IPO size - $22.1 billion Year of issue ± 2010 ABC was the last of the "big four" banks in China to go public. In 2010, A shares and H shares of Agricultural Bank of China were listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange respectively. Each share was set to cost between 2.7RMB and 3.3RMB per share. H shares were set to cost between HK$2.88 and HK$3.48 per share.The final share price for the IPO launch was issued on July 7, 2010. On completion in August 2010 it became the world's biggest initial public offering (IPO) surpassing the one set by Industrial and Commercial Bank of China in 2006 of US$21.9 billion.

38 2) Industrial and commercial bank of China IPO Size ± $21.9 billion Year of issue ± 2006 ICBC was simultaneously listed on both the Hong Kong Stock Exchange and Shanghai Stock Exchange on 27 October 2006. It was the world's largest IPO at that time valued at US$21.9 billion, surpassing the previous record US$18.4 billion IPO by Japan's NTT DoCoMo in 1998. In 2010, AgBank broke ICBC's IPO record when it raised $22.1 billion. China's largest commercial bank was also the first company to debut simultaneously on both the Hong Kong and Shanghai stock exchanges.

3) American International Assurance IPO Size ± $ 20.5 billion Year of Issue- 2010

It is an insurance company based in Hong Kong. It has offices in Asia-Pacific region including Australia, China , India, Macau , Vietnam, Malaysia, South Korea , Singapore. AIA was planned to be listed in Hong Kong Stock Exchange in April 2010. However, in March 2010, Prudential plc, a United Kingdom-based financial services company, announced that it will buy AIA for $35.5 billion. The purchased later fell through, and AIA held an IPO later in October 2010 raising $20.51 billion, the third largest ever IPO.

39 4) NTT DoCoMo IPO Size- $18.4 billion Year of issue- 1998 It is predominant mobile phone operator in Japan . The issue was oversubscribed by 3 times. It is largest IPO ever in Japan. It is alo listed at LSE , NYSE, Stock Exchanges. They are having employees more than 21500 in year 2005. Total assets is more than $ 65 billion as of year 2009 .

5) Visa Inc. IPO Size- $17 billion Year of Issue- 2008 Visa Inc.is a global payments technology company headquartered in San Francisco, California. Visa connects consumers, businesses, financial institutions and governments in more than 200 countries and territories, enabling

them to use digital currency instead of cash and checks/cheques. The company facilitates the processing of transactions on behalf of financial institutions and merchants through VisaNet, one of the world¶s most advanced processing networks capable of handling more than 10,000 transactions per second. In 2009, Visa¶s global network processed 62 billion transactions with a total volume of $4.4 trillion.


COMPANY BACKGROUND: Coal India Limited (CIL) is an Indian state-controlled coal company headquartered in Kolkata, West Bengal,India and the world's largest coal miner with revenue exceeding Rs 45,797 Cr or $10.3 billion U.S. (FY2008-09). It was formerly owned entirely by the Union Government of India, under the

administrative control of the Ministry of Coal. It is involved in coal mining and production industry. In 2010, CIL's initial public offering (IPO) got subscribed 15.28 times, collecting a record over Rs 2,40,000 crore (Rs 2,400 billion) ± the highest IPO subscription so far On the first day of its listing on the Sensex, its stock closed 40% higher than IPO price.

HISTORY: Coal India Limited was formed in 1975 as a holding company with five subsidiaries: 

Bharat Coking Coal Limited (BCCL)(Dhanbad, Jharkhand) Central Coalfields Limited (CCL)(Ranchi, Jharkhand) Western Coalfields Limited (WCL) www.westerncoal.gov.in(nagpur region) 41 


Eastern Coalfields Limited (ECL)(Asansol, West Bengal) Central Mine Planning and Design Institute Limited (CMPDIL)(Ranchi, Jharkhand) Indian Institute of Coal Management (IICM)(Ranchi, Jharkhand)

Several years later, three more subsidiaries were added: 

Mahanadi Coalfields Limited (MCL)(Sambalpur) South Eastern Coalfields Limited (SECL)(Bilaspur) North Eastern Coalfields Limited (NECL)(directly under control of coal india limited) Northern Coalfields Limited, Singrauli (NCL,Singrauli)

KEY MANAGEMENT: 1)MR. Partha S. Bhattacharyya ± Chairman

Mr. Partha S. Bhattacharyya, aged 59 years, is the Chairman and Managing Director of Company. Mr. Bhattacharyya holds a post graduate degree in physics from Jadavpur University, Kolkata, and a diploma in finance from ICFAI University, Hyderabad. He is also a Fellow of the Institute of Cost and Works Accountants of India and the World Academy of Productivity Science. Mr. Bhattacharyya joined our Company as a management trainee in 1977 and since then has handled various assignments in our Company and in our Subsidiaries. 2) MR. A. K .Shina ± Finance Mr. A.K. Sinha, aged 57 years, is the Director (Finance) of Company. Mr. Sinha graduated with honours in physics from Belur Ramakrishna Vidyamandir, Calcutta University in 1971 and became a member of the Institute of Chartered Accountants of India in 1977. He has also obtained a bachelor¶s degree in law from Calcutta University in 1976. Mr. Sinha has over three decades of experience as a finance executive in the mining industry. 42 3) MR. N.C. Jha ± Technical Mr. N.C. Jha, aged 58 years, is the Director (Technical) of Company. Mr. Jha holds a bachelor¶s degree and a master¶s degree in mining engineering from the Indian School of Mines, Dhanbad, and has also received the First Class Mine Manager's Certificate of Competency (Coal). Mr. Jha joined BCCL in 1975 and subsequently was associated with CMPDIL for 25 years.

4) A.K. Sarkar- Marketing Dr. A.K. Sarkar, aged 59 years, is the Director (Marketing) of Company. Dr. Sarkar holds a post graduate degree and a doctorate in physics from Calcutta University. Dr. Sarkar joined our Company as a management trainee in 1977 and since then has held various positions in our Company and in our Subsidiaries. From 1994 to 2004, Dr. Sarkar was a chief finance manager in Company and played a crucial role in our Company obtaining USD 1.03 billion multi currency sectoral loan from the World Bank and the Japanese Bank of International

Cooperation, and USD 63 million for the Coal Sector Environment and Social Mitigation Project from the International Development Authority.


44 ISSUE DETAILS: PRICE- 225 -245 SIZE- 631,636,440 Equity Shares

SIZE- 14,220 ± 15,459 Crore TYPE- 100% Book Built Issue IPO MARKET LOT ± 25 Shares LISTING AT- BSE AND NSE CRISIL GRADING ± 5/5

COAL INDIA LTD. IPO SUBSCRIBTION: The Coal India IPO was over subscribed 15.3 times and attracted a total demand of more than US$ 27 billion of demand from international investors. Meanwhile the retail offering was oversubscribed 2.1 times and more than 17 lakh retail investors applied for shares of Coal India. This translates into total bids for 45.86 Crore shares worth Rs 11,235 crore in the retail category. Retail investors and High Net Individuals who have applied for Coal India¶ IPO will be allotted shares on a proportional basis. For example, the Coal India IPO was over subscribed two times in the retail segment ( This means that if you have applied for 300 shares, you will qualify to get 150 shares, 300/2). Similarly, an HNI applicant will get only 12 shares on application for 300 shares, as the HNI category was over subscribed by about 25 times. The basis of allotment has not been made public yet. Retail investors will also be entitled to a discount of 5 % and hence the after the retail discount they will get shares alloted at Rs 232.75.

45 Coal India ± 7th most valuable company in India At the upper end of the price band of Rs 245 , Coal India Pvt Ltd will be valued at US$ 35 Billion making it the seventh most valuable company in the country,

behind Reliance Industries, ONGC, State Bank of India, Tata Consultancy Services, Infosys and NTPC.

ANALYST VIEW ON COAL INDIA: It pays huge dividend to be a leader in a growing industry wherein the demand continues to outpace the supply. Coal India supplies 82 percent of the coal required in the country and is considered to be the world¶s largest coal-mining company serves. Considering the company¶s overall position, future prospects and valuations, investors can subscribe to Coal India¶s IPO. STRONG VISIBILITY: According to IIFL Research, the coal shortfall in the country is set to widen from 65 million tone (mt0 in 2009-10 to 155mt by 2012-13 and further to 277mt by 2016-17. This is attributed to India¶s growing demand for coal. Estimates suggest that about 1,08,000 Mw of coal-fired new power generation capacities will be added by the end of 2017, which will require huge amounts of coal. Also, the coal demand from steel, cement and other industries is set to grow, which taken tighter would lead to an over 10 percent growth in the demand over the next five years. Against this, the growth in domestic supply is pegged at only 6-7 percent.


Oftake (mln ton) Blended price Revenues (9rs. Cr) Ebitda(%) Net Profit (rs. Cr) EPS(rs.) ROE(%) E- Estimates

FY09 400 962 41,094 16.1 4065 6.4 22.4

FY10 415 1070 47,723 27.4 9832 15.6 43.8

FY11E 460 1101 53,234 29.0 11,222 17.8 37.5

FY12E 478 1160 58,515 27.7 11,755 18.6 30.9

FY13E 503 1215 64,544 29.1 13,971 22.1 29.6


COMPOUNDING FACTOR: Considering its position in the industry and large coal reserves , which could last for over 100 years , Coal India is best placed to harness the emerging opportunities. First, with the commissioning of 25 ongoing projects, the company is targeting 6 percent annual growth in production to 487mt by 2011-12 as compared to 431mt in 2009-10. Second, a majority of its coal is sold at notified prices, which are significantly lower (almost 60 percent) compared with the international benchmark prices. This not only provides the company revenue stability, but also gives it the leeway to consistently increase its prices every year. Notably, the company also started to sell part of its coal production about 11.4 percent in 2010-11 throughe-auction route , which yields higher prices. 47 VALUATIONS:

Considering its track record, healthy prospects and enviable financials, including high operating margins 27 per cent, return on equity 44 per cent, large free cash flow and virtually zero debt status, Coal India is among the well managed companies in the country. In fact, owing to the very marginal capex requirement, it has accumulated cash and has a bank balance of 39,000 crore in the books, which it plans to use for buying coal assets in international markets. Strong cash flow will pay good dividends. Meanwhile, analyst value the company near rs.300-345 per share. At the upper end of the price band of rs.245, the issue is priced at 14 times its 2010-11estimated earnings and 13 times the 2011-12 earnings, which is reasonable considering the company¶s overall position in its business.


Coal India IPO listed,on November, 4, 2010 and the first day of trading in Mumbai saw a heavy influx of investors who seek to buy the stock that climbed as much as 33%. Coal India Ltd. is expected to open 18% higher on its first day of trading in Mumbai. Investor seeks to buy stocks 15 times the shares offered in the country¶s largest initial public sale. The shares of Coal India Ltd. reflect a strong demand on its first day itself and the market sees the shares trading at Rs. 337 against the IPO price which was Rs. 245 giving it a clear rise of 33%. Coal India IPO Allotment was oversubscribed by 15 times on the first day of opening and Indian Government raise more than 151 billion rupees after offering 10% stake in the company at the top end of Rs 225 to Rs 245 indicative range. Coal India Ltd. is world¶s largest coal company and the biggest corporate employer in India. Investor are interested to invest in a company that has world¶s largest extractable coal reserves with more than 22 billion tomes which is ahead of world¶s largest private sector miner, Peabody Energy of the US and China¶s Shenhua Energy. The initial offer in Coal India Ltd. placed the company in 7th place among India¶s listed companies with a value of 35 billion dollars. The company expects a net profit jump by 25% in the fiscal year to March 31, 2011 and raise 400 billion rupees from state sector. Partha Bhattacharya, Chairman Coal India Ltd., in a news conference in Mumbai on October 13, 2010 has said that Coal India has earmarked Rs. 46 billion as capital expenditure for the next fiscal year which begins in April 2011. Shares of Coal India zoomed nearly 40% on debut on the bourses on Thursday, fuelled by huge foreign investor interest on the back of quantitative easing in the US and unmet demand. The spectacular listing left investors wealthier by Rs6,476.64 crore. Retail investors who had sought the maximum 408 shares were allotted a maximum 200 at a 5% discount, at Rs232.75.By the end of trading, they had earned nearly Rs22,000. The state-owned coal producer raised a whopping Rs15,147.43 crore from sale of 10% government equity, making it the country¶s biggest initial public offer to date. The issue was oversubscribed14.28 times. 49





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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 offerings drew predictions calamitous effects on the secondary markets, the opinion 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. 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 oversubscribtions. Next, most recent IPO¶s have resulted in gains on listing for the investors like Coal India Ltd. And others . Investors have made good profit on first day of listing almost 33% returns. The future of IPO market is very bright, Public sector are coming with more issues this year and FPO .


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