Investment in ipo an analysis (initial public offer) by :- gaurav bhut

1
A
Project Report
On
“INVESTMENT IN IPO : AN ANALYSIS”
Submitted By
Bhut Gaurav B.
Enrollment No. : 137730592002
Academic Year : 2010-11
MBA Semester III
Submitted To
Gujarat Technological University

PREPARE BY :- GAURAV BHUT
2
DECLARATION
To,
The Director,
Sunshine group of institutions,
Behind Rangoli park,
Mota mahuva,
Kalawad Road,
Rajkot-
Respected Sir,
I the undersigned hereby declare that the project report entitled ―INVESTMENT IN IPO : AN ANALYSIS‖ is an original work developed and submitted by me under the guidance of Prof. Krishna joshi
The empirical findings in this project report are not copied from any report and are true and best of my knowledge.
DATE:
PLACE: Rajkot
Enroll. No: 137730592002
Thanking You,
Gaurav bhut
Gaurav Bhut

3
ACKNOWLEDGEMENT
It is great pleasure for me to acknowledge those who have contributed to this project directly or indirectly. It would be unfair and unjust if I fail to show my appreciation and gratitude.
I would like to show my profound gratitude to the project guide of prof.krishana joshi whose guidance encouraged me to carry out the project systematically. I also thank my faculty members for their constant support and guidance because without the theoretical knowledge imparted by them, it was not possible to have it applied in practical life.
Last but not the least; I would like to thank my parents for their undying faith in me and my friends for their constant encouragement.
Thanking You,
Gaurav bhut
Gaurav Bhut

4
PREFACE
When I am standing on the threshold of 21st century, professionalism is getting on every body‘s nerves quickly. Trying to cope up with this pace, educational institutions rendering professional degree courses are growing out like mushrooms.
Practical training is a tool to develop conceptual and analytical ability in the student. According to M.B.A. schedule, students are required to make a research project on an industry as a part of practical study.
In accordance with this, I have also made my research project on ‖INVESTMENT IN IPO: AN ANALYSIS‖. In this, many leading companies are including for research. Indian IPO market is the booming market in the corporate world of India.

5
INDEX
SR NO
PARTICULARS
PAGE NO
1
EXECUTIVE SUMMARY
1
CHAPTER 1
INTRODUCTION
2.1
SEBI GUIDELINES
5
2.2
PROCEDURE OF IPO
6
2.3
BUY BACK OF SHARES
14
2.4
ROLE OF VARIOUS INTERMEDIARIES IN IPO
16
2.5
IPO GRADING
18
CHAPTER 2
LITERATURE REVIEW
3.1
BACKGROUND OF THE TOPIC
21
3.2
RATIONAL OF THE STUDY
22
3.3
REVIEW OF EXISTING LITERATURE
25
3.4
OBJECTIVES OF THE STUDY
27
CHAPTER 3
RESEARCH METHODOLOGY

6
4.1
DATA COLLECTION METHOD
30
4.2
HYPOTHESIS TESTING
31
4.3
LIMITATIONS OF THE STUDY
32
4.4
FUTURE SCOPE OF THE STUDY
33
CHAPTER 4
ANALYSIS AND INTREPRETATION
5.1
FUTURE CAPITAL HOLDINGS LTD
35
5.2
KIRI DYES CHEMICAL LTD
40
5.3
RELIANCE POWER
45
5.4
TITAGARH WAGON
48
CHAPTER 5
6
FINDINGS AND SUGGESTIONS
54
7
CONCLUSION
58
8
BIBLIOGRAPHY
60

7
EXECUTIVE SUMMARY
This project gave me a great insight about the IPO and its Process. The purpose of this Project was to understand the IPOs; buyback of shares; IPO Grading and Reforms in IPO Process.
This project was a learning experience for me of IPO and its valuation. I began my study by going through the SEBI guidelines regarding eligibility norms, pricing structure, requirements of the promoters and their obligations, post issue obligations, book building guidelines etc. Proper study of few IPOs has been done by going through their past financials, business structure, investments, expansion strategies, growth potential, valuations etc.
The Project report starts with defining the various public issues with the need for the company to take out an IPO. It goes on further to explain the advantages of an IPO. It analyses in detail the Indian IPO Scenario. It explains the evolution of the IPO in India and explains how the scene has changed dramatically after liberalization esp. after the introduction of book building process.

9
INTRODUCTION
A company can raise capital through issue of shares or debentures. The various types of issues are: Public Issue, Rights Issue, Bonus Issue, Private Placement and Bought out Deal.
There can be two kinds of public issues, namely:
 Initial Public Offer (IPO)
 Further Public Offer (FPO)
Classification of Issues:
IPO
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It 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 first time to the public. This paves way for listing and trading of issuer‘s securities. The sale of securities can be through book building or normal public issue.
FPO
Further Public Offers are issued by companies or corporate bodies whose shares are already being traded in the capital market and they are issuing fresh shares either to fund the expansion of their existing business or to invest into other business activities.

10
ADVANTAGES OF IPO:
 Facilitates future funding by means of subsequent public offerings
 Enables valuation of company
 Provides liquidity to existing shares
 Increases the visibility and reputation of the company
 Commands better pricing than placement with few investors
 Enables the company to offer its shares as purchase consideration or as an exchange for the shares of another company
DISADVANTAGES OF IPO:
 Dilution of Stake makes co vulnerable to future takeovers
 Involves substantial Expenses
 Need to make continuous disclosures
 Increased regulatory monitoring
 Listing fees and Documentations
 Cost of maintaining Investor relations
 Takes substantial amount of management time and efforts

11
2.1 SEBI GUIDELINES ON IPO GRADING:
 No unlisted company shall make an IPO of equity shares or any other security which may be converted into or exchanged with equity shares at a later date, unless the following conditions are satisfied as on the date of filing of Prospectus (in case of fixed price issue) or Red Herring Prospectus (in case of book built issue) with ROC:
 The unlisted company has obtained grading for the IPO from at least one credit rating agency;
 Disclosures of all the grades obtained, along with the rationale/description furnished by the credit rating agencies for each of the grades obtained, have been made in the Prospectus (in case of fixed price issue) or Red Herring Prospectus (in case of book built issue); and
 The expenses incurred for grading IPO have been borne by the unlisted company obtaining grading for IPO.
Most of the market analysts have welcomed this move of SEBI as it will help the investors in a volatile market to know whether the merchant banker has carried the exercise in determining the price of an issue in a proper manner or not. It will also help the investors in knowing whether the price of the issue is justified or not. They even said that management of a good company will never get afraid of getting graded of their IPOs if they are good. The only demerit of this step by the SEBI as said by many experts is that there will be a slowdown in the number of IPOs coming out as grading will be a bit lengthy process and there will be a cost-factor attached to it also.

12
2.2 PROCEDURE FOR IPO:
Fixed Pricing versus True Pricing (Book- Building)
The traditional method of doing IPOs is the fixed price offering. Here, the issuer and the merchant banker agree on an ―issue price‖. Then the investor has a choice of filling in an application form at this price and subscribing to the issue. Extensive research has revealed that the fixed price offering is a poor way of doing IPOs. Fixed price offerings, all over the world, suffer from `IPO under pricing'. In India, on average, the fixed-price seems to be around 50% below the price at first listing; i.e. the issuer obtains 50% lower issue proceeds as compared to what might have been the case. This average masks a steady stream of dubious IPOs who get an issue price which is much higher than the price at first listing. Hence fixed price offerings are weak in two directions:
 dubious issues get overpriced and
 Good issues get under priced.
2.2.1 Book building.
A mechanism period for which the IPO is open, bids is collected from investors at various prices which are above or equal to the floor price (the minimum price). The final price of the share is determined after the bid closing date, based on certain evaluation criteria.
The SEBI (Disclosure and Investor Protection) Guidelines, 2000, define the term `book- building' in a rather complex language as "a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built-up and the price for such securities is assessed for determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document.''

13
Book building process is a common practice used in most developed countries for marketing a public offer of equity shares of a company. However, Book building acts as scientific as well as flexible price discovery method through which a consensus price of IPO‘s may be determined by the issuer company along with the Book Running Lead Manager (i.e. merchant banker) on the basis of feedback received from individual investors as well as most informed investors (who are institutional and corporate investors like, UTI, LICI, GICI, FIIs, and SFCI etc). The method helps to make a correct evaluation of a company‘s potential and the price of its shares.
In simple terms, book-building is a mechanism by which the issue price is discovered on the basis of bids received from syndicate members/brokers and not by the issuers/merchant bankers.
An Issuer Company can issue capital through book building in following two ways:
75% Book Building process
– Under this type of public offer, the issue of securities has to be categorized into:
 Placement portion category
 Net offer to the public
The option of 75% Book Building is available to all body corporate that are otherwise eligible to make an issue of capital to the public. The securities issued through the book building process are indicated as 'placement portion category' and securities available to public are identified as 'net offer to public'. In this option, underwriting is mandatory to the extent of the net offer to the public. The issue price for the placement portion and offers to public are required to be same

14
100% of the net offer to the public through Book Building process –
In the 100% of the net offer to the public, entire issue is made through Book Building process. However, there can be a reservation or firm allotment to a maximum of 5% of the issue size for the permanent employees, shareholders of the company or group companies, persons who, on the date of filing of the draft offer document with the Board, have business association, as depositors, bondholders and subscribers to services, with the issuer making an initial public offering.
The number of bidding centers, in case of 75% book building process should not be less than the number of mandatory collection centers specified by SEBI. In case of 100% book building process, the bidding centers should be at all the places where the recognized stock exchanges are situated.
Book Building Process in India
The steps which are usually followed in the book building process can be summarized below:
(1) The issuer company proposing an IPO appoints a lead merchant banker as a BRLM.
(2) Initially, the issuer company consults with the BRLM in drawing up a draft prospectus (i.e. offer document) which does not mention the price of the issues, but includes other details about the size of the issue, past history of the company, and a price band. The securities available to the public are separately identified as ―net offer to the public‖.
(3) The draft prospectus is filed with SEBI which gives it a legal standing.
(4) A definite period is fixed as the bid period and BRLM conducts awareness campaigns like advertisement, road shows etc.
(5) The BRLM appoints a syndicate member, a SEBI registered intermediary to underwrite the issues to the extent of ―net offer to the public‖.
(6) The BRLM is entitled to remuneration for conducting the Book Building process.

15
(7) The copy of the draft prospectus may be circulated by the BRLM to the institutional investors as well as to the syndicate members.
(8) The syndicate members create demand and ask each investor for the number of shares and the offer price.
(9) The BRLM receives the feedback about the investor‘s bids through syndicate members.
(10) The prospective investors may revise their bids at any time during the bid period.
(11) The BRLM on receipts of the feedback from the syndicate members about the bid price and the quantity of shares applied has to build up an order book showing the demand for the shares of the company at various prices. The syndicate members must also maintain a record book for orders received from institutional investors for subscribing to the issue out of the placement portion.
(12) On receipts of the above information, the BRLM and the issuer company determine the issue price. This is known as the market-clearing price.
(13) The BRLM then closes the book in consultation with the issuer company and determine the issue size of (a) placement portion and (b) public offer portion.
(14) Once the final price is determined, the allocation of securities should be made by the BRLM based on prior commitment, investor‘s quality, price aggression, earliness of bids etc. The bid of an institutional bidder, even if he has paid full amount may be rejected without being assigned any reason as the Book Building portion of institutional investors is left entirely at the discretion of the issuer company and the BRLM.
(15) The Final prospectus is filed with the registrar of companies within 2 days of determination of issue price and receipts of acknowledgement card from SEBI.
(16) Two different accounts for collection of application money, one for the private placement portion and the other for the public subscription should be opened by the issuer company.

16
(17) The placement portion is closed a day before the opening of the public issue through fixed price method. The BRLM is required to have the application forms along with the application money from the institutional buyers and the underwriters to the private placement portion.
(18) The allotment for the private placement portion shall be made on the 2nd day from the closure of the issue and the private placement portion is ready to be listed.
(19) The allotment and listing of issues under the public portion (i.e. fixed price portion) must be as per the existing statutory requirements.
(20) Finally, the SEBI has the right to inspect such records and books which are maintained by the BRLM and other intermediaries involved in the Book Building process
Pricing
Before establishment of SEBI in 1992, the quality of disclosures in the offer documents was very poor.
The main drawback of free pricing was the process of pricing of issues. The issue price was determined around 60-70 days before the opening of the issue and the issuer had no clear idea about the market perception of the price determined.
In Book Building the price is determined on the basis of demand received or at price above or equal to the floor price.
The Allotment Process through Book-building:
Step1-The Company will 'discover' its price
Earlier, the company determined a fixed price for the stock issue. The issue was marketed to the general public through advertisements and a media campaign.
Today, companies prefer a book building process. Book building is the process of price discovery. That means there is no fixed price for the share. Instead, the company issuing the

17
shares comes up with a price band. The lowest price is referred to as the floor and the highest, the cap. Bids are then invited for the shares. Each investor states how many shares s/he wants and what s/he is willing to pay for those shares (depending on the price band). The actual price is then discovered based on these bids.
Step2-Players of the game
Three classes of investors can bid for the shares:
 Qualified Institutional Buyers: QIBs include mutual funds and Foreign Institutional Investors. At least 50% of the shares are reserved for this category.
 Retail investors: Anyone who bids for shares under Rs 50,000 is a retail investor. At least 25% is reserved for this category.
 The balance bids are offered to high net worth individuals and employees of the company.
Individuals who apply for the IPO put in their bids.
The process is transparent. One can check on the issue subscription at the BSE and NSE Web sites.
After evaluating the bid prices, the company will accept the lowest price that will allow it to dispose the entire block of shares. That is called the cut-off price.
The process can be illustrated with an example:
Number of shares issued by the company = 100.
Price band = Rs 30 - Rs 40.
If individuals have bid for prices as follows:

18
Bid
Number of shares
Price per share
1
20
Rs 40
2
10
Rs 38
3
20
Rs 37
4
30
Rs 36
5
20
Rs 35
6
20
Rs 33
7
20
Rs 30
The shares will be sold at the Bid 5 price of 20 shares for Rs 35.
Why?  Because Bidders 1 to 5 are willing to pay at least Rs 35 per share.  The total bids from Bidders 1 to 5 ensure all 100 shares will be sold (20 + 10 + 20 + 30 + 20).
The cut-off price is therefore Bid 5's price = Rs 35.
Bidders 1 to 5 get allotments at that price. Bidders 6 and 7 don't get an allotment because their bids are below the cut-off price.
The bids are first allotted to the different categories and the over-subscription (more shares applied for than the shares available) in each category is determined.
Retail investors and high net worth individuals get allotments on a proportional basis.
If a retail investor has applied for 200 shares in the issue, and the issue is over-subscribed five times in the retail category, he qualify to get 40 shares (200 shares/5).
Sometimes, the over-subscription is huge or the issue is priced so high that the bidder can't really bid for too many shares before the Rs 50,000 limit is reached.
In such cases, allotments are made on the basis of a lottery.
If a retail investor has applied for 5 shares in an issue, and the retail category has been over- subscribed 10 times, the investor is entitled to half a share.

19
Since that isn't possible, it may then be decided that every 1 in 2 retail investors will get allotment. The investors are then selected by lottery and the issue allotted on a proportional basis among.
Reverse Book Building
Reverse book-building is a mechanism by which companies listed on a stock exchange can delist their shares. The reasons for delisting may be several and sometimes intentional.
The reverse book building is an efficient price discovery mechanism of de-listing of securities, which is provided for capturing the sell orders on online basis from the shareholders through respective BRLM. In the reverse book-building scenario, the acquirer or promoter of a company offers to get back shares from the shareholders. It is a mechanism where, during the period for which the reverse book building is open, offers are collected at various prices, which are above or equal to the floor price from the share holders through trading members appointed by the acquirer or promoter of a company. The reverse book building price (i.e. final price/ exist price) is determined by BRLM in consultation with the acquirer or promoter of the company after the offer closing date in accordance with the SEBI (De-listing of Securities) Guidelines, 2003. which desires to get de-listed, in accordance to book building process. The offer price has a floor price, which is fixed for de-listing of securities below which no offer can be accepted. The floor price is the average of 26 weeks traded price quoted on the stock exchange where the shares of the company are most frequently traded preceding 26 weeks from the date of public announcement is made. There is no ceiling on the maximum price.

20
2.3 BUY BACK OF SHARES:
It is a process whereby a company purchases its own shares or other specified securities from the holders thereof for improving the earnings per share (EPS), or to improve return on capital or return on net worth and to enhance the long-term shareholder value, among other things.
Objectives of buy back:
 To increase promoters holding
 Increase earning per share
 Rationalize the capital structure by writing off capital not represented by available assets.
 Support share value
 To thwart takeover bid
 To pay surplus cash not required by business
Comment – It is an interesting fact to note that MNCs are using buyback process as the best strategy to maintain their share price in a bear run by buying back the shares from the open market at a premium over the prevailing market price.
Procedure for Buy Back:
 Where a company proposes to buy back its shares, it shall, after passing of the special/Board resolution make a public announcement at least one English National Daily, one Hindi National daily and Regional Language Daily at the place where the registered office of the company is situated.
 The public announcement shall specify a date, which shall be ―specified date‖ for the purpose of determining the names of shareholders to whom the letter of offer has to be sent.
 A public notice shall be given containing disclosures as specified in Schedule I of the SEBI regulations.

21
 A draft letter of offer shall be filed with SEBI through a merchant Banker. The letter of offer shall then be dispatched to the members of the company.
 A copy of the Board resolution authorizing the buy back shall be filed with the SEBI and stock exchanges.
 The date of opening of the offer shall not be earlier than seven days or later than 30 days after the specified date
 The buy back offer shall remain open for a period of not less than 15 days and not more than 30 days.
 A company opting for buy back through the public offer or tender offer shall open an escrow Account.
 Comment – MNCs are taking advantage of the depressed market conditions to mop up the shares. There is nothing legally wrong in buying back shares, but it should be by paying a fair price to minority shareholders.
Difference between Delisting and Buyback:
De-listing is different from ―buy back‖ of securities in which the securities of a company are extinguished with consequent reduction of capital of the company. In the case of de-listing there is no reduction of capital. It is needless to mention that in the case of buy back securities, the company itself is the acquirer and hence provides the funds for buy back. In the case of de-listing, the securities are acquired by a person other than the company and who could be the promoter, majority shareholder or a person in control of the management and the funds have to be provided by that acquirer.

22
2.4 ROLE OF VARIOUS INTERMEDIARIES IN IPO:
Intermediary‘s help corporations design securities that will be attractive to investors, buy these securities from the corporations, and then resell them to savers in the primary markets.
Merchant Bankers/ Lead Manager:
Merchant bankers play an important role in issue management process. Lead managers have to ensure correctness of the information furnished in the offer document. They have to ensure compliance with SEBI rules and regulations as also Guidelines for Disclosures and Investor Protection. To this effect, they are required to submit to SEBI a due diligence certificate confirming that the disclosures made in the draft prospectus or letter of offer are true, fair and adequate to enable the prospective investors to make a well informed investment decision. The role of merchant bankers in performing their due diligence functions has become even more important with the strengthening of disclosure requirements and with SEBI giving up the vetting of prospectuses. Their functions are:
 To act as intermediaries between the company seeking to raise money and the investors. They must possess a valid registration from SEBI enabling them to do this job.
 They are responsible for complying with the formalities of an issue, like drawing up the prospectus and marketing the issue.
 If it is a book building process, the lead manager is also in charge of it. In such a case, they are also called Book Running Lead Managers.
 Post issue activities, like intimation of allotments and refunds, are their responsibility as well.

23
Underwriters:
Underwriters are required to register with SEBI in terms of the SEBI (Underwriters) Rules and Regulations, 1993. In addition to underwriters registered with SEBI in terms of these regulations, all registered merchant bankers in categories I, II and III and stockbrokers and mutual funds registered with SEBI can function as underwriters. Part III gives further details of registration of underwriters. In 1996-97, the SEBI (Underwriters) Regulations, 1993 were amended mainly pertaining to some procedural matters.
Bankers to an Issue:
Scheduled banks acting as bankers to an issue are required to be registered with SEBI in terms of the SEBI (Bankers to the Issue) Rules and Regulations, 1994. These regulations lay down eligibility criteria for bankers to an issue and require registrants to meet periodic reporting requirements. Part III gives further details of registration of bankers to an issue.
Portfolio managers:
Portfolio managers are required to register with SEBI in terms of the SEBI (Portfolio Managers) Rules and Regulations, 1993. The registered portfolio managers exclusively carry on portfolio management activities. In addition all merchant bankers in categories I and II can act as portfolio managers with prior permission from SEBI. Part III gives further details of the registration of portfolio managers.
Registrars to an Issue and Share Transfer Agents:
Registrars to an issue (RTI) and share transfer agents (STA) are registered with SEBI in terms of the SEBI (Registrar to the Issue and Share Transfer Agent) Rules and Regulations, 1993. Under these regulations, registration commenced in 1993-94 and is granted under two categories: category I - to act as both registrar to the issue and share transfer agent and category II - to act as either registrar to an issue or share transfer agent. With the setting up of the depository and the expansion of the network of depositories, the traditional work of registrars is likely to undergo a change.

24
2.5 IPO GRADING:
IPO grading (initial public offering grading) is a service aimed at facilitating the assessment of equity issues offered to public. The grade assigned to any individual issue represents a relative assessment of the ‗fundamentals‘ of that issue in relation to the other listed equity securities in India. IPO grading is positioned as a service that provides ‗an independent assessment of fundamentals‘ to aid comparative assessment that would prove useful as an information and investment tool for investors. Moreover, such a service would be particularly useful for assessing the offerings of companies accessing the equity markets for the first time where there is no track record of their market performance.
IPO grade assigned to any issue represents a relative assessment of the ‗fundamentals‘ of that issue in relation to the universe of other listed equity securities in India. This grading can be used by the investor as tool to make investment decision. The IPO grading will help the investor better appreciate the meaning of the disclosures in the issue documents to the extent that they affect the issue‘s fundamentals. Thus, IPO grading is an additional investor information and investment guidance tool.
Credit Rating agencies (CRAs) like ICRA, CRISIL, CARE and Fitch Ratings who are registered with SEBI will carry out IPO grading. SEBI does not play any role in the assessment made by the grading agency. The grading is intended to be an independent and unbiased opinion of that agency. IPO grading is not mandatory but is optional and the assigned grade would be a one time assessment done at the time of the IPO and meant to aid investors who are interested in investing in the IPO. The grade will not have any ongoing validity.

25
Features of IPO grading:
IPO grading covers both internal and external aspects of a company seeking to make an IPO in general. The internal factors include competence and effectiveness of the management, profile of promoters, marketing strategies, size and growth of revenues, competitive edge, technology, operating efficiency, liquidity and financial flexibility, asset quality, accounting quality, profitability and hedging of risks. Among external factors, the key one is the industry and economic/business environment for the issuer. Here, it is important to note that internationally, the global rating agencies such as Standard & Poors and Moodys do not perform grading of IPOs at all. While Standard & Poors is the majority stakeholder in CRISIL Ltd, Moodys is the single biggest stakeholder in ICRA Ltd. Similarly, the third global player Fitch IBCA (which acquired another rating agency Dun & Bradstreet in 2000) also does not grade IPOs as yet. The IPO grading is indicated on a five point scale and a higher score indicating stronger fundamentals.
An IPO grading Scale: IPO grade Assessment 5/5 Strong fundamentals 4/5 Above average fundamentals 3/5 Average fundamentals 2/5 Below average fundamentals 1/5 Poor fundamentals

26
Cost Involved In IPO Grading:
Though nothing has been declared officially but most of the credit rating has said that IPO- grading would not cost much to the issuers. They would be charging 10 basis points of the amount to be raised with a ceiling of about Rs 10-15 lakhs. Thus, even in the case of a mega IPO, there would be a cap on fees, he noted. Around 100 IPOs hit the market on an average every year. However, despite this seemingly big number, the total receipts for the entire rating industry on account of grading fees would be only about Rs 10-15 crore.

27
3.1 BACKGROUND OF THE TOPIC
Early Phase: 1992-1995 (Fixed Pricing)
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. 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. Initial Public Issue caught the attention of general public only after the success of Reliance, when millions of small investors made huge returns which were unheard of till then. Dhirubhai Ambani was the first promoter who raised huge amounts through the public issue route to finance large facilities.
The issue process was smoothened, procedures were simplified and free pricing was allowed, although with certain restrictions, The Indian market had the concept of par value of equity shares, and anything above par was considered premium. The only companies that were allowed to come with premium issues were those, which had a three year profit-track record for the preceding five years. New companies without this record could float premium issues if their promoting companies had the same track record and they had to hold 50% of the post issue capital. Any new company floated by first generation entrepreneurs could only issue equity at par. There was no restriction about prices in a premium issue.
The offer was always at a fixed price, whether premium or par. The companies had to appoint intermediaries like merchant bankers, registrars, bankers etc. Merchant bankers had the responsibility of fixing the prices, in consultation with the company, carrying out with due diligence, preparing the prospectus (offer documents) etc. The prospectus had to be submitted to SEBI for getting scrutiny.

28
The trend continued in the early nineties as many large projects were launched after the economy was liberalized. Many of these companies came out with public issues and the retail participation increased dramatically. But many of the companies which raised money during this period just disappeared without a trace.
Late Liberalization Period: 1996-2005 (Book Building)
The late nineties and the first few years of the current decade did not see much activity in the primary market even though we saw a huge bull run led by technology stocks at the turn of the decade. The bad experiences of retail investors kept them away from the market and made it difficult for companies to launch successful issues. The corporate sector was recovering from the damage caused by large capacity expansions and new projects set up in the nineties.
The dormant primary issues market came alive after 2003 mostly because of the divestment programme of the government. The issue of Maruti Udyog, through which the government sold part of its stake in the company, rekindled retail investor interest in the primary market. The issue was made at a very reasonable price and investors made very good returns immediately.
The year 2004 saw the primary market activity at its historic peak as some large private companies also came out with issues. Further divestment by the government; including the largest ever issue by an Indian company from ONGC, attracted more retail investors into the market. The IPO market continues to buzz in the current year as well. Taking advantage of the strength in the secondary market, many high profle companies are lining up to raise money from the market. The year started with the issue from Jet Airways which attracted a lot of interest from investors. As a result of tougher regulations, the quality of the issues has gone up substantially.

29
2006 onwards scenario:
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. 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. 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. In 2007 Indian IPOs continue to surge in numbers. Continued strength is expected in the real estate and energy sector. "The rapid growth in emerging market economies has resulted in a migration of capital from the developed economies into the emerging markets," E&Y said.
The localization trend in India is evidenced by several billion-dollar IPOs hosted by Indian exchanges. In 2006, India's largest IPO, Reliance Petroleum raised $1.8 billion, followed by the oil production and exploration company, Cairn Energy, which raised $1.3 billion with both companies listing on domestic exchanges.
However, some Indian companies are also listing abroad, especially London, Singapore and Luxembourg, primarily for higher valuations and visibility, the report noted.
The private equity rush into India is creating the potential for many IPO exits. In 2006, private equity firms invested more than $7 billion in India. Top global private equity funds as well as local funds, have been key drivers of Indian IPO markets.

30
RATIONAL OF THE STUDY:
 To navigate new investors for primary market and for proper investment in IPO.
 To learn the procedure of filling the IPO‘s, its basic norms and regulation.
 To know the guidelines of SEBI for IPO‘s.
 To understand the various Pricing techniques.
 To understand practically the fundamental and Technical analysis of IPO‘s.

31
REVIEW OF EXISTING LITERATURE:
The literature review on IPOs can be divided in the following main heads-
a) Reason and timing of going public.
Going public marks a watershed in the life cycle of the firm. While increased equity can support the firm‘s future plans of growth, the trade off for the firm is that of increased public scrutiny.
 Brealy and Myers (2005) state that in the context of USA the firms may seek private equity in their initial years and only later go for public issues.
 Pagano, Panetta and Zingales (1998) in their study of Italian firms, find that firms going public are not seeking money for growth but are rebalancing their accounts after high investment and growth.
 Lerner (1994) found that there are times (windows of opportunity) when the markets could be extremely optimistic about a particular industry and it may be a good time for the firms in that industry to go public.
The post IPO period sees a reduction in leverage as well as investment. They state that going public is a conscious choice that some firms make while some others prefer to remain private. Thus going public is not a natural element in the life cycle of a firm.

32
b) Valuation of IPOs.
 Benveniste and Spindt (1989) find that under writers try to resolve the information asymmetry problem between the firm and the investors by providing an incentive to the investors to reveal their private information about the firm.
 Kim and Ritter (1999) in their study of 190 firms find that under writers forecast the next years earnings numbers and multiply them with PE ratios of comparable firms in the industry to get the approximate price of the IPO. However they also found that PE ratios using historical earnings numbers do not give accurate results whereas when forecasted earnings numbers are used then the valuation is much more accurate.
 Purnanandam and Swaminathan (2002) say that IPOs are priced 50% higher than industry peers. Also they find that more the IPO is overpriced with respect to its peers, worse is its long term performance.
c) Allocation mechanism.
The allocation mechanisms are specified by the regulators in different countries. Loughran, Ritter and Rydqvist (1994) find 3 main categories across countries-Auctions, Fixed price offers and Book Building. Sherman (2005) finds that Book building is a superior mechanism for selling IPOs rather than auctions.

33
3.4OBJECTIVES OF THE STUDY:
Main Objectives:
 An attempt has been made to analyze the various IPOs and recommend others to invest in good initial public offerings after thorough research of financial statements of the companies.
Sub objectives:
 To understand various dimensions and problems in IPO process
 To understand post IPO performance.
 To analyze financial position of Companies as depicted in its Annual report as it serve an important basis for investors to judge company performance and future prospects.

35
RESEARCH METHODOLOGY:
 Descriptive Research.
Descriptive research is used to obtain information concerning the current status of the phenomena to describe ―what exists‖ with respect to variables or conditions in a situation. Descriptive research, also known as statistical research, describes data and characteristics about the population or phenomenon being studied. Descriptive research answers the questions who, what, where, when and how. Although the data description is factual, accurate and systematic, the research cannot describe what caused a situation.
 Analytical Research
Analytical research takes descriptive research one stage further by seeking to explain the reasons behind a particular occurrence by discovering causal relationships. Once causal relationships have been discovered, the search then shifts to factors that can be changed (variables) in order to influence the chain of causality.

36
4.1 DATA COLLECTION METHOD:
The task of data collection begins after a research problem has been defined and research design/plan chalked out. While designing about the method of data collection to be used for the study, the researcher should keep in mind two types of data.
1) Primary Data:
The data, which are collected for the first time, directly from the respondents to the base of knowledge & belief of the research, are called primary data. The normal procedure is to interview some people individually or in a group to get a sense of how people feel about the topic. So far as this research is concerned, primary data is the main source of information. The data collected is through questionnaire & information provided by the respondent.
2) Secondary Data:
When data are collected and compelled from the published nature or any other‘s primary data is called secondary data. So far my project is concerned secondary data is an important part of my project that‘s why I had collected the data from websites and newspapers.

37
4.2 HYPOTHESIS:
Hypothesis is usually considered as the principal instrument in the research. Ordinarily when one talks about hypothesis, one simply means a mere assumption or some supposition to be proved or disproved. But for a researcher, hypothesis is a formal question that he intends to resolve. Thus ―a hypothesis may be defined as a proposition or a set of propositions set forth as an explanation for the occurrence of some specified group of phenomena either asserted merely as a provisional conjuncture to guide some investigation or accepted as highly probable in the light of established facts.‖
Types of Hypothesis:
Null Hypothesis and Alternate Hypothesis:
Alternate hypothesis is usually the one which one wishes to prove and the null hypothesis is the one which one wishes to disprove. Thus a null hypothesis represents the hypothesis we are trying to reject and alternate hypothesis is all other possibilities.
Hypothesis of the Study:
H0: ― Investor‘s behaviour is favorable in investing in IPO.‖
H1: ―Investor‘s behaviour is unfavorable in investing in IPO.‖

38
4.3 LIMITATIONS OF THE STUDY:
My Study and analysis has following limitations.
 Due to time Constraint, I could not analyze more on it.
 My own inexperience might have affected the study & analysis
 My analysis is based on past performances, and past performance is not
Guarantee of future results.
 The work is based on secondary data. The secondary data can be inaccurate as it is published format

39
4.4 FUTURE SCOPE OF THE STUDY:
 The Comparative analysis of primary (IPO) and secondary market.
 The comparison between IPO‘s & future and options.
 The analysis of pros & cons of long term investment in securities market.
 The effect of FII‘s on Indian secondary market.
 The Comprehensive study on the measures of corporate governance for razing funds from primary market.

41
ANALYSIS AND INTERPRETATION:
5.1 FUTURE CAPITAL HOLDINGS LTD.
Issue Details Issue Opens January 11.2008 Issue Closes January 16,2008 Price Band Rs. 700-765 Face Value Rs. 10 Issue Size 491.3 crores Listing NSE, BSE
Company Background:
FCH is the financial services arm of the Future Group; which is a business group focusing on consumption-led businesses in India and is also one of India's leading organized multi-format retailers. It was established in the year 2005 and is promoted by Pantaloon Retail India Ltd (PRIL) (the flagship company of the Future Group), Mr.Kishore Biyani (CEO and MD of PRIL) and Mr.Sameer Sain (a former MD of Goldman Sachs International). Och-Ziff, an international hedge fund, has invested in FCHL in June 2007. FCHL has three primary lines of business; investment advisory services, retail financial services and research.

42
Investment Advisory Services:
It provides private equity and real estate investment advisory services to onshore and offshore clients. These investment advisory services include investment analysis, research and recommendations
Retail Financial Services:
Its retail financial services ‗Future Money‘, as a retailer offers financial products and services in India. It holds rights to provide financial products and services through the retail outlets which are owned, controlled or managed by PRIL and its subsidiaries. Its primary credit products currently include consumption loans, which are loans to finance the purchase of durables, furniture and other consumer goods, and personal loans.
Research:
Future Capital Research conducts and publishes economic research on India with the objective of enhancing value creation across other businesses.
Purpose of the Issue:
 To expand its retail financial services business, in particular, the growth of loan portfolio.
 To meet the long term working capital requirements of the company.
 To meet issue related expenses and general corporate purpose.

43
Fundamental Analysis:
Strong background of Indian retail sector:
One of the pioneering groups to participate in the early stage of India‘s retail story, Future group has over a decade experience and has developed understanding of the retail and consumption-led sectors. FCHL launched Future Money in June 2007, which offers financial products and services to individuals. Currently, it has a presence in 26 cities through 95 outlets across India. Its two main retail financial services products are consumption loans and personal loans. It also intends to distribute life and non-life insurance products in near future.
Strong research division covering macro factors:
Company‘s research business, Future Capital Research (FCR), conducts and publishes research on macro-economic trends in India. It has also developed proprietary indices to highlight trends in consumer behavior. Its reports are also utilized by its advisory division. In their recent publication ‗XX Factor: The Impact of Working Women on India‘s Growth, Incomes and Consumption‘, it analyzed the recent rise in women‘s participation in the work force and the impact of this phenomenon on growth and consumption trends. Other publication included ‗Is Urban Growth Good for Rural India?‖ studying the urban demand could be an important engine, which would help to drive a shift from farm to non-farm employment in rural India. Its in-house research business would help FCHL to invest in the right segment and right locations.
Dual role of advisory and managing real estate fund:
Currently, FCHL is the investment manager of the Rs3.5bn Kshitij Fund and also advisor to the investment managers of Rs13.7bn Horizon Fund and Rs7.8bn Indus Fund. It has also recently entered into a joint venture to create expertise in warehousing logistics. Their real estate investment activities are in two separate areas of retail/ mixed use and hotels.

44
Risks:
 Posted a net loss of Rs124mn in FY08.
 Any downturn in Indian retail and consumption-led sectors would affect their business.
RATIO ANALYSIS:

45
 The ideal current ratio is 2:1 and the current ratio of both the years is almost near to the ideal ratio which indicates that the funds are utilized efficiently.
 An ideal debt equity ratio is 2:1.but the debt equity ratio of both the years is low which implies the use of more equity than debt, which means a larger safety margin for creditors since owners equity is considered as a margin of safety by creditors and vice-versa.
 Return on Capital Employed shows a negative in the current year which is not a satisfactory one.
 Operating Profit Margin also decreases in the current year.
Valuation of IPO:
 FCH is demanding for huge premium on its shares, when compared with companies such as Reliance Capital, India bulls Financial Services, and IL&FS Investment Managers, based on price to earnings (P/E) multiple.
 The company offers shares at P/E multiple of 137.79 at the floor price and 150.59 at the cap price (based on annualized earnings per share for first half of FY08, on pre issue capital of the company).
 On the other hand, shares of its peers, Reliance Capital, India bulls Financial Services, and IL&FS Investment Managers were trading at P/E multiple of 64.72, 27.02 and 41.41(based on annualized earnings per share for first half of FY08 and share price as on Jan. 10, 2007) while the industry average is 42.8.
 In addition, the limited financial history, together with losses of Rs 124 million in its books for first half of FY08 is cause of concern.
 The business undoubtedly offers huge room for scalability; earnings visibility is extremely low at this juncture.
 At Rs 765, the higher end of the price band, the offer values the entire business at a price-book value (P/BV) of about 6.6 times and Entrenched peers in banking/financial services with similar opportunities for growth — India bulls Financial, ICICI Bank and IDFC — are available at comparable valuations.

46
5.2KIRI DYES AND CHEMICALS LTD
Issue Details Issue Opens March 25.2008 Issue Closes April 02,2008 Price Band Rs. 125-150 Face Value Rs. 10 Issue Size 3,750,000 shares Listing NSE, BSE QIBs 1,875,000 shares Non Institutional 5,62,500 shares Retail 1,312,500 shares
Company Background:
Incorporated in 1998, Kiri Dyes and Chemicals Limited is engaged in the business of manufacturing of reactive dyes which are called synthetic organic dyes used for cotton fabrics like garments, dress materials, bed-sheets, carpets etc. The dyes are of basically colours like black, blue, and red, orange, yellow and numerous variants of these basic colours identified by color index number internationally. The product range of company caters to textiles, leather, and paint and printing-ink industries with total production capacity of 10800 MTPA.
With plans for further backward integration, the IPO is to fund capital expenditure to set up a plant to manufacture sulphuric acid, oleum and chloro sulphonic acid, with a combined capacity of 1, 80,000 tonnes, and a dyes and intermediates unit. A 2.9-MW power plant that can run from the steam generated by the sulphuric acid plant is also on the anvil. The electricity generated will be sufficient not only to run the sulphuric acid plant but also the intermediate plants of VS and H-Acid.

47
The capacity to produce dyestuff will be increased 3,000 tonnes to 15,000 tonnes by the fiscal ending March 2010 (FY 2010). The capacity to manufacture dyes intermediates VS will become 4,200 tonnes in FY 2009 and then further increase to 4,800 tonnes in FY 2010. The capacity to produce H-acid will increase to 4,200 tonnes in FY 2010.
The Industry produces a wide spectrum of products, which include Pharmaceuticals, Dyes, Man-made Fibers, Plastics, Pesticides, Fertilizers, Cosmetics and Toiletries, Paint, Auxiliary Chemicals and wide range of organic and Inorganic compounds for applications ranging from automobiles, textile industry, engineering industry, construction chemicals and food additives to veterinary and health care products.
The company is engaged in the business of manufacturing and marketing of:
1. Reactive Dyes – Synthetic Organic Dyes (S. O. Dyes)
2. Dyes Intermediate: Vinyl Sulphone
3. Dyes Intermediate: H-Acid
1.To fund the capital expenditure for setting up of a plant to manufacture Sulphuric Acid, Oleum and Chloro Sulphonic Acid with a combined capacity of 500 M.T. per day adjacent to its existing unit at Village Dudhwada, Taluka Padra, District Vadodara;
2. To fund the capital expenditure for Dyes and Intermediates Unit located at GIDC, Vatva, Ahmedabad;
3. To fund the additional working capital margin;
4. To meet Issue expenses;
5. To meet expenses of the Issue in order to achieve the benefits of listing on the Stock Exchanges.

48
The booming Indian Economy has had a favorable impact on the business of the company for the year 2006-07.The growth in the economy as well as manufacturing sector has thrown up substantial opportunities in the company‘s core sector of operation such as Manufacturing Dyes and Intermediates, which has helped the company perform well during the year 2006- 07.
Ratio Analysis: As on 31-Mar-07 31-Mar-06 31-Mar-05 OPBIT/Prod.cap.empl.(%) 15.25 11.52 14.84 PBIT/Cap. Employed (%) 15.13 11.50 14.88 PAT/Networth (%) 25.49 18.02 17.45 Tax/PBT (%) 4.27 5.93 4.74 Total Debt/Networth (x) 1.76 1.45 1.10 Long Term Debt/Networth (x) 0.44 0.23 0.04 PBDIT/Finance Charges (x) 3.00 3.39 2.61 Current Ratio (x) 4.75 4.90 2.78 RM Inventory (days consumption) 0.00 0.00 0.00 FG inventory (days cost of sales) 0.00 0.00 0.00 Receivables (days gross sales) 88.69 109.90 101.98 Creditors (days cost of sales) 0.00 0.00 0.00 Op. curr. assets (days OI) 195.00 209.00 223.00

49
 The ideal current ratio is 2:1.but the current ration of both the years exceeds the ideal ratio which indicates that funds are not used efficiently and lying idle.
 Inventory is one area where management has achieved constant success. It has tried to reduce operating cycle of the division for which it was imperative to reduce the inventory storage periods consisting of the three components --- raw material, work in progress, and finished goods. The inventory turnover ratio has increased from previous year from 9.517 times to 13.766 times. A very high inventory turnover indicates that overtrading and it may leads to shortage of the working capital.
 The ideal quick ratio is 1:1. But the quick ratio of both the years i.e. 3.296 times and 2.878 times exceeds the ideal ratio. Higher quick ratio means excessive amount of liquid assets have been invested.
 Fixed Assets Turnover ratio has decreased from 4.9399 times to 3.1603 times so it is not a good sign, it indicates that fixed assets remained idle and therefore, the management should investigate and determine the reasons for the decline.
 Return on investment of kiri dyes first decreases in year 2006-07 but then slightly increase in year 2007-08.The reason for such a low return is that more than half of the total capital employed used in calculating return on capital hardly yield any return.

50
Valuation of IPO:
 Kiri Dyes and Chemicals ltd earning per share (EPS) works out to be 8.91.
 Post issue EPS is Rs 11.87 (based on PAT of year ending on March 31st, 2008).
 Post issue PE at upper price band is 12.64 and at the lower price band is 10.53.The shares have been offered at a price band of Rs. 125/- to Rs. 150/- per share.
 It is clearly shown from the table given above that P/E ratio of KDCL is quite high. Even the P/BV of KDCL is on the higher side in comparison to its peers. The company has shown a good top line, but there are other listed companies whose top line is far better than that of KDCL and they are available at relatively cheaper P/E multiple than KDCL.
 On the other hand the company has registered negative cashflows from its operating activities of Rs 94.20 million and Rs 48.87 million during FY06 and FY07.
 Another major drawback is the industry in which the company operates as it is highly competitive and there are several unorganized players. This has led to lower margins enjoyed by the players which in turn have affected the profitability of the companies in this sec

51
5.3 RELIANCE POWER:
Issue Details Issue Opens January 15.2008 Issue Closes January 18,2008 Price Band Rs. 405-450 Face Value Rs. 10 Listing NSE, BSE
Company profile:
Reliance Power Limited (Reliance Power), part of RADAG has been set up to develop, construct and operate power projects domestically and internationally. It aims to develop 13 power projects with an aggregated generation capacity of 28,200 MW. Reliance Power will have a diversified project portfolio in terms of geography, fuel mix and technology. Nine of the proposed thirteen projects are coal-fired or gas-based and two of those have fuel security; the rest are yet to be finalized. In our view, for such huge capacity, fuel linkage is of paramount importance. Long term PPAs for 8,560MW have been signed, constituting just 32% of the aggregated generating capacity. Of these, Sasan project (based on domestically procured coal) and Krishnapatnam project (based on imported coal) have been signed at a tariff of Rs1.19kw/h and 2.33kw/h per unit respectively, the differential attributable to the high cost of imported coal. A large number of PPAs are yet to be signed, reflecting some ambiguity on profitability.

52
Key Takeaways: * Rosa Phase I, RPower's first power project is expected to commence operations from December 2009, 6 months ahead of schedule. 60% of the project work is completed and the balance is on track. We expect revenues from the project to stand at INR 3100 million approximately for FY10E. * The 600 MW Rosa Phase II project has been awarded coal linkage. The company is expected to achieve financial closure by Q4 2009. * Commissioning schedule of Sasan project has been advanced by three years from year 2016 to 2013. Supplementary Power Purchase Agreement has been signed in this regard with the procurers.
Ratio Analysis Particulars Mar 2007 Mar 2006 Mar 2005 Operational & Financial Ratios Reported EPS(Rs) 0.01 -25.57 -2.64 Adjusted EPS(Rs) 0.01 -25.57 -2.64 CEPS(Rs) 0.01 -25.57 -2.64 DPS(Rs) 0.00 0.00 0.00 Book NAV/Share(Rs) 10.00 -19.22 6.35 Tax Rate(%) 70.11 -14.82 0.00 Margin Ratios Core EBITDA Margin(%) 60.60 0 0 EBIT Margin(%) 60.60 0 0 Pre Tax Margin(%) 24.09 0 0 Performance Ratios ROA(%) 0.11 -0.13 -0.03 ROE(%) 0.16 0 -34.43 ROCE(%) 0.90 -0.12 -0.03 Asset Turnover(x) 67.18 0 0 Sales/Fixed Asset(x) 0.03 0.00 0.00 Working Capital/Sales(x) 9.35 0 0 Efficiency Ratios Fixed Capital/Sales(x) 2978.69 0 0 Receivable days 182.50 0 0 Inventory Days 0.00 0 0

53
Payable days 0 0 0 Valuation Parameters PER(x) 0.00 0.00 0.00 PCE(x) 0.00 0.00 0.00 Price/Book(x) 0.00 0.00 0.00 Yield(%) 0 0 0 EV/Net Sales(x) -0.34 0 0 EV/Core EBITDA(x) -0.57 0 0 EV/EBIT(x) -0.57 0 0 EV/CE(x) 0.00 -0.01 -0.01 Growth Ratio Net Sales Growth(%) 0 0 0 Core EBITDA Growth(%) -1324.61 0 0 EBIT Growth(%) -1324.61 0 0 PAT Growth(%) -226.70 0 0 Adj PAT Growth(%) -226.70 0 0 Adj EPS Growth(%) -100.03 0 0 Financial Stability Ratios Total Debt/Equity(%) 0.00 0.00 0.00 Current Ratio(x) 13.17 1.77 1.29 Quick Ratio(x) 13.17 1.77 1.29 Interest Cover(x) 1.66 0 0 Total Debt/Mcap(%) 0 0 0
Valuation: With commencement of projects targeted before schedule, fuel linkage for Rosa Phase II acquired, financial closures of 3 projects expected in Q4 09, getting clearances on a faster pace, we believe RPower is well on track to achieve its ambitious plan to become the second- largest power generator in India by adding about 30,840MW of capacity by FY16. The stock is best for long term investment. I rate RPower as Outperformer. Hence it is recommended to subscribed to the issue.

54
5.4TITAGARH WAGONS LTD
Company Background:
Incorporated in 1997, Titagarh Wagons Limited is one of the leading private sector wagon manufacturers in India. It is in the business of manufacturing railway wagons, Bailey bridges, Heavy Earth Moving and Mining equipment, steel and SG iron castings of moderate to complex configuration etc.
They also manufacture other products for the Indian defence establishment, such as special purpose wagons, shelters and other engineering equipments. They had approximately 16.9% market share in the wagon manufacturing segment in Fiscal 2006, which has further increased to approximately 22.1% in Fiscal 2007.
Titagarh Wagons Limited is the only private sector company registered with the Ministry of Defence, Government of India to manufacture Bailey bridges and other related accessories in India. Titagarh Wagons Limited aspires to be a leader as a manufacturer of heavy engineering equipment and a world-class service provider for the infrastructure sector. They operate two manufacturing facilities located at Titagarh and Uttarpara, in West Bengal.
Titagarh Wagons Limited operates two manufacturing facilities located at Titagarh and Uttarpara, in West Bengal. The Uttarpara unit functions as its second manufacturing plant for wagons, in addition to manufacturing heavy earth moving and mining equipment. As an ―Industry Partner‖ to the Defence Research and Development Organisation, Ministry of Defence (―DRDO‖), the Company also manufactures other products for the Indian Defence establishment, such as special purpose wagons, shelters and other engineering equipments. The Company is structured along three broad business lines: a) wagon manufacturing division, b) special projects division (includes defence, bailey bridges and other fabricated equipment) and c) heavy earth moving and mining equipment division

55
The objects of the Issue are to achieve the benefits of listing on the Stock Exchanges & to raise capital to:
1. Set up an EMU manufacturing facility at our Uttarpara unit;
2. Modernize and expand our existing facilities at our Titagarh and Uttarpara units;
3. set up an axle machining and wheel set assembly facility at our Uttarpara unit;
4. Construct a corporate office and a design cum research and development office;
5. Strategic acquisition or investments;
6. Brand building exercise;
7. General corporate purposes.
 India railway budget 2008-09 planned to manufacture 20,000 wagons, which
would be the highest level of wagon productions so far.
 Movement of cargo via rail account for approximately 30% of the total cargo
transported in volume terms and 11% in value terms.
 The freight loading expected for FY 2008 has been pegged at 785 million
tonnes, and by the terminal year of the 11th Five Year Plan, the Railways
are targeting a freight loading of 1,100 million tonnes

56
Ratio Analysis:
As on 31-Mar-07 31-Mar-06 31-Mar-05 OPBIT/Prod.cap.empl.(%) 43.23 26.26 40.80 PBIT/Cap. Employed (%) 40.92 24.42 46.38 PAT/Networth (%) 27.66 18.76 49.57 Tax/PBT (%) 38.29 33.39 28.66 Total Debt/Networth (x) 0.37 0.39 0.71 Long Term Debt/Networth (x) 0.10 0.29 0.61 PBDIT/Finance Charges (x) 8.81 9.70 9.04 Current Ratio (x) 1.91 1.68 1.55 RM Inventory (days consumption) 119.92 154.95 37.70 FG inventory (days cost of sales) 18.07 2.44 1.01 Receivables (days gross sales) 52.57 67.28 33.81 Creditors (days cost of sales) 50.80 59.02 32.17 Op. curr. assets (days OI) 251.00 418.00 155.00

57
 The ideal current ratio is 2:1 and the current ratio of the year 06-07 has improved as compared to previous year which indicates that the funds are utilized efficiently.
 The ideal quick ratio is 1:1. But the quick ratio of both the years slightly increases than the ideal ratio. Higher quick ratio means excessive amount of liquid assets have been invested.
 Fixed Assets Turnover ratio has increased from 4.34 times to 9.35 times so it is a good sign for the company.
 Gross profit has increased which is plus point for the company. This ratio should be adequate to cover the administrative and marketing expenses and to provide for fixed charges, dividends and building up reserves.
Valuation of IPO:
 Titagarh Wagon limited earning per share on post-IPO fully diluted equity works out to be Rs 28.23.
 At the offer price band of Rs 540 – Rs 610, the IPO is available at 19.13 at the lower price band and 21.61 at the upper price band to its FY08 annualized post- issue EPS.
 The comparable listed peer for the company is Texmaco Ltd., which is now ruling at Rs.1, 300. Texmaco is likely to have a topline of Rs.700 crore, with PAT of Rs.55 crores, translating into an expected EPS of Rs.55 for FY 08, on an equity of Rs.10.44 crores. Book value per share of Texmaco is likely to be Rs.200 as at 31- 03-08. This means share is presently ruling at a PE of 24 for Texmaco.
 While comparing Titagarh with Texmaco, its book value post issue, would be close to Rs.200, if shares are issued at Rs.610 per share. The same would be at Rs.192, if shares are issued at Rs.540. Considering an expected EPS of Rs.31 for

58
FY 08, share at the upper band is issued at a PE multiple of close to 20. Even post issue stake of promoters at 49% is close to 53% of Texmaco. FII stake of 38% in pre-issue instills confidence.
 Share at lower band of Rs.540 is quite attractive and at the upper band of Rs.610 also, leaves room for gain, as FY 09 performance of the company would be quite good.

60
6. FINDINGS AND SUGGESTIONS:
FINDINGS:
 The pro-rata system of allotment favors investors who bid for relatively large numbers of shares. Perhaps, the process should be changed such that those applying up to 1,000 shares are allotted in full and beyond this number on pro-rata basis.
 Book-building is preferred because the allotment of shares is generally done at a price determined by the lead merchant banker and issuer within the price band. Since QIBs are the dominant players and bid at somewhat higher prices within the band, the issuer and merchant banker fix the price at the higher end such that retail investors have to accept it. Thus, investors chipping in 35 per cent of the capital have little role in price discovery. As a matter of fact, the IPO demand curve is skewed by differing demands at different prices by various bidders. This indicates the need to use multiple pricing for allotment.
 There is considerable amount of difficulties for an investor today in the IPO market starting from sourcing the application to filling it and submitting it along with cheques. When we have one of the world's best trading and settlement infrastructure available why can't we use that infrastructure rather than insisting on a parallel market for IPOs? This will be a good time to provide a direction to the IPO market as well to attract new investors into the market.
 The grading process will not take into account price valuation, a key parameter in any stock investment decision. Said Prime Database MD Prithvi Haldea, The market does

61
not work on fundamentals. A good company is a bad investment at a high price. The small investors, for whom the grading exercise is basically meant, would despite disclaimers expect a high graded IPO to quote above the offer price. The whole purpose of grading an IPO would be defeated if it cannot help an investor decide what stock to choose and at what price.
SUGGESTIONS:
Keys to a Successful IPO: At the end to make its IPO effective, some important considerations that should be kept are:
Obviously, having a successful company to offer to the public marketplace is essential. Beyond that, it is important to recognize this in not a place for do-it-yourselfers. While the road show represents the formal coming out of the firm, its success will partially depend on the groups selected for the audience, and this, in turn, depends upon the lead investment banker/underwriter in the IPO. Choosing the right underwriter is probably second in importance to choosing the right time to go public. The essential elements to look for in the ideal lead underwriter are as follows:
1. The underwriter is focused on your industry: The IPO marketplace is a crowded marketplace and the significant sums you are spending for professional advice to go public need to be targeted to a firm with real expertise in your industry. Partial evidence of appropriate expertise would be having an analyst devoted to your industry.
2. The market relies heavily on analyst projections and recommendations: Specifically, the underwriting firm's analyst in your industry must:
 Have the capacity to cover your company with sufficient attention.
 Understand your company, customers, and competition.
 Indicate sincere commitment to covering your company.

62
3. Due to the importance of a successful road show, the underwriter must have the ability and contacts to identify the right investor groups for your presentation and get them committed to attend. References from previous IPO successes are essential.
4. There must be sufficient evidence of being able to build a quality "book" of potential orders for your stock.
5. There should be a history regarding the ability to identify the right offer price and size.
6. Finally, but rarely understood by many companies, there must be significant aftermarket support in terms of maintaining and supporting trading in the stock, providing subsequent research reports on the company, and continuing institutional exposure to the company.

64
7. CONCLUSION
Through this research, I came to know that the IPO market is booming market in Indian history. People now become aware about the IPO than other options of the investment like fixed deposits, mutual funds, shares, gold and silver and other options of investment.
Hypothesis of the Study: Hence Proved
H0: ― Investor‘s behaviour is favorable in investing in IPO.‖
In this research report, I came to know that how the mechanism of IPO works in the industry.
IPO is a broader concept than any other investment options of the investment.
The Project report starts with defining the various public issues with the need for the company to take out an IPO. It goes on further to explain the advantages of an IPO. It analyses in detail the Indian IPO Scenario. It explains the evolution of the IPO in India and explains how the scene has changed dramatically after liberalization esp. after the introduction of book building process.

66
8. BIBLIOGRAPHY
BOOKS:
1. Khan M. Y .and Jain. P.K (2005). Financial management. Pearson publications
WEBSITES:
 www.moneycontrol.com
 www.capitalline.com
 www.nseindia.com
 www.sebi.gov.in
 www.capitalmarket.com
 www.wikipedia.com
 www.intimesepctrum.com
 www.thehindubusinessline.com
 www.financialexpress.com
 www.myiris.com
 www.icraratings.com
NEWSPAPERS:
1. Economic Times

Investment in ipo an analysis (initial public offer) by :- gaurav bhut

More Related Content

What's hot

Viewers also liked

Similar to Investment in ipo an analysis (initial public offer) by :- gaurav bhut

More from Gaurav Bhut

Recently uploaded

Investment in ipo an analysis (initial public offer) by :- gaurav bhut