Initial Public offering explained with a example of small company listing.

1. Initial Public Offering
(IPO)

2. • Health and Nutrition products
• Gym Services
• Registered as a Pvt. Ltd. Firm
• In operation for 3 years
• Small manufacturing facility worth `1.2
crore and Gym worth `1.8 crore, total
tangible assets around `3 crore.
Oorja Health & Nutrition
Pvt. Ltd

3. Grow
• Huge demand for its products and service
• There is an opportunity for expansion
• Needs capital
– Around ` 6 crore for expanding gym services
– Around ` 4 crore for health product plant

4. • Founders are hardworking middle class
MBA graduates but don’t have enough
money for expanding their company
• Business loan around 22% + 2.5% as
processing charges, way to costly
• Private investors loss of control with major
equity dilution
What can it do?

5. Outline
What is an IPO ?
Why does the company
get listed ?
How does the IPO
happen ?
Pricing of the IPO.
Practical demo from a
retail investor side.
Present scenario.
Grey Market of IPOs.

6. Outline
What is an IPO ?
Why does the company get
listed ?
How does the IPO happen ?
Pricing of the IPO.
Practical demo from a retail
investor side.
Present scenario.
Grey Market of IPOs.

7. An IPO or an initial public offering is the first
sale of ownership units of a company or
shares to general public which can then be
traded on a stock exchange.
What is an IPO ?

8. • The company raises money, this money is
the capital which is not required to be
repaid
• A private company gets converted into a
public company
• It gets listed on the stock exchange
– Shares can be traded on the stock exchange
• Investors are able to buy shares of the
company for the first time

9. Outline
What is an IPO ?
Why does the company get listed ?
How does the IPO happen
?
Pricing of the IPO.
Practical demo from a retail
investor side.
Present scenario.
Grey Market of IPOs.

10. • To raise capital for growth
• Working capital
• Monetize investment of the promoters and
early private investors
• Easier and multiple access to finance
• Diversifying the investor base
• Employee compensation
Why does the company get listed ?

11. Our company finds this as the best possible
solution to raise money with the advantages
listed out earlier
Oorja Health & Nutrition
Pvt. Ltd

12. Outline
What is an IPO ?
Why does the company get
listed ?
How does the IPO happen ?
Pricing of the IPO.
Practical demo from a retail
investor side.
Present scenario.
Grey Market of IPOs.

13. How does the IPO happen ?
1
• Approval of Board of Directors/Initial Procedure
2
• Appointment of Lead Managers/Underwriters
3
• Filing the prospectus with SEBI
4
• Filing the prospectus with the registrar of
Companies
5
• Filing of initial listing application

14. 6 • Promotion of the Issue
7 • Statutory Announcement
8 • Collections of Applications
9 • Processing Applications
10 • Establishing underwriters’ liability
11 • Allotment of shares

15. • Approval by board of directors
Eligibility Criteria
• Registered as a private Ltd company for 3
years
• Regulation 26(1)(a) Net tangible assets of
at least Rs. 3 Crore not more than 50% in
Monetary assets
• Minimum post issue face value
is Rs. 10 crores
1
• Approval of Board of Directors/Initial Procedure

16. • Approved by the founders who are
directors of the company
• Registered as a Pvt. Ltd. Firm
• In operation for 3 years
• Small manufacturing facility worth Rs. 1.2
crore and Gym worth Rs. 1.8 crore, total
tangible assets around Rs. 3 crore.
Oorja Health & Nutrition
Pvt. Ltd

17. • Underwriters: The underwriters which are
the Investment banks take the risks of
distributing the shares i.e. should they not
be able to find investors for the shares
they have to hold the shares.
E.g. Goldman Sachs, Morgan Stanley
Deutsche Bank,
ICICI Securities, SBI capital markets
2
• Appointment of Lead Managers/Underwriters

18. • Underwriters works as a liaison (dealer),
finding buyers for the shares that their
client is offering
• Help in Valuation of the company
• Take the risk on behalf of the company
who wants to gets listed
• Big issues by a consortium of banks
• Fees for underwriting

19. What information do the
underwriters need ?
• Throughout the IPO process the
underwriters
– ask for financial projections
– Historical performance
– Budgeting and forecasting process
– Market share

20. Valuation of the Company
• Discounted Cash Flow Method
• Adjusted Net Asset Value Method
• Multiple Value Method
• Statutory Valuations

21. Discounted Cash Flow Method
Concept of Time Value of Money: It’s the
value of money with a given amount of
interest earned or inflation accrued over a
given amount of time.

22. Time Value of Money
Today
After 5
years

23. Time Value of Money
Future
value (5
years)
Present
Value

24. Oorja Health & Nutrition
Pvt. Ltd
The company hires Deutsche Bank as its
underwriter

25. Valuation of Oorja Pvt. Ltd.
After 5 years company will
cumulatively earn
` 90
Crore
It has assets of around ` 10 crore
The rate at which the company
would grow
20%

26. 0.0
20.0
40.0
60.0
80.0
100.0
120.0
2018 2017 2016 2015 2014
Crores
Year
Valuation
Valuation
` 40 Crore

27. A red herring prospectus is a document
submitted by company as part of the public
offering of ownership units to the Registrar
of Companies and SEBI (Securities and
Exchange Board of India)
3
• Filing the prospectus with SEBI
4
• Filing the prospectus with the registrar of
Companies

28. Red Herring Prospectus
Contents
1. Purpose of issue
2. Disclosure of any option agreement
3. Underwriter’s commissions and discounts
4. Promotion expenses
5. Net proceeds

29. 6. Balance sheet
7. Earnings statements of last 3 years
8. Names and address of all officers,
directors
9. Copy of under writing agreement
10.Legal opinion on the issue
11.Copies of Articles of incorporation

31. • Initial Listing Application with the concerned stock
exchanges with the listing fees
5
• Filing of initial listing application
6 • Promotion of the Issue
7 • Statutory Announcement
• Promotional Campaign and roadshows
• Approval from stock exchanges and disclosures

32. 8 • Collections of Applications
9 • Processing Applications
10 • Establishing underwriters’ liability
11 • Allotment of shares

33. The Auction Process
• Traditional Book Building
• Fixed Price Method

34. Traditional Book Building
• The lead underwriter of the deal determines a price range of the
offering through frequent contacts with investors as well as their own
valuations
• Then during the road show process, orders for the shares are
taken—investors invited to the road show can state the quantity of
shares they are interested in acquiring, and the price they are willing
to pay per share
• These orders are compiled to “build a book” and eventually used to
determine the final offering price and allocations

35. Dutch Auction
•Company wants to issue
1000 shares through IPO

36. • Potential investors
specify how many
shares they want and
how much are they
willing to pay per
share
Company discovers the
“Clearing Price” at
which it could
sell all of its 1000
shares.

37. Accounting Treatment

38. Outline
What is an IPO ?
Why does the company get
listed ?
How does the IPO happen ?
Pricing of the IPO.
Practical information from a retail
investor side
Present scenario.
Grey Market of IPOs.

39. • Retail Individual Investor : means an investor who applies or
bids for securities of value not more than Rs. 2,00,000/-
• Qualified Institutional Buyer(QIB) :
– Public financial institution as defined in section 4A of the
Companies Act, 1956
– Scheduled commercial banks
– Mutual funds/venture funds/insurance companies/provident
funds
– Foreign Institutional Investor(FII) registered with SEBI
• Non qualified Institutional Buyer : an investor who bids for
an amount above Rs. 2,00,000/- but does not fall in the QIB
category e.g. HNI investors.
Type Of Investors

40. Factors to watch as a retail investor
before investing in IPOs
• Get to know the promoters ,their background and experience
• What is the lock-in period of promoter share holding?
• How has been the performance of the company and are the
financials, specially the recent ones, reliable?
• What is the objective of the issue?
• What has been the utilization of existing capacity?
• What are the key risk factors ?

41. How to apply in an IPO ?
• Non ASBA route
• ASBA route

42. Demat account
• Account where securities are stored in electronic form
• Safe and convenient way of holding securities
• Securities can be transferred at an instruction immediately without
any stamp duty to be paid on it
• It results in significant reduction in paperwork, transaction costs and
time spent
• Four major charges usually levied on a Demat account: Account
opening fee, annual maintenance fee, custodian fee and transaction
fee

43. Demat account snapshot

44. Applying through non ASBA route

47. Application supported by blocked
amount (ASBA)
• It is a payment procedure to pay for the
shares you buy through an offering without
paying anything before the allotment of
shares

48. ASBA Procedure

49. Benefits of ASBA over traditional cheque
route
• No loss of interest
• Enhances the transparency of the share allotment process
• Amount for which no shares have been allotted is available
immediately on completion of allotment process
• No need to wait for the amount to be refunded
• Multiple bidding facility available
• Customer can revise/withdraw the bid

50. If I get an allotment, how much and when
should I sell?
• There is no perfect answer. Exit depends upon your investment
policy. Best is to set a target
• If you treat IPOs as a pure trading opportunity , sell upon listing if
profits are available
• If you are convinced about a company, do not sell in panic if it lists
below the offer price
• If you invest in an IPO not to buy a trading instrument but to own a
part of that business, then hold on

51. Outline
What is an IPO ?
Why does the company get
listed ?
How does the IPO happen
?
Pricing of the IPO.
Practical demo from a retail
investor side.
Present scenario
Grey Market of IPOs.

52. Largest IPO in India And World
Worth Rs. 15000 Crore
Around $22 billion
Or ` 130000 Crores

53. Largest IPOs in 2012-2013
` 950 crore ` 609 crore
` 4500 crore

54. Return over Investment over 3
years
` 10000 ` 10960 9.6%
` 10000 ` 6340 36.6%

55. Such Negative Return because
string of IPOs losing money
In Dec 2012
• Bharti Infratel
• PC Jewelers
• Care
• Veto Switch
• Tara Jewels
In October 2011
• Vaswani Industries
• M and B Switch
• Flexituff
• Taksheel
• Onelife Capital

56. Financial Crisis
started in 2008
IPO Scams
No confidence
in stocks
Gold Price Slump

57. Thank you