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Term paper On ANALYSIS OF IPO AND INVESTORS BEHAVIOUR Submitted to: Dr. Sampada Kapse Prepared by: Jay Mansata (09061) Shoeb Munshi (09065) Sunita Nandwani (09070) Siddharth Parekh (09073) Vijay Soni (09102) Tolani Institute of Management Studies Adipur- 370205 October 2010 Acknowledgement A successful work indicates the combine efforts of people involved in it. But without the worthy guidance of mentor the work cannot be accomplished perfectly. We hear by thank Dr.Sampada Kapse for guiding us throughout our project work and giving us an opportunity to excel our potential regarding this project. Jay Mansata (09061) Shoeb Munshi (09065) Sunita Nandwani (09070) Siddharth Parekh (09073) Vijay Soni (09102) Abstract: An initial public offering is the sale of a company’s stock to the public for the first time. The primary impetus for an IPO is generally either to raise capital or to offer an exit strategy to some of the firms existing owners, but a number of other motivations and considerations also influence a firm’s decision to go public. Pricing an IPO is an important consideration for the issuer because if an issue is underpriced it may result into heavy subscription but at the same the loss of value to the firm, an overpriced issue may fail to attract the investors and result into failure of issue. There are at least three distinct mechanisms available for an issuing firm – fixed price offer, book building, and auctions. Selection of the particular route is made after consideration of important issues in consultation of merchant bankers but still the issue many not touch the expectation of the issuing firm because success or failure of IPO depends on number of factors. In general a rational investor having sound market knowledge can indulge on variety of techniques and decide the extent and time of investment. Evaluations of factors having a bearing in the issue lead to fruitful investment decisions. This paper attempt to identify and critically evaluate those factors to provide sound investing tips to the readers and investors. Our sample for this study consisted of 4 firms from various sectors, listed on BSE (Bombay stock Exchange) and NSE (National Stock Exchange). Introduction An initial public offering (IPO) occurs when a company first sells common shares to investors in the public. Generally, the company offers primary shares this way, although sometimes secondary shares are also sold as IPOs. For a company to offer IPOs, they need to hire a corporate lawyer as well as an investment banker to underwrite the offer. The actual sale of the shares is generally offered by stock exchange or by regulators. When the company starts to offer IPOs, they are usually required to reveal financial information about the company so that investors know whether the company is a good investment or not. In certain cases just the right timing plays a big role in how much money investment bankers can raise for a company through an initial public offering. IPOs can fetch a lot more when markets are up and people are generally comfortable with equity investments than when markets are down and most people are running scared. However, to the IPO investor, it's not simply a matter of waiting until depressed market conditions make it possible to find new companies at attractive prices. As an investor they have to focus on various factors that can reflect the success or otherwise of the IPO and invest accordingly. Sensex crossed 20000 pts and with this stock and stock indices have bounced back to the levels seen two and half year ago. While the secondary market is witnessing all this and more, the primary market encompassing Initial Public Offers (IPOs) is not far behind. The IPO segment of the equity market has caught euphoria with a more than dozen issues hitting the market in a span of just 2 weeks. With more such IPO’s likely to come up in coming weeks it is necessary for retail investors to be more diligent while investing in an IPO. Since the beginning of 2010 till the third week of September India Inc. has raised overRs.15,000 crores through the IPO route. I/5 of the account or over Rs. 3,100 crores has come in some of past weeks alone and most of these IPO’s were Successful in raising fund in staggering multiples of the required sum. For instance the quota based tutorial service provider career point Info system intended to raise Rs. 115 crores from the primary market. By the time its issue was closed, it had attracted 47 times more money. It seems the “listings gains” bug- just as in the second have of 2007 has bitten investors yet again and why not? The recently listed companies such as Technofab, Engineering India, Bajaj corp, SKS micro finance and Gujarat pipavav have all given a double-digit on the listing day itself.and if one had invested in the IPO of Prakash steelage and sold out on the day it got listed, the gains would have been a whopping 71%. Even in the last boom phase 5 out of every 6 IPO’s resulted in listing gains, in nearly 40% cases, gains being more than 50% of the offer price. Huge unmet demand for the IPO – reflect in the over-subscription numbers- is the primary reason why stocks tend to jump to unrealistically high levels on their stock market debut. Moreover the book running led manager is legally allowed to support the stock price of a newly-listed company for a specified period of time. As valuations of IPO’s touch new highs, the risk of ending up with an unproductive overvalued investment increases for investors who invest to get listing gains but to park their money over a longer term. A look at the past phase of market boom explains the matter. Even though long years have passed and the sensex is once again beyond 20,000, a whooping to – thrust of the IPO’s from the second half of 2007 are still trading below their issue price. IPO is a process where promoters sell a part ownership of their company in which they had so long invested. In a buoyant market, the price of equity tends to be much higher than what could be justified. Investors mustn’t neglect this aspect in their rush for “listing gains”. For example, at the peak of the previous boom, Reliance power had sold its shares at Rs. 430 apiece to retail investors. Soon, the market crashed and the company offerd 3 bonus shares for every 5 existing shares, therby reducing the IPO price by 40%. Today, the scrip still trades 40-50% below this bonus-adjusted IPO price. It may come as surprise to many but a no, of expert consider IPO investing risky. In fact none other than Benjamin graham, the father of value investing, has recommended in his decorated work “The Intelligent Investor” to stay away from all initial public offerings.”IPOs are only sold when market is in optimistic mood and therefore by definition most IPOs are a bud buy, with the promoters cashing in on the enthusiasm of the investors. Market is overheated and investing in IPOs at this time calls for through analysis and market knowledge. If we analyze the market performance of some IPO and drive at the certain conclusion about the reasons for its success or failure we can apply the learning during the investment evaluation of up-coming IPOs’. With the same objective of acquiring the learning we analyzed 3 IPO’s that hit the market during buoyancy and tried to apply the knowledge gained and conclusions derived in predicting the investment worth of up-coming IPO’s and to provide general investing tips to the investors. Literature review ,[object Object]

The main objectives of the paper are:-

It examines the efficiency of IPO issuing mechanisms by taking into consideration both direct and indirect costs because the prime thing to the company is not just reasonable pricing of the issue but the net proceeds (net of issue expenses and under pricing).

It evaluates the performance of IPO that were managed by employing US based lead managers v vis-à-vis those managed by Indian BRLMs alone.

It also analyze various determinants that have bearing on issue expenses

The time span of this study was between January 2003 and December 2007 and sample consist of IPO that is listed either on Bombay Stock Exchange (BSE) or National Stock Exchange (NSE) using either fixed price offer or book building mechanisms during this period.

They calculated raw returns (Rit) and also the total costs associated with the IPOs.

To find whether total costs of fixed price offers are different from book built offers they performed regression analysis taking various factors such as .Age of the firm, Book built, BRLM reputation, Concentration, Market Sentiment, Size of the issue, Volatility, Leverage and US based BRLM

Were earlier studies have documented that book built issues experience less under pricing vis-à-vis fixed price offers and apparently book building was considered as a better mechanism. However from an issuer’s perspective a mechanism is efficient only if it leads to higher net proceeds consequently the attempt was made to find the efficiency of book building considering total costs. The study suggested that from a total cost point of view the issuers are neither better off nor worse off using either book building or the fixed price offers.

Book building method might have lost its ability to discover the prices because of the lack of discretionary allocation powers previously vested with the Lead Managers.

Size of the issue, listing delay and the reputation of the BRLM are found to be the important determinants while choosing the IPO issuing mechanism.

Daniella Gelman (2007) has written research paper Examining IPO evaluation methods –This study compares the projected IPO offer range as given in the S1 prospectus against actual stock market performance one month after listing to correct check the extent of under pricing during IPO.

The Russell 2000 Index, Initial Public Offering Additions, 2005 lists provides the sample of firms. For the listed firms, the “pre-IPO value estimations” were extracted from the S1 prospectus. The average stock performance in the first month of listing was calculated for each firm. The initial return for each firm was calculated as “[average price in the first month of listing/offer price] -1. The average of the expected price range given in the S1 prospectus constitutes the offer price. The initial return represents the return an investor would receive if the price range given in the S1 were correct, and the investor held the security for one month. A high value indicates significant mispricing or undervaluation on behalf of the investment bank and implies value left on the table.

Four firms in the sample of forty-one ran through the financial modeling process. The modeling process began with the company whose predicted range least resembled the aftermarket performance. This is the firm with the highest initial return; thus offer range was the least accurate for this given firm. Next, the firm with the “most accurate” performance, or lowest degree of mispricing was examined within the models. Finally, the firm with the next “most accurate” and next “least accurate” returns ran through the modeling process. These firms are deemed the “runner ups.” This process seeks to loosely re-create the pre-IPO valuation process. The multiples closely examined are : Price/Earnings, Enterprise Value/EBITDA, Enterprise Value/Revenue and Enterprise Value/EBIT.

Specifically, the comparable company analysis involved compiling financial data from the S1 prospectus. Comparable firm identification involved locating specific competitors named in the S1 prospectus. Calculating diluted shares outstanding for the given firm and for the comparable firm was required, with an identification of the comparable firm’s outstanding options, warrants and potentially dilutive securities. These securities entered the Black Scholes model for each firm, using the comparable firm’s level of volatility. Finally, equity research allowed an extension of the analysis beyond the multiples based on the comparable firm. The second part of the study involved running selected income statement data through a discounted cash flow analysis.

The study was able to mimic the IPO valuation process, leaving less value on the table than the underwriters actually left in 2005. More specifically, the study was able to improve the degree of under pricing for the firms most grossly mispriced, when an average of the best performing multiple was taken with the results of the discounted cash flow analysis. For the two most accurately priced firms, the study was not able to match the performance of the underwriters. Concerning multiples, the Price/Earnings multiple and the Enterprise Value/ LTM Revenue multiple proved to be the most accurate forecasters.

IPO pricing: growth rates implied in offer prices

Giordano Cogliati, Stefano Paleari, Silvio VismaraResearchers evaluate different models DCF Model, Reverse-engineering DCF model, RIM model (practically not being used only use for academic literature). Researchers studies a sample of 184 European IPOs priced using the DCF model and infers the growth rates implied in offer prices. Researchers find that the IPO firms are typically priced on the base of high-growth expectations. The cash flows of the “average” IPO firms are indeed expected to growth by 33% annually over five years. Actual CAGR of cash flows are indeed much lower than expected. Such over-optimism is measured by comparing the IPO prices to the fair values obtained substituting the actual ex-post cash flows in the DCF model. Researchers find that the median IPO firm is overvalued at the offering by 74%. Among the determinants of over-optimism, there are market-to-book ratio, leverage at the IPO, net earnings, under pricing and firm’s age and size. Firms with high positive difference between market and book value of equity at the IPO are priced on the prospects of growth that are at least partially overestimated. Researchers also find evidence of a negative market reaction to post-IPO disclosure of cash flows lower than expectations. This paper also contributes to the literature on IPO pricing by proposing a reverse-DCF model to estimate implied expected growth rates. From the perspective of investors, this study aims to contribute to the understanding of the helpfulness and limits of the analysts’ forecasts in investment decisions and, more generally, of the determinants of IPO valuations. ,[object Object]

Based on the different risk factors mentioned in the prospectus, it was found that hi-tech dummy played a significant role during the bubble period. Traders are selective in valuing risks and may value some factors as opportunities and not as risk factors. Risk factors do affect the deal attributes as predicted by our second hypothesis. Also, the pricing of these risk factors are not different between retail and hi-tech companies. Regarding the participants, it was found that venture capitalists and investment bankers have a significant statistical and economic effect on the number of risk factors reported in the prospectus. These factors affect IPO valuation.

Rohini Inder Chopra (May 2009) has written a research paper on “Price Performance of IPO’s in Indian Stock Market” and analyzed price performance of the Indian IPOs listed on NSE, using a sample of IPOs that tapped the NSE market during 1999-2008 by taking in consideration of their prices. From her research it is found that short run as well as long run analysis of their price performance have been done taking the gap of time intervals of 1 weak, 1month, 3months, 6months and 1year, 2years, 3years respectively. In addition to that it is found that research also includes influence of the factors viz. subscription level, Issue size, Listing Lead time and Age, on the price performance of the IPOs. The results show that these factors influence the initial returns, i.e., R_Ret. of the listing day of the company. The study of her shows that under pricing is present in the Indian Capital market. Also from her research it is been found that under pricing is more prevalent in the short run than in the long run. The study further shows that IPOs come to their intrinsic value over a period of time. The regulatory framework of IPOs with special reference to SEBI guidelines has also been done.

Another point found from her research is of under pricing concept in depth which includes those investors, who purchase IPO’s on the offering day, experience higher returns on the first trading day, indicating that these shares may have been priced at the time of their offering to the public at values much below their intrinsic value.

Research paper concludes that under pricing is more severe in the short run periods, i.e., from the listing day to the six months after the listing. However the long run IPOs tends to move to their intrinsic value or true value wiping out much of the under pricing. The difference between the extents of under pricing in the two time intervals is very much. For long time interval is taken up to 3 years from the day of the listing of the company. From findings of research paper it shows that if an investor buys and holds the equities, how much he is going to earn over the considered time period.

K.V. Bhanu Murthy & Amit Kumar Singh have written a research paper on “IPO Market: Under pricing or Over pricing?” This research paper is based on Indian IPO market. In this paper the main focus is given on the calculation of the initial price of the share and methods for the same of Indian IPOs that came to the primary market during 2007-08.The paper was written with the objective of knowing the under pricing or overpricing of the initial price. It also examines the factors that causes under pricing or overpricing of the IPO.Consumers intention of investing in IPO is different. The paper also studies that aspect of consumer behavior.

The data has taken for share prices of IPOs quoted in National Stock Exchange. The data of twenty four (24) companies has been taken from NSE. Nifty is the base for observing the overall trend in the market during the two periods under study that is i) January 2007 to July 2007 – a period of boom.ii) January 2008 to July 2008 – a period of downturn. The reason why data is collected from the two periods is to compare the effect of boom market and bear market on IPO prices and consumers behavior.

a. Listing gain – by taking the ‘high’ quote.

i. To study the trends of average price of the share - post listing.

ii. To use a sign test (non-parametric) to verify whether post listing IPOs give short-run gains or losses to investors who invest of the listing day.

c. To analyse the trends and conclude about ‘Underpricing or Overpricing’of IPOs.

Research says that there is no evidence regarding the co-relation of situation of market(Bull or bearish) to the listing of IPO. The paper also concludes that almost all scrips, investors receive medium to high returns. The growth rate is negative in almost all 24 cases (except two). This means that the prices have fallen almost invariably after listing. They were gravitating towards their true price if any investor would have made a portfolio of 12 scrips , in each period he would have incurred a loss in 7 out of 10 cases.Objectives: ,[object Object]

To study the regulatory framework governing IPOs in India.

To understand the methods for determining the offer price.

To study the factors affecting the success or failure of IPO.

To judge the behaviour and consideration of investors while investing in IPO.

To evaluate the up-coming IPO’s and provide the general investing tips to investor.Methodology: The study is based on the primary and secondary data. Primary data will be collected with the help of questionnaire, inferences from experts, retail investors and broking houses. Secondary data has been collected from the National Stock Exchange of India, SEBI, Performance reports etc. ,[object Object]

Then we would be critically evaluating the IPO of following companies in detail:CompanyBusinessCantabil Retail IndiaDesigning, manufacturing, branding and retailing of apparelsTecpro SystemsMaterial handlingVA Tech Wabag LimitedIndian multinational player in the water treatment industry ,[object Object],On the basis of above evaluation we will give valuable suggestions to investors for up-coming IPO’s. In the second half of the paper we tried to judge the behaviour of the investors while investing in IPO. For this we used questionnaire as an investment and took the sample of 50 investors who had invested in IPO. We than performed factor analysis and derived at the conclusion about the factors that play a major role for an investors while investing in IPO. Analysis of IPO’s of three companies was performed on the basis of prospectus and other sources as under: Cantabil Retail India IPO Cantabil Retail India Limited is tapped the capital markets with an IPO to raise Rs 105 crs. The issue opened on the 22nd of September and closed on Monday the 27th of September. The price band was Rs 127-135 and the issue has received support for 0.59 times at the end of Friday the 24th of September. BusinessCantabil is in the business of designing, manufacturing, branding and retailing of apparels under the brand names of quot;
Cantabilquot;
and ‘quot;
La FANSOquot;
. The company has a network of 411 exclusive retail outlets as of 31st July spread across India. The company began operations in 2000 and the first store was opened in New Delhi in September 2000. The Cantabil brand has 270 exclusive retail outlets and offers complete range of formal wear, party wear, casuals and ultra casual clothing for men, women and kids in the middle to high income group. The second brand was launched under the name quot;
La FANSOquot;
on the 25th October 2008 and has 141 exclusive outlets. This brand focuses on casual, ultra casual and formal wear in the lower to middle income group. The company also retails various fashion accessories like ties, belts, socks, caps and handkerchief under the two brands. The company has 3 in-house manufacturing/finishing units and 4 warehouses located in Delhi. There are three dedicated third party units manufacturing exclusively for the company. There are 73 manufacturing units from whom outsourcing of cutting and stitching is done. The company is in the process of setting up a garment washing and finishing unit at Sonipat in Haryana which should be ready by December 2010. Geographical breakup of the stores is in favour of North and western India with 129 stores of Cantabil and 101 stores of La Fanso in the North, 82 stores of Cantabil and 31 stores of La Fanso in the West, and the balance 59 stores of Catabil in East, South and Central and 9 stores of La Fanso in the remaining part of India. The operation of the stores is under two models with the first one being company owned or leased and franchisee managed and the second franchisee leased or owned and franchisee operated. Under the first model there are 129 stores under Cantabil and 14 under La Fanso while under the second model there are 141 stores under Cantabil and 127 stores under the La Fanso brand. Objects of the Issue The objects of the issue are as follows: - 1. Establishment of new manufacturing facilityRs 3202.50 lacs2. Expansion of our retail networkRs 2497.50 lacs3. Additional working capitalRs 3000.00 lacs4. Repayment of DebtRs 2000.00 lacs5. General Corporate PurposesXX6. Expenses for the issue XX FinancialsThe company has reported revenues of Rs 87.20 crs in the year ended March 2008, Rs 154.78 crs in the year ended March 2009 and Rs 163.64 crs in the year ended March 2010. The profit before tax for the respective period was Rs 4.47 crs, Rs 9.55 crs and Rs 22.34 crs respectively. The profit after tax was Rs 2.86 crs, Rs 6.21 crs and Rs 14.68 crs respectively. Based on the pre-IPO capital of 85,49,830 shares or Rs 8.549 crs the EPS for the year ended March 2009 was Rs 7.26 and Rs 17.17 for the year ended March 2010. There is a substantial increase in stock in the year ended March 2010 compared to March 2009 where the same has gone up by Rs 60.87 crs also leading to a huge jump in income and also profits. ComparisonThe company has compared itself with Koutons, Kewal Kiran, Provogue and Zodiac Clothing. These companies have established themselves in their own segments. Koutons reported sales of Rs 1205 crs and a net profit of Rs 82 crs for March 2010 and trades at 11 times historical earnings. Zodiac reported revenue of Rs 288 crs and a PAT of Rs 15 crs and the PE is about 20 times. Similarly Kewal Kiran reported revenues of Rs 176 crs and a PAT of Rs 32 crs and the PE is 13.7 times. Provogue had revenues of Rs 480 crs and a PAT of Rs 28 crs while the PE is 23 times. Growth DriversThe company has in all 411 exclusive brand outlets as of 31st July and intends to leverage on the same going forward. It has its own in house design team and believes that the design, in house manufacturing and exclusive brand outlets will help in increasing penetration in the market. ValuationsThe fully diluted equity at the top end of the price band would be 1.63 cr shares and at the lower end of the price band would be 1.68 cr shares. The earnings per share based on March 2010 would be Rs 8.73 at the lower end of the band of Rs 127 and Rs 9 at the upper end of the price band of Rs 135. The price earnings multiple at this price band would be 14.54 to 15 times. The share is in no manner cheap and looking at the huge jump in profits which seem to be partly on account of a huge jump in inventories. ConclusionThe price earnings at which the share is being offered does not offer much scope for appreciation in the medium term. The size of the issue and the presence of three syndicate members in an issue size of 105 crs give a feeling that there could be speculative activity happening on listing in the share. Overcoming this temptation we feel that with such a heavy pipeline of IPO’s it makes sense to skip this one and look at others currently on or likely to come in the future. Conclusion was simply put AVOID the issue. Cantabil Retail IPO Listing day: complete disaster Share closed Rs 30 down, loss of 22% Cantabil Retail India Limited listed on the bourses and was a complete disaster from the very beginning. The share was unable to even register a single trade at par at either of the exchanges. The opening or listing price on the BSE was Rs 133.80 and Rs 114.70 on the NSE. The opening price on the BSE itself was the high of the day while on the NSE the high was Rs 125.90. The lows came as close to two digits as possible with the BSE registering a low of Rs 102.10 and the NSE a low of Rs 101.10. ExchangeOpenHighLowCloseNet Change% gainWt AvgVolumeDeliveryDel % ageBSE133.8133.80102.10104.7-30.25-22.41113.891460907610172886.96NSE114.7125.9101.1105.0-30.00-22.22113.652692853721080957.83Total4153761331253837.52 The share traded in the Rs 113-118 range till the afternoon, and then cracked in the last hour of trade with increasing volumes. The close was at Rs 104.75 on the BSE and Rs 105 on the NSE respectively. The net loss for the listing day was Rs 30 or 22.22%. Traded volumes were at 415.37 lakhs or 5.34 times the IPO size of 77.78 lakh shares. Delivery volume was 31.25 lakh shares or a mere 7.52% of traded volume but a significant 40.18% of the IPO size indicating further selling is yet to happen. On the institutional front, Credit Suisse sold 98,610 shares at Rs 120.76 and Deutsche sold 1,45,000 shares at Rs 117.66. There was fresh buying in the share from UTI Bank who bought 90,000 shares at Rs 115.22. The share is likely to be under pressure even today and the Rs 100 mark would be an important level to watch for. If the share breaks this level one is likely to see a sharp fall as investors who were hoping for a bounce back are likely to panic. We would advise investors to stay away from this share at current prices and do not get tempted looking at the difference between the issue price and market price. Tecpro Systems IPO Presence in attractive business segment offers scope for growth Tecpro Systems Limited is tapping the capital markets with an IPO Presence in attractive business segment offers scope for growth to raise Rs 256 crs to 268 crs in a price band of Rs 340 to Rs 355. The issue consists of a fresh issue of 62.5 lakh shares and an offer for sale of 13 lakh shares. The issue has opened on Thursday the 23rd of September and closed yesterday for QIB’s and closes Tuesday the 28th of September for HNI’s and retail. The QIB portion was subscribed 27.99 times. BusinessTecpro is an established material handling company in India, engaged in providing turnkey solutions in material handling, balance of plant (BOP) and engineering, procurement and construction (EPC) contracts. The company in its flagship business of material handling solutions , designs, engineers, manufactures, sells, commissions and services a range of systems and equipment for the core infrastructure related sectors like power, steel, cement and other industries. Over the years the company has developed in-house capabilities for providing comprehensive solutions in material handling and ash handling systems. The company was incorporated in 1990 and began operations in the material handling business in 2001. The company has executed till March 2010, 1042 material handling orders and is currently having 269 material handling orders under execution. The company has executed 72 ash handling projects and has 33 orders under execution. The total order book as on 31st July is over Rs 2300 crs which is 1.6 times the sales for FY 2010. The ability to design coal handling and ash handling systems in-house has helped the company in consortium to win an order of Rs 993 crs from the Chhattisgarh State Power Generation Company for a 500 MW thermal plant at Korba West. This is a BOP contract and the first that the company has won. The company has in 2007 entered the EPC segment for thermal power plants, in which they manage the erection and commissioning of the boiler, turbine and generator (BTG) package along with undertaking the engineering, design, supply and commissioning of other equipment and services in an EPC contract. The company either collaborates or outsources to a third party supplier for providing BTG packages in relation to our EPC contracts. Currently the company undertakes EPC for small thermal power plants. FinancialsThe company reported total operating revenues of Rs 793.3 crs for March 2009 and Rs 1454.9 crs for March 2010. The net profit after tax was Rs 55.4 crs and Rs 108.5 crs respectively. Based on the pre-IPO capital of 3.393 cr shares, the earnings per share were Rs 16.34 and Rs 32 respectively. However there was a merger between the group companies and the shares allotted on merger increased the share capital to 4.422 cr shares as on 31st March 2010. Based on this being the pre-IPO capital of 4.422 cr shares the earnings for March 2010 come to Rs 25.57 per share. ComparisonThe company has compared itself with BGR Energy Systems Limited, Elecon engineering Company Limited, Mcnally Bharat Engineering Company Limited, Sunil Hitech engineers Limited and TRF Limited. The price earnings multiple for these companies varies between 11 times to just about 29 times. If one were to compare with Tecpro based on pre-IPO earnings of Rs 25.57 the shares are being offered in a price band of Rs 340-355 which corresponds to a PE of 13.30 to 13.88 times. The valuation seems fair on a historical basis.If however we look at the valuations on a fully diluted basis, based on the post IPO capital of 5.047 cr shares, the EPS for March 2010 would be Rs 21.50 and the PE based on the lower band of Rs 340 would be 15.8 and at the upper end of the price band of Rs 355 would be 16.51 times. ConclusionThe share is being offered in a price band of Rs 340-355 which translates into a PE of 15.8 times at the lower end and 16.51 times at the upper end leaving some scope for appreciation in the medium term. Looking at the prospects of the industries where Tecpro operates particularly the Power sector, offers huge growth prospects. The company would be able to leverage its core strengths as a materials handling player. Bidding for EPC of power plants and outsourcing the BTG part of the business would help grow the company. I believe investors should apply for this issue and expect decent returns in the medium term. Tecpro Systems IPO Day one: Firm start share closes up almost 15% October 13th, 2010 Tecpro Systems Limited listed at the BSE and NSE on Tuesday the 12th of October. There was a listing ceremony held at the BSE for the same. The share opened or listed at Rs 399.40 on the BSE and Rs 380 on the NSE. The high was Rs 454.25 on the BSE and Rs 453.80 on the NSE. The low was Rs 398 on the BSE and the open of Rs 380 itself was the low on NSE. ExchangeOpenHighLowCloseNet Change% gainWt AvgVolumeDeliveryDel % ageBSE399.40454.25398.00407.8552.8514.89424.781684142812597947.48NSE380.00453.80380.00405.7050.7014.28424.0627878164300562710.78Total4471959242654219.54 The volume was brisk and the total traded volume was 447.19 lakhs or 5.92 times the IPO size of 75.5 lakh shares. Readers would recall that the company had issued 62.5 lakh new shares and also 13 lakh shares by way of an offer for sale. The issue was very well received and was subscribed an overall of 24.47 times. The share price held itself throughout the day and appeared to be under pressure in the last hour or so. The delivery volume of 42.65 lakh shares was 9.54% of the traded volume but as a percentage of IPO size was 56.49%. The stock closed at Rs 407.85 with a gain of Rs 52.85 or 14.89%. In institutional activity there was a purchase of 3.70 lakh shares by Franklin Templeton. Share has closed steady and is likely to move up in the coming days. VA Tech Wabag IPO VA Tech Wabag Limited (VA Tech) is tapping the capital markets with a public issue which opened on Wednesday the 22nd of September and closed for QIB’s on Friday the 24th of September. The issue closes for HNI’s and retail on Monday the 27th of September and the price band is Rs 1230-1310 for an Rs 5 paid up share. The issue has been subscribed over 36 times by QIB’s BusinessVA tech is an Indian multinational player in the water treatment industry with market presence in India, the Middle East, North Africa, Central and Eastern Europe, China and South East Asia through its offices in India, Austria, the Czech Republic, China, Switzerland, Algeria, Romania, Tunisia, UAE, Libya and Macao. The company is headquartered in Chennai and conducts business through its subsidiaries and branch representative offices. VA Tech offers complete life cycle solutions including conceptualization, design, engineering, procurement, supply, installation, construction and O&M (operation and maintenance) services. The company provides services and solutions for sewage treatment, processed and drinking water treatment, effluents treatment, desalination and reuse for institutional clients like municipal corporations and companies in the infrastructure sector such as power, steel and oil and gas companies. The company is currently executing 81 projects as of 31st July 2010 and has an order book of approximately 2780 crs as of 30th June 2010. This is one of the few cases of management buyout and the present promoters are all professionals and were working with the company when they bought out the promoters. The company focuses on technology and has R&D centres in India, Austria and Switzerland. The present promoters have an average work experience of twenty years in the business and the operating margins have been improving over the last three years. The company has been awarded a desalination project in Chennai in December 2010 with an order value of Rs 1030 crs and this was the first 1000 crs order for the company. The company does the design, technology part of the business and outsources the civil construction part. It has a global brand and a footprint in the key fastest growing markets. Objects of IssueThe objects of the issue are as follows: -Funding working capital requirements of the company Rs 6450.59 lacsConstruction of Corporate office at Chennai Rs 3474.19 lacsImplementation of global IT systems Rs 1105.13 lacsGeneral corporate purposes Rs XX FinancialsVA Tech reported revenues on a standalone basis of Rs 573.54 crs for the year ended March 2009 and Rs 707.66 crs for the year ended March 2010. The net profit for the year was Rs 25.99 crs for March 2009 and Rs 46.92 crs for the year ended March 2010. On a consolidated basis the revenue for March 2009 was Rs 1154.95 crs in March 2009 and Rs 1233.76 crs in March 2010. The net profit after tax was Rs 42.22 crs for March 2009 and Rs 49.39 crs for March 2010. The pre-IPO share capital as of 31st March was 95,40,813 shares implying an EPS of Rs 44.25 for the year ended March 2009 on a consolidated basis and Rs 51.77 for the year ended March 2010. ValuationThe competitors in this business are people like IVRCL Infra, Engineers India, Thermax Limited, Hindustan Construction, Nagarjuna Construction and Gammon India. None of these players are pure water players but have multiple activities and one of them includes water. Strictly speaking therefore they are not comparable but in terms of valuations if one were to compare them than the earnings multiple vary between 20 and 32 for all except IVRCL which quotes at a multiple of 63 times. All these comparisons are on the basis of March 2010 numbers. The second difference is in the size of operations where the smallest player Engineers India has a turnover of Rs 2177 crs and the largest player IVRCL has a turnover of Rs 5492 crs. EPC is a major activity for the infrastructure players and hence these differences. Based on the fully diluted and post IPO share capital of 105.57 lakh shares at the lower end of the price band of Rs 1230 the EPS would be Rs 46.78. At the upper end of the price band of Rs 1310 the EPS would be Rs 47.06. The price earnings multiple at which these shares are being offered is 26.29 at the lower end and 27.84 at the upper end. OpportunityThe opportunity is huge and it is for the company to seize the opportunity going forward. VA Tech is in a sweet spot being a design and engineering company that it has the full opportunity to exploit. Its presence is not in the developed markets of USA and Europe but in the developing markets. Being a research driven company and having access to technology from Austria and Switzerland it is well poised to take advantage of the same. ConclusionVA Tech is in an exciting industry where there are huge prospects. The company is well poised to take advantage of its strong track record and the fact that its expertise lies in the design and engineering space. The shares are being offered at attractive valuations. The issue is a must apply for investors. There is however a small issue which needs to looked at when applying. The response to this issue is going to be overwhelming and allotment will be on a lottery system even in the retail category. The allotment to all retail applicants would be the minimum allotment of 5 shares and would be by basis of lottery as this category would in all probability be oversubscribed more than 15 times. VA Tech Wabag IPO listing morning: Share opens up October 13th, 2010 Holding steady around 1725 Gain of 31% VA Tech Wabag which had issued shares in a price band of Rs 1230-1310 for Rs 5 paid up share listed today on the BSE at Rs 1655 and at Rs 1500 on the NSE. The share made a high of Rs 1744.50 on the BSE and Rs 1745.65 on the NSE respectively. The low on the BSE was Rs 1651.10 and the open of Rs 1500 on the NSE was the low. The share is currently trading at Rs 1725 which is a gain of Rs 415 or almost 32%. ExchangeOpenHighLowCloseNet Change% gainVolumeWt AvgBSE1655.001744.501651.101725.00415.0031.6817442971708.28NSE1500.001745.651500.001727.00417.0031.8328633621707.17Total4607659 The volumes have been brisk and in the first hour of trade 46.07 lakh shares or roughly 1.28 times of the issue size of 36.07 lakh shares have been traded. The issue was for Rs 125 crs and an offer for sale of 26.53 lakh shares. The issue was very well received and was subscribed 36.22 times. The weighted average of the first hour’s trade is close to Rs 1708 indicating that almost all trades are in an around this price. If one were to observe the trading range between the high and low has been quite narrow with the BSE low being Rs 1651 and the high being Rs 1744.50. This makes the range just about Rs 95 which is a mere 7% of the issue price of Rs 1310. The share is off to a flying start and appears that there is buying interest in the same. The share looks unlikely to slip to new lows and should certainly hold around these levels After the analysis of the 3 IPOs we tried the judge the investment worth of IPO to be launched by Prestige Estates Projects Prestige Estates Projects IPO Apply only if you have long term view Prestige Estates Projects Limited is tapping the capital markets with an IPO to raise Rs 1200 crs in a price band of Rs 172-183. The issue has opened on the 12th of October and closes on the 14th of October. BusinessPrestige had 24 years of experience in real estate development and is one of the leading real estate development companies in South India. It has completed 150 real estate projects of approximately 34.23 million square feet (msf). Prestige has developed a diversified portfolio of real estate development projects focusing on projects in the residential (including apartments, villas, plotted developments and integrated townships), commercial (including corporate office blocks, built-to-suit facilities, technology parks and campuses and SEZ’s), hospitality (including hotels, resorts and serviced accommodation )and retail (including shopping malls) segments of the real estate industry. Prestige currently owns or holds development rights for 57.36 msf of developable area which includes 28.43 msf of saleable area and 11.04 msf of leasable area. The company currently has 32 ongoing projects which comprise of 11 residential projects with a developable area of 10.92 msf (of which saleable area is 9.27 msf), 14 commercial projects with a developable area of 18.32 msf (of which the saleable are is 5.91 msf and the leasable area is 6.14 msf), four hospitality projects with a developable area of 1.26 msf (equivalent to 655 keys and of which the leasable area is 0.91 msf) and three retail projects with a developable are of 3.39 msf (of which the leasable area is 1.2 msf). Prestige has 13 projects under development which comprise 5 residential projects with a developable area of 5.34 msf (of which the saleable area is 4.28 msf), four commercial projects with a developable area of 1.72 msf (of which the saleable area is 0.74 msf and the leasable area is 0.05 msf),two hospitality projects with a developable area of 1.13 msf (which is equivalent to approximately 507 keys and of which the leasable area is 0.72 msf ) and two retail projects with a developable area of 1.97 msf (of which the leasable area is 0.90 msf). Prestige also has 9 forthcoming projects which comprise 5 residential projects with a developable area of 9.77 msf (of which the saleable area is 7.80 msf), 2 commercial projects with a developable area of 2.35 msf (of which the saleable area is 0.42 msf and the leasable area is 0.51 msf) and two retail projects with a developable area of 1.20 msf (of which the leasable area is 0.61 msf). Prestige has a land bank of approximately 483.16 acres as of 31st august 2010. Prestige has entered into a JV with CRIDF, an associate of Capitamalls Asia, which is one of the largest listed “pure-play” shopping mall owners, developers and managers in Asia by total property value of assets and by geographic reach, in terms of malls and cities. Objects of the issue Finance our ongoing projects and projects under development Rs 428.81 crs Invest in the existing subsidiaries for the const & devel of projects Rs 193.20 crs Finance the acquisition of land Rs 21.33 crs Repay certain loans of the company Rs 280.00 crs General corporate Purposes Rs XX TOTAL FinancialsThe company has recorded consolidated revenues of Rs 916.15 crs for the year ended March 2009; Rs 1086 crs for the year ended March 2010 and Rs 309.45 crs for the first quarter ended June 2010. The profit after tax and minority interest is Rs 73.14 crs for March 2009, Rs 143.78 crs for March 2010 and Rs 17.27 crs for the first quarter ended June 2010. If one were to look at the stand alone numbers then revenue for the year ended March 2009 is Rs 889.69 crs, Rs 993.16 crs for March 2010 and Rs 267.43 crs for June 2010. The profit after tax was Rs 76.11 crs for the year ended March 2009; Rs 141.73 crs for the year ended March 2010 and Rs 24.91 crs for the first quarter ended June 2010. ComparisonsThe company has compared itself with Sobha and Purvankara, both are listed entities and are in the competitive Bangalore market. In terms of revenue Purvankara reported revenues of Rs 478 crs for financial year March 2010 and a net profit after tax of Rs 145.32 crs. The EPS for the company was Rs 6.81 and the PE multiple based on yesterday’s close of Rs 127.60 is 18.74 times. Sobha developers reported revenues of Rs 1114 crs for March 2010 and a net profit of Rs 136.7 crs. The EPS is Rs 14.92 and the PE multiple based on yesterday, closing price of Rs 366.85 is 24.58 times. CompetitionPrestige is in the Bangalore market in particular and the Southern market in general. The Bangalore market has a lot of competition and has many players like Prestige, Sobha, Purvankra, Nitesh, Brigade Enterprises and other unlisted players as well. It is a matured market and has a general level of quality about it. One gets a feeling that the city has ample land and property is available either in ready or under construction stage. Besides the Bangalore or Southern builders you have players on the Northern part of India who are also available and offer opportunities to invest. Somehow or the other whether it was timing, pricing or what have you, investors have not made money from investing in real estate companies whether it be a DLF, HDIL, Unitech, Ansal or even a Parashvanth. With such a dubious track record one gets scared and cautious when it comes to the real estate sector. As far as Prestige is concerned they are probably one of the big builders in Bengaluru in terms of msf under construction and are associated with landmark projects like the UB City, Shantiniketan and so on. They are known to be a quality builder and have adequate land bank to sustain growth for the next five years at the bare minimum. ValuationsThe company reported a Profit after tax of Rs 143.78 crs for the year ended March 2010 and Rs 24,91 crs for the first quarter of the current financial year ending March 2011. The pre IPO equity is 26.25 cr shares which would translate into an EPS of Rs 5.47 for the year ended March 2010 and Rs 0.66 for the quarter ended June 2010. The March 2010 EPS would translate into a PE multiple of 31.44 times at the lower end of the price band of Rs 172 and 33.45 times at the upper end of the price band of Rs 183. ConclusionPrestige is a large real estate builder, developer and has in his portfolio assets on the leased model as well as outright sale model. He is into retail malls, hospitality and commercial where leased rent is the business and intends to have a portfolio of a mix of these assets which would give lease rent in excess of Rs 500 crs in about three years time. Currently this revenue is in the range of Rs 140-150 crs. Prestige is highly leveraged currently and has a debt on a consolidated basis of close to Rs 1776.54 crs. Prestige has also discounted its future leased rentals and from the current IPO proceeds Rs 280 crs are earmarked for loan repayment. Further almost Rs 400 crs would be deployed in the financial year 2012 and 2013 and would be currently used to repay borrowings which cost the company on an average 12%. Looking at the size, projects, business model and prospects, Prestige appears a good investment prospect. It has two negatives in that the share based on current valuations looks expensive and would not offer appreciation in the short term and secondly the sector has not rewarded shareholders. Looking at these two factors one believes that investment should be made with a medium to long term outlook and one should be prepared to see value erosion on listing. Analysis of questionnaire used to judge the investors behaviour while investing in IPO. -Correlation Matrix Market TrendMarket Position of Co.CreditibilityIssue sizePersonal AnalysisBroker AdvicePrevious IPO performanceCredit ratingCompanies' riskinessListing gainsLong term gainsGrey market InformationLaunching IPO first timeMarket Trend1.000.061.146.184.052.263.116-.188-.192.124-.118-.101.040 Market Position of Co..0611.000.243.119.186-.140-.053.115.136-.129-.183.052-.328 Creditability.146.2431.000.265.302.022-.029-.042.071.229-.029.367-.107 Issue size.184.119.2651.000.120.208-.116-.014-.112.140.037.234.031 Personal Analysis.052.186.302.1201.000.212-.115-.098.157.188-.161.062-.077 Broker Advice.263-.140.022.208.2121.000-.170-.225-.083.201.027-.206-.078 Previous IPO performance.116-.053-.029-.116-.115-.1701.000.044.063.001.126.162.178 Credit rating-.188.115-.042-.014-.098-.225.0441.000-.070.160-.200.254.175 Companies' riskiness-.192.136.071-.112.157-.083.063-.0701.000-.199-.048-.091-.094 Listing gains.124-.129.229.140.188.201.001.160-.1991.000.061.140.051 Long term gains-.118-.183-.029.037-.161.027.126-.200-.048.0611.000.070-.025 Grey market Information-.101.052.367.234.062-.206.162.254-.091.140.0701.000-.013 Launching IPO first time.040-.328-.107.031-.077-.078.178.175-.094.051-.025-.0131.000 KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy..492Bartlett's Test of SphericityApprox. Chi-Square117.527 Df78 Sig..003 Interpretation; KMO The Kaiser – Meyer – Olkain (KMO) measure of sampling adequacy is an index used to examine the appropriateness of factor analysis. High values i.e. between 0.5 and 1 indicate factor analysis is appropriate. Value below 0.5 implies that factor analysis may not be appropriate. As our value is 0.492 which is equivalent to 0.5 so factor analysis is appropriate. Communalities InitialExtractionMarket Trend1.000.820Market Position of Co.1.000.715Creditability1.000.653Issue size1.000.470Personal Analysis1.000.698Broker Advice1.000.648Previous IPO performance1.000.768Credit rating1.000.728Companies' riskiness1.000.703Listing gains1.000.584Long term gains1.000.769Grey market Information1.000.713Launching IPO first time1.000.628 Extraction Method: Principal Component Analysis. Interpretation: this table helps use to identify the factors that doesn’t contribute much in understanding investors behaviour while investing, in our case we identified that issue size has least consideration by removing this variable the reliability of questionnaire can be improved. Total Variance Explained ComponentInitial EigenvaluesExtraction Sums of Squared LoadingsRotation Sums of Squared Loadings Total% of VarianceCumulative %Total% of VarianceCumulative %Total% of VarianceCumulative %12.04615.73715.7372.04615.73715.7371.88014.46514.46521.73013.30429.0411.73013.30429.0411.55211.94226.40731.66912.84141.8821.66912.84141.8821.46211.24737.65441.2469.58551.4671.2469.58551.4671.36510.49748.15151.1318.69860.1651.1318.69860.1651.32110.16258.31261.0778.28268.4461.0778.28268.4461.31710.13468.4467.8886.83375.279 8.7255.57580.855 9.6244.80285.657 10.6164.73790.393 11.4893.75894.151 12.4283.29497.445 13.3322.555100.000 Extraction Method: Principal Component Analysis. Interpretation: This explains that almost 68% variation in the behaviour of investors can be explained by 6 important factors and rest account for 32% variations. Interpretation: Scree plot gives the graphical presentation of the variables the account for the most of, i.e. 68% of variations in judging the behaviour of investors while investing in IPO. Rotated Component Matrix (a) Component 123456Market Trend.119.864-.024.171.120-.124Market Position of Co..222.047-.737.019.325.125Creditability .707.114-.172.055-.003.329Issue size.578.277-.065-.178-.036-.148Personal Analysis.300.152.058-.240.151.708Broker Advice.033.533.253-.493-.185.148Previous IPO performance.038.109.148.849-.101.038Credit rating.211-.458.172.069.622-.230Companies' riskiness-.205-.216-.194.193-.059.732Listing gains.503.074.523-.219.047.054Long term gains.130-.162.108.089-.826-.158Grey market Information.727-.326-.023.262-.005-.098Launching IPO first time-.085.033.666.335.242-.073 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 8 iterations. Interpretation: the factors matrix contains the co-efficient used to express the standardized variables in terms of the factors. These coefficients, the factor loadings, represent the correlations between the factors and the variables. ,[object Object]

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