1. Executive summery

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 OFFERING” 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.

Some overview about BSE.

IPO with BSE.

Discussed about Investments in IPOs in the Indian capital market.

Covered the latest IPO snowman logistics ltd.

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2. Industry Profile

Indian capital market

A capital market is a market for securities (debt or equity), where business enterprises

(companies) and government can raise long term funds. It is defined as a market in which

money is provided for periods longer than a year, as the raising of short-term funds takes

place on other markets e.g. the money market and . The capital market includes the stock

market (equity securities) and the bond market (debt).

Financial regulators:

Reserve bank of India (RBI)

Securities and exchange board of India (SEBI)

Forward markets commission (India) (FMC)

Insurance regulatory and development authority (IRDA)

The capital markets in their designated jurisdictions to ensure

that investors are protected against fraud, among other duties. Capital markets may be

classified as primary markets and secondary markets. In primary markets, new stock or bond

issue are sold to investors via a mechanism known as underwriting. In the secondary markets,

existing securities are sold and bought among investors or traders, usually on a securities

exchange, over-the-counter, or elsewhere.

There are 22 stocks exchanges in India. Over the last few years, there has been

a rapid change in the Indian securities market, especially in the secondary market. Advanced

technology and online based transactions have modernized the stock exchanges. In terms of

the number of companies listed and total market capitalization, the Indian equity markets is

considered large relative to the country’s stage of economic development. The number of

listed companies increased from 5968 in March 1990 to about 10000 by May 1998 and

market, however, is almost nonexistent in India even though there has been a large volume of

government bonds traded.

Banks and financial institutions have been holding a substantial part of these bonds as

statutory liquidity requirement (SLR). A primary auctions market for government securities

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has been created and a primary dealer system was introduced in 1995. There are seven

authorized primary dealers. Currently, there are 31 mutual funds, out of which 21 are in

private sector. Mutual funds were opened to the private sector in 1992. Earlier, in 1987,

banks were allowed to enter this business, breaking the monopoly of the unit trust of India

(UTI), which maintains a dominant position. Before 1992, many factors obstructed the

expansion of equity trading. Fresh capital issues were controlled through the capital issues

control act. Trading practices were not transparent, and there was a large amount of insider

trading. Recognizing the importance of increasing investor protection, several measures were

enacted to improve the fairness of the capital market

Securities and exchange board of India (SEBI)

The securities and exchange board of India was established on April 12,1992 in accordance

with the provisions of the securities and exchange board of India describes the basic functions

of the securities and exchange board of India as

“… To protect the interests of investors in securities and to promote the

development of, and to regulate the securities market and for matters connected there with or

incidental thereto.”

Establishment and incorporation of board.

1. With effect from such date as the central government may, by notification, appoint,

there shall be established, for the purpose of this act, a board by the name of the

securities and exchange board of India

2. The board shall be a body corporate by the name aforesaid, having perpetual

succession and a common seal, with power subject to the provisions of this act, to

acquire, hold and dispose of property, both movable and immovable, and to contract,

and shall, by the said name, sure or be sued.

3. The head office of the board shall be at Bombay.

4. The board may establish offices at other places in India.

Management of the board.

1. The board shall consist of the following members, namely:

a. A chairman;

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b. Two members from amongst the officials of the 1[5][ministry] of the central

government dealing with finance 2[6][and administration of the companies act,

1956 ( 1 of 1956 )];

c. One member from amongst the officials of 3[7][the reserve bank];

d. Five other members of whom at least three shall be the whole time members to be

appointed by the central government.

2. The general superintendence, direction and management of the affairs of the board

shall vest in a board of members, which may exercise all powers and do all acts and

things which may be exercised or done by the board.

3. Save as otherwise determined by regulation, the chairman shall also have powers of

general superintendence and direction of the affairs of the board and may also

exercise all powers and do all acts things which may be exercised or done by the

board.

4. The chairman and members referred to in clauses (a) and (b) of sub section(1) shall be

appointed by the central government and the members referred to in clauses (b) and

(c) of that sub-section shall be nominated by the central government and the 4[9]

[reserve bank] respectively.

5. The chairman and the other members referred to in clauses (a) and (b) of sub-section

(1) shall be persons of ability, integrity and standing who have shown capacity in

dealing with problems relating to securities market or have special knowledge or

experience of law, finance, economics, accountancy, administration or in any other

discipline which, in the opinion of central government, shall be useful to the board.

In the primary market securities are issued to the public and the proceeds go to the

issuing company. Secondary market is term used for stock exchanges, where stocks

are bought and sold after they are issued to the public.

Primary market

The first time that a company’s shares are issued to the public, it is by a process called the

initial public offering (IPO). In an IPO the company offloads a certain percentages of its total

shares to the public at a certain price.

Most IPO’s these bays do not have a fixed offer price. Instead they follow a method called

BOOK BUILDIN PROCESS, where the offer price is placed in band or a range with the

highestandthe lowest value (refer to the newspaper clipping on the page). The public can bid

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for the shares at any price in the band specified. Once the bids come in, the company

evaluates all the bids and decides on an offer price in that range. After the offer price is fixed,

the company allots its shares to the people who had applied for its shares or returns them their

money.

Secondary market:

Once the offer price is fixed and the shares are issued to the people, stock exchanges facilitate

the trading of shares for the general public. Once a sock is listed on an exchange, people can

start trading in its shares. In a stock exchange the existing shareholders sell their shares to

anyone who is willing to buy them at a price agreeable to both parties. Individuals cannot buy

or sell shares in stock exchange directly; they have to execute their transaction through

authorized members of the stock exchange who are also called stock brokers.

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3. Company Profile

Bombay stock exchange ltd.

The Bombay Stock Exchange is the oldest exchange in Asia. It traces its history to 1855,

when four Gujarati and one Parsi stockbroker would gather under banyan trees in front of

Mumbai's Town Hall. The location of these meetings changed many times as the number of

brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in

1875 became an official organization known as "The Native Share & Stock Brokers

Association". Over the past 135 years, BSE has facilitated the growth of the Indian corporate

sector by providing it with an efficient capital raising platform.

Today, BSE is the world’s number 1 exchange in the world in terms of the number of listed

companies (over 5467). It is the world’s 5th most active in terms of number of transaction

handled through its electronic trading system. And it is in the top ten of global exchange in

terms of the market capitalization of its listed companies. The companies listed on BSE

command a total market capitalization of 95,00,304 rs. Cr. as on Sep 2014.

BSE is the first exchange in India and the second in the world to obtain as ISO 9001:2000

certifications. It is also the first exchange in the country and second in the world to receive

information security management system standard BS 7799-2-2002 certification for its BSE

on-line trading system (BOLT). Presently, we are ISO 2001:2005 certified, which is an ISO

version of BS 7799 for information security.

The BSE index, SENSEX, is India’s first and most popular stock market benchmark

index. Exchange traded funds (ETF) on Sensex, are listed on BSE and in Hong Kong. Futures

and options on the index are also traded at BSE.

Management team

No. Name Designation

1 Ashish Chauhan Managing director & chief executive

officer

2 Mr. Balasubramaniam V Chief business officer

3 Mr. Nehal Vora Chief regulatory officer

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4 Mr. Kersi Tavadia Chief information officer

5 Mr. Nayan Mehta Chief financial officer

6 Dr. Sayee Srinivasan Head- product strategy

7 Lakshman Gugulothu, CEO- SME exchanges

Vision

“Emerge as the premier Indian stock exchange be establishing global benchmarks”

Logo

The stock exchange, Mumbai is now BSE limited a new name and an entirely new

perspective… a perspective born out of corporatization. As a corporate entity, our new logo

reflects our new mission… smoother, seamless, and efficient, whichever way you look at it.

BSE is oldest stock exchange… carrying the depth of knowledge of capital markets acquired

since its inception in 1875. Located in Mumbai, the financial capital of India, BSE has been

the backbone of the country’s capital markets

Technology

BSE places a great deal of emphasis on information technology for its operations

performance. The operations &trading department at BSE continuously upgrades the

hardware, software and networking system, thus enabling BSE to enhance the quality and

standards of service provided to its members, investors and other market intermediaries.BSE

strictly adheres to IS security

Policies and procedures for its day to day operations on 24*7 basis which has enabled it to

achieve the BS7799 certification and the subsequent ISO 2001 certification. In addition, BSE

has also been successful in maintain system and processes uptime of 99.99%

BOLT: to facilitate smooth transactions, BSE had replaced its open outcry system with the

BSE online trading (BOLT) facility in 1995. This totally automated, screen based trading in

securities was put into practice nationwide within a record time of just 50 days. BOLT has

been certified by DNV for conforming to ISO 2001:2005 security standards. The capacity of

the BOLT platform stands presently enhanced to 80 lakh orders per day.

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BSEwebx.co.in : BSE hasalso introduced the world’s first centralized exchange based

internet trading system, BSEWEBx.co.in the initiative enables investors anywhere in the

world to trade on BSE platform.

Bseindia.com: BSE’s websites www.bseindia .com provides comprehensive information on

the stock market. It is one of the most popular financial websites in India and is regularly

visited by financial organizations and other stakeholders for updates.

Other technology-based initiatives

BSE, along with is strategic partners, have put into place several critical processes/systems

such as

Derivatives trading & settlement system (DTSS)

Electronic contract notes (ECN)

Unique client code registration (UCC)

Real-time data dissemination system

Integrated back office system CDB/IDB

Book building system (BBS)

Reverse book building system (RBBS)

Debt market

Directors database

A large private network

BSE operates a large private network in India. The network uses following segments to cater

to market intermediaries:

BSE’s campus LAN : connects market participant offices across 20 floors of BSE

campus to BSE system. BSE campus comprises of 3 BSE buildings p.j. towers,

rotunda and cama building.

BSE WAN : TDM/MPLS lines from different services providers cater to connectivity

requirements of market participants across the country. Wires/ wireless media is used.

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VSATs : satellite based communication system servers the connectivity requirements

of market participants in remote areas. Services are provided through BSEs satellite

communication Hub in Mumbai.

BSE uses higher-end, fault tolerant systems for its trading and related functionalities. It uses

integrity nonstop NS16000 and S88000 systems for its online trading systems (BOLT). The

systems have been designed to deliver the best performance without compromising on key

factors of availability, scalability, ROI and TCO.

RISC based UNIXserver’s ro8420 from HP: for our derivatives, settlement, back office, data

feed, BBS, RBBS and other systems related to trading and related functionalities. The

systems are facilitated by the use of the robust and high available storage subsystems from

HP. Intel blade servers running on macro soft platform are used for the internet based trading

system (ITC) enabling the end users to carry out the trading activates from any location

facilitated by the internet.

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4. Product Profile

Introduction

An initial public offering (IPO) occurs when a security is sold to the general public for the

first time, with the expectation that a liquid market will develop. Although an IPO can be of

any debt or equity security, this article will focus on equity issues by operating companies.

Most companies start out by raising equity capital from a small number of investors, with no

liquid market existing if these investors wish to sell their stock. If a company prospers and

needs additional equity capital, at some point the firm generally finds it desirable to "go

public" by selling stock to a large number of diversified investors. Once the stock is publicly

traded, this enhanced liquidity allows the company to raise capital on more favorable terms

than if it had to compensate investors for the lack of liquidity associated with a privately-held

company. Existing shareholders can sell their shares in open-market transactions. With these

benefits, however, come costs. In particular, there are certain ongoing costs associated with

the need to supply information on a regular basis to investors and regulators for publicly-

traded firms. Furthermore, there are substantial one-time costs associated with initial public

offerings that can be categorized as direct and indirect costs. The direct costs include the

legal, auditing, and underwriting fees.

The indirect costs are the management time and effort devoted to conducting the offering,

and the dilution associated with selling shares at an offering price that is, on average, below

the price prevailing in the market shortly after the IPO. These direct and indirect costs affect

the cost of capital for firms going public.

Firms going public, especially young growth firms, face a market that is subject to sharp

swings in valuations. The fact that the issuing firm is subject to the whims of the market

makes the IPO process a high-stress period for entrepreneurs. Because initial public offerings

involve the sale of securities in closely-held firms in which some of the existing shareholders

may possess non-public information, some of the classic problems caused by asymmetric

information may be present. In addition to the adverse selection problems that can arise when

firms have a choice of when and if to go public, a further problem is that the underlying value

of the firm is affected by the actions that the managers can undertake.

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This moral hazard problem must also be dealt with by the market. This article describes some

of the mechanisms that are used in practice to overcome the problems created by information

asymmetries. In addition, evidence is presented on three patterns associated with IPOs: (i)

new issues underpricing, (ii) cycles in the extent of underpricing, and (iii) long-run

underperformance

IPO market in India

The IPO market in india has been developing since the liberalization of the indian economy.

It has become one of the foremost methods of raising funds for various development projects

of different companies. The ipo market in india is on the boom as more and more companies

are issuing equity shares in the capital market. With the introduction of the open market

economy, in the 1990s the IPO market went through its shre policy changes, reforms and

restructrings. One of the most important developments was the disassembling of the

controller of capital issues (CCI) and the introduction of of the free pricing mechanism. This

step heleped in developing the IPO market in india, as the companies were pwrmiited to price

the issues. The free pricing mechanism permitted the companies to raise funds from the

primary market at cometitive price.

The central government felt the need for a governed environment perttaing to the

capital market, as few corporate houses were using the abolition of the controller of capital

isssues (CCI) in negative manner. The securites exchange board of India (SEBI) was

wstablisted in the year 1992 to regulate the capital market. SEBI was given the authority of

monitoring and regulating the activites of the bankers to an issue, portfolio mangers,

stockbrokers, and other intermediaries related to the stock markets. The effects of the changes

are evident from the trend of the resources of the primary capital market which includes

rights issues, public issues, private placements and iverseas isssues. The IPO market in India

experienced a boom in its activites in the year 1994. In the year 1995 the growth of the indian

IPO market was 32%. The growth was halted with the south east asian crisis. The markets

picked up speed again with the introduction of the software stocks.

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Why an IPO?

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.

Being on a major stock exchange carries a considerable amount of prestige. In the past, only

private companies with strong fundamentals could qualify for an IPO and it wasn't easy to get

listed. 

The internet boom changed all this. Firms no longer needed strong financials and a solid

history to go public. Instead, IPOs were done by smaller startups seeking to expand their

businesses. There's nothing wrong with wanting to expand, but most of these firms had never

made a profit and didn't plan on being profitable any time soon.

Founded on venture funding, they spent like Texans trying to generate enough excitement to

make it to the market before burning through all their cash. In cases like this, companies

might be suspected of doing an IPO just to make the founders rich. This is known as an exit,

implying that there's no desire to stick around and create value for shareholders. The IPO

then becomes the end of the road rather than the beginning. 

How can this happen? Remember: an IPO is just selling stock. It's all about the sales job. If

you can convince people to buy stock in your company, you can raise a lot of money. 

Once a company is listed, it is able to issue additional common shares in a number of

different ways, one of which is the follow-on offering. This method provides capital for

various corporate purposes through the issuance of equity (see stock dilution) without

incurring any debt. This ability to quickly raise potentially large amounts of capital from the

marketplace is a key reason many companies seek to go public.

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Advantages of IPO

More Capital: A company can raise huge amount of funds to finance its capex

programs like expansion, modernization, diversification, etc. as well as working

capital requirements.

Zero Cost of Capital: Company is not required to pay interest on capital raised from

the public. There is no need of repayment of capital as well except on winding up of

company where it has to pay the residual amount after it pays all other creditors like

bank loans, debentures, preferential shares etc.

Easy to raise new capital: It is difficult for private companies to raise capital. By

going public, raising capital becomes comparatively easier task.

Pricing and Valuations: Commands better pricing than placement with private

investors. Enables correct valuation for the company because share price is a true

reflection of the financial soundness of a company and it would aid in case company

wants to opt for mergers and acquisitions.

Owner Diversification: Most of the funds of the founders are blocked in the firm till

the firm grows and becomes more valuable. By means of IPO, they can sell some

stake to diversify their holdings and can reduce the risk of their personal portfolios.

Brand Image: It increases the visibility and reputation of the company and thereby

enhances the brand image of the company.

Increased Liquidity: The shares when get listed on the stock exchange, can be easily

traded, providing more liquidity.

Employee Prestige and Retention: Employee pride and confidence in the company

may increase. Company can attract as well as retain employees by offering them

equity incentives like stock options/stock purchase plans.

Enlarging and diversifying equity base

Enabling cheaper access to capital

Facilitating acquisitions (potentially in return for shares of stock)

Creating multiple financing opportunities: equity, convertible debt, cheaper bank

loans, etc.

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Disadvantages of IPO

Dilution of control: Dilution of ownership stake makes company vulnerable for

future takeovers.

Time consuming and expensive: Takes substantial amount of management time and

efforts. It involves very high expenses like that of underwriter, lead

manager, investment banker, etc.

Regulations: Increased regulatory monitoring to ensure that firm is making filings

along with relevant disclosures.

Accountability: It is accountable to investors and cost of maintaining investor

relations are high.

Disclosures: The Company is subject to disclosure of information from time to time

and maintaining secrecy over expansion plans/market strategies becomes difficult.

Meaningful time, effort and attention required of senior management

Risk that required funding will not be raised

Public dissemination of information which may be useful to competitors, suppliers

and customers.

Loss of control and stronger agency problems due to new shareholders.

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5. INVESTMENTS IN IPOS IN THE INDIAN CAPITAL MARKET

The existence of the phenomenon of “underpricing” is a well-established fact for the common

stock initial public offerings (IPOs). Research concerning the primary capital market is found

to be unequivocal in its conclusion that initial public offerings are offered at a discount. It has

been found that an average firm goes public with an offer price that is lower than the price

that prevails in the immediate aftermarket. As a result, IPOs register significant excess

returns on the first day of trading. Underpricing is a phenomenon that is largely restricted to

the opening transaction. And hence, the underpricing is almost entirely “corrected” by the

market at the opening transaction.

A worldwide survey of literature on the phenomenon of Underpricing of IPOs exhibit three

fundamental characteristics: (a) the initial price reaction phenomenon or in otherwords

‘underpricing’: the immediate after market price, on average is significantly higher than price

at which the initial offer was made; (b) the Hot Issue Phenomenon: there are distinct cycles

outlined, both in the number of issues that come to the market and the level of initial price

reactions; (c) the long-run “Underperformance” phenomenon: initial offers are said to

perform dismally in the long-run compared to the industry counterparts for the same period.

Extent of underpricing: International Evidence

Country Period Sample Size Performance (%)

Australia 1966-78 93 29.2

Germany 1977-87 97 21.5

UK 1980-88 712 14.3

USA 1975-84 1526 14.3

Malaysia 1978-83 21 166.7

Singapore 1978-83 39 39.4

Studies on the Indian capital market also confirm the phenomenon of underpricing of IPOs.

Most of the Studies on the Indian primary market concerning the phenomenon of

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‘underpricing’ are found to be in the post-liberalization period i.e. after the abolition of the

CCI. The initial excess returns on IPOs in the Indian primary capital market are very high as

compared to the experience of the capital markets of countries abroad.

Phenomenon of Underpricing: Indian Scene

Studies Period Sample Size Performance (%)

Narasimhan&

Ramana (1995)

1993-94 103

92.16* 80.79**

S Uma (1995) 1991-93 495 127.11

Madhusoodon&

Thiripalraju (1997)

1992-95 1922 75.21

48.23* 85.75**

Baral&

Obaidullah(1998)

1994-95 433 153.173

Ajay Shah (1995) 1991-95 2056 105.6

Significant Developments in IPO Markets

The world financial markets (USA & UK) have come a long way. In the US markets, the IPO

market has grown manifold in number and volume. The NYSE and the AMEX did not allow

for transactions in equity securities of small companies. Smaller companies, that naturally

imply smaller trading volumes, led to the development of a separate market to foster dealing

of securities of these companies. The NASD, therefore, established the market for securities

in the year 1971. There was demand for capital from the high growth-high risk medium sized

companies. The expansion of the market for IPOs indicates that this expectation has, by and

large, been fulfilled.

In the UK capital market, the ‘Big Bang’ (1985) constituted a fundamental revolution for the

LSE. Post ‘Big Bang’, the daily turnover in equities almost doubled in value and in volume of

transactions; the average rates of commission came down for almost all clients, particularly

for institutional investors; though, for small deals, the small investor lost out.

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The Big Bang brought about fundamental changes on the securities market, changing every

aspect of the market: the participants, the transactions, and the competition factor and of

course, the gains.

The initiation of the process of reform in India also would not have been possible without

changes in the regulatory framework. The New Economic policy (1991) led to a major

change in the regulatory framework of the capital market in India. The Capital Issues

(Control) Act 1947 was repealed and the Office of the Controller of Capital Issues (CCI)was

abolished. The Securities and Exchange Board of India (SEBI), established in 1988 and

armed with statutory powers in 1992, came to be established as the regulatory body with the

necessary authority and powers to regulate and reform the capital market. The Controller of

Capital Issues (CCI) has been the regulatory body for the Indian capital market for over fifty

years. The CCI has had a strong control over the Indian capital market as a regulatory

authority. A guideline for issue of capital and pricing of securities has been rigid. SEBI came

to be recognized as a regulatory body for the capital market after the abolition of the CCI.

The control on pricing of capital issue has been abolished and easy access is provided to the

capital market. The objectives of the SEBI are: (i) to protect the interest of the investors (ii) to

promote and develop the capital market and (iii) to regulate the securities market. SEBI is set

up on the lines of the SEC in the US and the SIB in the UK. The SEBI has taken over all the

functions of the Office of the Controller of Capital Issues.

This paper aims (1) to look at the behavior of IPOs in the primary capital market in the pre

and post Liberalization Era: (a) extent of underpricing during the CCI & SEBI times and (b)

the influence on returns considering various factors such as Issue Size, Age, Foreign Equity,

Issue Rating, and Issued Capital. (2) To assess the long-run performance of IPOs for a period

of five years after listing & Performance of IPO vis-à-vis Stock Index & Industry Index.

Phenomenon of Underpricing. A sample of 1597 companies having made an Initial Public

Offer (IPOs) during 1989 to 1995 and listed at the Bombay Stock Exchange form the data set

for the analysis. Out of the 1597 IPOs offered and listed for the period 1989-1995 considered

here, 72 issues were fairly priced (zero returns on listing); 157 were overpriced (negative

returns on listing) and a total of 1368 were underpriced (positive returns on listing).

Considering the Net Return (Em), 1268 out of the total 1597 IPOs registered positive return

on the stock index whereas 259 IPOs registered negative returns.

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Initial returns on IPOs are found on an average to be quite high. Return on listing for the total

sample (1597) is found to be 94%. Return on listing for the trimmed sample (2% of the

highest and lowest observations) falls down to 81%. This is an attempt to limit the sensitivity

of the extreme observations.

Performance Year-wise (1989-1995): a return on listing, as high as 287%, is registered for

year 1991 and as low as 26.6% for the year 1995. Year 1992 and 1991 show higher returns on

listing at 112.9% and 104.7%. For the years 1993, 1989 and 1994, the return on listing are

98.4%, 89.66% and 88.1% respectively, much on par with the one registered for the overall

sample of 94%. For the years 1989, 1990, 1991, 1993 and 1994, the return on listing and

issue price are found to be statistically independent. For the years 1992 and 1995, the relation

between return on listing and issue price is found to be statistically significant (.05 level).

Par v/s Premium Issues: Issues at par are seen to perform better than issues at premium.

Return on listing is as high as 105% for issues at par as against 60.32% for premium issues.

Issues at par outperform (Z-test) the issues offered at premium. The results are found to be

statistically significant (.01level).

Behavior of IPOs in the pre and post Liberalization era

The overall sample comprises of 187 IPOs for the period April 1989- April 1992 (CCI

period) & 1410 IPOs for the period April 1992 to April 1995 (SEBI period). There is a

significant fall in the initial excess return registered by IPOs during the CCI times and the

SEBI regime now. IPOs during the CCI period registered a very high return on listing - 202%

as against 80.53% during the SEBI period. The level of underpricing has been very high

during CCI times in comparison to the SEBI regime. The result is found to be statistically

significant (.01 level).

Behavior of IPOs

Issue Price: A negative relationship exists between return on listing and the issue price i.e.

lower the issue price higher is the return accrued. The relationship is found to be statistically

significant (0.01level). R2 is found to be low. Issue price is one of the factors to influence

return, but it is not the only factor.

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Issue Size: There is a negative relation that exists between return on listing and the issue size.

However, the relationship is found to be statistically significant at 10% level. Return is found

to be higher in case of small-size issues in comparison to large-size issues. There is a gradual

fall in the initial return on listing across issue-size. Initial return on listing is as high as

226.1% for issue-size of less than 1 crores and as low as 36.4% for issue-size more than 50

crores.

Age of the Company: There is a negative relation that exists between return on listing and the

age of the company at the time of issue.

Foreign Equity: A positive relation is established between return on listing and the foreign

equity holding present in the total equity of the company. The relationship is found to be

statistically significant (0.03 level). Return are found to be higher for the companies with

foreign equity holding of 26% & above; and very low in case of the companies with foreign

equity holding of below 26%.

Issue Rating: There is a positive relation that exists between return on listing and the issue

rating for the said initial public offer made by the company. The relationship is found to be

statistically significant (0.01 level). The issue rating assigned to the IPO isfound to

significantly influence the initial return on the IPO. A high rating assigned to the initial public

offer is found to be significantly influence the return on listing.

Issued Capital: There is a negative relation that exists between return on listing and the issued

capital of the company at the time of issue. The relationship is found to be statistically

insignificant.

List Delay: The average time taken for listing is 125 days; almost 68% of the IPOs got listed

within this time frame. The minimum time taken for listing is 11 days while the maximum is

888 days. Listing delay and the return on listing exhibit a negative relation; i.e. less the

amount of time taken to list at the stock exchange, higher is the initial return. The relationship

is found to be statistically significant (0.01 level).

Subsequent events and the long-run Performance of IPOs

Long-Run Performance of IPOs: Return on IPOs decline with the passage of time (long-run).

Raw return for a period from listing up to a period of one year after listing remains to be very

19

high. A fall of almost 67% is registered between the two time periods: at listing and two years

after listing. The fall in the return on listing is very drastic thereafter. Raw return for the

fourth and the fifth year after listing after found to benegative. Daily return for the five-year

period also shows a decrease with the passage of time. Daily returns are negative from the

second year to the fifth year after listing.

Long-Run Performance of IPOs-Par v/s Premium: The issues offered at par continue to

outperform the issues at premium in the long run. Issues at par gave significantly high returns

in comparison to issues at premium. Daily return is found to be higher for issues offered at

par over those offered at premium in all time periods i.e. from listing to the fifth year of

listing. The results are found to be highly significant (0.01 level).

Long-Run Performance of IPOs- Bonus Offer: Issues with bonus register positive returns for

all time periods; while issues without bonus offering register negative returns from the

second to the fifth year of listing. One year after listing to the fifth year, those companies who

went to make a bonus offer subsequently outperformed the rest. The results (Z-test) are

statistically significant (0.01 level).

Long-Run Performance of IPOs- Issue Rating: In the long run, IPOs assigned with a higher

issue rating at the time of offer continue to perform better in comparison to IPOs with a lower

issue rating. The results are found to be significant (at 0.05 levels).

Long-Run Performance of IPOs- Issue Size: Return is found to be higher in case of small-size

issues in comparison to large-size issues. However, returns do show a gradual fall over the

period of time. Daily return is positive across all issue-sizes up to one year of listing;

thereafter, daily return turns negative

Long-Run Performance of IPOs- Foreign Equity: Foreign equity holding in the company is

found to influence the initial return on IPOs. Return falls with the passage of time in case of

both the categories: (i) foreign equity up to 26% and (ii) foreign equity above 26%. Return

turns negative from the second year after listing to the fifth year. Return is found to be higher

for the companies with foreign equity holding of 26% &above and very low in case of

companies with foreign equity holding of below 26%. The results (Z-test) are statistically

significant (0.01level)

20

Long-Run Performance of IPOs- Return on Stock Index: A positive relation exists between

return on listing and return on the stock index. The relationship is found to be statistically

significant (0.01 level). Return on the Stock Index also shows a fall as the time period

increases. Return on the Stock Index however stands to be positive throughout the period

under consideration.

Long-Run Performance of IPOs- Return on Industry Index: There is a positive relation that

exists between return on listing and return on the industry index. The relationship is found to

be statistically significant (0.01 level). Returns across different industries show a fall with the

passage of time. Returns are found to be negative for most industries from the second year

after listing to the fifth year. Returns on Industry Index also show a fall with time. Return on

Industry index is also negative in the second and the third year after listing.

Underpricing, considering both, the short as well as the long term (three year after listing)

view. The extent of underpricing of IPOs (short-run) in the capital market is reported to be

higher than the experiences of other countries. However, in the long run, the study reports

high as positive returns by Indian offerings. Another study by Chandra Shekara Rao

&Chowdary (1999) also considered the long run (two years after listing) performance of 146

IPOs offered at a premium in the Indian Capital market during 1994-96. The returns were

found to be very high in the short-run, whereas, in the long run, the returns were negative.

This study also confirms that in the long run (five-year after listing), there is a drastic fall in

the return on IPOs returns; returns are found to be negative from the second to the fifth year

of listing. This is in confirmation with studies (Ritter, 1991), (Mario Levis, 1993), (Aggarwal

&Rivoli, 1990) on the long-run performance of IPOs abroad. The initial public offerings have

underperformed in the subsequent years, showing negative returns during the three year to

five-year period after issue.

Indian Primary Capital Market-Present Scenario

The year 2002 was to be the year of IPOs once again (Economic Times, May 28, 2002).

Some of the high profile companies like Maruti, Tata Consultancy Services, and Nalco were

to tap the stock market. However, the Primary market is said to be dead at present. IPOs are

no more in fashion. The recessionary trend worldwide, the slowdown of the Indian economy,

excess liquidity situation for commercial banks, lack of demand for capital from corporates,

21

no quality offerings currently available and so on are various reasons cited for the primary

market bearing the desolate look. However, private placements are on a rise. Companies are

all set to raise large amount of funds via the private placement route. The financial

institutions and commercial banks are found to be catering to this demand.

Private placement market has been witnessing the introduction of several debt instruments

such as liquid income debentures subordinated bonds, etc. Unlike public or right issues,

private placements are cost as well as time effective methods of raising funds. They can be

structured to meet the needs of the entrepreneur. At the same time, private placements do not

require detailed compliance of formalities as required in public or right issues. The private

placement market in India can be called a highly informal market. It has not been covered

under the guidelines for disclosure and investor protection as prescribed by SEBI. The

secondary market for the privately placed issues is also said to have remained more-or-less

illiquid. And hence, the healthy development of private placements market calls for

regulatory norms and standards.

The market has come to play a major role in mobilizing resources by the corporate sector.

However, the recent growth of private placements has brought to force the issue of

regulation. The capital market scam (2001) involving Ketan Parekh bringing down

theMadhavpura cooperative bank and the more recent gilt market fiasco with the involvement

of numerous cooperative banks (Home Trade, CEO, Sanjay Agarwal) has drawn attention to

the huge private placement market in India. This could be the next target of unscrupulous

companies and financial operators. And the Government of India is waking up to this reality.

The overall exposure of banks and FIs is considered to be very high in the unregulated private

placement market. This is a cause for concern, for heavy investments have been made in the

privately placed securities market by several provident funds, charitable funds along with

banks and financial institutions. The Ministry of Finance, Government of India, has made the

much-awaited decision to issue guidelines and bring all private placements under the control

of SEBI. (The Economic Time June 4, 2002)

With the primary market said to be dead and IPOs no longer in fashion, the merchant banker

is left with no role to play, as the mainstay has been lead-managing public issues. In the early

nineties, many institutions came in a big way to play the role of merchant bankers, especially

after the abolition of the CCI. Easy norms and easy entry brought in may small and medium-

sized operators. In the Indian context, the perception regarding the role of the merchant

22

bankers has been a confusing one. Pure issue management and underwriting of issues is

construed as the role of the merchant banker. Investment banking is not just issue

management and underwriting; it is taking care of every financial need of the client.

Merchant banking can be said to be in a primitive stage in India. There is a need for depth

and sophistication in the manner in which the merchant banking business is carried out in

India. The change in the regulatory environment has created new avenues for raising capital.

Private placements are also on the rise. The merchant-banking scene is changing. The

merchant bankers still in business and wanting to continue the same should tune themselves

in providing an array of services-debt, commercial borrowings, GDRs, private placement of

debt as well as equity, mergers and acquisitions, project appraisals, advisory services, loan

syndication, etc. There is a need for ideas, innovation, initiative and creativity for keeping

with the changing times and competition. Merchant banking began as an add-on activity at a

non-banking finance or a manufacturing company. It is now important to look at merchant

banking as service-based business.

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6.Trends in IPO

PRIMARY REASONS FOR A COMPANY GOING PUBLIC.

Most people label a public offering 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.

PERFORMANCE IN 90s

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.

1993-96: SUNRISE, SUNSET.

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

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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.

2001-2002-ALMOST CLOSED

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.

2002: QUALITY ON OFFER.

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 attractive.

2003: IPO-IMPROVED PERFORMANCE OVERALL!

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 an 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 offering and the dull debut of Sterlite Group

company Vedanta on the London Stock Exchange.

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It was really MarutiUdyog 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

underpriced 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 repeated.

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

2004: IPOs boomed in this year:

Anyone who invested in the IPO of brokerage firm Indiabulls in September 2004 and is still

holding the shares must be a very happy person. Happy and rich. In the eight months since

the Indiabulls public issue, an investment of Rs.20,000 is now worth almost Rs.1 lakhs,

But Indiabulls' issue was small in size- Rs.52 crore. Therefore, the Rs.200 crore in wealth

created by Indiabulls is dwarfed by the estimated Rs.2,200 crore created by the ONGC public

issue or the Rs.2,000 crore created by the IPO of software giant TCS.

These are the best of times for the primary market in India-for the companies raising funds

through public issue and for people investing in such issues. Between January 2004 and April

2005, close to Rs.40,000 crore was raised through public issues, of which Rs.10,000 crore has

been raised since January 2005. As 25 per cent of all public issues is reserved for retail

26

investors, it would be safe to assume that small investors invested Rs.10,000 crore in public

issues since the beginning of last year.

By any account, 2004 was a bumper year for public issues. In fact, in terms of the total issue

size {Rs 30,511 crore (Rs 305.11 billion)}, it was the highest-ever in the history of the Indian

capital market.

2005:

A look at the performance of the eight IPOs since January 2005, which got listed reveals that

the IPO dream may have turned sour for some investors.

As many as six out of the eight issues were trading at a discount to listing price as on April

20. Further, the premium that IPOs used to attract on listing has been gradually coming down.

Punjab National Bank listed at a mere 2.82 per cent premium to its issue price of Rs 390.

Emami listed at a 7.14 per cent premium while Jaiprakash Hydro listed at the same price it

priced its IPO at Rs 32.

Only two companies - Jet Airways and Gateway Distriparks - currently trade higher than their

listing price. While Jet Airways trades higher by 9.07 per cent and the latter trades higher by

36.61 per cent.

Six companies Dena Bank, UTV Software, Emami, Punjab National Bank, IVRCL

Infrastructure and Jaiprakash Hydro-power have fallen below the price they were listed at the

beginning. PNB, in fact quotes below its issue price.

2006: India 8th largest IPO market in 2006

Stock markets continue to remain a key route for corporate' to raise billions of dollars in

2006, a new study shows.

India's IPO market emerged as the eighth largest with $7.23 billion (Rs 30,000 crore) in net

proceeds through 78 public issues, global research and consultancy firm Ernst & Young said

in its Global IPO report released on Wednesday.

Across the world, the companies raised $246 billion, up from $167 billion in 2005, through a

total of 1,729 IPOs, led by Chinese companies at the top with net proceeds of $56.6 billion.

However, the biggest number of IPOs came from the United States with 187 offerings,

followed by Japan with 185 and China with 175 IPOs.

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Mukesh Ambani group's Reliance Petroleum, which raised $1.8 billion, featured in the global

Top 20 IPOs, which together raised $84 billion, representing 35 per cent of the total capital

raised by all IPOs, the report said.

"India's IPO market has been fairly broad-based in terms of transaction, although energy

companies dominated with more than 50 per cent share of funds raised," it added.

According to the study, India's increasing number of larger deals has been driven by the

growth of Indian corporations and their need for additional capital for potential acquisitions.

2008: Average IPO size up, total number down:

The average size of IPOs rose by nearly half in 2008 over 2007, though the financial

meltdown may have scared away many from the primary capital market, bringing down the

number of IPOs to about one-third, the Economic Survey said.

"After recording strong growth during 2006 and 2007, the primary capital market received a

setback in 2008. The number of new issues declined sharply in 2008 ... the total number of

initial public offers were only 37 in 2008, as against 100 in 2007," the Survey said.

"The amount mobilized by IPOs at Rs 18,393 crore (Rs 183.93 billion) was lower by 45.8 per

cent during 2008, However, the mean IPO size increased from Rs 339 crore (Rs 3.39 billion)

in 2007, to Rs 497 crore (Rs 4.97 billion) in 2008," it said.

Besides the primary market, the Indian business houses' appetite for fresh capital also

decreased in 2008 as the total amount of capital raised by equity issues, including IPO and

rights issues, declined nearly 16 per cent.

“total amount of capital raised through equity issues during 2008 was Rs 49,485 crore (Rs

494.85 billion), recording a decline of 15.7 per cent as compared to the level in 2007," the

Survey said.

2009: Indian IPO market touched 5-year low in 2009

Though the Sensex closed 2009 with a 81 per cent gain thanks to renewed FII inflows in the second half of the year, this recovery in the primary markets did not help capital raising activity. The number of initial public offers (IPOs) issued by companies in 2009 slid to a 5-year low, according to a new report on IPO activity in India.

Despite a surge in the secondary market in response to negative investor sentiments, the IPO market witnessed just 17 issues in 2009 compared to 37 and 103 public issues listed in 2008 and 2007 respectively, according to a report from financial and investor advisory ARC

28

Financial Services. This was a decline of 55 per cent over 2008 and 83 per cent on 2007 levels.In terms of capital proceeds, 2009 raised Rs 15,700 crore from the market — the lowest in the last four years — as compared to Rs 18,500 crore in 2008 and Rs 34,200 crore in 2007. Of the 17 IPO, as many as 15 came in the second half of 2009, garnering Rs 15,650 crore out of the total 2009 proceeds of Rs 15,700 crore, ARC Financial Services directorTapan Jindal said.Thirty per cent of the top 10 IPOs of 2009 were actually from 2008 or 2007, which could not hit the market earlier because of poor investor sentiment, Jindal noted. NHPC, AdaniPower and Cox & Kings waited for more than a year to get listed in 2009, though they received SEBI approval in 2007 or 2008.Energy and power emerged as the hottest sectors of 2009, according to the report. All three IPOs in this sector — OIL India, Indiabulls Power and Adani Power — were oversubscribed more than 21 times. However, the total number of IPOs oversubscribed by more than 10 times in 2008 and 2009 was a mere 25 per cent compared to -50 per cent in 2007.

2010 most exciting year for India's IPO market:

Going public was never as exciting in one calendar year as it was in 2010 for Indian

companies that raised a record Rs 71,100 crore.

The last year of the passing decade, which many Dalal Street pundits term a golden period for public issue activities, would certainly be remembered for setting many records in Indian primary market history.

And if everything goes well with the Indian economy and global markets, the crazy debut saga of India Inc is unlikely to stop here as along with the Centre's ambitious disinvestment plan, there is a big pipeline of papers from private players for the next year, experts say.

"This year (2010) clearly can be termed as a hot period for fund-raising activity through the primary market. This journey is likely to continue with the same pace, if India's growth story does not slows," said Prithvi Haldea, chairman and managing director of Prime Database, which tracks the primary market.

The outlook for new issues seems bullish for the coming period as the government is focusing on modernising country's infrastructure, which would entail large expenditures. The energy sector will support manufacturing growth and emergence of retail as a new consumer class will also boost the activity, market experts say.

"Though it is very difficult to forecast the mood of stock market, going public activity is unlikely to slow in coming months here as India is one of the best performing markets globally and is blessed with strong economic fundamentals," said Yogesh Kapoor, managing director for North India (investment banking) at Enam Securities Private Ltd. According to Prime Database, nearly Rs 60,876 crore of funds are proposed to be raised by a little over 100 companies in the coming period. The list includes companies that have already received approval from market regulator Securities and Exchange Board of India and also those

29

entities that have filed draft papers with the watchdog. "Given the pipeline of capital raising from both public and private sectors, we expect capital rising next year too will not slow," said a primary market analyst at a Mumbai-based domestic brokerage house who did not want to be identified. After a very tough 2008 and lacklustre 2009, the passing year was a clear revival period in the Indian public issue market that was mainly backed by government's mega share sale progamme.

Year 2010 features 70 public issues, which includes 62 initial public offerings (IPOs) and eight follow-on public offerings (FPOs), according to data complied by brokerage firm SMC Global Securities.

2012:

In the year 2012, 30 Initial Public Offerings (also called, IPOs, issues) came out between

January 2012 and December 2012, which was 29% less than 2011. Out of them, 3 issues

(Plastene India Limited, Samvardhana Motherson Finance Limited and Goodwill Hospital)

were later withdrawn due to poor response from the public. The 27 remaining issues were

listed at different platforms of Bombay Stock Exchange (BSE) and National Stock Exchange

(NSE), the leading exchanges in India.

For the first time, all the initial offerings with post-issue paid-up capital not exceeding Rs.25

Crore, called small and Medium Enterprises (SME), were listed on a separate platform of

both BSE and NSE. Out of 27 IPOs, 12 were listed at BSE’s SME platform, 2 issues (Veto

Switchgears and Cables Limited, Thejo Engineering Limited) were listed on NSE’s

EMERGE platforms and 13 on the main platform of the two exchanges.

From the 27 issues, the equity worth Rs 7,806.98 Crore was raised from the public by

offering close to 40 Crore shares. In 2012, the equity raised was only 60% of 2011 (equity

raised was     Rs 13,063.24 Crore), whereas the number of shares offered were only 22%.

The public issues offered in 2012 to reveal some interesting results. We could see that

amount of capital raised by a particular industry was not necessarily dependent on the number

of issues offered.

About 52% (14 out of 27) issues were from Small and Medium Enterprises, indicating that

small scale industries are growing in India. Also, by providing a separate platform for trading

of SMEs established the fact that SEBI (regulator of Financial Market in India) also wanted

small industries to play an active role in Indian economy.

30

7. Procedure to issue an IPO

Appointment of Merchant Bankers:

One of the crucial steps for successful implementation of the IPO is the appointment of a

merchant banker. A merchant banker should have a valid SEBI registration to be eligible for

appointment.

A merchant banker can be any of the following – lead manager, co-manager, underwriter or

advisor to the issue.

Certain guidelines are laid down in Section 30 of the SEBI Act, 1992 on the maximum limits

of 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. 5 or more as agreed by

the board

The number of co- managers should not exceed the number of lead managers.

There can only be one advisor/consultant to the issue.

There is no limit on the number of underwriters.

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Advisory Service:

Advising corporates on raising funds by way of equity shares/preference shares,

fully/optional convertible/non-convertible debentures. Also advising them

quantum and timing of such offers.

Assisting clients in finalization of memorandum & articles of association,

prospectus (offer document) and other public issue related agreements, obtaining

approval from regulating authorities including SEBI, RBI, NSDL.

Assisting clients in arranging under-writing from banks, institutions, corporates

and stock brokers.

Documentation need for issue of IPO:

a. Documents to be submitted before T+2 days

Certified true copy of the resolution passed by the Board of Directors for issue of

IDRs

Certified true copy of the resolution passed by the shareholders at the AGM / EGM

authorizing the issue of IDRs to the public

Certified true copy of the resolution passed by the Board of Directors for listing the

IDRs of the company on the National Stock Exchange of India Limited and for

affixing the Common Seal on the listing agreement

Copy of Prospectus (soft copy also in CD )

Certified true copy of any additions of material contracts and documents from the date

of filing of DRHP (soft copy also)

All due diligence certificates filed with SEBI by Merchant bankers

SEBI observations and reply to the said observation

Certified true copy of the approval received from the Reserve Bank of India for issue

of IDRs to Non Resident Indians, if applicable

Organizational Structure

Specimen share certificates marked cancelled (3 sets)

ISIN code allotted by both the depositories for the IDR of the Company

List of authorized signatories along with their specimen signatures

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Confirmation that refund orders shall be payable at par at all places where application

money is received

Copy of all types of application forms

Confirmation from Lead Managers that devolvement notices have been sent to

underwriters (applicable if the issue has devolved).

PAN No of the Company

b. Documents to be submitted before T+10 days

Part I – Letter of application

Part II – Issue Details

Part III – Other Details

Listing Agreement duly executed on non-judicial stamp paper of Rs. 100/-

IDR holding pattern of company (also provide softcopy in PDF form)

Certified true copy of the resolution passed by the Board of Directors for allotment of

IDRs

Certified true copy of the three day monitoring report

Copies of all advertisements published in connection with the issue

Certificate from statutory auditors/practicing auditors/company secretary stating that

allotment has been made as per the basis of allotment approved by the Designated

Stock Exchange

Specimens of the allotment advice (CAN) marked cancelled (3 sets), if applicable

Specimens of the allotment advice sent to Qualified Institutional Buyers (QIB) (3

sets)

Details regarding the latest Corporate Governance

Annual Listing fees as applicable plus Service Tax @ 10.30%

List of Top 200 allottes along with the number of IDRs allotted and address

List of QIB’s along with their addresses and number of IDRs allotted

Confirmation from the Lead Manager and Issuer confirming that the issue is in

Confirmation from the issuer for the following:

Those copies of all advertisements published as regards the current issue have been

submitted to the Exchange.

That the issuer is compliant with the requirement of common agency as specified by

SEBI

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compliance with all the requirements of SEBI (ICDR) Regulations, 2009, Securities

Contracts (Regulations) Act, Companies Act, 1956, Securities and Exchange Board of

India Act, 1992, any rules and/or regulations framed under foregoing statutes and any

circular, clarifications, guidelines issued by the authority under forgoing statutes

Certified true copy of Table showing region- wise collection of application money

Certificate from the bankers to the issue regarding the collection of application money

Copy of Internal Minutes executed in between Lead Manager, Issuer and Registrar

Certified true copy of the basis of allotment approved by the Designated Stock

Exchange

Copies of all advertisements published in connection with the issue including the

advertisement for basis of allotment

List of all allots along with number of IDRs applied, allotted, amount paid, bank

account details, PAN number, Demat account details etc. (in soft copy CD)

Letter from all the merchant bankers involved in the issue specifying the following:

Details of amendments/ changes made in DRHP (which were subsequently

incorporated in RHP) and details of amendments/ changes made in RHP (which were

subsequently incorporated in Prospectus).

Copy of the letter from Registrar addressed to Merchant bankers regarding the details

they have verified with the depositories (NSDL/ CDSL) pursuant to SEBI letter dated

June 12, 2007

Rationale for allotment to Anchor Investors

Certificate from the Registrar about the validation of the electronic bid details with

the depository’s records for DP ID, client ID and PAN

c. Documents to be submitted before T+11 days

Certified true copy of the letter from Registrars and lead manager regarding despatch

of IDRs certificates, allotment advice, refund orders, underwriting commission,

uploading of electronic credit of IDRs, uploading of ECS/NEFT/RTGS credits and

brokerage warrants

Confirmation from the depositories regarding the credit of beneficiary accounts of the

IDRs holders

Certificate from the Registrar reconciling the total IDRs allotted with the total IDRs

credited and IDRs that have failed to be credited

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Preparation and Filing of Prospectus:

The next stage in the initial public offering process is to accumulate business, financial, and

other information that provides potential investors with full, true, and plain disclosure of all

material facts related to the securities to be issued. This information is presented in a

prospectus document.

Application to a Stock Exchange:

You will need to complete the appropriate documentation and provide the information

required by the stock exchange to apply for a listing. Generally, this process runs parallel

with the preparation of the preliminary prospectus and the underwriters' due diligence.

Managers to the issue:

• Lead managers are appointed by the company to manage the initial public offering

campaign.

• Their main duties are:

– Drafting of prospectus

– Preparing the budget of expenses related to the issue

– Suggesting the appropriate timings of the public issue

– Assisting in marketing the public issue successfully

– Advising the company in the appointment of registrars to the issue,

underwriters, brokers, bankers to the issue, advertising agents etc.

– Directing the various agencies involved in the public issue.

– Many agencies are performing the role of lead managers to the issue.

– The merchant banking division of the financial institutions, subsidiary of

commercial banks, foreign banks, private sector banks and private agencies

are available to act as lead managers.

– Such as SBI Capital Markets Ltd., Bank of Baroda, Canara Bank, DSP

Financial Consultant Ltd. ICICI Securities & Finance Company Ltd., etc.

– The company negotiates with prospective mangers to its issue and settles its

selection and terms of appointment.

– Usually companies appoint lead managers with a successful background.

– There may be more than one manager to the issue.

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– Sometimes the banks or financial institutions impose a condition while

sanctioning term loan or underwriting assistance to be appointed as one of the

lead managers to the issue.

– The fee payable to the lead managers is negotiable between the company and

the lead manager.

– The fee agreed upon is revealed in the memorandum of the understanding filed

along with the offer document.

Appointment of Registrar to the Issue

•  After the appointment of the lead managers to the issue, in consultation with them,

the Registrar to the issue is appointed.

• Quotations containing the details of the various functions they would be performing

and charges for them are called for selection.

• Among them the most suitable one is selected.

• The Registrars normally receive the share application from various collection centers.

• They recommend the basis of allotment in consultation with the Regional Stock

Exchange for approval.

• They arrange for the dispatching of the share certificates.

• They hand over the details of the share allocation and other related registers to the

company.

• Usually registrars to the issue retain the issuer records at least for a period of six

months from the last date of dispatch of letters of allotment to enable the investors to

approach the registrars for redress of their complaints.

Appointment of Underwriters:

 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 the underwriter’s net worth. A commission

is paid to the writers on the issue price for undertaking the risk of under subscription. The

maximum rate of underwriting commission paid is as follows:

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Nature of Issue On amount

Devolving On

Underwriters

On amounts

subscribed by public

Equity shares,

preference shares

and debentures

2.5% 2.5%

Issue amount up

to Rs.5 lakhs

2.5% 1.5%

Issue amount

exceeding %

2.0% 1.0%

Appointment of Bankers:

• Bankers to the issue have the responsibility of collecting the application money along

with the application form.

• The bankers to the issue generally charge commission besides the brokerage, if any.

• Depending upon the size of the public issue more than one banker to the issue is

appointed.

• When the size of the issue is large, 3 to 4 banks are appointed as bankers to the issue

• The bankers to the issue should have branches in the specified collection centers.

• In big or metropolitan cities more than one branch of the various bankers to the issue

are designated as collecting branches.

• Branches are also designated in the different towns of the state where the project is

being set up.

• If the collection centers for application money are located nearby people are likely to

invest the money in the company shares.

 Appointment of Brokers:

 Any member of a recognized stock exchange can become a broker to the issue .A broker

offers marketing support, underwriting support, disseminates information to investors about

the issue and distributes issue stationery at retail investor level.

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Appointment of Advertising Agencies:

Advertisingplays a key role in promoting the public issue. Hence, the past track record of the

advertising is studied carefully. Tentative program of each advertising agency along with the

estimated cost called for. After comparing the effectiveness and cost of each program with

the other, a suitable advertising agency if selected in consultation with the lead managers to

the issue.

The advertising agencies take responsibility of giving publicity to the issue on the suitable

media. The media may be newspapers/magazines/hoardings/press release or a combination of

all

Collection center:

• Generally there should be at least 30 mandatory collection centers inclusive of the

places where stock exchanges are located.

• If the issue is not exceeding Rs.10 Cr (excluding premium if any) the mandatory

collection centers are the four metropolitan centers viz. Mumbai, Delhi, Kolkatta and

Chennai

• And at all such centers where stock exchanges are located in the region in which the

registered office of the company is situated.

• In addition to the collection branch, authorized collection agents may also be

appointed.

• The names and addresses of such agent should be given in the offer documents.

• The collection agents are permitted to collect such application money in the form of

cheques, draft, and not in the form of cash.

• The application money so collected should be deposited in the special share

application account with the designated scheduled bank either on the same day or

latest by the next working day.

Filing Prospectus with SEBI, Registrar of Companies and Stock Exchanges:

The draft prospectus along with the copies of the agreements entered into with the Lead

Manager, Underwriters, Bankers, registrars and Brokers to the issue is filed with the Registrar

of Companies of the state where the registered office of the company is located.

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Convening Press Conference or Investors’ Meet

An abridged version of the prospectus and; the Issue start and close dates are published in

major English; dailies and vernacular newspapers.

Despatch of Application Forms:

The prospectus and application forms are printed and dispatched to all the merchant bankers,

underwriters, brokers to the issue.

Opening and closing of Subscription List:

Date of opening and closing of subscription list be specified in the prospects and the

collecting bankers,

As per Clause 8.8.1, Subscription list for public issues shall be kept open for at least 3

working days and not more than 10 working days. In case of Book built issues, the minimum

and maximum period for which bidding will be open is 3-7 working days extendable by 3

days in case of a revision in the price band. The public issue made by an infrastructure

company, satisfying the requirements in Clause 2.4.1 (iii) of Chapter II may be kept open for

a maximum period of 21 working days. As per clause 8.8.2., Rights issues shall be kept open

for at least 30 days and not more than 60 days.

Allotment of Shares:

After the issue is subscribed to the minimum level, the allotment procedure as prescribed by

SEBI is initiated.

Listing of Shares:

The shares after having been allotted have to be listed compulsorily in the regional stock

exchange and optionally at the other stock exchanges.

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Offer document

‘Offer document’ is a document which contains all the relevant information about the

company, promoters, projects, financial details, objects of raising the money, terms of the

issue etc. and is used for inviting subscription to the issue being made by the issuer.

‘Offer Document’ is called “Prospectus” in case of a public issue or offer for sale and “Letter

of Offer” in case of a rights issue.

Content of Offer Document

• General Corporate Information;

• Industry overview;

• Projects, objects to the issue;

• Operations, Branches, offices;

• Future Prospects;

• Sustainability of the business;

• Capital Structure, its Evolution and Shareholding Details;

• Promoters & Promoter Group;

• Management of Company;

• Board Committees;

• Key Managerial Personnel and Other Officers;

• Holding, Subsidiary and Group Companies;

• Material Contracts & Commitments;

• Assets and Immovable Property;

• Financials;

• Outstanding Litigations and Claims;

• Intellectual Property Rights ("IPR");

• Legal Compliances;

• Insurance and Risk Management;

• Human resource/ Employees;

• Management’s Discussion and Analysis;

40

8. Company list with BSE

In respect of Large Cap Companies with a minimum issue size of Rs. 10 cr and market

capitalization of not less than Rs. 25 cr.

• The minimum post-issue paid-up capital of the applicant company (also referred to as

"the Company") shall be Rs. 3 cr;

• The minimum issue size shall be Rs. 10 cr;

• The minimum market capitalization of the Company shall be Rs. 25 cr

In respect of Small Cap Companies other than a large cap company.

• The minimum post-issue paid-up capital of the Company shall be Rs. 3 cr;

• The minimum issue size shall be Rs. 3 cr;

• The minimum market capitalization of the Company shall be Rs. 5 cr

• The minimum income/turnover of the Company should be Rs. 3 cr in each of the

preceding three 12-months period;

• The minimum number of public shareholders after the issue shall be 1000.

• A due diligence study may be conducted by an independent team of Chartered

Accountants or Merchant Bankers appointed by the Exchange, the cost of which will

be borne by the company. The requirement of a due diligence study may be waived if

a financial institution or a scheduled commercial bank has appraised the project in the

preceding 12 months.

• Permission to use the name of the Exchange in an Issuer Company's prospectus

• The Exchange follows a procedure in terms of which companies desiring to list their

securities offered through public issues are required to obtain its prior permission to

use the name of the Exchange in their prospectus or offer for sale documents before

filing the same with the concerned office of the Registrar of Companies. The

Exchange has since last three years formed a "Listing Committee" to analyze draft

prospectus/offer documents of the companies in respect of their forthcoming public

issues of securities and decide upon the matter of granting them permission to use the

name of "Bombay Stock Exchange Limited" in their prospectus/offer documents. The

committee evaluates the promoters, company, project and several other factors before

taking decision in this regard.

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Allotment of Securities

• As per Listing Agreement, a company is required to complete allotment of securities

offered to the public within 30 days of the date of closure of the subscription list and

approach the Regional Stock Exchange, i.e. Stock Exchange nearest to its Registered

Office for approval of the basis of allotment. In case of Book Building issue,

Allotment shall be made not later than 15 days from the closure of the issue failing

which interest at the rate of 15% shall be paid to the investors.

Trading Permission

• As per SEBI Guidelines, the issuer company should complete the formalities for

trading at all the Stock Exchanges where the securities are to be listed within 7

working days of finalization of Basis of Allotment.

• A company should scrupulously adhere to the time limit for allotment of all securities

and dispatch of Allotment Letters/Share Certificates and Refund Orders and for

obtaining the listing permissions of all the Exchanges whose names are stated in its

prospectus or offer documents. In the event of listing permission to a company being

denied by any Stock Exchange where it had applied for listing of its securities, it

cannot proceed with the allotment of shares. However, the company may file an

appeal before the Securities and Exchange Board of India under Section 22 of the

Securities Contracts (Regulation) Act, 1956.

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9. SEBI and IPO

ELIGIBILITY NORMS

FOR UNLISTED COMPANIES

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.

FOR LISTED COMPANIES

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 NORMS

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 conditions.

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

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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 Guidelines.

Capital Structure- theCompany must give complete information about the

Authorized 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.

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 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.

44

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.

Dematerialization 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.

SEBI GUIDELINES

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 up to Rs.5 cores)

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 cores but less than 5 cores 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. In case of IT,

Media and Telecommunication sectors, this stipulation is reduced subject to the conditions

that

45

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 at least 25% of the total issue size for listing on

a stock exchange

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-building.

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 at least 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.

46

7. Indian development financial institutions and Mutual Fund can be allotted securities

up to 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 up to maximum of 24%, which can

be further extended to 30% by an application to the RBI-supported by a resolution

passed in the General Meeting.

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 affected 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 the 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.

47

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 channelize greater flow of funds to infrastructure companies, SEBI granted a

number of relaxations to infrastructure companies. These included:

Exemption from the requirement 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 90 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.

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Permission to freely price the offerings in the domestic market provided the promoter

companies along with equipment suppliers and 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.

Permission to keep the issues opens for 21 days to enable the companies to mobilize

funds.

Exemption from requirement to create and maintain a 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 were 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 of appraisal and financing

by a bank or financial institution.

The same conditions would apply also to a listed company which has changed its

name to reflect activities in IT sector.

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10. Markating of IPO

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 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.

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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 from the closure

of the issue as against 45-60days at present.

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.

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

51

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 stock

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

GENERAL PROCEDURE FOR MARKETING OF IPO

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.

52

NEWSPAPER ADVERTISEMENT: 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.

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.

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11.Snowman Logistics Ltd (Snowman) IPO

Company background

Snowman Logistics Ltd (Snowman), founded in 1993, is a leading integrated player in a

predominantly unorganized cold chain industry in India. The largest shareholder in the

company is Gateway Distriparks Ltd (GDL), which owns 48.33% stake in the company. The

other key shareholders in the company are Mitsubishi Logistics Corporation (2.93%),

Mitsubishi Corporation (12.63%), International Finance Corporation or IFC (12.46%) and

Norwest Venture Partners VII-A

Mauritius (13.84%).

Snowman was incorporated by Amalgam Foods Ltd in 1993 as Snowman Frozen Foods Ltd.

In 1997, erstwhile Brook Bond India, (now part of Hindustan Unilever Ltd) acquired 23%

stake in the company. In 2001, Mitsubishi Corporation and Mitsubishi Logistic Corporation

jointly bought a majority stake in Snowman. Until then, the company was incurring losses. In

2006, GDL became the largest shareholder in the company by acquiring 33.34% stake and

revamped Snowman’s management structure. In 2010, IFC acquired 20% stake. In 2011, to

reflect the change in positioning of the company, the name of the company was changed to

Snowman Logistics Ltd. In 2013, private equity firm NVP bought 14.28% stake in Snowman.

Snowman is engaged in cold chain warehousing and transport and value-added services for

perishable goods. In its transport business, the company offers services through primary and

secondary transportation. Primary transportation is an intercity service while secondary

transportation is an intra-city service.

The company’s cold chain business currently has 21 warehouses across 13 locations in India

with a capacity of 46,751 pallets and a fleet of 238 reefer vehicles (reefers). Also, its ambient

(normal temperature) warehousing business has a capacity of 3,000 pallets. 11 of the 21

temperature controlled warehouses are on leased land. The company’s transport business has

175 leased reefers and 63 owned reefers. The company also offers value-added services such

as labeling, grading, packaging and inventory management to some of its clients.

The company provides services to various industries such as seafood, poultry, fruits and

vegetables, dairy, ice-cream, food processing, pharmaceuticals and some other niche

segments. Its key clients are Hindustan Unilever Ltd (HUL),

Al-Karim Exports Private Limited, McCain Foods India Pvt. Ltd (McCain), Novozyme South

Asia Pvt. Ltd (Novozyme),

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Ferrero India Pvt. Ltd (Ferrero), Graviss Foods Private Limited etc.

PRE ISSUE ANALYSIS

Details of the Public Offer

SNOWMAN LOGISTICS LIMITED

*Non-Retail investors i.e. QIB and Non-Institutional Investors Bidding for more than 2 lac shall mandatorily use ASBA facility

Symbol SNOWMAN

Issue Period 26-AUG-2014 to 28-AUG-2014

Post issue Modification Period 30-Aug-14

Issue SizePublic Issue of 42,000,000 Equity Shares .(including Anchor Portion of 94,50,000 equity shares)

Issue Type 100% Book Building

Price Range Rs 44 to Rs 47

Face Value Rs 10

Tick Size 1

Market Lot 300 Equity Shares

Minimum Order Quantity 300 Equity Shares

IPO Grading CRISIL IPO Grade 4/5

Rating Agency CRISIL LIMITED

Maximum Subscription Amount for Retail Investor

200000

IPO Market Timings 10.00 a.m. to 5.00 p.m.

Book Running Lead Manager HDFC Bank Ltd

Syndicate Member HDFC Securities Limited

Categories FI, IC, MF, FII, OTH, CO, IND & NOH

No. of Cities with Bidding Centers

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Name of the Registrar LINK INTIME INDIA PRIVATE LIMITED

Address of the RegistrarC 13, Pannalal Silk Mills Compound, LBS Marg, Bhandup (West), Mumbai 400 078

Contact person name number and Email id

Mr. SachinAchar, +91 22 2596 7878, sll.ipo@linkintime.co.in

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QIBs Non Institutional Bidders

Retail Individual Bidders

Minimum Bid Such number of EquityShares in multiples of [●]Equity Shares so that theBid Amount exceeds

2,00,000₹

Such number of EquityShares in multiples of [●]Equity Shares so that the BidAmount exceeds

2,00,000₹

[●] Equity Shares and inmultiples of [●] EquityShares

Maximum Bid Not exceeding the size ofthe Issue, subject to theinvestment limit

applicable

Not exceeding the size of theIssue, subject to theinvestment limit as

Such number of EquityShares in multiples of [●]Equity Shares so that

the

Who can apply Public financial institutions,as specified in Section 2(72) of the Companies Act:scheduled commercialbanks, mutual funds,foreign institutional investorand sub-accountregistered with SEBI (otherthan a sub-account which isa foreign corporate orforeign individual),multilateral and bilateraldevelopment financialinstitutions, VCF, FVCI,AIFs, state industrialdevelopment corporations,permitted insurancecompanies registered withthe Insurance Regulatory

Companies, CorporateBodies, ScientificInstitutions, Societies,Trusts, Resident Indianindividuals, HUF (in thename of Karta), NRIs, subaccountsof FIIs registeredwithSEBI, which are foreigncorporates or foreignindividuals and QFIs(applying for an amountexceeding

2,00,000)₹

Individuals (includingASBA Bidders, NRIs,HUFs in the name of Karta)applying for Equity Sharessuch that the Bid Amountdoes not exceed

2,00,000₹in value.

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and DevelopmentAuthority, provident funds,(subject to applicable laws)with minimum corpus of

250 million and ₹pensionfunds with minimum corpusof 250 million in₹accordance with applicablelaw, National InvestmentFund set up by Governmentof India, insurance funds setup and managed by thearmy, navy and air force ofthe Union of India andinsurance funds set up andmanaged by the Departmentof Posts, India.

Terms ofPayment

Full Bid Amount at the timeof submission of the Bidcum Application Formthrough the ASBA Process(other than for AnchorInvestors). Full Bid Amountshall be payable by theAnchor Investors at the timeof submission of the Bidcum Application Form. Any

Full Bid Amount at the timeof submission of the Bidcum Application Formthrough the ASBA Process

Full Bid Amount at thetime of submission of theBid cum Application Formeither through ASBA orthrough the Non-ASBAProcess

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balance amount payable bythe Anchor Investors, due toa difference between theIssue Price and the BidAmount paid by the AnchorInvestors, shall be payableby the Anchor Investorswithin two Working Daysof the Bid/Issue ClosingDate.

OBJECTS OF THE ISSUE

The objects of the Issue are:a. Capital expenditure for setting up new temperature controlled and ambient warehouses;b. Long term working capital; andc. General corporate purposes.The main objects set out in our Memorandum of Association enable us to undertake our existing activities and the activities for which funds are being raised by us through the Issue.In addition, our Company expects to receive the benefits of listing of the Equity Shares on the

Stock Exchanges.

Analysis on IPO

The initial public offer of Snowman Logistics, an integrated temperature-controlled logistics services provider, has seen overwhelming response from investors, oversubscribing 59.75 times – the largest IPO subscription in the current decade.

The issue has received more than Rs 9100 crore worth of bids as against the actual size of Rs 153 crore (at higher end of price band of Rs 44-47 and excluding anchor investors' portion) supported by all types of investors. Total bids received were 194.5 crore equity shares as against issue size of 3.25 crore shares (excluding anchor investors’ portion of 95 lakh shares).

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Reserved portion of non-institutional investors got subscribed 221.79 times with the bids for 139.7 crore shares versus reserved portion of 63 lakh shares. Retail investors gave thumbs up to the issue with the subscription of 41.26 times, putting bids for 17.3 crore shares as against reserved portion of 42 lakh shares.

Qualified institutional buyers applied for 37.4 crore shares, which was 16.98 times compared to their reserved portion of 2.2 crore shares.

Earlier on Monday, Snowman already mopped up Rs 44.4 crore from three anchor investors, which were Faering Capital India Evolving Fund, ICICI Prudential and IDFC Funds.

The largest cold chain solutions provider intends to use issue proceeds for setting up new temperature controlled and ambient warehouses, and long term working capital.

The company, which operates 23 temperature-controlled warehouses across 14 locations in India (including Kolkata, Mumbai, Delhi, Chennai and Bengaluru), has proposed to set up another such 6 and 2 ambient warehouses at 6 cities at the cost of around Rs 140 crore

12.Conclusion

An initial public offering (IPO) is the first sale of stock by a company to the public.

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Broadly speaking, companies are either private or public. Going public means a

company is switching from private ownership to public ownership.

Going public raises cash and provides many benefits for a company.

The dotcom boom lowered the bar for companies to do an IPO. Many startups went

public without any profits and little more than a business plan.

Getting in on a hot IPO is very difficult, if not impossible.

The process of underwriting involves raising money from investors by issuing new

securities.

Companies hire investment banks to underwrite an IPO.

The road to an IPO consists mainly of putting together the formal documents for the

Securities and Exchange Commission (SEC) and selling the issue to institutional

clients.

The only way for you to get shares in an IPO is to have a frequently traded account

with one of the investment banks in the underwriting syndicate.

An IPO company is difficult to analyze because there isn't a lot of historical info.

Lock-up periods prevent insiders from selling their shares for a certain period of time.

The end of the lockup period can put strong downward pressure on a stock.

Flipping may get you blacklisted from future offerings.

Road shows and red herrings are marketing events meant to get as much attention as

possible. Don't get sucked in by the hype.

A tracking stock is created when a company spins off one of its divisions into a

separate entity through an IPO.

Don't consider tracking stocks to be the same as a normal IPO, as you are essentially a

second-class shareholder.

13.BIBLIOGRAPHY

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Books and Magazine-

Indian Capital Markets

Business World

Websites-

www.moneycontrol.com   

www.sebi.gov.in   

www.business-standard.com   

www.bseindia.com   

www.nseindia.com   

http://www.investopedia.com   

www.google.com   

www.wikipedia.com   

www.sify.com   

www.indiainfoline.com   

www.moneycontrol.com   

www.domain-b.com   

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