FORE School of Management, New Delhi

Post Graduate Diploma in Management (FMG-29 & IMG-14 & FM-03)

Mid-Term Examination Term 4 (Academic Year: 2021-2022)
Course Name: Investment Banking

Time: 1 ½ Hours Max Marks: 100

Instructions: a. This question paper contains 3 Pages

b. Possession and use of cell phone is prohibited
c. Only Non-Programmable calculator can be used
d. Be brief and to the point in the response
e. State assumptions made, if any
f. Answer all questions
g. Marks are indicated in the right hand parenthesis against
each question.

Q1) Jethalal Sons Pvt. Ltd is considering raising money through a new issue offer in
the year 2021. They have appointed you as their lead manager. You will advise and
prepare Jethalal Sons for the IPO. You prefer relative valuation over DCF, and you
adopt a relative valuation approach for pricing the IPO. The firm's financial information
for the year 2021 and its competitor is given in the below table. All the numbers are in
Crores.

Firm Jethalal Sons Tiwari ji & B&H H2SO4 HNO3

pvt. ltd Sons
Cash & Cash 4.50 233.37 388.91 126.04 6.85
Equivalents
Total Assets 314.80 5,525.36 1,685.54 847.50 151.48
Total Debt 118.00 2,072.65 - 47.50 2.02

Total Shareholders' 166.00 2,901.82 1,650.10 792.45 1,543.42

Equity
No of Outstanding 2.01* 36.25 4.95 5.11 10.28
Shares

Revenue 306.30 4,506.80 1,258.44 1,249.39 980.10

Cost of Goods Sold 234.66 3,080.96 831.40 824.12 629.20
Depreciation and 6.70 172.64 40.67 29.06 42.91
Amortization
Interest Expense 4.20 121.55 - 6.33 0.95
Tax Expense 8.50 104.50 118.60 104.14 58.47
Share price 873.35 3,799.25 3,696.65 2,028.20
*Pre Issue no of shares
The EPS of Jethalal Sons for the last two years is given below
2019 2020
EPS 18.81 10.23
 FORE School of Management, New Delhi
Post Graduate Diploma in Management (FMG-29 & IMG-14 & FM-03)
Mid-Term Examination Term 4 (Academic Year: 2021-2022)
Course Name: Investment Banking

Time: 1 ½ Hours Max Marks: 100

Instructions: a. This question paper contains 3 Pages

b. Possession and use of cell phone is prohibited
c. Only Non-Programmable calculator can be used
d. Be brief and to the point in the response
e. State assumptions made, if any
f. Answer all questions
g. Marks are indicated in the right hand parenthesis against
each question.

a) Suggest a price band on the IPO of Jethalal Sons Pvt. Ltd based on the following
multiples. (15 Marks)
 I. P/E ratio/
II. EV/EBITDA
III. P/BV
b) How is the issue price determined under the book building method? Explain it
using an example. Also, explain the difference between Dutch auction and
French auction.
c) Instavalue Ltd. is a major company in the online game which is operating for
the last five years. As the Company is still in its initial years, its P&L is irregular.
The Company made profits in years 1, 3 and 5 and losses in years 2 and 4. The
Company's present net worth is ₹12 crore. The Company is proposing to come
out with a premium IPO aggregating to ₹75 crores. Please explain how the
Company can raise money through IPO.
(5+5 = 10 Marks)

Q2) Akshay Twinkle Ltd., incorporated on January 1st, 2015, has been a profitable
firm in the last three years. The Company now wishes to make a public offer of 5,00,000
shares. After roadshows, the lead underwriter assesses that the issue could be sold to
investors at ₹10 per share. Accordingly, the Company has issued a prospectus inviting
applications for 5,00,000 equity shares of ₹10 each at par aggregating ₹50,00,000. The
whole issue has been underwritten fully by four underwriters IBS, IDCI, BDFC, and
MAC, to the extent of ₹20,00,000, ₹15,00,000, ₹10,00,000, and ₹5,00,000,
respectively. The issue has been closed, and valid applications have been received for
₹45,00,000, out of which applications received through underwriters IBS, IDCI, BDFC,
and MAC are ₹22,00,000, ₹9,00,000, ₹11,00,000, and ₹1,00,000 respectively. The
underwriters are paid a commission of 3.0% on subscriptions received and 2.5% on
devolvement.
a) You are required to find out individual underwriters' devolvement and the
commission receivable by each of them.
b) Underwriting is compulsory in book-built offers to the extent of the Net Public
Offer (NPO). Explain the statement in light of the varying eligibility conditions
of the issuer company.
(20+5 = 25 Marks)
Q3) XTRON limited hires your investment bank (EASY Bank) for advisory on use
of profits. You as an analyst find that there is overcapacity in the industry as of now
and no projects with positive NPV are available for investment. You advise XTRON
limited to go for share buyback. XTRON limited has the following financials as per the
recent audited balance sheet.

Particulars Amount in Rs.

Paid-up equity capital 300000
(15000 shares of Rs. 20/- each)
Reserve and surplus:
General reserve 400000
Securities premium account 1200000
Capital redemption reserve account 300000
Profit and loss account 150000
Debenture redemption reserve 180000
Total Debt 3500000

The Company's current EPS is Rs. 40, and the market price is Rs. 60. The Company
earned a profit after tax of Rs. 6 lakh for the relevant financial year.
Based on the above information, keeping in view the norms of quantum of buyback and
the pricing principle: (5+10+5=20 Marks)

(a) What can be the maximum buyout price of this buyout offer as per regulatory norms?
(b) Keeping in view the debt/equity ratio norms of 2:1 for buyback, calculate the offer
price for this buyback if maximum possible number of shares are to be bought back.

(c) What can be a possible buyback price range?

Q4) Discuss in details the following points

(10+10+10=30 Marks)
a. Explain the exit process available to a private equity fund.
b. Discuss various ways through which a private investor can invest in a listed
company.
c. Explain various types of bonds available for raising money in domestic as well
as foreign markets.