Project Report on Ipo

INDIAN INSTITUTE OF PLANNING AND MANAGEMENT

BASIC FINANCIAL MANAGEMENT

PROJECT REPORT ON INITIAL PUBLIC OFFERING (IPO)

BATCH: PGP/SS/07-09

MENTOR: Mr. Sudhir Kumar

GROUP: FAS 9

PROJECT WORK DONE BY

TIRUPATHI

RAJAN

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PREFACE

This report is on initial public offering (IPO). The formation of organisation and

the various types of organisation are discussed.

Capital is essential for running business. Different methods of raising capital are

elaborated here.

Then we have concentrated on explaining about the methods in IPO.

We have also explained why IPO is essential for an organisation. The benefits

and drawbacks of IPO are explained so that the organisation going for IPO are

aware of the consequences.

This helps the organisation to establish in a better position by taking the suitable

decision.

The different types of markets are studied to have a deeper understanding of

market situations.

The difference between primary and secondary market is known.

The knowledge about the methodology of IPO helps us to understand the

pricing methods in IPO.

Studying Institutions involved in IPO makes us aware of the specific institutions

which were helping organisation in going for IPO.

The role of institutions in IPO is studied in depth.

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Advantages and disadvantages of going public are discussed in this topic. This

educates the organisations to do their business in deciding the efficient method

which enables them to earn maximum profit for the given constraints.

ACKNOWLEDGEMENT

We thank our Dean Mr. Krishnan for extending the full support in initiating

this project helping us through out the project.

We are indebted to thank Mr.Sudhir Kumar, our Mentor, for making

corrections and clarifications in the course of our project and also for directing

us towards the right path throughout the project.

We thank IIPM for providing the adequate infrastructure and helping us to get

the adequate information from the corporate.

We thank the people who helped to design the project report.

We acknowledge the contributions of the corporate as they provided the

valuable information.

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Table of Contents

EXECUTIVE SUMMARY.................................................................................................................5

AIM OF THE STUDY.......................................................................................................................6

ORGANISATION............................................................................................................................7

FORMS OF ORGANISATION..........................................................................................................8

FUND RAISING METHODS.............................................................................................................9

WHAT IS IPO?.............................................................................................................................10

WHY IPO? ..................................................................................................................................12

WHO SHOULD ADOPT THIS ROUTE?...........................................................................................13

FINANCIAL MARKETS .................................................................................................................18

PRIMARY VS SECONDARY MARKET ............................................................................................21

IPO METHODOLOGY...................................................................................................................24

DIFFERENT INSTITUTIONS INVOLVED .........................................................................................27

ROLE OF INSTITUTIONS ..............................................................................................................33

ADVANTAGES& DISADVANTAGES OF GOING PUBLIC .................................................................36

SUCCESSFUL IPO COMPANIES ....................................................................................................41

FAILURE IPO COMPANIES ..........................................................................................................45

CONCLUSION..............................................................................................................................50

BIBLIOGRAPHY...........................................................................................................................51

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EXECUTIVE SUMMARY

Organisations pursue collective goals. There are different types of

organisations.

Business organizations have four basic internal functions which they must

manage and control.

There are various fund raising methods.

Initial public offering (IPO), also referred to simply as a "public offering".

There are different methods of going public and there is risk involved in

investing in IPO.

Any company which wishes to become public limited can adopt the route.

A financial market is a mechanism that allows people to easily buy and sell

financial securities commodities.

The primary is that part of the capital markets that deals with the issuance of

new securities.

The secondary market is the financial market for trading of securities that have

already been issued in an initial private or public offering.

Financial institutions provide a service as intermediaries of the capital and debt

markets.

There are number of successful and failure companies in IPO.5

AIM OF THE STUDY

The purpose of this study is to have a thorough knowledge of IPO. So we are

also learning the types of organisation and their functions. The reasoning such

as why and what helps us to clear the doubts about IPO. The knowledge of

markets helps us to know where the IPO is possible.

The various institutions involved are known so that organisations going for IPO

are able to have easier access to these institutions.

The advantages and disadvantages of going for IPO are analysed.

Knowledge about successful and failure IPO are studied.

To have a overall understanding of the stock market in India.

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ORGANISATION

DEFINITION

An organization is a social arrangement which pursues collective goals, which

controls its own performance, and which has a boundary separating it from its

environment.

Groups of people work together in organizations to make a product or provide a

service. Organizations vary greatly in size from local businesses employing a

small number of people to large multinational corporations that operate

globally.

Types of organization or companies:

On the basis of incorporation

Statutory companies

Registered companies

On the basis of liability

Companies with limited liability

Companies with unlimited liability

On the basis of number of members

Private company

Public company

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On the basis of control

Holding companies

Subsidiary companies

On the basis of ownership

Government companies

Non-government companies

Different types of organization:

Multinational commercial companies: Multinational companies trade

globally. They may be organized with subsidiary or partner companies trading

in different countries or regions of the world

Utility companies : These are the companies which works in order to meet

the necessary utility for the people and business

Public service organizations : Public service organizations provide the

services and support we need in our everyday lives. They are financed through

national and local taxes.

Retail outlets : Retail outlets are the places we use to buy goods. They

include Local shops ,High Street shops and Supermarkets

Financial service providers : These are organizations that provide

financial services to their customers. They include: Banks, Insurance

Companies

FUNCTIONS OF AN ORGANIZATION

Business organizations have four basic internal functions which they must

manage and control:

Production

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Sales and marketing

Personnel (or human resources)

Finance and Accounting

FUND RAISING METHODS

Large corporations could not have grown to their present size without

being able to find innovative ways to raise capital to finance expansion.

Corporations have five primary methods for obtaining that money.

IPO: Initial public offering also referred to simply as a "public offering,"

is the first sale of stock by a private company to the public. IPOs are often

issued by smaller, younger companies seeking capital to expand, but can also be

done by large privately-owned companies looking to become publicly traded

Issuing Bonds: A bond is a written promise to pay back a specific amount

of money at a certain date or dates in the future. In the interim, bondholders

receive interest payments at fixed rates on specified dates. Holders can sell

bonds to someone else before they are due.

Issuing Preferred Stock. A company may choose to issue new "preferred"

stock to raise capital. Buyers of these shares have special status in the event the

underlying company encounters financial trouble. If profits are limited,

preferred-stock owners will be paid their dividends after bondholders receive

their guaranteed interest payments but before any common stock dividends are

paid.

Selling Common Stock. If a company is in good financial health, it can

raise capital by issuing common stock. Typically, investment banks help

companies issue stock, agreeing to buy any new shares issued at a set price if

the public refuses to buy the stock at a certain minimum price

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Borrowing. Companies can also raise short-term capital -- usually to

finance inventories -- by getting loans from banks or other lenders.

Using profits. As noted, companies also can finance their operations by

retaining their earnings. Strategies concerning retained earnings vary.

WHAT IS IPO

Initial public offering (IPO), also referred to simply as a "public offering," is

the first sale of stock by a private company to the public. IPOs are often issued

by smaller, younger companies seeking capital to expand, but can also be done

by large privately-owned companies looking to become publicly traded.

In an IPO, the issuer may obtain the assistance of an underwriting firm, which

helps it determine what type of security to issue (common or preferred), best

offering price and time to bring it to market.

IPOs can be a risky investment. For the individual investor, it is tough to predict

what the stock will do on its initial day of trading and in the near future since

there is often little historical data with which to analyze the company. Also,

most IPOs are of companies going through a transitory growth period, and they

are therefore subject to additional uncertainty regarding their future value.

An IPO stands for Initial Public Offering. Basically, an initial public offering

occurs when a company that was previously privately owned decides to sell

shares of stock in order to raise money. The company generally finds an

investment bank to help them carry out the procedure. Generally, the company

seeking an IPO is smaller and younger and needs capital, but large privately

held firms have also been known to do this.

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INVESTING IN AN IPO?

IPOs are inherently very risky business. As a result, there is potential for huge

gains and huge losses. Since the company is starting to be listed on an

exchange, there is no historical market data for it and very little to research. On

the first day, the stock could gain hundreds of percentage points or lose

hundreds of percentage points.

Initial Public Offerings (IPOs) are the first time a company sells its stock to the

public. Sometimes IPOs are associated with huge first-day gains; other times,

when the market is cold, they flop. It's often difficult for an individual investor

to realize the huge gains, since in most cases only institutional investors have

access to the stock at the offering price. By the time the general public can trade

the stock, most of its first-day gains have already been made. However, a savvy

and informed investor should still watch the IPO market, because this is the first

opportunity to buy these stocks.

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WHY IPO?

When a privately held corporation needs to raise additional capital, it

can either take on debt or sell partial ownership. If the corporation chooses to

sell ownership to the public, it engages in an IPO. Corporations choose to "go

public" instead of issuing debt securities for several reasons. The most common

reason is that capital raised through an IPO does not have to be repaid, whereas

debt securities such as bonds must be repaid with interest. Despite this apparent

benefit, there are also many drawbacks to an IPO. A large drawback to going

public is that the current owners of the privately held corporation lose a part of

their ownership. Corporations weigh the costs and benefits of an IPO carefully

before performing an IPO.

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IPO METHODS

GOING PUBLIC

If a corporation decides that it is going to perform an IPO, it will first

hire an investment bank to facilitate the sale of its shares to the public. This

process is commonly called "underwriting"; the bank's role as the underwriter

varies according to the method of underwriting agreed upon, but its primary

function remains the same.

In accordance with the Securities Act of 1933, the corporation will file a

registration statement with the SEBI. The registration statement must fully

disclose all material information to the SEBI, including a description of the

corporation, detailed financial statements, biographical information on insiders,

and the number of shares owned by each insider. After filing, the corporation

must wait for the SEBI to investigate the registration statement and approve of

the full disclosure.

During this period while the SEBI investigates the corporation's filings,

the underwriter will try to increase demand for the corporation's stock. Many

investment banks will print "tombstone" advertisements that offer "bare-bones"

information to prospective investors. The underwriter will also issue a

preliminary prospectus, or "red herring", to potential investors. These red

herrings include much of the information contained in the registration

statement, but are incomplete and subject to change. An official summary of the

corporation, or prospectus, must be issued either before or along with the actual

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stock offering.

After the SEBI approves of the corporation's full disclosure, the

corporation and the underwriter decide on the price and date of the IPO; the IPO

is then conducted on the determined date. IPOs are sometimes postponed or

even withdrawn in poor market conditions.

COMMON METHODS INCLUDE:

Dutch auction

Firm commitment

Best efforts

Bought deal

Self Distribution of Stock

DUTCH AUCTION

Dutch auction is a type of auction where the auctioneer begins with a high

asking price which is lowered until some participant is willing to accept the

auctioneer's price, or a predetermined reserve price (the seller's minimum

acceptable price) is reached.

The winning participant pays the last announced price.

This type of auction is convenient when it is important to auction goods quickly,

since a sale never requires more than one bid.

Theoretically, the bidding strategy and results of this auction are equivalent to

those in a sealed first-price auction.

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A sealed first-price auction is a form of auction where bidders submit one bid in

a concealed fashion. The submitted bids are then compared and the person with

the highest bid wins the award, and pays the amount of his bid to the seller.

FIRM COMMITEMENT

A lending institution's promise to enter into a loan agreement with a specific

entity within a certain period of time is called firm commitment.

An underwriter's agreement to assume all inventory risk and purchase all

securities directly from the issuer for sale to the public at the price specified.

BEST EFFORT

An agreement an underwriter makes to act as an agent between an issuing

company and investors.

In a best efforts agreement, the underwriter agrees to use all efforts to sell as

much of an issue as possible to the public. The underwriter can purchase only

the amount required to fulfill its client's demand or the entire issue. However, if

the underwriter is unable to sell all securities, it is not responsible for any

unsold inventory.

Best effort agreements are used mainly for securities with higher risk, such as

unseasoned offerings.

BOUGHT DEAL

A bought deal occurs when an underwriter, such as an investment bank or a

syndicate, purchases securities from an issuer before selling them to the public.

The investment bank (or underwriter) acts as principal rather than agent and

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thus actually "goes long" in the security. The bank negotiates a price with the

issuer (usually at a discount to the current market price, if applicable).

The advantage of the bought deal from the issuer's perspective is that they do

not have to worry about financing risk (the risk that the financing can only be

done at a discount too steep to market price.) This is in contrast to a fully-

marketed offering, where the underwriters have to "market" the offering to

prospective buyers, only after which the price is set.

The advantages of the bought deal from the underwriter's perspective include:

Bought deals are usually priced at a larger discount to market than fully

marketed deals, and thus may be easier to sell; and

The issuer/client may only be willing to do a deal if it is bought (as it eliminates

execution or market risk.)

The disadvantage of the bought deal from the underwriter's perspective is that if

it cannot sell the securities, it must hold them. This is usually the result of the

market price falling below the issue price, which means the underwriter loses

money. The underwriter also uses up its capital, which would probably

otherwise be put to better use (given sell-side investment banks are not usually

in the business of buying new issues of securities.)

SELF DISTRIBUTION OF STOCK

Self distribution of stock is a type of IPO, or initial public offering. In this

offering, the company selling stocks will offer its shares directly to the public

and cut out the need for an underwriter. These types of IPOs save the company

money because it doesn't have to sell stock at a discounted price to the

underwriters. This can be a difficult way to purchase shares in IPOs.

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WHO SHOULD ADOPT THIS ROUTE

Any company which wishes to become public limited can adopt this route.

When a company lists its shares on a public exchange, it will almost invariably

look to issue additional new shares in order to raise extra capital at the same

time. The money paid by investors for the newly-issued shares goes directly to

the company (in contrast to a later trade of shares on the exchange, where the

money passes between investors). An IPO, therefore, allows a company to tap a

wide pool of stock market investors to provide it with large volumes of capital

for future growth. The company is never required to repay the capital, but

instead the new shareholders have a right to future profits distributed by the

company.

The existing shareholders will see their shareholdings diluted as a proportion of

the company's shares. However, they hope that the capital investment will make

their shareholdings more valuable in absolute terms.

In addition, once a company is listed, it will be able to issue further shares via a

rights issue, thereby again providing itself with capital for expansion without

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

general market, rather than having to seek and negotiate with individual

investors, is a key incentive for many companies seeking to list.

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FINANCIAL MARKET

In economics, a financial market is a mechanism that allows people to easily

buy and sell (trade) financial securities (such as stocks and bonds), commodities

(such as precious metals or agricultural goods), and other fungible items of

value at low transaction costs and at prices that reflect the efficient market

hypothesis.

Financial markets have evolved significantly over several hundred years and are

undergoing constant innovation to improve liquidity.

Both general markets (where many commodities are traded) and specialized

markets (where only one commodity is traded) exist. Markets work by placing

many interested sellers in one "place", thus making them easier to find for

prospective buyers. An economy which relies primarily on interactions between

buyers and sellers to allocate resources is known as a market economy in

contrast either to a command economy or to a non-market economy that is

based, such as a gift economy.

In Finance, Financial markets facilitate:

The raising of capital (in the capital markets);

The transfer of risk (in the derivatives markets); and

International trade (in the currency markets).

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They are used to match those who want capital to those who have it.

Typically a borrower issues a receipt to the lender promising to pay back the

capital. These receipts are securities which may be freely bought or sold. In

return for lending money to the borrower, the lender will expect some

compensation in the form of interest or dividends.

DEFINITION

Financial markets means:

1. Organizations that facilitate the trade in financial products. I.e. Stock

exchanges facilitate the trade in stocks, bonds and warrants.

2. The coming together of buyers and sellers to trade financial products. I.e.

stocks and shares are traded between buyers and sellers in a number of ways

including: the use of stock exchanges; directly between buyers and sellers etc.

Types of financial markets

The financial markets can be divided into different subtypes:

Capital markets which consist of

Stock markets: which provide financing through the issuance of shares or

common stock, and enable the subsequent trading thereof.

Bond markets: which provide financing through the issuance of Bonds,

and enable the subsequent trading thereof.

Commodity markets: which facilitate the trading of commodities

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Money markets: which provide short term debt financing and investment.

Derivatives markets: which provide instruments for the management of

financial risk.

Futures markets: which provide standardized forward contracts for

trading products at some future date.

Insurance markets: which facilitate the redistribution of various risks.

Foreign exchange markets: which facilitate the trading of foreign exchange.

The capital markets consist of

Primary markets and secondary markets. Newly formed (issued)

securities are bought or sold in primary market.

Raising capital

To understand financial markets, let us look at what they are used for, i.e. what

is their purpose?

Without financial markets, borrowers would have difficulty finding lenders

themselves. Intermediaries such as banks help in this process. Banks take

deposits from those who have money to save. They can then lend money from

this pool of deposited money to those who seek to borrow. Banks popularly lend

money in the form of loans and mortgages.

More complex transactions than a simple bank deposit require markets where

lenders and their agents can meet borrowers and their agents, and where

existing borrowing or lending commitments can be sold on to other parties. A

good example of a financial market is a stock exchange. A company can raise

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money by selling shares to investors and its existing shares can be bought or

sold.

PRIMARY MARKET

The primary is that part of the capital markets that deals with the issuance of

new securities. Companies, governments or public sector institutions can obtain

funding through the sale of a new stock or bond issue. This is typically done

through a syndicate of securities dealers. The process of selling new issues to

investors is called underwriting. In the case of a new stock issue, this sale is an

initial public offering (IPO). Dealers earn a commission that is built into the

price of the security offering, though it can be found in the prospectus. Features

Of Primary Market are:-

1. This is the market for new long term capital. The primary market is the

market where the securities are sold for the first time. Therefore it is also called

New Issue Market (NIM).

2. In a primary issue, the securities are issued by the company directly to

investors.

3. The company receives the money and issue new security certificates to the

investors.

4. Primary issues are used by companies for the purpose of setting up new

business or for expanding or modernizing the existing business.

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5. The primary market performs the crucial function of facilitating capital

formation in the economy.

6. The new issue market does not include certain other sources of new long term

external finance, such as loans from financial institutions. Borrowers in the new

issue market may be raising capital for converting private capital into public

capital; this is known as ‘going public’.

Methods of issuing securities in the Primary Market

1. Initial Public Offer;

2. Rights Issue (For existing Companies); and

3. Preferential Issue.

SECONDARY MARKET

The secondary market is the financial market for trading of securities that have

already been issued in an initial private or public offering. Alternatively,

secondary market can refer to the market for any kind of used goods. The

market that exists in a new security just after the new issue is often referred to

as the aftermarket. Once a newly issued stock is listed on a stock exchange,

investors and speculators can easily trade on the exchange, as market makers

provide bids and offers in the new stock.

FUNCTION

In the secondary market, securities are sold by and transferred from one investor

or speculator to another. It is therefore important that the secondary market be

highly liquid (Originally, the only way to create this liquidity was for investors

and speculators to meet at a fixed place regularly.

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Secondary marketing is vital to an efficient and modern capital market. For

example, a traditional loan allows the borrower to pay back the loan, with

interest, over a certain period. For the length of that period of time, the bulk of

the lender's investment is inaccessible to the lender, even in cases of

emergencies.

Secondary Market participants

Major secondary investment firms include: Alp Invest Partners, Coller Capital,

HarbourVest Partners, Landmark Partners, Lexington Partners and Paul Capital

Partners as well as smaller firms including Adams Street Partners, Newbury

Partners, Pantheon Ventures, Partners Group, Pomona Capital and VCFA

Group.

Additionally major investment banking firms, including Credit Suisse, Deutsche

Bank, Goldman Sachs, Lehman Brothers and Morgan Stanley have active

secondary investment programs and other institutional investors typically have

appetite for secondary interests.

Advisors to secondary market sellers include investments banks (Credit Suisse,

Lehman Brothers, Morgan Stanley, and UBS), dedicated boutique firms

(Cogent Partners and Fid equity), electronic exchanges (NYPPE), as well as

established fund placement agents (Campbell Lutyens, Probitas Partners and

Triago).

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IPO METHODOLOGY

IPOs generally involve one or more investment banks as "underwriters." The

company offering its shares, called the "issuer," enters a contract with a lead

underwriter to sell its shares to the public. The underwriter then approaches

investors with offers to sell these shares. Investment banks help companies and

governments raise money by issuing and selling securities in the capital markets

(both equity and debt), as well as providing advice on transactions such as

mergers and acquisitions.

A majority of investment banks also offer strategic advisory services for

mergers, acquisitions, divestiture or other financial services for clients, such as

the trading of derivatives, fixed income, foreign exchange, commodity, and

equity securities.

When a company wants to go public, the first thing it does is hire an investment

bank.

A company could theoretically sell its shares on its own, but realistically, an

investment bank is required. Underwriting is the process of raising money by

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either debt or equity (in this case we are referring to equity). Underwriters are

middlemen between companies and the investing public. The biggest

underwriters are Goldman Sachs, Merrill Lynch, Credit Suisse First Boston,

Lehman Brothers and Morgan Stanley. The company and the investment bank

will first meet to negotiate the deal.

Items usually discussed include the amount of money a company will raise, the

type of securities to be issued and all the details in the underwriting agreement.

The deal can be structured in a variety of ways. For example, in a firm

commitment, the underwriter guarantees that a certain amount will be raised by

buying the entire offer and then reselling to the public.

In a best efforts agreement, however, the underwriter sells securities for the

company but doesn't guarantee the amount raised. Also, investment banks are

hesitant to shoulder all the risk of an offering. Instead, they form a syndicate of

underwriters. One underwriter leads the syndicate and the others sell a part of

the issue. Once all sides agree to a deal, the investment bank puts together a

registration statement to be filed with the SEBI. This document contains

information about the offering as well as company info such as financial

statements, management background, any legal problems, where the money is

to be used and insider holdings. The SEBI then requires a cooling off period, in

which they investigate and make sure all material information has been

disclosed. Once the SEBI approves the offering, a date (the effective date) is set

when the stock will be offered to the public.

During the cooling off period the underwriter puts together what is known as

the red herring. This is an initial prospectus containing all the information about

the company except for the offer price and the effective date, which aren't

known at that time. With the red herring in hand, the underwriter and company

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attempt to hype and build up interest for the issue. As the effective date

approaches, the underwriter and company sit down and decide on the price. This

isn't an easy decision: it depends on the company, most importantly, current

market conditions. Of course, it's in both parties' interest to get as much as

possible.

Finally, the securities are sold on the stock market and the money is collected

from investors.

STEPS

While many investment banks and brokerage firms reserve IPOs for their

richest clients, self distribution IPO transactions are done by the company

selling stock and are available to anyone who has knowledge of them. Broker

should keep you aware of any self distribution IPOs.

Build contacts and relationships with local businesses. Often we can only

participate in self distribution of stock IPOs if you have insider knowledge of

the company. It's true that IPOs are listed on small stock exchanges, but that

only tells you about the stock's price, not about its availability.

Help out these businesses when they are looking for venture capital. Before a

company goes public, it often has to do several rounds of fund-raising through

venture capitalists. If you can invest in companies this way, you'll likely have

advance knowledge of a self distribution IPO, should one happen.

Find out who to talk to about buying these stocks. In a self distribution IPO, you

have to buy the stock directly from the company, not from an underwriter. The

company's financial officers should be able to tell you how many stocks are

available and for what price.

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Buy stocks through the company and then hold on to them for the required time.

In addition to the federal law that prohibits disclosing IPO gains for 40 days,

most IPOs require that you hold on to the stocks for 60 to 90 days. This rule

stops investors from selling stocks shortly after the company goes public and

the stock price rises.

DIFFERENT INSTITUTION INVOLVED IN IPO

CENTRAL BANK

COMMERCIAL BANKS

CREDIT RATING AGENCIES

CREDIT REPORTING AND DEBT COLLECTION

FINANCIAL AUTHORITIES

INSURANCE COMPANIES

MERCHANT BANKS

MUTUAL FUNDS

SPECIALISED FINANCIAL INSTITUTIONS

VENTURE CAPITALISTS

INTERMEDIARIES

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The role of intermediary is very crucial for connecting with the public issue. But

there are norms which are set by SEBI for the intermediaries. The pre-requisite

of the following intermediaries are possession of a valid certificate and

registration with SEBI.

Merchant Bankers

Registrar and Share Transfer Agents

Bankers to the Issue

Underwriters

Stock Brokers and Sub Brokers

Depositories

Merchant Bankers

They play the most vital role amongst all intermediaries. They assist the

company right from preparing prospectus to the listing of securities at the stock

exchanges. Merchant Bankers have to satisfy themselves about the correctness

and propriety of all the information provided in the prospectus. It is mandatory

for them to carry due diligence for all the information provided in the

prospectus and they must issue a certificate to this effect to SEBI.A Company

may appoint more than one Merchant Banker provided Inter-Se Allocation of

Responsibilities between the Merchant Bankers are properly structured.

Underwriters

Underwriters are those intermediaries who underwrite the securities offered to

the public. In case there is under subscription (in short, the company does not

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receive good response from public and amount received from is less than the

issue size), underwriters subscribe to the unsubscribed amount so that the issue

is successful.

Registrar & Share Transfer Agents

They are the person who processes and prepares the basis of allotment of shares

to public based on the applications received from the public. They are the

persons who handle dispatches of shares certificates and refund orders to the

public.

Bankers to the Issue

They are bank who accept application and application money from the public on

behalf of the company and transfer it the registrar and share transfer agent. Any

refund that has to be made is done through this bank only.

Stock Brokers & Sub-Brokers

Brokers are the intermediaries who use their contact / sources to invite the

public to subscribe for shares issued by the company. These brokers get a

commission for inviting the public.

Depositories

Depositories are persons who hold the share in the dematerialized form for the

public. This makes it easier for the share holder to trade in the secondary

market. It also reduces the burden of carrying to deliver it after every

transaction

SPECIALISED FINANCIAL INSTITUTIONS

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ICICI (Industrial Credit and Investment Corporation of India)

The World Bank, the Government of India and representatives of Indian

industry formed ICICI Limited as a development finance institution to provide

medium-term and long-term project financing to Indian businesses in 1955.

1994 ICICI establishes ICICI Banking Corporation as a banking subsidiary.

ICICI Banking Corporation is renamed as 'ICICI Bank Limited

1999 ICICI becomes the first Indian company and the first bank or financial

institution from non-Japan Asia to list on the NYSE.

IDBI (Industrial Development Bank of India Limited)

The Industrial Development Bank of India (IDBI) was established on July 1,

1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve

Bank of India. In February 1976, the ownership of IDBI was transferred to the

Government of India and it was made the principal financial institution for

coordinating the activities of institutions engaged in financing, promoting and

developing industry in the country. Although Government shareholding in the

Bank came down below 100% following IDBI’s public issue in July 1995, the

former continues to be the major shareholder (current shareholding: 58.47%).

During the four decades of its existence, IDBI has been instrumental not only in

establishing a well-developed, diversified and efficient industrial and

institutional structure but also adding a qualitative dimension to the process of

industrial development in the country. IDBI has played a pioneering role in

fulfilling its mission of promoting industrial growth through financing of

medium and long-term projects, in consonance with national plans and

priorities. Over the years, IDBI has enlarged its basket of products and services,

covering almost the entire spectrum of industrial activities, including

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manufacturing and services. IDBI provides financial assistance, both in rupee

and foreign currencies, for green-field projects as also for expansion,

modernization and diversification purposes. In the wake of financial sector

reforms unveiled by the Government since 1992, IDBI evolved an array of fund

and fee-based services with a view to providing an integrated solution to meet

the entire demand of financial and corporate advisory requirements of its

clients. IDBI also provides indirect financial assistance by way of refinancing of

loans extended by State-level financial institutions and banks and by way of

rediscounting of bills of exchange arising out of sale of indigenous machinery

on deferred payment terms.

IFCI (Industrial Finance Corporation of India)

IFCI Venture Capital Funds Ltd. (IVCF) was originally set up by IFCI as a

Society by the name of Risk Capital Foundation (RCF) in 1975 to provide

institutional support to first generation professionals and technocrats setting up

their own ventures in the medium scale sector, under the Risk Capital Scheme.

In 1988, RCF was converted into a company, Risk Capital and Technology

Finance Corporation Ltd. (RCTC), when it also introduced the Technology

Finance and Development Scheme for financing development and

commercialisation of indigenous technology. To reflect the shift in the

company’s activities, the name of RCTC was changed to IFCI Venture Capital

Funds Ltd. (IVCF) in February 2000.

Over the years, IVCF has provided financial assistance to new ventures,

supported commercialisation of new technologies, helped in widening

entrepreneurial base in the country. It is IVCF who has catalysed introduction of

concept of venture capital activity in India.

IIBI (Industrial Investment Bank of India)

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The "Industrial Investment Bank of India Ltd ", is India’s only all-India public

financial institution headquartered in Kolkata.

They acquire and/or trade in varied financial instruments from term loans,

equity or debentures and bonds, structured products besides providing various

services like deferred payment guarantee, Loan Syndication, Merchant Banking

services such as Issue management, underwriting and guarantees, Project /

reconstruction / one-time-settlement consultancy/appraisal.

They have a track record of profitability since inception in 1997 till 2002-

03.However we have serviced our outstanding debt till date.

SIDBI (Small Industries Development Bank)

SIDBI Venture Capital Limited (SVCL) is a wholly owned subsidiary of SIDBI,

incorporated in July 1999 to act as an umbrella organisation to oversee the

Venture Capital operation of SIDBI. SVCL will manage the various Venture

Capital Funds launched/ being launched by SIDBI. Current fund managed by

SVCL is:

National Venture Fund for Software and Information Technology (NFSIT)

NABARD (National Bank for Agriculture and Rural Development)

National Bank for Agriculture and Rural Development is established as a

Development Bank for providing and regulating credit and other facilities for

the promotion and development of agriculture, small industries, cottage and

village industries, handicrafts and other rural crafts and other allied economic

activities in rural areas with a view to promoting integrated rural development

and securing prosperity of rural areas and for matters connected therewith or

incidental thereto.

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HDFC (Housing Development Finance Corporation)

HDFC Securities, a trusted financial service provider promoted by HDFC Bank

and JP Morgan Partners and their associates, is a leading stock broking

company in the country, serving a diverse customer base of institutional and

retail investors.

ROLE OF ALL INSTITUTIONS

Financial institutions provide a service as intermediaries of the capital and debt

markets.

They are responsible for transferring funds from investors to companies, in need

of those funds. The presence of financial institutions facilitates the flow of

monies through the economy.

To do so, savings accounts are pooled to mitigate the risk brought by individual

account holders (see adverse selection) in order to provide funds for loans. Such

is the primary means for depository institutions to develop revenue. Should the

yield curve become inverse, firms in this arena will offer additional fee-

generating services including securities underwriting, and prime brokerage.

Entity with large amounts to invest, such as investment companies, mutual

funds, brokerages, insurance companies, pension funds, investment banks and

endowment funds. Institutional investors are covered by fewer protective

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regulations because it is assumed that they are more knowledgeable and better

able to protect themselves. They account for a majority of overall volume.

A bank, insurance company, registered investment company (generally

speaking, a mutual fund), business development company, or small business

investment company;

An employee benefit plan, within the meaning of the Employee Retirement

Income Security Act, if a bank, insurance company, or registered investment

adviser makes the investment decisions, or if the plan has total assets in excess

of $5 million;

In essence institutional investor, an accredited investor is defined in the rule as:

A charitable organization, corporation, or partnership with assets exceeding $5

million;

A director, executive officer, or general partner of the company selling the

securities;

A business in which all the equity owners are accredited investors;

a natural person who has individual net worth, or joint net worth with the

person’s spouse, that exceeds $1 million at the time of the purchase;

a natural person with income exceeding $200,000 in each of the two most recent

years or joint income with a spouse exceeding $300,000 for those years and a

reasonable expectation of the same income level in the current year; or

a trust with assets in excess of $5 million, not formed to acquire the securities

offered, whose purchases a sophisticated person makes.

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A non-bank person or organization that trades securities in large enough share

quantities or dollar amounts that they qualify for preferential treatment and

lower commissions is called financial institutions.

Institutional investors face fewer protective regulations because it is assumed

that they are more knowledgeable and better able to protect themselves.

Watching what the big money is buying can sometimes be a good indicator, as

they (supposedly) know what they are doing. Some examples of institutional

investors are pension funds and life insurance companies.

An institutional investor is an investor, such as a bank, insurance company,

retirement fund, hedge fund, or mutual fund that is financially sophisticated and

makes large investments, often held in very large portfolios of investments.

Because of their sophistication, institutional investors may often participate in

private placements of securities, in which certain aspects of the securities laws

may be inapplicable. For example, in the United States, a private placement

under Rule 506 of Regulation D may be made to an "accredited investor"

without registering the offering of securities with the Securities and Exchange

Commission.

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ADVANTAGES AND DISADVANTAGES FOR A COMPANY GOING

PUBLIC

INTRODUCTION

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

companies looking to further the growth of their company often use an IPO as a

way to generate the capital needed to expand. Although further expansion is a

benefit to the company, there are both advantages and disadvantages that arise

when a company goes public.

Before deciding whether or not to go public, companies must evaluate all of the

potential advantages and disadvantages that will arise. This usually will happen

during the underwriting process as the company works with an investment bank

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to weigh the pros and cons of a public offering and determine if it is in the best

interest of the company.

ADVANTAGES

There are many advantages for a company going public. As said earlier, the

financial benefit in the form of raising capital is the most distinct advantage.

Capital can be used to fund research and development, fund capital expenditure

or even used to pay off existing debt. Another advantage is an increased

public awareness of the company because IPOs often generate publicity by

making their products known to a new group of potential customers.

Subsequently this may lead to an increase in market share for the company. An

IPO also may be used by founding individuals as an exit strategy. Many venture

capitalists have used IPOs to cash in on successful companies that they helped

start-up

Reverse Merger With a Public Shell:

A "reverse merger" is a method by which a private company goes public. In a

reverse merger, a private company merges with a public company with no

assets or liabilities. The publicly traded corporation is called a "public shell"

since all that exists is its corporate structure. By merging into such an entity, a

private company becomes public.

The Private company merges into a public company and obtains the majority of

its stock (usually 90% or more). The private company normally will change the

name of the public corporation (often to its own name) and will appoint and

elect its management and board directors.

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The advantages of public trading status, which are outlined in greater detail

below, include the possibility of commanding a higher price for a later offering

of the company's securities. Going public through either a reverse merger or a

registered spin-off (described below) allows a private company to go public,

typically at a lesser cost and with less stock dilution than through an initial

public offering (IPO).

In an IPO, the process of going public and raising capital is combined. In a

registered spin-off or reverse merger, these two functions are unbundled - a

company can go public without raising additional captial. Through this

unbundling operation, the process of going public is simplified greatly.

The Private Company which has gone public obtains the benefits of public

trading of its securities, namely:

Increased liquidity of the ownership shares of the company.

Higher share price and thus higher company valuation.

Greater access to the capital markets through the possibility of future stock

offerings.

The ability of the company to make acquisitions of other companies using the

company's stock.

The ability to use stock incentive plans to attract and retain key employees.

Going public can be a part of a retirement strategy for business owners.

Simply by merging into a public company, a private corporation can increase its

value by three to five times. .

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The newly created value can become part of an estate providing value not only

for the founders, but for generations to come.

It is essential that public companies, especially newly public companies,

actively maintain and manage a financial communications program.

A newly formed public company would be well-advised to invest in consulting

services, to plan and execute a strategy for building and maintaining an active

interest in your company within the financial community.

Consultants are available to assist the public corporation in providing corporate

relations services intended to increase awareness of your company on Wall

Street.

For most people, recapitalization and stock value appreciation would seem

reasons enough to be publicly owned, but there are other advantages that a

company can gain. A public company has a broader equity base, thus increasing

it's opportunities for obtaining financing for future projects. Increasing the

bottom line net worth of a company, as well as its debt to equity ratio, enables it

to borrow at lower interest rates from traditional institutions.

DISADVANTAGES

Profit-sharing

If the firm is sitting on a highly successful venture, future success (and profit)

has to be shared with outsiders. After the typical IPO, about 40% of the

company remains with insiders, but this can vary from 1% to 88%, with 20% to

60% being comfortably normal.

Loss of Confidentiality

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A major reason for firms to resist going public is the loss of confidentiality in

company operations and policies. For example, a company could be destroyed if

the company were to disclose its technology or profitability to its competitors.

Reporting and Fiduciary Responsibilities

Public companies must continuously file reports with the SEC and the exchange

they list on. They must comply with certain state securities laws ("blue sky"),

NASD and exchange guidelines. This disclosure costs money and provides

information to competitors.

Loss of Control

Outsiders are often in a position to take control of corporate management and

might even fire the entrepreneur/company founder. While there are effective

anti-takeover measures, investors are not willing to pay a high price for a

company in which poor management could not be replaced.

IPO Expenses

An IPO is a costly undertaking. A typical firm may spend about 15-25% of the

money raised on direct expenses. Even more resources are spent indirectly

(management time, disruption of business).

Immediate Cash-out usually not permitted

Typically, IPO entrepreneurs face various restrictions that do not permit them to

cash out for many months after the IPO.

Liability

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The company, its management, and other participants may be subject to liability

for false or misleading statements and omissions in the registration documents

or in the reports filed by the company after it becomes public. In addition

management may be subject to law suits by the stockholders for breaches of

fiduciary duty, self dealing and other claims, whether or not true.

FAILURE COMPANIES IN IPO

EMAAR MGF

MGF Land (EMLL), a joint venture (JV) between Properties PJSC of Dubai

and MGF Development of India (MGF), develops properties in the residential,

commercial, retail and hospitality sectors across India. Properties PJSC of

Dubai, one of the promoters, is among the worlds leading real-estate companies,

with development of about 50 million square feet (sq ft) of residential,

commercial and other business segments and operations in 16 countries end

December 2007. Over the last 10 years, MGF has become one of the key

players in retail real-estate development in north India.

REASON FOR IPO FAILURE

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Emaar MGF's third largest IPO issue after Reliance Power and DLF that was to

close on a particular day, has been extended by six days due to the poor

response it has elicited.

The move has ostensibly been compelled by volatility in markets resulting in

poor investor response.

According to Bombay Stock Exchange (BSE) statistics, the IPO has been

subscribed only by a negligible 0.74 percent.

The UAE-based real estate conglomerate was also forced to lower its price band

from Rs.540-630 to Rs.530-630.

For the second time within a week the company has slashed its price band.

When the much-hyped issue opened Feb 1, the company had reduced the price

band from Rs.610-690 to Rs.540-630.

MGF has offered 102.57 million shares, or 10.4 percent of the promoters' stake,

through the IPO.

The company had hoped to raise Rs. 70.78 billion through the share sale - the

third largest issue in the country after Reliance Power and DLF.

This is the second important IPO that has come under the onslaught of the

volatility in the Indian markets.

POWERSOFT GLOBAL SOLUTIONS

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Powersoft Global Solutions Ltd. (PGSL) was originally incorporated in

November 1992 as Bhandari Food Flavours Ltd. Its name was changed to the

present in March 2000.

PGSL provides IT solutions and services like application development,

maintenance and integration, software product development, engineering

outsourcing, Radio Frequency Identification (RFID) solutions, research and

development services and Business Process Outsourcing.

It provides business solutions to manufacturing, logistics, retail, consumer

electronics, pharmaceuticals, aerospace, defense and utilities industries in North

America, Europe and the Asia-Pacific.

PGSL is a subsidiary of Nirvann Corp, North America and has also entered into

the agreement with Nirvann Corp. to market and promote the services and

solutions developed by the company.

OBJECTS OF IPO ISSUE

To upgrade existing infrastructure facilities with an investment of

Rs. 262 lakhs.

To set-up an R&D center, an investment of Rs. 80 lakhs

To meet the expenses of Overseas Marketing with an investment of

Rs. 251 lakhs.

To meet the costs of strategic acquisitions with an investment of Rs.

3 lakhs.

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To meet the Working Capital requirement of Rs.222 lakhs and the

issue expenses of Rs.75 lakhs.

REASON FOR IPO FAILURE

The company had made a public issue during 1996 but did not receive the

money due on calls and that project failed badly. Against a projected income of

Rs. 1300 lakhs in 1999 the company could only earn 7.34 lakhs. The

profitability was hit and the company made losses in 1998 and 1999.

The ‘Objects of the Issue’ for which the funds are being raised has not been

appraised by any Bank or Financial Institution. Fund requirement is the

company estimates and the funds received from the issue will be deployed at the

sole discretion of the Management.

PGSL, a small player in the IT space with only 70 professionals on rolls, is

exposed to intense competition from existing large players as well as global

players like IBM and Accenture deciding to enter the Indian market and emulate

the Indian business model.

Compared to its competitors like 3i InfoTech Ltd., Geodesic Information

Systems Ltd., Hinduja TMT Ltd. iGATE Global Solutions Ltd., Logix

Microsystems Ltd., Onward Technologies Ltd. PGSL’s pre issue EPS is the

lowest at 1.85 For FY05. Its return on net worth (RONW) as on FY05 is

amongst the lowest at 6.05%. Its select peer group RONW ranges from 4% to

66.57% and EPS ranges from Rs.4- Rs.10 for FY05.

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SUCCESSFUL COMPANIES IN IPO

OMAXE

Omaxe Limited, an ISO 9001:2000 certified real estate development and

Construction Company with operations in 30 cities and 9 states in India. New

Delhi-based Omaxe has a land bank of over 3,000 acre and at present 47

projects are under development.

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Omaxe, which commenced operations in 1989, is engaged in real estate

development and construction with operations in 30 cities and 9 states in India.

Since the inception of the company, it has completed 120 construction projects.

In 2001, Omaxe diversified into the real estate development business with a

focus on residential and commercial properties. As of Mar. 31, 2007 Omaxe has

completed 8 residential projects covering nearly 5.13 million sq. ft. of area.

Omaxe holds 3,255 acres of land reserve including joint ventures and

collaborations as of Mar. 31, 2007.

Omaxe Ltd. has appointed DSP Merrill Lynch Limited, Citigroup Global

Markets India Private Limited, & UBS Securities India Private Limited as the

Global Coordinators and Joint Book Running Lead Managers (“JBRLMs”). JM

Morgan Stanley Private Limited is the Book Running Lead Manager (“BRLM”)

and ICICI Securities Limited is the Co-Book Running Lead Manager

(“CBRLM”).

New Delhi-based Omaxe has a land bank of over 3,000 acre and at present 47

projects are under development.

REASON FOR IPO SUCCESS

Real estate firm Omaxe, which received a robust response for its initial public

offer, has fixed the issue price at Rs 310 a share - upper end of the price band.

The issue price of Rs 310 had taken the total proceeds raised by the firm to Rs

551.69 cr, excluding a green-shoe option. The issue price was fixed at the upper

end of the price band of Rs 265-310 a share, the company said in a statement.

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They have taken the advice of merchant bankers of whether to exercise green

shoes option or not. In all probability the option was exercised. After including

the green shoe option of 17.50 lakh equity shares to the total issue, the company

was to raise up to Rs 605.94 cr.

The IPO of the construction firm consisting of 1,77,96,520 equity shares got

subscribed by over 68 times. The portion reserved for qualified institutional

buyers received an overwhelming response getting subscribed 95 times, while

the non-institutional buyer’s part witnessed a demand for over 80 times. Retail

investor’s portion was oversubscribed around 13 times.

The issue constitutes 11.20 per cent of the fully diluted post-issue paid-up

capital of the company, if the green shoe option is exercised, and 10.30 per cent

if the option is not exercised. The proceeds of the issue was utilised for

payments related to land, repayment of loan and to fund the development and

construction costs of some of the company's projects.

SUN TV

Sun TV Network is a Rs 16000-crore (4 Billion $) Indian cable television

network based in Chennai, Tamil Nadu, India. Established in 1992, it offers a

plethora of television channels in 4 languages covering the whole of southern

India. It was the first fully privately owned Tamil channel in India when it

emerged in 1992. Its serials and soaps have generated the maximum TRP for

viewership all over India, making it the most popular network of channels in

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India. Till 2007 coupled with the DMK-backed Karunanidhi family, it was the

largest political-media family in India till the split in November 2005.

All its channels occupy the top spots in their respective languages. Sun TV, in

Tamil is the Network's flagship and most popular channel. Being the premier

channel, Sun TV is often used to refer to the Sun TV Network in general.

Kalanithi Maran is the Chairman and Managing Director of media giant Sun

Network and has been given various awards including the CNBC "Business

Excellence Award" in 2005.

Sun Network also offers FM Radio Stations (93.5 FM) and has recently forayed

into the print business. In addition, it has also recently launched a DTH satellite

television service entitled Sun Direct.

Sun TV entered the capital market with the public issue of 6,889,000 equity

shares of face value of Rs 10 to be issued at a premium. The price band of Rs

730-Rs 875, implies a market capitalisation of Rs 5,037-Rs 6,037 crore.

After issue, Sun TV's CMD Kalanithi Maran will continue to retain 90 per cent

of the equity stake in the company. While 60 per cent of the shares on offer

have been reserved for QIBs, 10 per cent has been earmarked for non-

institutional investors. The remaining 30 per cent is for retail investors.

Issue opened on: April 3, 2006

Issue closed on: April 7, 2006

Price Band: Rs 730-875

REASON FOR IPO SUCCESS

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Sun TV Network, for instance, got oversubscribed by 47 times and listed at a

68% premium.

The Sun conglomerate, which started out with a single Tamil channel has

steadily branched out into various other media ventures over the past decade. It

picked up Kungumam, a weekly magazine, and then bought and turned around

Dinakaran, a Tamil daily.

Since Kalanithi Maran started his media business 13 years back, he has been

fighting against one rival: himself. Now, after years of staying almost

unchallenged in the southern region, he is setting himself up for battle in newer

markets.

He has an expanded war chest of Rs 6.03 billion which he raised through an

initial public offering (IPO) of Sun TV Ltd (STL) to pledge his new bet on

private FM broadcasting. Also in the pipeline is a direct-to-home (DTH) service

through Sun Direct TV, a privately held company.

Holding 90 per cent stake in STL, Maran is worth Rs 78.28 billion. And the

market cap of STL has hit Rs 86.98 billion in a brief span of two weeks,

enjoying a 44 per cent premium over its IPO price. In media business, only

Subhash Chandra's Zee Telefilms has a higher market cap with Rs 110.9 billion.

Advertising income was up 24.7 per cent to Rs 889 million in the first half of

the fiscal, as against Rs 713 million a year ago. This was the period when Sun's

combined audience share for all its Tamil channels (Sun TV, Sun News, KTV

and Sun Music) went up from 60 per cent in FY05 to 70 per cent in the first half

of FY06. In Kerala, the company's aggregate audience from its Malayalam

channels (Surya TV and Kiran TV) rose from 29 per cent to 34 per cent during

this period.

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Analysts also expect Surya TV to put up a better show in FY06, estimating its

revenues to touch Rs 450 million. The Malayalam channel, facing stiff

competition from Asianet, was raking in close to Rs 300 million. Other channels

like KTV have also the potential to stimulate marginal growth.

CONCLUSION

Thus we have studied about the organisation and various forms of organisations.

How the funds can be raised is studied so as to know the effective way of

accessing capital for the organisation.

The study about IPO and its methods helped us to know the different ways of

going for an IPO.

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Analysis of financial markets helped to know about the various types of

markets.

The advantages and disadvantages of going for an IPO are studied.

Thus the overall knowledge about IPO is gathered.

BIBLOIGRAPHY

www.capitalmarkets.com

www.moneycontrol.com

www.yahoofinance.com

www.wikipedia.org

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www.indiaipo.com

www.sebi.gov.in

money.rediff.com

books.google.com

Basic Financial Management by I.M. Pandey

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