DEFINITION

The Initial Public Offering (IPO) is defined as the first set of stocks that are sold out by a company to the public in order to seek an expansion of the capital.

IPO MEANS
IPO is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the 1st time to the public.

If the company has never issued equity to the public, it's known as an IPO.

WHY AN IPO?
Better rates through debt issue Easy mergers & acquisitions

Liquidity purpose
Prestige & recognition Correct valuation

ADVANTAGES OF AN IPO
Stock holder diversification Capital increase

Enhances Br& Value

Valuation Employee incentive

DISADVANTAGES OF AN IPO
Disclosure of information Decisions take time

Cost of IPO
Loss of control Profit sharing

Controller of Capital Issues (CCI) regime

Till May 1992, the pricing of issue was governed by (CCI) which required the companies to obtain approval for raising capital. CCI fixed the price of an issue entirely on the basis of historical performance

Till 1992 new companies were allowed to issue shares only at par while existing companies with substantial reserves could issue shares at a premium that too to be calculated in accordance with CCI norms.

Valuation as per CCI formula

3 years Average Book Value ( NAV for 3 years)

3 years Average Profit

Capitalised Value = 3 years average profit x capitalisation rate PECV = Capitalised value / projected no of equity shares

Fair Value = (Average book value + PECV) / 2

Fair Value > Issue Price Buy Fair Value < Issue Price Do Not Buy

Limitations of the CCI guidelines

Highly conservative: only a maximum P/E ratio of 12.5 was permitted Deterrent to companies from going public Higher cost of capital for companies Companies had to price share at heavy discounts Lower capital appreciation for companies Lower share prices and lower capitalisation Benefits to new shareholders at cost of existing shareholders

Free Pricing
Free Pricing is an important guideline issued by SEBI after 1992. Under this The Issuing Company including the infrastructure company have the freedom to price their shares or any security convertible into equity in public or rights issue at a price they decide as FAIR. The Banks have to only take RBI permission

It has placed responsibility on the issuing company and the lead merchant bankers for fixing the premium. The Free pricing mechanism permitted the companies to raise funds from the primary market at competitive price

REQUIREMENTS FOR FREE PRICING

New companies promoted by companies with a 5 year track record of consistent profitability

Existing closely held, private and other unlisted companies with a 3 year track record of consistent profitability Existing closely held, private and other unlisted companies with a 3 year track record but promoted by companies with a 5 year track record of consistent profitability
Existing listed companies

Drawbacks of Free Pricing

The company tends to raise more capital and higher premium without any correlation to their current fundamentals No check on utilization of then issue proceeds used for repayment of high debt borrowings, working capital requirement resulting in asset liability mismatch Gullible Investors cannot discriminate between fair price and unreasonable pricing Evolve a a system of disclosure for investor protection which would make the investor cautious and study the issue before investing.

FIXED PRICE
These are issues in which the issuer is allowed to price the shares as he wishes. The basis for the price is explained in an offer document through qualitative & quantitative statements. This offer document is filed with the stock exchanges & the registrar of companies.

FEATURES

PRICING

FIXED PRICE PROCESS It is known in advance to the investor.

BOOK BUILDING PROCESS Only an indicative price range is known.

DEMAND

It is known only after It is known everyday the closure of the as the book is built. issue Payment if made at Payment is made only after allocation. the time of subscription wherein refund is given after allocation.

PAYMENT

BOOK BUILDING
It is a capital insurance process used for marketing a public offer of equity shares of a company. Bids are collected from investors at various prices, above or equal to the floor price. The offer/issue price is then determined after the bid closing date based on certain evaluation criteria. The process aims at tapping both wholesale and retail investors.

THE PROCESS
Nomination of a book runner Specifying the number of securities Appointment of syndicate members Bidding A Book should remain open for a minimum of 5 days.

 Bids cannot be entered less than the floor price. Bids can be revised by the bidder before the issue closes. Evaluation on the basis of Price Aggression, Investor quality, Earliness of bids, etc. The book runner concludes the final price at which it is willing to issue the stock & allocate securities. No. of shares is fixed & allocation is made to successful bidders.

EXAMPLE OF BOOK BUILDING

1. A company wants to issue one million shares. 2. The face value of one share is Rs 10 and the price band is between Rs 48 and Rs 55. 3. At Rs 55, on the basis of the bids received, the investors are ready to buy 200,000 shares. So the cutoff price cannot be set at Rs 55 as only 200,000 shares will be sold. 4. So as a next step, the price is lowered to Rs 54. At Rs 54, investors are ready to buy 400,000 shares. So if the cut-off price is set at Rs 54 , 600,000 shares will be sold. This still leaves 400,000 shares to be sold.

5. The price is now lowered to Rs 53. At Rs 53, investors are ready to buy 400,000 shares. Now if the cut-off price is set at Rs 53, all one million shares will be sold.

6. Investors who had applied for shares at Rs 55 and Rs 54 will also be issued shares at Rs 53. The extra money paid by these investors while applying will be returned to them.

1. 75% Book Building process: Under this process 25% of the issue is to be sold at a fixed price and the balance 75% through the Book Building process.

2. Offer to public through Book building process: The process specifies that an issuer company may make an issue of securities to the public through prospectus in the following manner:

100% of the net offer to the public through bookbuilding process

GREEN SHOE OPTION

If the issue has been oversubscribed, the company has to exercise a green shoe option to stabilize the post-listing price. In case of oversubscription, the issuer has to issue more shares These shares are taken from the pre-issue shareholders & are issued to the investors entering the IPO on a prorata basis. The green shoe option can be a maximum of 15% of the public offer.

Symbol Series
Issue Period Issue Size Issue Type Face Value Price Range Tick Size Market Lot Minimum Order Quantity

DBREAL EQ
Jan 29, 2010 to Feb 02, 2010 [.] Equity Shares aggregating to Rs. 15,000 Million 100% Book Building Rs. 10/Rs.468 to Rs. 486 Re. 1/14 Equity Shares 14 Equity Shares

Maximum Subscription Amount for Retail Investor

Rs.100000

IPO Market Timings

10.00 a.m. to 5.00 p.m.

IPO Grading Rating Agency Book Running Lead Manager

IPO Grade 2 CRISIL Enam Securities Private Limited,Kotak Mahindra Capital Company Limited Kotak Securities Limited, ICICI Securities Limited and Punjab National Bank. FI, IC, VC, MF, FII, SIDC, PF, PEF, NIF, BC,FIISA, IND, HUF, NRI, OTH

Syndicate Member

Categories

No. of Cities with Bidding Centers Name of the registrar

47

LINK INTIME INDIA PRIVATE LIMITED

DB Realty at BSE/NSE
Total shares issued 26,495,984 The reserved portion of qualified institutional investors (QIBs) and noninstitutional investors was subscribed over 4 times. Retail investors' portion got subscribed just 0.37 times. Total No. of times issue is subscribed 2.95 Source :NSE

ACKNOWLEDGEMENT
As a part of my acknowledgement, we would firstly like to thank our respected teacher, for allotting us with this brain cracking assignment & also for being kind enough to guide us through the same.

BIBLIOGRAPHY
WEBSITES:

1. www.google.com

2. www.investopedia.com 3. www.icicidirect.com

THANK YOU!!!