CURRENT PRICING OF IPOs: Is It Investor-Friendly?

A Report
On
CURRENT PRICING OF IPOs: Is It Investor-Friendly?

By
AMIT KUMAR PANDA
Reg.: 1301247060
BHUBANESWAR STOCK EXCHANGE LIMITED

A report submitted in partial fulfillment of the requirements of
PGDM Program of
Regional College Of Management, Bhubaneswar.
Submitted to
Dr. Sanjib Kumar Das

Faculty Guide
Department of Finance
RCM, Bhubaneswar
1
AUTHORISATION
The report Current Pricing of IPOs: Is it Genuine to the Investors? is submitted by AMIT
KUMAR PANDA, a student of RCM BHUUBANESWAR, Registration number 1301247060,
as partial fulfillment of PGDM Program of RCM Bhubaneswar.
Place: Bhubaneswar
Date:
Dr. Sanjib Kumar Das.

Internal guide (RCM)
2
ACKNOWLEDGEMENT
With all humility I would like to express that I was very lucky to undergo summer training at
Bhubaneswar Stock Exchange Limited. It was a golden opportunity for gaining practical
experience and self-development. Further, I am honored to have so many wonderful people
who helped me insistently in several ways for the completion of this project report. I am
extremely thankful to Mr. Bipin.B. Dutta who in spite of his busy schedule of work spared his
invaluable time to listen and guide all through the project period. Without his active support
and supervision it was not possible to complete the project work. I sincerely acknowledge my
gratitude to Professor Biswajit Rout who was not only involved in the entire process but also
shared his knowledge, encouraged me and gone through the report before it was submitted for
evaluation. Last but not the least I would like to thank all other staff members of the company
for providing me with their support and helping me realize my true potential as well as for
treating me as one of them.
Place: Bhubaneswar
Date:
Amit Kumar Panda.
TABLE OF CONTENTS
SL. NO.
TITLE
PAGE NO.
Executive summary.5
Company profile..6
1.
Introduction............12
2.
Reason for choosing the topic............12
3.
Financial system............................13
4.
Securities market...............13
5.
Capital market.......13
6.
Stock market..14
7.
Legislations governing securities market.....15
8.
Primary market.....16
9.
Public issue..........16
10.
IPO...............17
11.
Underwriting............18
12.
Prospectus....19
13.
Need of public issue.....20
14.
Objects of public issue......20
15.
Investment scenario in India.....20
16.
IPO issues from January 2011 till April 2014...................22
17.
Fundamental analysis...33
18.
Analysis data....35
19.
Findings...50
20.
Conclusion...51
21.
Recommendation.........51
22.
Bibliography.....52
EXECUTIVE SUMMARY
The project was carried out in Bhubaneswar Stock Exchange Limited (BhSE), situated at Stock
Exchange Bhavan, P-2, Jayadev Vihar, Chandrasekharpur, Bhubaneswar- 751023.
The project Current Pricing of IPOs: Is it Genuine to the Investors? is a research based project
which deals with finding whether the current pricings of IPOs are genuine to the investors or
not, i.e. whether or not the companies are worthy of receiving premium. Companies raise longterm funds in the forms of equity and debt from the capital markets. Finance managers should,
therefore, know the ways in which securities are traded and priced in the capital markets.
Securities will be fairly priced in the capital markets if they are efficient and genuine. This
project analyzes the genuineness of IPO prices in the markets.
An investment in equity securities involves a high degree of risk- the risk of losing all or part
of the investment. Before investing, one should understand 3 factors- selection of stock, time
of entry and time of exit. Pricing of securities (IPOs) is an essential factor to gain investors
confidence and aid in the companies development and overall growth of an economy. Hence,
this project is beneficial from both investor point of view and manager point of view.
The project is carried out within the purview of securities market. Concepts of securities market
and the analysis of IPOs are covered in the report.
IPO details, both book building and fixed price, issued since 1st January 2011 till 29th April
2014 are collected. A total of 101 IPOs have been released during this period and which are
still being traded in the market. The IPOs are categorized on the basis of their issue prices vs.
market prices, and their paid up capitals. Fundamental analysis, using Dividend Discount
Model, is done on select 9 companies belonging to each category, to find the intrinsic values
of the IPOs. Then, the financial conditions of the companies, 2 years prior to the issue till FY
2013, are analysed to check the genuineness of the IPO pricing. Of the 9 selected companies
or IPOs which were analysed, 5 were issued at premium. The premium pricing were found to
be genuine. The IPOs whose issue prices were less than their intrinsic values were also justified.
Any false pricing will automatically be rectified in a few years and the market will either punish
or reward the company in due course of time.
COMPANY PROFILE
BHUBANESWAR STOCK EXCHANGE LIMITED
A.
BUSINESS MODEL
a. HISTORY
Bhubaneswar Stock Exchange Limited (BhSE), situated at Stock Exchange Bhavan, P-2,
Jayadev Vihar, Chandrasekharpur, Bhubaneswar- 751023, is a recognized Stock Exchange in
India spreading equity culture in Odisha. It was incorporated in 17 April 1989 as a Public
Company with an object to facilitate, assist, regulate and control the business of buying and
selling of shares and securities, within the purview of Securities Contracts (Regulation) Act,
1956. The Exchange was converted from a company limited by guarantee to a company limited
by shares on 9 December 2005, to comply with the requirements to Corporatization of stock
exchanges by the Govt. of India. In 2007, BhSE diluted its share capital to the public, in
compliance with the requirements of Demutualization of stock exchanges, to ensure that at
least 51% of paid up share capital were held by persons other than the stock-broker
shareholders. The equity shares were issued at a face value of Rs 1. BhSE has a wholly owned
subsidiary company named Bhubaneswar Shares and Securities Ltd.
b. THE INDIAN STOCK MARKET

During the Fiscal Year 2012-2013, the Indian Stock Market was bearish. The BSE Sensex was
hovering from a low of 15,749 to a high of 20,444 and the NSE Nifty was hovering from a low
of 4770 to a high of 6229. The trend was mainly on account of slowdown of the global
economy. During the period, there was no mega issue in the primary market.
c. INTER- CONNECTIVITY
With the expansion of nation-wide trading terminals by major stock exchanges, such as the
National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), to almost all cities
of the country, the business of local Stock Exchanges was shifted to NSE and BSE. To
overcome such situation, BhSE along with other Regional Stock Exchanges (RSEs) in the
country promoted a Stock Exchange called Inter-connected Stock Exchange of India Ltd. (ISE)
in Mumbai, to provide a nation-wide stock market to the member-brokers of all participating
RSEs as well as to the investing public of the respective States. 11 trading members of BhSE
registered as sub-brokers of ISE Securities & Services Ltd. (ISS), the subsidiary of ISE, are
successfully conducting business on the NSE and the BSE segments of ISS. The turnover of
the traders/ sub-brokers of BhSE on the NSE and the BSE segments of ISS was Rs 474.17
crores for the period from April 2011 to March 2013.
d. TRADING OPERATION
A total of 46 companies are listed with BhSE. During the FY 2012-13, no trading activity was
done in BhSE. However, business of the local segment continued to be centralized on the NSE
and the BSE segments of ISE Securities & Services Ltd. (ISS), a subsidiary of Inter-connected
Stock Exchange of India Ltd. (ISE), in which BhSE is a promoter shareholder.
e. INVESTMENT IN OTHER STOCK EXCHANGES

Pursuant to investment of Rs 70,000 in the equity capital of Inter-connected Stock Exchange
of India Ltd. (ISE), BhSE had been allotted 70,000 equity shares by ISE. Last year, ISE allotted
13,30,000 bonus shares to BhSE, in the ratio of 19:1 for every share held.
The wholly owned subsidiary of BhSE, Bhubaneswar Shares and Securities Ltd. (BSSL), was
allotted 10,000 equity shares of BSE pursuant to investment of Rs 10,000 in the equity capital
of BSE. BSE allotted 120,000 bonus shares to BSSL, in the ratio of 12:1 for every share held.
BSSL received a dividend of Rs 7,80,000 from BSE in FY 2011-12.
f. FUTURE UNDERTAKINGS
BhSE is exploring possibilities for business tie-up with national level stock exchanges in the
interest of investors and trading members of BhSE. It is also looking for possibilities of merger/
consolidation of the Exchange with other Exhanges viz. MCX-SX, Calcutta Stock Exchange
and ISE. BhSE is looking for alternative business plans for the survival of the entity.
B.
ORGANIZATIONAL STRUCTURE
The strength of the Board of Directors of BhSE is 9, consisting of 4 Shareholder Directors, 4

Public Interest Directors and 1 Chief Executive Officer/ Managing Director as Ex-officio
Director.
Figure i: Organizational structure of BhSE
C.
PRODUCTS/ SERVICES
a. BROKERAGE
The trading members of BhSE registered as sub-brokers of ISE Securities & Services Ltd.
(ISS), the subsidiary of ISE, are successfully conducting business on the NSE and the BSE
segments of ISS.
b. INVESTORS AWARENESS PROGRAMME
BhSE conducts 5-6 investors awareness programmes a year at different location of Odisha, by
way of seminars/workshops for education and awareness of investing public in securities.
c. INVESTORS SERVICE CELL
BhSE has an Investors Service Cell which ensures protection of the investors and undertakes
due care to build up confidence of the common investors in the securities market. It promptly
attends the complaints of various nature lodged by the investors against companies as well as
the trading members of the Stock Exchange. It plays an important role in a friendly approach
to redress the investors grievances. During the year, the Investors Service Cell received no
complaints from the investors.
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d. CUSTOMERS PROTECTION FUND

Investors protection is the cornerstone of a vibrant market. BhSE has established a Statutory
Fund called Bhubaneswar Stock Exchange Customers Protection Fund with an object to
protect the customers from the risk of defaulting trading members. As per the Rules of the said
Fund, presently a customer is entitled to be indemnified to a maximum of Rs 50,000 towards
his legitimate claim against a defaulter trading member of the Stock Exchange.
e. INTERNSHIP PROGRAMME
Students of various Institutes and B-Schools require preparing project papers on different
topics including the topics related to activities in stock exchange and securities market.
Students of a number of Institutes and B-Schools visit BhSE either directly or sponsored by
their Institutes every year for assistance in preparation of their project papers. BhSE assists and
supports those students in their project work by providing necessary guidance and securities
market information.
f. SECURITIES MARKET TRAINING PROGRAMME

With the expansion of capital market, practical oriented education programme in securities
market activities is in increasing demand. BhSE provides a Certificate Course, Basics of
Capital Market, for the students of +2 Commerce and B-Schools and for the youth who want
to make their career in securities market. At present, BhSE is engaged in imparting training to
the students of various management institutes.
D.
FINANCIAL CONDITION1
(All in Rs)
EPS
Net Worth
Reserves & Surplus
Total Assets
Total Liabilities
Total Revenue
Total Expense
Net Profit
ROE
2012
0.14
60412645
54613665
92410478
31997833
8844802
9632903
-788101
-0.013
2013
0.01
70385482
64586502
101385010
30999528
9384427
9489351
-104924
-0.001
Table i: Financial condition of BhSE from FY 2012 to FY 2013

The financial condition of BhSE does not look so bright. The Exchange is working in loss,
though the losses have diminished in FY 2013. This has caused the ROE to be negative. EPS
has also gone down in 2013. Reserves and surplus has increased by 18.2% in 2013, which
shows that the Exchange has increased investment in its business. Total assets have also
increased by 9.7%.
E.
RATIO ANALYSIS
2012
2013
1.85
2.22
Current Ratio
1.45
1.50
Cash Ratio
0.80
0.83
Net Working Capital Ratio
0.35
0.31
Debt Ratio
0.65
0.69
Equity Ratio
0.53
0.44
D/E Ratio
5.51
264.02
Inventory turnover
65.36
1.36
Days of Inventory Holdings (in days)
29.18
34.16
Debtors Turnover
12.34
10.54
Average Collection Period (in days)
0.10
0.09
Total Assets Turnover
0.15
0.14
Current Assets Turnover
0.27
0.29
Fixed Assets Turnover
Table ii: Financial ratios of BhSE for FY 2012 and FY 2013
a. LIQUIDITY RATIOS
Liquidity ratios measure the ability of the firm to meet its current obligations (liabilities).
The Exchanges current ratio has increased considerably and has crossed the conventional rule
of 2:1 current ratio which is considered satisfactory. Hence, the Exchange is short-term solvent.
The Exchange has good cash ratio to meet its current liabilities.
The difference between current assets and current liabilities excluding short-term bank
borrowing is called Net Working Capital (NWC). BhSEs NWC ratio has increased in 2013,
which shows that the Exchange is more liquid now than before.
10
b. LEVERAGE RATIOS
Leverage ratios show the proportions of debt and equity in financing the firms assets.
The Exchanges equity portion is more than the debt portion in both the years. The 44% D/E
ratio tells that the Exchanges assets are financed more with equity than debt and the owners
have greater claim than the creditors. The Exchange seems to be positively geared and lies in
low-risk region. This is a good sign to attract lending capital. However, a little debt means the
company may not be taking advantage of opportunities and realizing the full growth potential
of its business.
c. ACTIVITY RATIOS
Activity ratios reflect the firms efficiency in utilizing its assets.
The inventory turnover ratio of BhSE has increased suddenly by a huge leap, which may be
the result of a very low level of inventory in 2013. Days of Inventory Holding shows that the
inventory is held almost 2 days before it gets converted into cash.
BhSE is able to turnover its debtors 34.16 times in a year. The Average Collector Period of 11
days shows speedy collection of debts, which is considered good generally. However, it may
also indicate a very restrictive credit and collection policy. Such a policy succeeds in avoiding
bad debt losses, but it curtails the sales and the profit levels, as only limited lenders would
comply with such strict policy.
The Assets Turnover ratios are showing a bad picture, because total assets turnover of 0.09
implies that BhSE is producing Rs 0.09 of sales for 1 rupee of capital employed in total assets.
The Exchange is not utilizing its assets efficiently to generate sales.
F.
INFERENCE
The operations of Bhubaneswar Stock Exchange Ltd. may seem to be dying, but the securities
market is ever growing. Even if the Exchange is running in loss, its financial condition is not
so bad. All the trading activities are done at the national level at present. But time may witness
the boom of State level securities trading activities. It is all about survival of the fittest.
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1.
INTRODUCTION
The project is a research based project which deals with finding whether the current pricings
of IPOs are genuine to the investors or not, i.e. whether the companies are worthy of receiving
premium or not. The project is carried out within the purview of securities market. Concepts
of securities market and the analysis of IPOs are covered in the report.
Details of IPOs issued since January 1, 2011 till April 29, 2014 are collected. Data regarding
date of issue, issue price, face value, last traded price and paid up capital of the IPOs are
collected. The IPOs are categorized on the basis of their issue prices vs. market prices, and
their paid up capitals. Fundamental analysis, using Dividend Discount Model, is done on select
9 companies belonging to each category, to find the intrinsic values of the IPOs. Then, the
financial conditions of the companies are analysed to check the genuineness of the IPO pricing.
Annual reports and Prospectus of the companies are thoroughly studied for this purpose.
Every project has some limitations and limitations in this project include vastness of securities
market, time constraint and difficulty in data collection. Securities market is a wide area of
study. It is difficult to touch every aspect of securities market in limited time and limited scope.
Even though getting accurate data about detailed IPOs of various companies was tough, it was
accomplished successfully.
2.
REASON FOR CHOOSING THE TOPIC
Companies raise long-term funds in the forms of equity and debt from the capital markets.
Finance managers should, therefore, know the ways in which securities are traded and priced
in the capital markets. They should also know the procedures followed in issuing securities.
Securities will be fairly priced in the capital markets if they are efficient and genuine. This
project analyzes the genuineness of IPO prices in the markets.
Investment is done for returns and capital appreciation. Investors should have financial literacy
so that they are not fooled in the market. Equity shareholders undertake entrepreneurial risk i.e.
they have residual claim. Equity shareholders are at the bottom of the list of claimants to assets
of a corporation in the event of failure or bankruptcy. So, equity capital should be wellpromoted, not ill-promoted. Before investing, one should understand 3 factors- selection of
stock, time of entry and time of exit.
Thus, pricing of securities (IPOs) is an essential factor to gain investors confidence and aid in
the companies development and overall growth of an economy. Hence, this project is
beneficial from both investor point of view and manager point of view.
12
3.
FINANCIAL SYSTEM
A financial system is the system that enables lenders and borrowers to exchange funds.
Financial system of an economy helps in production growth, capital growth and income
growth. A financial system comprises financial market, financial assets, financial services,
financial institutions and financial instruments. Financial market provides platform for
mobilization of savings in terms of products. Money market and capital market are constituents
of financial market, in which securities market operates. Money market includes short term
borrowing, lending, buying and selling of assets with maturities less than a year. Capital market
deals with raising of capital through long term investments. Securities market depends on the
financial system of an economy.
4.
SECURITIES MARKET
For all round economic development of a country, it is essential to understand the securities
market of that country. Securities market is a market which facilitates the buying and selling
of securities. Securities are investment instruments which can be traded i.e. ownership is
transferrable, for example, bonds (debt securities), common stock (equity securities) and
derivatives. Securities market provides infrastructure for transaction of securities. It is the
entire system where financial instruments are traded. It facilitates inflow of capital in the form
of portfolio of investments and discourages capital outflow by providing facilities in the
domestic economy. Securities market links the domestic economy of a country to the rest of
the world.
5.
CAPITAL MARKET
Capital market is a financial market for buying and selling of long-term securities. It has two
mutually supporting and indivisible segments: the primary market and the secondary market.
In primary market, the companies issue new securities to raise funds. The secondary market
deals with the second-hand securities viz. securities that have already been issued by companies
that are listed in a stock exchange. Since the securities are listed and traded in the stock
exchange, the secondary market is also called stock market. In primary market, companies
interact directly with investors, while in secondary market, investors interact with themselves.
In both cases, the capital market intermediaries (investment or merchant bankers, stock brokers
etc) play an important role. Based on all available information, the secondary market
determines the price and risk of the issued securities. It provides useful signals to both listed
companies and investors to act in the primary markets.
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6.
STOCK MARKET
Stock market is the market in which shares of companies are issued and traded either through
exchanges or over-the-counter markets. When companies are profitable, stock market investors
make money through the dividends the companies pay out and by selling appreciated stocks at
a profit called a capital gain. The downside is that investors can lose money if the companies
whose stocks they hold lose money, the stocks' prices go down and the investors sell the stocks
at a loss.
Stocks are traded through exchanges. A stock exchange is a highly organized market which
assists, facilitates, controls and regulates the business of buying and selling of shares and
securities. Stock exchanges are public institutions which discharge public utility services and
spread equity culture among the investor population. The stock market is the barometer of the
economy.
6.1
HISTORY OF STOCK MARKET
The 1st stock exchange of the world dates back to 1460. It was built in Belgium as per the
Gothic structure. Amsterdam Stock Exchange was the 1st uninterrupted stock exchange in the
world. In India, stock related activities began in the mid 19th century under a banyan tree in
Bombay. The members of those activities were called the Native Share and Stock Broker
Association. This led to the establishment of Bombay Stock Exchange in 1875. National Stock
Exchange, established in 1992, was the 1st to enable fully automated online trading in India.
NSE has brought about unparalleled transparency, speed & efficiency, safety and market
integrity. The Indian securities market expanded rapidly since 1990s in terms of number of
stocks in intermediaries and volume of business, after the enactment of SEBI in 1992.
6.2
FACTORS AFFECTING STOCK MARKET
Market rumor
Political instability
Economic depression (foreign exchange rates, interest rates, inflation rate, FDI policies
etc)
Insider trading, substantial acquisition and takeover of shares
Law and order situation by enlarge
6.3
FLUCTUATION IN SHARE PRICES
In the capital markets, hundreds of investors make several deals a day. The screen-based trading
makes these deals known to all in the capital markets. Thus, a large number of buyers and
sellers interact in the capital markets. The demand and supply forces help in determining the
14
prices. Since all information is publicly available and since no single investor is large enough
to influence the security prices, the capital markets provide a measure of fair price of securities.
Capital markets facilitate the allocation of funds between investors and borrowers. This
allocation will be optimum if the capital markets have efficient pricing mechanism. The
security prices have been observed to move randomly and unpredictably. The market
fluctuations are captured by the Bombay Stock Exchanges Sensitivity Index (Sensex) and the
National Stock Exchanges Nifty. The randomness of security prices (and returns) may be
interpreted to imply that investors in the capital markets take a quick cognizance of all
information relating to security prices, and that the security prices quickly adjust to such
information.2
Thus, fluctuation in share prices occurs due to speculation of stock prices and market
conditions, and demand & supply of stocks of various companies.
6.3.1
PERFORMANCE OF COMPANY
Performance of a company influences the stock prices of that company. Performance of a

company is based on:
Economic condition of the nation

Integrity of managers of the company
Employee relationships in the company
Consumer psychology about the company
6.4
EFFICIENT MARKET
Efficient market is a market where all pertinent information is available to all participants at
the same time, and where prices respond immediately to available information. They are
capable of exercising all requirements like investment requirements, settlement requirements
etc. Market efficiency is the degree to which stock prices reflect all available and relevant
information.
Stock markets are considered the best examples of efficient markets.
7.
LEGISLATIONS GOVERNING SECURITIES MARKET
There are 4 main legislations governing the securities market in India. This is called
multiplicity of legislations.
Securities Contracts (Regulation) Act, 1956
15
8.
Companies Act, 1956

SEBI Act, 1992
Depositories Act, 1996
PRIMARY MARKET
Primary capital market is a channel for the sale of new securities. This is the market for new
long term equity capital. In the primary market, the securities are sold for the first time. In a
primary issue, the securities are issued by the company directly to investors. Primary issues are
used by companies for the purpose of setting up new business or for expanding or modernizing
the existing business. The primary market performs the crucial function of facilitating capital
formation in the economy.
The companies offer new issues through Initial Public Offerings (IPO), Further Public Offering
(FPO), Rights issue, Composite issue, or Bonus issue.
IPOs are the public issues of securities by companies for the first time. In IPOs or
public offerings, made by the established companies, securities are sold to the publicall individuals and institutional investors.
FPOs are the additional issue of new securities made to the investors by already listed
companies.
Rights issue is the issue of rights to buy additional securities in a company, made to
the existing shareholders on the basis of proportion the shares held by them.
Bonus issue is the issue of bonus shares i.e. additional shares to the existing
shareholders free of cost, in proportion to the shares held by them.
8.1
9.
REGULATIONS GOVERNING PRIMARY MARKET
SEBI Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2014

Companies Act, 1956
PUBLIC ISSUE
Entrepreneurs, in search of capital, break the capital structure into small units called shares, so
that they can be easily bought and sold. The issue of shares and securities of a company to the
public is called public issue. It is not necessarily issued for the first time by a company. The
term public offering is equally applicable to a company's initial public offering, as well as
subsequent offerings. Subscribers of the issue include investors in the form of institutional
investors, including Foreign Institutional Investors (FIIs), and retail investors, Qualified
Institutional Bidders (QIBs), investment bankers and SEBI registered intermediaries. They
facilitate the issue. Merchant bank or investment banker brings the issuer and the subscribers
16
together. Merchant bank assists the issuer company in all aspects of issue like deciding the
price of the issue, size of the issue, content of the prospectus, organizing campaigns for the
public issue, allotment of securities, refund of money in case of failure etc. To conduct due
diligence, merchant bank has to ensure that all issue formalities are carried out according to
law and proper disclosures.
10.
INITIAL PUBLIC OFFERING (IPO)
IPO is a type of public offering where shares of a company are sold to the public for the first
time. Initial public offerings are used by companies to raise expansion capital and to become
publicly traded enterprises. In an IPO, an underwriting firm assists an issuer company in
determining the type of security to issue (common or preferred), the best offering price and the
time to bring it to market.
There are risks associated with the pricing of IPOs viz. under-pricing and over-pricing, from
the companies point of view. Under-pricing an IPO results in lost potential capital for the
issuer, i.e. loss of capital that could have been raised had the IPO been offered at a higher price.
Over-pricing of IPOs results in loss of marketability of the shares, as the stock is offered to the
public at a higher price than the market will pay. Hence, underwriters take many factors into
consideration when pricing an IPO, and attempt to reach an offering price that is low enough
to stimulate interest in the stock, but high enough to raise an adequate amount of capital for the
company.
For an investor, IPOs can be a risky investment. It is difficult to predict the performance of the
stock on its initial day of trading and in the near future, as there is often little historical data to
analyze the company. Moreover, the company is entering the stock market for the first time
and hence, it is tough to forecast the investors psychology and the market sentiments towards
the company.
10.1
FIXED PRICE ISSUE
The price of an IPO can be determined through two ways: the fixed price method and the book
building method. In the fixed price issue, an issuer company is allowed to freely price the issue,
and the price at which the securities are offered and would be allotted, is made known to the
investors, in advance. Demand for the securities offered is known only after the closure of the
issue.
10.2
BOOK BUILDING ISSUE
The book building issue is used for efficient price discovery of IPO. It is a mechanism in which
a 20 % price band is offered by the issuer within which the investors are allowed to bid and the
final price is determined by the issuer only after closure of the bidding. Demand for the
securities offered can be known everyday on a real time basis on the exchange website while
the book is built.
17
10.2.1 THE BOOK BUILDING PROCESS
11.
The Issuer who is planning an offer nominates lead merchant banker(s) as 'book
runners'.
The Issuer specifies the number of securities to be issued and the price band for the
bids.
The Issuer also appoints syndicate members with whom orders are to be placed by the
investors.
The syndicate members input the orders into an 'electronic book'. This process is called
'bidding' and is similar to open auction.
The book normally remains open for a period of 5 days.
Bids have to be entered within the specified price band.
Bids can be revised by the bidders before the book closes.
On the close of the book building period, the book runners evaluate the bids on the basis
of the demand at various price levels.
The book runners and the Issuer decide the final price at which the securities shall be
issued.
Generally, the number of shares is fixed, the issue size gets frozen based on the final
price per share.
Allocation of securities is made to the successful bidders. The rest get refund orders.
UNDERWRITING
In an underwriting, the underwriters- banks, financial institutions, brokers etc- guarantee to

buy the shares if the issue is not fully subscribed by the public. Underwriters are insurer of
public issue. They assure the company that they will be able to raise certain capital and in case
of failure, they will buy all the shares.
The company and underwriters have control over the timing of an IPO and will try to take the
firm public under the most opportune circumstances. This could include during a rising or bull
market, or after the firm posts very favorable operating results.
11.1
TYPES
Firm commitment underwriting
In a firm commitment underwriting, the underwriter first buys the entire issue at a fixed price
from the issuer company and then resells the securities to the public. The underwriter
guarantees to purchase all of the securities being offered for sale by the issuer regardless of
whether or not they can sell them to investors. A firm commitment underwriting agreement is
the most desirable for the issuer because it guarantees them all of their money right away.
18
Best effort underwriting
In a best efforts underwriting, the underwriters agree to place as much of an offering with
investors as possible, but they do not guarantee the sell. The underwriters will do their best to
sell all of the securities that are being offered by the issuer, but in no way is the underwriter
obligated to purchase the securities for their own account. Any shares or bonds in a best efforts
underwriting that have not been sold will be returned to the issuer.
11.2
GREENSHOE OPTION
Greenshoe option is a provision contained in an underwriting agreement that gives the

underwriter the right to sell investors more shares than originally planned by the issuer. This
would be done if the demand for a security issue proves higher than expected. A greenshoe
option can provide additional price stability to a security issue because the underwriter has the
ability to increase supply and smooth out price fluctuations if demand surges. Greenshoe option
lets the bankers make additional profits, which are earned by selling the shares at a higher price.
It can also let the company earn additional capital.
12.
PROSPECTUS
In the context of an individual securities offering, such as an initial public offering, a prospectus
is distributed by underwriters or brokers to potential investors. A prospectus is a legal
disclosure document issued by companies that are offering securities for sale. It commonly
provides investors with material information about:
Description of the offering

Price
Date
History of the business and the industry
Description of management
Risks to the buyers
Objects of the issue (use of proceeds)
Basis for issue price
Financial information
Legal opinion regarding the formation of the company
Disclaimer
The role of the prospectus is to make investors aware of the risks of an investment. This
disclosure also protects the company from claims that it did not fully disclose enough
information about itself or the securities in question.
19
13.
NEED OF PUBLIC ISSUE
The main intention behind every work is growth- growth of individuals, growth of business
and growth of economy. Industries need capital to grow. They raise capital through equity and
debt finance. In debt financing, a company owes the money borrowed plus some interest to the
creditor. In equity financing, a company raises fund by issuing shares to the public. The
company is not obliged to pay the investors back, however, in case of good financial conditions;
the company may declare dividends, bonus shares, rights issues etc to the investors. Thus,
equity capital stays with the company and helps in expansion of its business.
Capital market facilitates mobilization of equity capital and enhances liquidity in the market.
Increased liquidity helps in capital appreciation. Growth of economy majorly rests on growth
of industries, as it causes emergence of various activities at both government and nongovernment levels. These activities generate massive direct and indirect revenue for the
government and the industries, and large scale direct and indirect employment. Hence, public
issues contribute towards the growth of the nation as a whole.
14.
OBJECTS OF A PUBLIC ISSUE
The objects of a public issue may include:
15.
Finance the expansion of business

Repay debts
Fund the working capital requirements of the company
Achieve benefits of listing on the stock exchanges
Fund general corporate purposes
INVESTMENT SCENARIO IN INDIA
In India, only 2% of the total population is investors. But in western countries, investor
population is made of 40-45% of the total population. Western states of India like Maharashtra
and Gujarat consist a significant proportion of the investment population of India.
20
Figure 1: Pie chart depicting the shareholding pattern in BSE Sensex companies, 2013
15.1
FDI AND FII
Foreign Direct Investment (FDI) and Foreign Institutional Investors (FII) share a major chunk
in the Indian investment market. India was the 16th most important FDI destination in 2013
among the top 20 global economies receiving foreign direct investment, according to the
United Nations Conference on Trade and Development (UNCTAD). FDI into India grew by
17% last year to USD 28 billion. FIIs net inflows touched nearly $151 billion (Rs 7,12,974
crore) on April 8, 2014, since their entry into Indian capital markets in 1992-93, according to
the Securities and Exchange Board of India. The FDI and FII scenario in India is currently
witnessing a gradual shift with liberalized reforms over the last few years and an attractive
investment climate making a positive impact on the inflow.
RBI monitors the ceilings on FIIs investments in Indian companies on a daily basis and has
prescribed cut-off points that are two percentage points lower than the actual ceilings. The
ceiling for overall investment for FIIs is 24% of the paid up capital of the Indian company and
10% for NRIs/PIOs. The limit is 20% of the paid up capital in the case of public sector banks.
21
15.2
STOCK EXCHANGES
Trading hour is from 9 AM to 3:30 PM in all stock exchanges of India. The Securities and
Exchange Board of India (SEBI) is the regulator of Indian stock market. There are 22 stock
exchanges in India. Among them two are national level stock exchanges namely Bombay Stock
Exchange (BSE) and National Stock Exchange of India (NSE). The rest 20 are Regional Stock
Exchanges (RSE). A companys minimum paid up equity capital should be Rs 10 crores to be
listed in NSE and Rs 3 crores to be listed in BSE.
Sources of income of a stock exchange are transaction charges, listing fees and subscription
charges from members and brokers. There is disaster management mechanism (back up) in
every stock exchange to carry out uninterrupted trading, in case any failure occurs.
Corporatization and demutualization of all stock exchanges of India have been done.
Corporatization means stock exchange should be organized as a company limited by shares. In
demutualization, ownership, management and trading rights- the three arms of stock exchanges
are segregated to avoid conflicts. The member brokers of a stock exchange are allowed to hold
maximum of 49% of the paid up share capital of the stock exchange and persons other than the
trading members are required to hold 51% of the paid up share capital.
15.3
CONFRONTING ISSUES
Before investing, one should understand 3 factors- selection of stock, time of entry and time of
exit. Many times, it is more important to invest in the right industry than in the right stock.
In the last 3 years, the number of public issues has drastically come down and there is no
enthusiasm seen in the new issue market. Lack of adequate knowledge to analyze financial
statements, intrinsic value of issue and exaggerated future projections persists in the stock
market. The investors are unable to identify a good IPO/FPO, many times, due to lack of
required level of financial literacy. Some scheming issuers exploit investors psychology by
sugar-quoting sub-standard IPOs with colorful promises. This is evident by the scams
happening in India. Most of the recent issued stocks quote in the market far below the
respective issue prices. Secondary market does not respond to greedy issue price. Hence,
market is losing investor confidence day by day. Also, the volume of elegant offer document
is too large to read. Thus, information asymmetry still prevails in the market.
16.
IPO ISSUES FROM APRIL 2011 TILL APRIL 2014
IPOs, both book building and fixed price, issued since 1st April 2011 till 29th April 2014 and
their issue dates, listing dates, face values, issue prices, current market prices and paid up
capital details are collected. A total of 116 IPOs have been released during this period and
which are still being traded in the market. The IPOs are categorized on the basis of their market
prices and issue prices. Issue price of IPO is compared with its average market price instead of
22
current market price. Average market price of the stock is taken by averaging the all time high
and the all time low prices of the stock after the issue.
The IPOs, whose average market prices are reasonably greater than the issue prices, are placed
in 1st category; the IPOs whose average market prices are equivalent to the issue prices, are
placed in 2nd category; and the IPOs whose average market prices are reasonably smaller than
the issue prices, are placed in 3rd category. The comparison is defined by a difference of Rs 10
in all cases.
Then, the categorized IPOs are segregated into large cap, mid cap and small cap. The stocks
with paid up capital of Rs 100 crore or more are placed in large cap; the stocks with paid up
capital in between Rs 100 crore and Rs 25 crore are placed in mid cap; and the stocks with paid
up capital of Rs 25 crore or less are placed in small cap.
16.1 IPOs WITH AVERAGE MARKET PRICE REASONABLY GREATER THAN
ISSUE PRICE
16.1.1 LARGE CAP
Issue
Price
(Rs)
Last
Traded
Price in
BSE
(Rs)
Average
Market
Price
(Rs)
Paid Up
Capital
(Rs
crore)
Name of the Issue
Issue Date
Listing
Date
Face
Value
(Rs)
Engineers India
Limited
6/2/2014 to
12/2/2014
28/2/2014
150
225
195.48
168.47
NATIONAL
BUILDINGS
CONSTRUCTION
CORPORATION
LIMITED
22/03/2012
to
27/03/2012
12/04/2012
10
106
157.4
154.23
120
L&T FINANCE
HOLDINGS
LIMITED
27/07/2011
to
29/07/2011
12/08/2011
10
52
73.55
68.73
1716.76
Table 1: Large cap IPOs with average market price reasonably greater than issue price
As on 29 April 2014
23
16.1.2 MID CAP
Name of the Issue
Just Dial Limited

Repco Home
Finance Limited
Speciality
Restaurants Limited
Issue Date
20/05/2013
to
22/05/2013
13/03/2013
to
15/03/2013
16/05/2012
to
18/05/2012
Listing
Date
Face
Value
(Rs)
Issue
Price
(Rs)
Last
Traded
Price in
BSE
(Rs)*
5/6/2013
10
530
1553.9
1181.60
69.5
1/4/2013
10
172
328.95
279.95
62.16
30/05/2012
10
150
141.95
164.00
46.96
Average
Market
Price (Rs)
Paid Up
Capital
(Rs
crore)
Tribhovandas
Bhimji Zaveri
Limited
24/04/2012
to
26/04/2012
09/05/2012
10
120
131.1
194.50
66.67
MT EDUCARE
LIMITED
27/03/2012
to
29/03/2012
12/04/2012
10
80
85.6
104.65
39.55
TREE HOUSE
EDUCATION &
ACCESSORIES
LIMITED
10/8/2011 to
12/8/2011
26/08/2011
10
135
258
219.60
35.97
Table 2: Mid cap IPOs with average market price reasonably greater than issue price
16.1.3 SMALL CAP
Issue
Price
(Rs)
Last
Traded
Price in
BSE
(Rs)*
Average
Market
Price
(Rs)#
Paid
Up
Capital
(Rs
crore)
Name of the Issue
Issue Date
Listing
Date
Face
Value
(Rs)
NEWEVER TRADE
WINGS LIMITED
30/9/2013
to
3/10/2013
17/10/2013
10
10
27
24.53
17.63
SATKAR FINLEASE
LIMITED
25/9/2013
to
27/9/2013
11/10/2013
10
18
54.45
37.18
3.25
24
ACE TOURS
WORLDWIDE
LIMITED
9/9/2013 to
12/9/2013
26/9/2013
10
16
29.70
33.38
7.27
R J BIO-TECH
LIMITED
10/9/2013
to
12/9/2013
25/9/2013
10
20
36.00
34.88
6.97
VKJ
INFRADEVELOPERS
LTD
12/8/2013
to
16/8/2013
02/09/2013
10
25
55.3
37.85
5.23
EDYNAMICS
SOLUTIONS
LIMITED
10/6/2013
to
12/6/2013
26/06/2013
10
25
208.85
123.48
8.51
Ashapura Intimates
Fashion Limited
28/3/2013
to 4/4/2013
15/04/2013
10
40
126.40
90.70
14.22
Samruddhi Realty
Limited
28/3/2013
to 4/3/2013
12/04/2013
10
12
40.00
31.88
4.83
GCM Securities
Limited
18/3/2013
to
20/3/2013
05/04/2013
10
20
500.00
292.50
12.9
HPC BIOSCIENCES
LIMITED
1/3/2013 to
5/3/2013
19/03/2013
10
35
622.80
344.63
1.75
CHANNEL NINE
ENTERTAINMENT
LIMITED
22/2/2013
to
26/2/2013
12/03/2013
10
25
483.05
265.63
15.52
V-Mart Retail Limited
1/2/2013 to
5/2/2013
20/2/2013
10
210
311.00
236.00
17.96
Esteem Bio Organic

Food Processing Ltd
18/1/2013
to
22/1/2013
07/02/2013
10
25
617.00
335.13
14.92
Eco Friendly Food

Processing Park
Limited
27/12/2012
to
31/12/2012
14/01/2013
10
25
283.25
330.68
9.91
RCL Retail Limited
27/9/2012
to
1/10/2012
16/10/2012
10
10
19.05
28.70
12.31
Comfort Commotrade
Limited
5/9/2012 to
10/9/2012
24/09/2012
10
10
25.50
28.03
10.02
SRG Housing Finance

Limited
22/8/2012
to
28/8/2012
11/09/2012
10
20
48.00
64.98
8.08
VKS Projects Limited
29/06/2012
to 4/7/2012
18/07/2012
10
55
0.57
180.88
18
25
Max Alert Systems

Limited
28/6/2012
to 2/7/2012
13/07/2012
10
20
100.00
87.13
5.2
Olympic Cards Ltd
9/3/2012 to
13/3/2012
28/3/2012
10
30
27.15
47.45
16.31
FLEXITUFF
INTERNATIONAL
LIMITED
29/09/2011
to
5/10/2011
19/10/2011
10
155
227.00
258.30
22.98
ONELIFE CAPITAL
ADVISORS LIMITED
28/09/2011
to
4/10/2011
17/10/2011
10
110
142.20
481.45
13.36
Prakash Constrowell
Ltd
19/09/2011
to
21/09/2011
4/10/2011
10
138
0.94
156.12
12.57
PG ELECTROPLAST
LIMITED
7/9/2011 to
12/9/2011
26/09/2011
10
210
143.45
301.00
16.41
Readymade Steel India

Ltd
27/06/2011
to
29/06/2011
13/7/2011
10
108
267.85
165.08
11.72
RUSHIL DECOR
LIMITED
20/06/2011
to
23/06/2011
07/07/2011
10
72
51.05
188.00
14.4
VMS Industries Ltd
30/05/2011
to 2/6/2011
14/6/2011
10
40
27.50
72.68
16.47
Table 3: Small cap IPOs with average market price reasonably greater than issue price
16.2
PRICE
IPOs WITH AVERAGE MARKET PRICE EQUIVALENT TO ISSUE
16.2.1 LARGE CAP
Issue
Price
(Rs)
Last
Traded
Price in
BSE (Rs)
Average
Market
Price (Rs)
Paid Up
Capital
(Rs
crore)
Name of the
Issue
Issue Date
Listing
Date
Face
Value
(Rs)
Power Grid
Corporation Of
India Limited
3/12/2013 to
6/12/2013
19/12/2013
10
90
105.30
100.88
4629.73
PC Jeweller
Limited
10/12/2012
to
12/12/2012
27/12/2012
10
135
95.00
130.43
179.1
As on 29 April 2014
26
Birla Pacific
Medspa Limited
20/06/2011
to
23/06/2011
7/7/2011
10
10
0.44
15.49
112.14
FUTURE
VENTURES
INDIA
LIMITED
25/04/2011
to
28/04/2011
04/07/2013
10
5.91
8.20
945.75
PTC INDIA
FINANCIAL
SERVICES
LIMITED
16/03/2011
to
18/03/2011
30/03/2011
10
28
17.58
18.75
562.08
Table 4: Large cap IPOs with average market price equivalent to issue price
16.2.2 MID CAP
Face
Value
(Rs)
Issue
Price
(Rs)
Last
Traded
Price in
BSE
(Rs)*
Average
Market
Price
(Rs)
Paid Up
Capital
(Rs
crore)
Name of the Issue
Issue Date
Listing
Date
TD POWER
SYSTEMS
LIMITED
24/08/2011
to
26/08/2011
08/09/2011
10
256
279.95
258.65
33.24
SERVALAKSHMI
PAPER LIMITED
27/04/2011
to
29/04/2011
12/05/2011
10
29
2.34
25.44
43.11
ACROPETAL
TECHNOLOGIES
LIMITED
21/02/2011
to
24/02/2011
10/03/2011
10
90
3.69
79.58
38.89
Table 5: Mid cap IPOs with average market price equivalent to issue price
27
16.2.3 SMALL CAP
Issue
Price
(Rs)
Last
Traded
Price
in BSE
(Rs)*
Average
Market
Price
(Rs)
Paid
Up
Capital
(Rs
crore)
Name of the Issue
Issue Date
Listing
Date
Face
Value
(Rs)
WOMENS NEXT
LOUNGERIES
LIMITED
28/03/2014
to
7/4/2014
21/4/2014
10
65
70.00
67.80
0.5
R&B DENIMS LIMITED
28/03/2014
to
4/4/2014
22/4/2014
10
10
13.35
12.99
6.3
OCEANAA BIOTEK
INDUSTRIES LIMITED
18/03/2014
to
20/03/2014
03/04/2014
10
10.10
9.75
3.12
ANISHA IMPEX
LIMITED
3/3/2014
to
5/3/2014
18/3/2014
10
10
11.60
15.55
0.22
KARNIMATA COLD
STORAGE LIMITED
25/02/2014
to
3/3/2014
18/3/2014
10
20
22.15
25.15
3.57
SI VI SHIPPING
CORPORATION
LIMITED
18/02/2014
to
21/02/2014
06/03/2014
10
25
35.00
34.73
1.21
UNISHIRE URBAN
INFRA LIMITED
10/02/2014
to
14/02/2014
28/2/2014
10
10
11.60
12.18
5.2
POLYMAC
THERMOFORMERS
LIMITED
6/2/2014
to
12/2/2014
28/2/2014
10
35
42.00
38.38
0.29
AGRIMONY
COMMODITIES
LIMITED
31/01/2014
to
04/02/2014
18/2/2014
10
10
10.00
12.18
0.1
CHEMTECH
INDUSTRIAL VALVES
LIMITED
15/01/2014
to
17/01/2014
31/1/2014
10
15
14.95
14.88
0.55
SUYOG TELEMATICS
LTD
30/12/2013
to
7/1/2014
22/1/2014
10
25
25.40
25.70
2.33
10
28
RCI INDUSTRIES AND

TECHNOLOGIES
LIMITED
30/12/2013
to
6/1/2014
22/1/2014
10
40
38.05
35.50
6.61
CAPTAIN POLYPLAST
LIMITED
26/11/2013
to
28/11/2013
11/12/2013
10
30
44.50
39.50
2.19
STELLAR CAPITAL
SERVICES LIMITED
15/10/2013
to
18/10/2013
01/11/2013
10
20
7.65
13.38
16.56
SRG SECURITIES
FINANCE LIMITED
7/10/2013
to
14/10/2013
29/10/2013
10
20
20.00
22.53
0.91
SUBH TEX(INDIA)
LIMITED
30/9/2013
to
7/10/2013
22/10/2013
10
10
21.25
18.83
7.5
TIGER LOGISTICS
(INDIA) LTD
27/8/2013
to
29/8/2013
12/09/2013
10
66
65.00
69.00
3.09
KUSHAL TRADELINK
LIMITED
14/8/2013
to
21/8/2013
04/09/2013
10
35
35.00
43.15
15.8
SILVERPOINT
INFRATECH LIMITED
12/8/2013
to
14/8/2013
28/8/2013
10
15
7.10
10.25
19.79
GCM COMMODITY
AND DERIVATIVES
LTD
1/8/2013
to
5/8/2013
14/8/2013
10
20
9.30
14.40
3.92
ALACRITY
SECURITIES LTD
29/7/2013
to
1/8/2013
14/8/2013
10
15
6.40
9.68
15
MONEY MASTERS
LEASING AND
FINANCE LTD
23/7/2013
to
26/7/2013
12/08/2013
10
15
10.90
15.28
3.16
05/06/2013
10
14
6.05
8.48
6.49
25/03/2013
10
25
21.85
26.23
18.52
Onesource Techmedia
Limited
Bothra Metals & Alloys
Limited
17/5/2013
to
21/5/2013
12/3/2013
to
14/3/2013
29
KAVITA FABRICS
LTD.
Bronze Infra-Tech
Limited
Anshu's Clothing Limited
Jointeca Education
Solutions Limited
Jupiter Infomedia Limited
Sangam Advisors Limited
20/2/2013
to
26/2/2013
19/10/2012
to
23/10/2012
26/9/2012
to
28/9/2012
16/8/2012
to
21/8/2012
30/7/2012
to
1/8/2012
24/7/2012
to
26/7/2012
12/03/2013
10
40
40.50
39.43
3.47
07/11/2012
10
15
14.80
12.95
17.28
12/10/2012
10
27
3.80
20.30
6.23
04/09/2012
10
15
16.50
15.38
10.02
16/08/2012
10
20
28.00
25.30
3.49
09/08/2012
10
22
20.10
22.43
6.11
BCB Finance
Limited(SME Issue)
23/2/2012
to
27/2/2012
13/03/2012
10
25
25.20
26.00
11.5
TIMBOR HOME
LIMITED
30/05/2011
to
2/6/2011
22/06/2011
10
63
12.04
58.85
14.76
SANGHVI FORGING
AND ENGINEERING
LTD
4/5/2011
to
9/5/2011
23/05/2011
10
85
19.25
80.05
12.69
Table 6: Small cap IPOs with average market price equivalent to issue price
16.3 IPOs WITH AVERAGE MARKET PRICE REASONABLY SMALLER

THAN ISSUE PRICE
16.3.1 LARGE CAP
Name of the Issue
Issue Date
Listing
Date
Face
Value
(Rs)
Bharti Infratel
Limited
11/12/2012
to
14/12/2012
28/12/2012
10
Issue
Price
(Rs)
Last
Traded
Price in
BSE
(Rs)
220
214.95
Average
Market
Price (Rs)
Paid Up
Capital
(Rs
crore)
174.73
1888.74
As on 29 April 2014
30
SRS Limited
23/08/2011
to
26/08/2011
16/09/2011
10
58
34.90
43.35
139.3
POWER FINANCE
CORPORATION
LIMITED
10/5/2011 to
13/05/2011
27/05/2011
10
203
182.85
160.30
1320.02
MUTHOOT
FINANCE
LIMITED
18/04/2011
to
21/04/2011
06/05/2011
10
175
175.20
159.80
371.71
TATA STEEL
LIMITED
19/01/2011
to
21/01/2011
02/02/2011
10
610
405.50
421.03
971.22
Table 7: Large cap IPOs with average market price reasonably smaller than issue price
16.3.2 MID CAP
Issue
Price
(Rs)
Last
Traded
Price in
BSE
(Rs)*
Average
Market
Price
(Rs)
Paid Up
Capital
(Rs
crore)
Name of the Issue
Issue Date
Listing
Date
Face
Value
(Rs)
Credit Analysis and

Research Limited
7/12/2012
to
11/12/2012
26/12/2012
10
750
809.90
700.63
28.55
Multi Commodity
Exchange of India
Limited
22/02/2012
to
24/02/2012
9/3/2012
10
1032
574.10
927.65
51
VASWANI
INDUSTRIES
LIMITED
29/04/2011
to 3/5/2011
24/10/2011
10
49
2.71
18.44
27.29
INNOVENTIVE
INDUSTRIES
LIMITED
26/04/2011
to
29/04/2011
13/05/2011
10
117
16.70
78.85
59.64
PARAMOUNT
PRINTPACKAGING
LIMITED
20/04/2011
to
25/04/2011
09/05/2011
10
35
0.76
19.34
26.7
SHILPI CABLE
TECHNOLOGIES
LIMITED
22/03/2011
to
25/03/2011
08/04/2011
10
69
24.35
46.77
37.52
31
16.3.3 SMALL CAP
Face
Value
(Rs)
Issue
Price
(Rs)
Last
Traded
Price in
BSE
(Rs)*
Average
Market
Price
(Rs)
Paid Up
Capital
(Rs
crore)
100
55.00
70.75
7.2
Name of the Issue
Issue Date
Listing
Date
AMRAPALI
CAPITAL AND
FINANCE
SERVICES LTD
15/10/2013
to
18/10/2013
01/11/2013
Tara Jewels Limited
21/11/2012
to
23/11/2012
06/12/2012
10
230
103.55
157.90
24.58
Tijaria Polypipes
Limited
27/9/2011
to
29/9/2011
14/10/2011
10
60
4.15
35.39
23.63
INDO THAI
SECURITIES
LIMITED
30/09/2011
to
5/10/2011
02/11/2011
10
74
12.00
54.01
10
RDB Rasayans
Limited
21/09/2011
to
23/09/2011
7/10/2011
10
79
10.48
49.93
17.71
BROOKS
LABORATORIES
LIMITED
16/08/2011
to
18/08/2011
05/09/2011
10
100
22.30
71.80
16.19
BHARATIYA
GLOBAL
INFOMEDIA
LIMITED
11/7/2011
to
14/07/2011
28/07/2011
10
82
7.29
43.89
15.84
OMKAR
SPECIALITY
CHEMICALS
LIMITED
24/01/2011
to
27/01/2011
10/02/2011
10
98
127.00
89.83
19.63
10
32
FUNDAMENTAL ANALYSIS
Fundamental analysis is about using real data to evaluate a security's intrinsic value by
examining related economic, financial and other qualitative and quantitative factors.
Fundamental analysis includes economic analysis, industry analysis and company analysis. At
company level, fundamental analysis involves analysis of financial data, management, business
concept and competition. At industry level, analysis of supply and demand forces for the
products is done. At economy level, the growth pattern of the economy is assessed and how it
impacts the stock market is analyzed. The Indian companies derive all or most of their revenue
from operations in India and, consequently, performance and the quality and growth of their
business are dependent on the health of the economy of India. When the economy expands,
most industry groups and companies benefit and grow. Also, the economy cannot grow in the
absence of industrial growth. On the basis of these three analyses, the intrinsic value or true
value of the stock is determined. If the intrinsic value is higher than the market price i.e. the
stock is under-valued, it is recommended to buy the shares. If the intrinsic value is equal to
market price, hold the shares and if the intrinsic value is less than the market price i.e. the stock
is over-valued, then sell the shares.
17.1
DIVIDEND DISCOUNT MODEL
The Dividend Discount Model is used in the analysis to find the intrinsic values of stocks.
A stream of dividends and the terminal share price are discounted by the opportunity cost of
capital or the capitalization rate to find the present value of the stock.
where
P0 = intrinsic value of stock
DivN = dividend per share after year N
Ke = capitalization rate or opportunity cost of capital
PN = terminal share price after year N
The value of opportunity cost of capital is calculated using the following formula:
33
where
Ke = capitalization rate or opportunity cost of capital
D1 = dividend after 1 year
P0 = present value of stock (issue price in this case)
g = growth rate in earnings per share
17.2
SELECT IPOs AND THEIR INTRINSIC VALUES
One company from each of the 9 mentioned categories is selected.

Dividend data after the issue and EPS data of the companies are collected and the intrinsic
values of the IPOs are found.
Last
Trade
d
Price
in
BSE
(Rs)*
Avera
ge
Marke
t Price
(Rs)
Div1
(Rs)
Div2
(Rs)
Div3
(Rs)
EPS0
(Rs)
EPSn
(Rs)
P0
(Rs)
Name of
the Issue
Listing
Date
Issu
e
Pric
e
(Rs)
L&T
FINANC
E
HOLDIN
GS
LIMITED
12/8/201
1
52
67.5
68.73
0.75
0.75
2.173
4.28
35.71
Speciality
Restauran
ts Limited
30/05/20
12
150
140.2
0
164.00
3.92
5.17
149.5
5
RUSHIL
DECOR
LIMITED
07/07/20
11
72
51.05
188.00
0.5
0.5
0.5
4.40
2.8
290.3
8
27/12/20
12
135
95
130.43
1.5
6.45
19.86
62.39
8/9/2011
256
279.9
5
258.65
17.35
10.73
354.9
0
16/08/20
12
20
28
25.3
0.1
2.64
0.33
50.29
PC
Jeweller
Limited
TD
POWER
SYSTEM
S
LIMITED
Jupiter
Infomedia
Limited
34
Multi
Commodi
ty
Exchange
of India
Limited
9/3/2012
103
2
574.1
927.65
36
19
43.26
58.56
758.5
8
Table 10: Intrinsic values of IPOs

P0 = intrinsic value of the stock
Div1 = dividend after 1 year
Div2 = dividend after 2 years
Div3 = dividend after 3 years
EPSn = EPS for Fiscal 2013
EPS0 = EPS for Fiscal 2010
17.
ANALYSIS DATA
Genuineness of the pricing of the IPOs is analyzed looking at EPS, P/E ratio, DPS, Net Worth,
Reserves and Surplus, Net Profit and ROE of the companies 2 years prior to the issue till FY
2013.
Earnings Per Share (EPS)
The earnings per share is a useful measure of profitability, and when compared with EPS of
other similar companies, it gives a view of the comparative earning power of the companies.
EPS when calculated over a number of years indicates whether the earning power of the
company has improved or deteriorated. Companies with steadily increasing earnings per share
are considered good. Growth in EPS is an important measure of management performance
because it shows how much money the company is making for its shareholders, not only due
to changes in profit, but also after all the effects of issuance of new shares.
P/E Ratio
35
A company with high P/E ratio is considered good only when its earnings are high, otherwise
the P/E ratio warns of an over-priced stock, which means the stocks price is much higher than
its actual growth potential. Hence, the analysis of EPS and P/E ratio works in tandem. In
general, a high P/E suggests that investors are expecting higher earnings growth in the future
compared to companies with lower P/E. A company with a high P/E ratio will have to live up
to the market expectation by substantially increasing its earnings, else the stock price will drop.
Dividend Per Share (DPS)
The dividend per share is defined as the total of declared dividends for each share of stock
issued. Dividends are essentially profit-sharing mechanisms allowing the distribution of
company profits to the shareholders. DPS is an indicator of a companys overall financial
profitability. A stable dividend policy has a positive impact on the market price of the share.
Low dividend per share figures, however, may not be indicative of poor performance or
unprofitable company operations. Profits may be reinvested into core business assets and this
can produce higher dividends in the long run.
Net Worth
Net worth = Total assets Total liabilities = Paid-up share capital + Reserves and surplus
Net worth is the amount by which assets exceed liabilities. It is also called owner's equity,
shareholders' equity, or net assets. It includes paid-up share capital and reserves and surplus.
Net worth can be used to determine creditworthiness because it gives a snapshot of the
company's investment history. It also provides a picture of the financial situation of a company
at a point of time.
Reserves and Surplus
Reserves and surplus or Retained Earnings are the profits generated by a company that are not
distributed as dividends to the shareholders. They are the amount of profit the company has
reinvested in the business since its inception. These reinvestments are either asset purchases or
liability reductions. In broad terms, capital retained is used to maintain existing operations or
to increase sales and profits by growing the business. High retained earnings indicate that the
firm is profitable and should have few problems repaying its debts.
Net Profit
Net profit or Net Income or Profit after Taxes (PAT) is the difference between revenue
and total business expenses. Net profit is the last line in an income statement. It is
36
obtained when operating expenses, interest and taxes are subtracted from the gross
profit4. It shows the financial standing of a company.
Return on Equity (ROE)
ROE or Return on Net worth (RONW) is equal to a fiscal year's net income (after preferred
stock dividends but before common stock dividends) divided by shareholders equity (excluding
preferred shares), expressed as a percentage. Return on equity measures a corporation's
profitability by revealing how much profit a company generates with the money shareholders
have invested. Higher values are generally favorable meaning that the company is efficient in
generating income on new investment. The higher the ROE, the more easily the company is
able to raise money for growth.
37
18.1
L&T FINANCE HOLDINGS LIMITED
Industry Financial Services

Listing date 12/8/2011
Issue Price = Rs 52
Intrinsic value = Rs 35.71
L&T Finance Holdings Ltd is a financial holding company offering a diverse range of financial
products and services across the corporate, retail and infrastructure finance sectors, as well as
mutual fund products and investment management services, through direct and indirect whollyowned subsidiaries. The growth of the financial sector in India at present is nearly 8.5% per
year. Dominated by commercial banks which have over 60% share of the total assets, Indias
financial sector comprises commercial banks, insurance firms, non-banking institutions,
mutual funds, cooperatives and pension funds, among other financial entities. The company is
registered with the RBI as an NBFC-ND-SI. As an NBFC, they face the risk of default and
non-payment by borrowers and other counterparties, which would result in write-offs and/or
provisions in their financial statements. The company is affected by volatility in interest rates
for both their lending and treasury operations, which could cause their net interest income to
decline. Interest rates are highly sensitive to many factors, including the monetary policies of
the RBI, deregulation of the financial sector in India, domestic and international economic and
political conditions.
Some of the quantitative factors which may form the basis for computing the Issue Price are as
follows:
(All in Rs)
EPS
Average Market Price
P/E ratio
DPS
Net Worth (in millions)
Reserves & Surplus (in millions)
Net Profit (in millions)
ROE
2009
-0.3
10785
0
-0.17
0.00
2010
0.02
16313
27.95
22.32
0.00
2011
0
17828
3658
1.35
0.00
2012
0.44
47.55
108.07
33536
16388
712.5
0.02
2013
1.81
67.62
37.36
0.75
42805
18137
3113
0.07
Table 11: Financial condition of L&T Financial Holdings Ltd from FY 2009 to FY 2013
Interpretation
The company falls under the category of large cap IPOs with average market price reasonably
greater than issue price. The financial condition of the company over the past 5 years seems to
be growing. EPS has grown by 311.3% in 2013, though it is less than the industry average
which is Rs 5.36. Average market price has increased by 42.2%, however P/E has declined
because earnings growth is more than price growth. This denotes that the stocks are priced less
38
than they ought to be. The industry average P/E is 1105.7, which is much higher than that of
the company. Net worth and Retained earnings show huge numbers, which means that the
company is a well-established company. Net profit has increased by 337% in 2013. Generally,
ROE greater than 15% is considered good, but L&T Finance Holdings has ROE of 7%. The
company distributed dividends in 2013, which is a good sign of growth. Overall, the company
is doing better than the past and its issue price is genuine.
18.2
SPECIALITY RESTAURANTS LIMITED
Industry Food Services

Issue Price = Rs 150
India's organized food services market is expected to grow by 16% over the next five years and
touch $ 28 billion on the back of changing consumption habits of consumers and emergence of
new players in the sector. The National Restaurant Association of India (NRAI) in its report
said that the size of the total market (organized and unorganized) is $ 13 billion in 2013 and is
expected to grow to $ 78 billion by 2018. (Source: The Economic Times, dated 23 April 2013).
Specialty Restaurants Ltd is a fine dining operator in India, with 82 restaurants and 14
confectionaries as of March 31, 2013, featuring certain well recognized brands in the Indian
restaurant industry. Their business depends significantly on the market recognition of their
Mainland China brand. Their business and operations are sensitive to changes in consumer
tastes and dining habits, and timely deliveries of quality ingredients and equipment mainly
from China by suppliers. The company is exposed to VAT, service tax, tariffs, import duties
etc which may lead to higher prices being charged to consumers. Their business is subject to
national, state and municipal laws and regulations like health, safety and environmental laws,
which govern the handling, storage and disposal of food products.
39
follows:
(All in Rs)
EPS
P/E ratio
DPS
ROE
2010
3.92
706
649
111
0.16
2011
5.48
973
623
156
0.16
2012
5.57
1148
796
172
0.15
2013
5.17
185.50
35.88
1
2905
2435
234
0.08
Table 12: Financial condition of Speciality Restaurants Ltd from FY 2010 to FY 2013
Interpretation
The company falls under the category of mid cap IPOs with average market price reasonably greater
than issue price. The financial condition of the company over the last 4 years seems to be stable. The
company is in nascent stage of growth. Its EPS is equivalent to the industry average EPS (Rs 5.69). Its
P/E ratio is much less than the industry average of 217.21. The company has reinvested much amount
in its business in the form of retained earnings in 2013 than in earlier years. Net profit has increased by
36% in 2013. ROE was very well till 2012, but it declined considerably in 2013, perhaps due to issue of
equity shares in the year. Issue price of the IPO is equal to the intrinsic value, hence the company has
not issued the stocks at premium. Therefore, pricing of the IPO is genuine.
18.3
RUSHIL DECOR LIMITED
Industry Wood and Furniture

Issue Price = Rs 72
Rushil Decor Ltd is a modern manufacturer of Decorative Laminated Sheets with a network of
branches, distributors and dealers across India. The Indian wood and furniture industry is highly
dominated by the unorganized players accounting for 85% of the furniture production in India. This
USD 8 billion industry has been growing at 30% compound annual growth rate. The furniture sector
makes a marginal contribution of 0.5% to India's GDP. The company mainly depends on raw
materials like Phenol, Methanol and Melamine which are petro products and are highly price
sensitive. With economic liberalization, administrative reforms, increased globalization,
40
improvement in purchase power and the consequent increase in business opportunities, Indias
real estate sector is on an upward surge. Large malls, residential complexes, hotels, hospitals,
office complexes and other commercial complexes are all fuelling the growth of the real estate
sector and in turn the wood and furniture industry. 100% FDI is allowed the real estate sector.
follows:
(All in Rs)
EPS
P/E ratio
DPS
ROE
2009
3.3
205
121
27.7
0.13
2010
4.4
213
129
38.5
0.18
2011
5.11
0.5
254
167
44.7
0.18
2012
4.37
163.25
37.36
0.5
689
545
56.5
0.08
2013
2.8
194.45
69.45
0.5
718
574
40.2
0.06
Table 13: Financial condition of Rushil Decor Ltd from FY 2009 to FY 2013
Interpretation
The company falls under the category of small cap IPOs with average market price reasonably
greater than issue price. The company seems to be financially stagnant. EPS is in a decreasing
trend. This has caused the P/E to boost up. Its P/E is greater than the industry average P/E of
22.02. The company has consistently declared dividends. Net worth and Retained earnings
have grown but not considerably. Net profit and ROE are showing negative growths in 2013.
Also, the last traded price of the stock in BSE as on 29 April, 2014 is Rs 51.05, which is below
the issue price, even though the average market price after the issue is Rs 188. Even if it is in
a highly growing industry, the company is growing at a very slow pace. So, the IPO is issued
at much less price than the intrinsic value, which is justified rightly.
18.4
PC JEWELLER LIMITED
Industry Gems and Jewelry

41
PC Jeweler Ltd is one of the leading jewelry companies in India in the organized jewelry retail
sector. Their operations include manufacture, retail and export of jewelry. They obtain most of
their gold under gold loan schemes which are governed by specific conditions of the Ministry
of Commerce and Industry, Government of India, and the applicable RBI regulations. Volatility
in the market price of gold and diamonds has a bearing on the value of the inventory and could
affect income, profitability and scale of operations of the company. The company is also
exposed to currency exchange risks as their business relies on the import and export of gold
and diamonds. The Indian luxury market is growing at a compounded annual growth rate
(CAGR) of 25 to 30 per cent per annum and jewellery accounts for about 50% of the total
luxury products sold in the country. India is the worlds largest consumer of gold, accounting
for 20% of the total world gold consumption. Gold jewellery constitutes about 80% of the
Indian jewellery market. The Government of India had raised customs duty to 10% on gold in
2013 from 2% earlier.
follows:
(All in Rs)
EPS
Average market price
P/E ratio
DPS
ROE
2010
6.45
1520
1108
784
0.52
2011
11.23
3256
2810
1476
0.45
2012
17.27
5557
4217
2300
0.41
2013
19.86
146.30
7.37
1
13888
12097
2906
0.21
Table 14: Financial condition of PC Jeweller Ltd from FY 2010 to FY 2013
Interpretation
The company falls under the category of large cap IPOs with average market price equivalent
to issue price. The company is in a very good financial condition. Its EPS is much higher than
the industry average of Rs 6.28. Its P/E ratio is less than the industry average of 28.5, which
may be due to under-pricing of its stocks or higher earnings. Net worth and Retained earnings
have grown tremendously in 2013. Net profit has grown by 26.3%. The company has issued
dividends in 2013. Though ROE is in a declining trend, it is considered very well, as ROE
above 15% are considered good. The issue price is much greater than the intrinsic value and it
is most genuine.
42
18.5
TD POWER SYSTEMS LIMITED
Industry Heavy Engineering

TD Power Systems Ltd is one of the leading manufacturers of AC Generators in the world with
output capacity in the range of 1 MW to 200 MW for prime movers, such as steam turbines,
hydro turbines, diesel engines, wind turbines, gas engines and gas turbines. They also
manufacture special application generators, and generators for Geo Thermal and Solar thermal
applications. They rely upon the provision of technology from certain technology providers
with whom they have executed license agreements for their manufacturing business. They get
steel and other raw materials, some of which are procured from outside India, from third-party
suppliers. Various industries such as cement, steel, paper, chemical, metals, sugar cogeneration, bio-mass power plants, hydro-electric power plants and independent power plants
and external consultants place orders with the company for various power project. Heavy
industry has been performing well with the industrial sector recording a growth rate of 5.8%.
100% FDI is allowed in the engineering industry. The engineering sector is among the top two
contributors to the total Indian export basket with total shipments of US$ 56.7 billion in 201213.
follows:
(All in Rs)
EPS
P/E ratio
DPS
ROE
2009
19.38
5
947
884
368
0.39
2010
17.35
5
1240
1177
330
0.26
2011
18.44
2
1775
1531
416
0.23
2012
16.94
263.87
15.58
2
4331
3999
498
0.11
2013
10.73
263.82
24.59
2
4613
4281
356
0.08
Table 15: Financial condition of TD Power Systems Ltd from FY 2009 to FY 2013
Interpretation
The company falls under the category of mid cap IPOs with average market price equivalent
to issue price. The financial condition of the company seems to be stagnant over the last 5
43
years. EPS is gradually declining, as a result, P/E has increased. EPS is less than the industry
average of Rs 20. P/E is also less than the industry average of 34.84. The company has
consistently declared dividends. Net worth and Retained earnings have not changed much in
2013. ROE was very good from FY 2009 till 2011, but it fell considerably over the past 2 years,
perhaps due to issue of equity shares. The market has reacted badly and the IPO was issued at
a price smaller than the intrinsic value. The reason could be sluggish growth of the industry.
18.6
JUPITER INFOMEDIA LIMITED
Industry Online Information

Issue Price = Rs 20
Jupiter Infomedia Ltd is a web infomedia company with online publications on Business,
Encyclopedia and Yellow-pages. The company aims to develop an online information library
that would provide in-depth information to its visitors on various topics. Advertisers in India
are now spending 5-10 % of their advertising budgets on the internet. The online advertising
market in India is expected to reach 7000 crores (USD 1.6 billion) by 2015 (Source: The
Economic Times, dated February 20, 2012). The internet user base in India is projected to touch
243 million by June 2014, a year-on-year growth of 28% (Source: The Times of India, dated
January 29, 2014). A substantial majority of the companys revenue is currently generated from
third parties advertising on their portals, among which Google AdSense is the major client.
Advertising could be in the form of direct advertising or in form of listing fees paid by clients
for priority listings with them. The company tries to attract and retain paid advertisers and
maintain adequate user service levels. Till date they are a family run Small and Medium
Enterprise.
follows:
(All in Rs)
EPS
P/E ratio
DPS
ROE
2010
2.64
1.2
3.59
3.3
1.03
0.28
2011
1.4
1.5
4.08
3.8
0.54
0.13
2012
0.51
1.5
19.9
5.6
0.2
0.01
2013
0.33
23.05
69.84
0.1
61.4
26.5
0.92
0.01
Table 16: Financial condition of Jupiter Infomedia Ltd from FY 2010 to FY 2013
44
Interpretation
The company falls under the category of small cap IPOs with average market price equivalent
to issue price. The company is an SME and hence, the figures are also small. EPS has decreased
over the past 4 years. P/E ratio is higher than the Information Services industry average of 34.6.
Even though the EPS and ROE are in a declining trend, the company has declared dividends
consistently. Net worth, Retained earnings and Net profit have jumped considerably in 2013.
However, prior to the issue, the financial condition of the company is not so bright. The IPO is
issued at a price less than the intrinsic value, perhaps due to less attractiveness of the company
which led to low demand for the stock.
18.7 TATA STEEL LIMITED

Industry Steel
Tata Steel Group is among the top-ten global steel companies with an annual crude steel
capacity of over 29 million tons per annum. It is now the world's second-most geographicallydiversified steel producer, with operations in 26 countries and a commercial presence in over
50 countries. India is slated to become the second-largest steel producer in the world by 2015.
Steel production in India has increased at a compound annual growth rate (CAGR) of 6.9%
over 200812. Steel contributes to nearly 2% of the gross domestic product (GDP). The total
market value of the Indian steel sector stood at US$ 57.8 billion in 2011 and is expected to
touch US$ 95.3 billion by 2016. The Tata Steel Group had a turnover of US$ 24.82 billion in
FY 2013. Steel prices are volatile, reflecting the highly cyclical nature of the global steel
industry. Steel prices fluctuate based on macroeconomic factors, including, amongst others,
consumer confidence, employment rates, interest rates and inflation rates, in the economies in
which the steel producers sell their products and are sensitive to the trends of particular
industries, such as the automotive, construction, packaging, appliance, machinery, equipment
and transportation industries, which are among the biggest consumers of steel products. Europe
is the Companys largest market, accounting for 62.7% of the Companys net sales in FY 2010.
Outside of Europe, India remains the Companys largest market, representing 26.2% of the
Companys net sales in FY 2010. Hence, the company is exposed to volatility in foreign
exchange rates, especially rates between the Euro, the Rupee and the U.S. Dollar. The FII
holding of the Company currently is approximately 14.36% of its paid-up equity capital, as the
Companys FII limit is currently at 24% of its paid-up equity capital.
45
follows:
(All in Rs)
EPS
P/E ratio
DPS
ROE
2009
69.4
16
295995
239728
52017
0.17
2010
60.3
8
371687
360743
50468
0.13
2011
75.63
12
469446
458070
68656
0.15
2012
67.84
495.07
7.29
12
526213
516499
66964
0.13
2013
50.28
392.07
7.79
8
552096
542382
50629
0.09
Table 17: Financial condition of Tata Steel Ltd from FY 2009 to FY 2013
Interpretation
The company falls under the category of large cap IPOs with average market price reasonably
smaller than issue price. The huge figures depict that the company is a well-established big
company. The financial condition of the company prior to the issue seems to be bright. EPS,
Net worth, Net profit and ROE show good figures. In 2013, both EPS and average market price
have fallen, which made P/E stay almost unchanged. P/E is less than the industry average of
23.57. Large steel manufacturers industry average EPS and P/E are Rs 29.55 and 12.8
respectively. So, the company is in much brighter position than the large players. The company
has declared good amount of dividends consistently. Net profit has dropped by 24.4% in 2013,
which has led to a drop in ROE. Otherwise, ROE over the years is almost stable. Thus, the
high issue price is absolutely genuine.
18.7
MULTI COMMODITY EXCHANGE OF INDIA LIMITED
Industry Commodity Futures Exchange

The Multi Commodity Exchange of India Limited (MCX), Indias first listed exchange, is a
commodity futures exchange that facilitates online trading, and clearing and settlement of
commodity futures transactions. MCX offers trading in varied commodity futures contracts
across segments including bullion, ferrous and non-ferrous metals, energy, agro-based and
agricultural commodities. Trading volumes of commodity futures taken as a whole, have risen
at a compounded annual growth rate of 58% between FY 200405 and FY201213. The total
value of commodity futures contracts traded on the Exchange in the nine months ended
46
December 31, 2010 and the fiscal 2010 was Rs. 68,893.18 billion and Rs. 63,933.03 billion
respectively. They derive their income primarily from transaction fees, which accounted for
78.1% of total income, and membership admission fees, annual subscription fees and terminal
charges that they collect from members accounted for 5.0% of total income for the six months
ended September 30, 2010. For the six months ended September 30, 2010, the value of
contracts of four commodities traded on MCX, namely gold, crude oil, silver and copper,
accounted for 30.3%, 19.7%, 17.9% and 12.4%, respectively, of the total value of commodity
futures contracts traded on MCX. The trading volume on the Exchange is dependent on
volatility in commodity prices. FDI up to 49% is allowed in this sector. Under the current
regulatory environment, foreign institutional investors, banks and mutual funds cannot trade
on commodity exchanges. The commodity futures exchange industry is regulated by Forward
Markets Commission (FMC) and the Ministry of Consumer Affairs, Government of India
pursuant to the Forward Contracts (Regulation) Act, 1952. MCX is entitled to use Financial
Technologies (India) Ltds exchange technology framework and proprietary software which
forms the core of their electronic trading platform.
follows:
(All in Rs)
EPS
P/E ratio
DPS
ROE
2010
43.26
6971
6573
2206
0.32
2011
33.89
8457
7954
1728
0.20
2012
2013
56.12
58.56
1268.60 1224.48
22.60
20.90
36
19
9968
11567
9461
11057
2861
2986
0.29
0.26
Table 18: Financial condition of Multi Commodity Exchange of India Ltd from FY 2010 to
FY 2013
Interpretation
The company falls under the category of mid cap IPOs with average market price reasonably
smaller than issue price. The financial condition of the company has had a stable growth over
the years. All the financial measures are showing wonderful figures. EPS, average market price,
P/E, Net profit, ROE are all stable. The company has great earnings in terms of EPS and ROE.
ROE of 26% is far better than the conventional ROE of 15%. Average market price over the
years is quoting much higher than the intrinsic value. Net worth and Retained earnings are
47
stable and growing. The company has distributed good amount of dividends. Overall, the
company is in good working condition and hence, justifies the higher issue price of the IPO.
18.9
OMKAR SPECIALITY CHEMICALS LIMITED
Industry - Chemical
Issue Price = Rs 98
Omkar Speciality Chemicals Ltd manufactures a range of organic, inorganic and organo
inorganic intermediates. These products find applications in various industries like
Pharmaceutical Industry, Chemical Industry, Glass Industry, Cosmetics, Ceramic Pigments
and Cattle & Poultry Feeds. The chemical industry in India is one of the most diversified and
matured of all industrial sectors with thousands of commercial products. It contributes
significantly towards industrial and economic growth of the nation, contributing approximately
3% to the GDP. The Indian chemicals industry, which earned revenues in the range of $ 155160 billion in 2013, is likely to grow at a rate of 11-12 % in the next two to three years. The
industry primarily consists of basic chemicals and its products, petrochemicals, agrochemicals,
speciality chemicals, pharmaceuticals & biotech, paints & varnishes, dyestuff & inks, alcochemicals, etc. Iodine & Selenium derivatives are the companys key category of products
contributing 88.23% to their gross sales for the year 2009-10. Some of the raw materials such
as Methanol and Toluene are highly flammable. Most of the companys raw materials are
imported and the costs are dependent on global commodity prices, which are subject to
fluctuation. During financial year 2009-10, the companys imported raw material was to the
extent of 41.78% of total raw material cost. The company is subject to environmental laws and
regulations, which impose restrictions on the volume of effluents, discharged into air, water
and environment and establish standards for the treatment, storage and disposal of hazardous
wastes.
follows:
(All in Rs)
EPS
P/E ratio
DPS
2009
2.72
114.5
111.9
2010
4.45
159.2
43.9
2011
7.95
37.82
4.75
1
922.3
726
2012
8.38
63.55
7.58
1.25
1058
862
2013
10.6
101.35
9.56
1.5
1267
1035
48

ROE
31.3
0.27
51.3
0.32
101.4
0.11
164
0.16
208
0.16
Table 19: Financial condition of Omkar Speciality Chemicals Ltd from FY 2009 to FY 2013
Interpretation
The company falls under the category of small cap IPOs with average market price reasonably
smaller than issue price. Every financial measure is showing a rising trend over the years. EPS
of the company is almost equal to the industry average of Rs 13.74. P/E of the overall chemical
industry is 71.48 and of the Specialty segment is 25.92. P/E of the company which is under the
Specialty segment is less than the Specialty segment average P/E. Net worth and Retained
earnings are both rising. Net profit has increased by 26.8% in 2013. ROE of 16% is considered
good. The overall financial condition of the company is good and the issue price being greater
than the intrinsic value is genuine.
49
18.
FINDINGS
IPO details, both book building and fixed price, issued since 1st January 2011 till 29th April
2014 are collected. A total of 116 IPOs have been released during this period.
There are total 41 IPOs with average market price reasonably greater than issue price, of which
3 IPOs are large cap, 7 IPOs are mid cap and 31 IPOs are small cap.
41 IPOs have average market price reasonably equivalent to issue price, of which 5 are large
cap, 3 are mid cap and 33 are small cap IPOs.
A total of 19 IPOs have average market price reasonably smaller than issue price, of which 5
are large cap, 6 are mid cap and 8 are small cap IPOs.
Of the 8 selected companies or IPOs which were analyzed, 5 were issued at premium. Those 5
companies are L&T Finance Holdings Limited, PC Jeweller Limited, Tata Steel Limited, Multi
Commodity Exchange of India Limited, and Omkar Speciality Chemicals Limited. The
premium pricing were found to be genuine.
The IPOs whose issue prices were less than their intrinsic values were also justified.
50
19.
CONCLUSION
The stock market is the most unpredictable industry and prices of equity shares are the most
volatile elements. The slightest of words spoken by a political figure or a business tycoon can
affect the stock market to a large extent. Performance of financial markets (both domestic and
international), global economic conditions, nations political situations, countrys credit rating
for domestic and international debt, industry trends, interest rates, inflation rates, foreign
exchange rates, tax regulation changes, lack of investor confidence and other factors that are
difficult to predict affect the stock market. However, irrespective of the external economic
environment, the quality of stocks can always be determined. Speculations about the stocks,
based on calculation of intrinsic value of stock using a companys financial data, are always
possible. On the basis of the performance of the company and its industry, and the genuineness
of pricing of the equity shares, the investors and the stock market react. Any false pricing will
automatically be rectified in a few years and the market will either punish or reward the
company in due course of time.
20.
RECOMMENDATIONS
An investment in equity securities involves a high degree of risk- the risk of losing all or part
of the investment. An investor should carefully consider all the information in and out of the
Prospectus before making an investment in the Equity Shares. Before investing, one should
understand 3 factors- selection of stock, time of entry and time of exit. Many times, it is more
important to invest in the right industry than in the right stock. Also, one should not put ones
all eggs in one basket.
Investors should make the buying or selling decision only after calculating the intrinsic value
of the share. If the intrinsic value is higher than the market price i.e. the stock is under-valued,
it is recommended to buy the shares. If the intrinsic value is equal to market price, hold the
shares and if the intrinsic value is less than the market price i.e. the stock is over-valued, then
sell the shares.
Based on the fundamental analysis and the financial condition analysis done in the project, TD
Power Systems Ltd., Tata Steel Ltd. and Multi Commodity Exchange of India Ltd. could be
good stock picks.
51
22. BIBLIOGRAPHY
IM PANDEY, 2011. Financial Management. 10th edition. New Delhi: Vikas Publishing
House Pvt Ltd.
2. INVESTMENT MANAGEMENT, 2008. YOGESH MAHESHWARI. PHI Learning
Private Limited.
3. www.moneycontrol.com.
1.
4. www.bseindia.com.
5. www.nseindia.com.
6. www.economictimes.com
7. www.businessstandard.com
52
Name of the Issue
Issue
Price
(Rs)
Last Traded
Price in BSE
(Rs)*
Average
Market Price
(Rs)
Div yield
EPS0
EPSn
Ke
D1
D2
D3
D1/(1+Ke)
D2/(1+Ke)2
D3/(1+Ke)3
PN/(1+Ke)N
P0
L&T FINANCE
HOLDINGS LIMITED
52
67.5
68.73
2.17
4.28
0.2541
0.2541
0.75
0.75
0.4769
0.3803
34.84912
35.71
Speciality Restaurants
Limited
150
140.2
164
0.0067
3.92
5.17
0.0966
0.1033
148.6441
149.55
RUSHIL DECOR
LIMITED
72
51.05
188
0.0069
4.4
2.8
-0.1398
-0.1329
0.5
0.5
288.734
290.38
PC Jeweller Limited
135
95
130.43
0.0074
6.45
19.86
0.4548
0.4622
TD POWER SYSTEMS
LIMITED
256
279.95
258.65
0.0078
17.35
10.73
-0.148
-0.1402
Jupiter Infomedia Limited
20
28
25.3
0.005
2.64
0.33
-0.5
-0.495
0.1
TATA STEEL LIMITED
610
405.5
421.03
0.0197
60.3
50.28
-0.0588
-0.0391
12
12
Multi Commodity
Exchange of India Limited
1032
574.1
927.65
0.0349
43.26
58.56
0.1062
0.1411
36
19
OMKAR SPECIALITY
CHEMICALS LIMITED
98
127
89.83
0.0102
4.45
10.6
0.3355
0.3457
1.25
0.9064
0.5
0.5766
0.665021
0.767
1.5
0.6839
0.7016
61.0078
62.39
2.3261
2.7053
349.8674
354.9
50.09557
50.29
474.545
509.05
712.4409
758.58
36.8635
39.24
0.198
1.5
12.4883
12.99642
31.5489
14.59212
0.9289
0.828338
9.0168
0.6156
53

CURRENT PRICING OF IPOs: Is It Investor-Friendly?

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CURRENT PRICING OF IPOs: Is It Investor-Friendly?

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A Report

CURRENT PRICING OF IPOs: Is It Investor-Friendly?

BHUBANESWAR STOCK EXCHANGE LIMITED

Dr. Sanjib Kumar Das

Dr. Sanjib Kumar Das.

Amit Kumar Panda.

Reason for choosing the topic............12

Legislations governing securities market.....15

Need of public issue.....20

Objects of public issue......20

Investment scenario in India.....20

IPO issues from January 2011 till April 2014...................22

b. THE INDIAN STOCK MARKET

e. INVESTMENT IN OTHER STOCK EXCHANGES

The strength of the Board of Directors of BhSE is 9, consisting of 4 Shareholder Directors, 4

Figure i: Organizational structure of BhSE

d. CUSTOMERS PROTECTION FUND

f. SECURITIES MARKET TRAINING PROGRAMME

Table i: Financial condition of BhSE from FY 2012 to FY 2013

REASON FOR CHOOSING THE TOPIC

HISTORY OF STOCK MARKET

FACTORS AFFECTING STOCK MARKET

FLUCTUATION IN SHARE PRICES

Performance of a company influences the stock prices of that company. Performance of a

Economic condition of the nation

LEGISLATIONS GOVERNING SECURITIES MARKET

Securities Contracts (Regulation) Act, 1956

Companies Act, 1956

REGULATIONS GOVERNING PRIMARY MARKET

SEBI Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2014

INITIAL PUBLIC OFFERING (IPO)

FIXED PRICE ISSUE

BOOK BUILDING ISSUE

10.2.1 THE BOOK BUILDING PROCESS

In an underwriting, the underwriters- banks, financial institutions, brokers etc- guarantee to

Firm commitment underwriting

Best effort underwriting

Greenshoe option is a provision contained in an underwriting agreement that gives the

Description of the offering

NEED OF PUBLIC ISSUE

OBJECTS OF A PUBLIC ISSUE

The objects of a public issue may include:

Finance the expansion of business

INVESTMENT SCENARIO IN INDIA

FDI AND FII

IPO ISSUES FROM APRIL 2011 TILL APRIL 2014

Name of the Issue

16.1.2 MID CAP

Name of the Issue

Just Dial Limited

16.1.3 SMALL CAP

Name of the Issue

V-Mart Retail Limited

Esteem Bio Organic

Eco Friendly Food

RCL Retail Limited

SRG Housing Finance

VKS Projects Limited

Max Alert Systems

Olympic Cards Ltd

Readymade Steel India

VMS Industries Ltd

IPOs WITH AVERAGE MARKET PRICE EQUIVALENT TO ISSUE