A STUDY ON INITIAL PUBLIC OFFERING (IPO) IN

INDIAN STOCK MARKET

A Project Submitted to

University of Mumbai for partial completion of the degree

of Masters in Commerce (Accounting and Finance)

Under the Faculty of Commerce

By

Mohd Saad Ashfaque Hamidani

Roll No - 41

Under the Guidance of

Prof. Anita Agarwal

RSET’s

Ghanshyamdas Saraf College

of Arts and Commerce

Affiliated to University of Mumbai

Reaccredited by NAAC with ‘A’ Grade

S.V. Road, Malad (W)

Mumbai – 400064

DECEMBER 2021
 RSET’s

Ghanshyamdas Saraf College

of Arts and Commerce

Affiliated to University of Mumbai

Reaccredited by NAAC with ‘A’ Grade

S.V. Road, Malad (W)

Mumbai – 400064

CERTIFICATE

This is to certify that Mr. Mohd Saad Ashfaque Hamidani has worked and duly
completed her/his Project Work for the degree of Masters in Commerce (Accounting
& Finance) under the Faculty of Commerce in the subject of Accounting & Finance
and her/his project is entitled,“A Study on Initial Public Offering in Indian Stock
Market”under my supervision.

I further certify that the entire work has been done by the learner under my guidance
and that no part of it has been submitted previously for any Degree or Diploma of any
University.

It is her/ his own work and facts reported by her/his personal findings and
investigations.

Project Guide Principal

Prof. Anita Agarwal
Date:

External Examiner
Date:
 DECLARATION

I the undersigned Mr. Mohd Saad Ashfaque Hamidani hereby, declare

that the work embodied in this project work titled “A Study on Initial
Public Offering (IPO) in Indian Stock Market’’, forms my own
contribution to the research work carried out under the guidance of Prof.
Anita Agarwal is a result of my own research work and has not been
previously submitted to any other University for any other Degree/
Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has

been clearly indicated as such and included in the bibliography.

I, hereby further declare that all information of this document has been
obtained and presented in accordance with academic rules and ethical
conduct.

Student
Mr. Mohd Saad Ashfaque Hamidani

Certified by

Project Guide
Prof. Anita Agarwal
 ACKNOWLEDGMENT

To list who all have helped me is difficult because they are so numerous
and the depth is so enormous.

I would like to acknowledge the following as being idealistic channels

and fresh dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me

chance to do this project.

I would like to thank my Principal, Dr. Jayant Apte for providing the
necessary facilities required for completion of this project.

I take this opportunity to thank our Course Co-ordinator, Prof. Lipi

Mukherjee for her moral support and guidance.

I would also like to express my sincere gratitude towards my project

guide Prof.Anita Agarwal whose guidance and care made the project
successful.

I would like to thank my College Library, for having provided various

reference books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or
indirectly helped me in the completion of the project especially my
Parents and Peers who supported me throughout my project.
 SUMMARY

The IPO INITIAL PUBLIC OFFERING is the most discussed topic in the
current industry, mainly because of India being a developing country and lot of
growth in various sectors which leads a country to ultimate success. And when
we talk about country’s growth which is dependent on the kind of work and how
much importance to which sector is given. And when we say or talk about industries
growth which leads the economy of country has to be balanced and given proper
finance so as to reach the levels to fulfill the needs of the society. And industries
which have massive outflow of work and a big portfolio then its very difficult for any company to
work with limited finance and this is where IPO plays an important role.

This project report talks about how IPO helps in raising fund for the companies going public, what
are its pros and cons, and also it gives us detailed idea why companies go public. How
and what are the steps taken by the companies before going for any IPO and also the role of
(SEBI) Securities and Exchange Board of India the, what are primary and secondary
markets and also the important terms related to IPO. It gives us idea of how IPO is driven in the
market and what are various factors taken into consideration before going for an IPO.
And it also tells us how we can more or less judge a good IPO. It also gives us some idea about
what are the expenses that a company undertakes during an IPO.

IPO has been one of the most important generators of funds for the small companies making
them big and given a new vision in past and it is still continuing its work and also for
many coming years. Public issues can be classified into Initial Public offerings and further public
offerings. In a public offering, the issuer makes an offer for new investors to enter its
shareholding family. The issuer company makes detailed disclosures as per the DIP
guidelines in its offer document and offers it for subscription. Initial Public Offering is when
an unlisted company makes either a fresh issue of securities or an offer for sale of its existing
securities or both for the first time to the public. This paves way for listing and trading of
the issued securities.
 INDEX

Chapter No. Title of the Chapter Page No.

1 Introduction and Research Methodology 1-11

2 Literature Review 12-17

3 Company Profile & Main Topic 18-61

4 Data Analysis and Interpretation 62-78

5 Conclusion and Suggestions 79-81

Bibliography

Appendix (Questionnaire)
 CHAPTER 1- INTRODUCTION AND RESEARCH
METHODOLOGY

INTRODUCTION

1.1 FINANCIAL MARKETS

The Financial Market is an amorphous set of players who come together to trade in
financial assets. Financial Markets in any economic system that acts as a conduct
between the organizations who need funds and the investors who wish to invest their
money into profitable opportunity. Thus, it helps institutions and organizations that
need money to have an access to it and on the other hand, it helps the public in general
to earn savings. Thus they perform the crucial function of bringing together the entries
who are either financially scarce or who are financially slush. This helps generally in a
smoother economic functioning in the sense that economic resources go to the actual
productive purposes. In modern economic systems Stock Exchanges are the epicenter
of the financial activities in any economy as this is the place where actual trading in
securities takes place.

Modern day Stock Exchanges are most of the centers to trade in the existing financial
assets. In this respect, they have come a long way in the sense that these days, they act
as a platform to launch new securities as well as act as most authentic and real time
indicator of the general economic sentiment. The zone of activities in the capital
market is dependent partly on the savings and investment in the economy and partly on
the performance of the industry and economy in general. In other words capital market
constitutes the channel through which the capital resources generated in the society and
made available for economic development of the nation.

As such, Financial Markets are functionally classified as having two parts, namely,

The Primary Market

The Secondary Market

1
Primary Market comprises of the new securities which are offered to the public by
new companies. It is the mechanism through which the resources of the community are
mobilized and invested in various types of industrial securities. Whenever a new
company wants to enter the market it has to first enter the primary market.

Secondary Market comprises of further issues which are floated by the existing
companies to enhance their liquidity position. Once the new issues are floated and
subscribed by the public then these are traded in the secondary market. It provides easy
liquidity, transferability and continuous price formation of securities to enable
investors to buy and sell them with ease. The volume of activity in the Secondary
Market is much higher compared to the Primary Market. When an investor buys shares
from another investor at an agreed prevailing market price, it is called as buying from
the secondary market. The secondary market involves the stock exchanges and it is
regulated by a regulatory authority. In India, the secondary and primary markets are
governed by the Security and Exchange Board of India (SEBI).

1.2 Initial Public Offerings (IPOs)

A corporate may raise capital in the primary market by way of an initial public offer,
rights issue or private placement. An Initial Public Offer (IPO) is the selling of
securities to the public in the primary market. It is the largest source of funds with
long or indefinite maturity for the company. Requirement of funds in order to finance
the business activities motivates small entrepreneurs to approach the new issue
market. Initial Public Offer (IPO) is a route for a company to raise capital from
investors to meet the expenses for its projects and to get a global exposure by listed in
the Stock Exchange. An Initial Public Offer (IPO) is the selling of securities to the
public in the primary stock market. Company raising money through IPO is also
called as company ‘going public'. From an investor’s point of view, IPO gives a
chance to buy shares of a company, directly from the company at the price of their
choice (In book build IPO's).

2
Many a times there is a big difference between the price at which companies decides
for their shares and the price on which investor are willing to buy shares and that
gives good listing gain for shares allocated to the investor in IPO.

From a company’s perspective, IPO’s help them to identify their real value which is
decided by millions of investors once their shares are listed on stock exchanges. IPO's
also provide funds for their future growth or for paying their previous borrowings.

“An initial public offering (IPO), referred to simply as an "offering" or "flotation",

is when a company (called the issuer) issues common stock or shares to the public
for the first time.”

IPOs are often issued by smaller, younger companies seeking capital to expand, but
can also be done by large privately owned companies looking to become publicly
traded. When a company lists its securities on a public exchange, the money paid by
investors for the newly- issued shares goes directly to the company (in contrast to a
later trade of shares on the exchange, where the money passes between investors). An
IPO, therefore, allows a company to tap a wide pool of investors to provide it with
capital for future growth, repayment of debt or working capital. IPO can be used as
both a financing strategy and an exit strategy. In a financing strategy the main purpose
of the IPO is to raise funds for the company. In an exit strategy for existing investors,
IPOs may be used to offload equity holdings to the public through a public issue. A
company selling common shares is never required to repay the capital to investors.
Once a company is listed, it is able to issue additional common shares via a secondary
offering, thereby again providing itself with capital for expansion without incurring
any debt. This ability to quickly raise large amounts of capital from the market is a
key reason many companies seek to go public.

3
1.3 GROWTH OF IPO’S IN INDIA

HISTORY OF PRIMARY MARKET

Indian capital market was initiated with establishing the Bombay stock exchange in the
year 1875. at that time the main function of stock exchange was to provide place for
trading in the stocks. Now the exchange has completed more than 125 years. It has
undergone several changes. Initially the IPO was called ‘New Issue’ and the issues in
the Primary Market were controlled by CCI (Controller of capital issue). It was
working as a department of MOF (ministry of finance). There were very few issues
every year. CCI was highly conservative and hardly allowed any premium issues. Also,
the regulatory framework was inadequate to control several issues relating to Primary
Market. Therefore, in the year 1992 it was abolished.

There was no awareness of new issues among the investing public. In fact, during
1950s-1960s, the investment in stock market was considered to be gambling. It was
prerogative to highly elite business community to participate in new issues. More than
99% of Indian population never participated in any issue during CCI regime. There
was tremendous growth in capital market in U.S.A. and Western Europe. In these
markets they had established Security.

PRIMARY MARKET-GENESIS AND GROWTH

When a business entity needs money the general course of action that it follows is that
it goes to the bank. However banks may not be ready to provide huge finance for a
long time especially if the returns are not fixed. The best way to raise money is through
offer of shares and for this: PRIMARY MARKET is the answer. The Primary Market
deals with the new securities which were previously not trade able to the public. The
main function is to facilitate the transfer of resources from savers to entrepreneurs
seeking to establish or to expand and diversify existing events. The mobilization of
funds through the Primary Market is adopted by the state government and corporate
sector. In other words the Primary Market is an integral part of the capital market of a
country and together with the securities market.

4
The development of security as well as the scope for higher productive capacity and
social welfare depends upon the efficiency of the Primary Market.

1.4 Different kinds of issues in primary market

5
Primarily, issues made by an Indian company in primary market can be classified as
public, rights, bonus and private placement. While right issues by a listed company
and public issues involve a detailed procedure, bonus issues and private placements
are relatively simpler. The classification of issues is as illustrated below:

(a) Public issue

(i) Initial Public offer (IPO)
(ii) Further public offer (FPO)
(b) Rights issue
(c) Bonus issue

(d) Private placement

(i) Preferential issue
(ii) Qualified institutional placement

(a) Public issue :

When an issue / offer of securities is made to new investors for becoming part of
shareholders’ family of the issuer it is called a public issue. Public issue can be further
classified into Initial public offer (IPO) and Further public offer (FPO). The
significant features of each type of public issue are illustrated below:

(i) Initial public offer (IPO):

When an unlisted company makes either a fresh issue of securities or offers its
existing securities for sale or both for the first time to the public, it is called an IPO.
This paves way for listing and trading of the issuer’s securities in the Stock
Exchanges.

(ii) Further public offer (FPO) or Follow on offer:

When an already listed company makes either a fresh issue of securities to the public
or an offer for sale to the public, it is called a follow on offer (FPO)

6
(b) Rights issue (RI):

When an issue of securities is made by an issuer to its shareholders existing as on a

particular date fixed by the issuer (i.e. record date), it is called a rights issue. The
rights are offered in a particular ratio to the number of securities held as on the record
date.

(c) Bonus issue:

When an issuer makes an issue of securities to its existing shareholders as on a record

date, without any consideration from them, it is called a bonus issue. The shares are
issued out of the Company’s free reserve or share premium account in a particular
ratio to the number of securities held on a record date.

(d) Private placement:

When an issuer makes an issue of securities to a selected group of persons not

exceeding 49, and which is neither a rights issue nor a public issue, it is called a
private placement. Private placement of shares or convertible securities by listed issuer can be
of two types:

(i) Preferential allotment:

When a listed issuer issues shares or convertible securities, to a selected group of

persons in terms of provisions of Chapter XIII of SEBI (DIP) guidelines, it is called a
preferential allotment. The issuer is required to comply with various provisions which
inter-alia include pricing, disclosures in the notice, lock-in etc, in addition to the
requirements specified in the Companies Act.

(ii) Qualified Institutions Placement (QIP):

When a listed issuer issues equity shares or securities convertible in to equity shares to
qualified institutions buyers only in terms of provisions of Chapter XIIIA of SEBI
(DIP) guidelines, it is called a QIP.

7
 RESEARCH METHODOLOGY

STATEMENT OF RESEARCH PROBLEM / RESEARCH GAP:

This presents a treasure of knowledge and information in respect of the studies

based on reason for companies to go for initial public offer, advantages &
disadvantages for company to offer IPO. Study also deals with advantages &
disadvantages for investing in an IPO, risk factors involved and how to assess the risk
before investing in IPO. The pricing method is explained with respect to book
building & fixed price issue. An overview is given of various cost involved for
applying an IPO. Various intermediaries & their role in IPO is explained. The study
also shows SEBI Requirements, Norms & Guidelines for the company to be followed
and Listing of an IPO on Stock Exchange. Also Marketing of IPO along with the IPO
process and Grading of IPO in India is explained.

The review of literature thus reveals a cap in so far as on study comprehensively

and specifically deals with the IPO process, complex procedure for a company for
going public. Nor does any work reviewed above tried to examine the comparative
performance of various IPO listed. The present study is an attempt in the direction of
bridging this gap. It is devoted exclusively to explain IPO process, analyses and
examines the various risk factors for investing in IPO. SEBI norms, guidelines keeps
a check on the company going for IPO.

8
OBJECTIVES OF THE STUDY

 To study and understand the process of Initial Public Offering (IPO) in Indian
Stock Market.
 To study the legal requirements, SEBI Norms and Guidelines involved in IPO.
 To study and understand the benefits, risk and cost involved in IPO’s.
 To know the various aspects like pricing of an IPO and role of intermediaries.

RESEARCH INSTRUMENT

The instrument used for gathering data was Questionnaire.To get further insight in
research internet is used.

METHOD OF SAMPLING

Due to time and research I have used Simple Random sampling method.

SAMPLE SIZE

It indicates the number of people to be surveyed. Though large sample give more
reliable results than small samples but due to constraint of time the sample size was
restricted to 50 respondents.

SAMPLING UNIT:

It defines the target population that will be sampled.It answers who is to be

surveyed.In this study the sampling unit is of age group above 18.

9
 TOOLS AND TECHNIQUES OF ANALYSIS:

The data so collected will be analysed through the application of statistical techniques
such as Pie charts.

SOURCE OF DATA:

 PRIMARY DATA:

Questionnaire was used to collect primary data from respondents.The questionnaire

was structured type and contained question related to Stock Market, IPO listing &
investments.

 SECONDARY DATA:

The secondary data is collected from different websites from internet.

SCOPE OF STUDY

The Stock Market is considered to as the backbone of the Investment opportunities

and offers various career opportunities to students from all fields: science, commerce
arts. You need to good in analyzing numbers with strong mathematics so that you can
interpret and analyze numerical data. It is one of the lucrative careers especially for
the people who are looking trading or investing IPO in stock market.

It helps to understand various complexities involved for company to offer the IPO,
various risk factors & assessment of the risk involved for investing in the IPO.

10
LIMITATIONS OF THE STUDY:

The study is both secondary data based and also empirical in nature. It is for this has
data are pooled both from the recorded sources and from the views and impressions of
the investors. Studies of this nature shall be reasonable and justifiable mostly when
the inferences or observations are cross checked with the proper counterparts.
Keeping such established rationalities of research in view the following limitations
are identified for this study.

a) Due to paucity of time and financial resources, the perceptions expressed by

the investors - markets were not cross checked.

b) Only SEBI is taken for the case study. No detail requirements of NSE &
BSE is chosen for the study to cross check the realities pertaining to the
IPO’s on comparative basis.

c) For the purpose of the study only limited investors have been randomly
chosen and the perception of the market may be insufficient to be a
representative sample.

11
 CHAPTER 2 – LITERATURE REVIEW

The relevant literature is reviewed on the basis of Books, and Websites. The main
theme and essence of few relevant studies are presented below.

Arwah Arjun Madan (2003), conclude that in the long run (five-year after listing),
there is a drastic fall in the return on IPOs returns; returns are found to be negative
from the second to the fifth year of listing.

Aggarwal, R., P. Conroy (2000), conclude that the price discovery process of initial
public offerings (IPOs) using a unique dataset. The first quote entered by the lead
underwriter in the five-minute preopening window explains a large proportion of
initial returns even for hot IPOs. Significant learning and price discovery continues to
take place during these five minutes with hundreds of quotes being entered. The lead
underwriter observes the quoting behaviour of other market makers, particularly the
wholesalers, and accordingly revises his own quotes. There is a strong positive
relationship between initial returns and the time of day when trading starts in an IPO.

Chowdhry, B., V. Nanda (2013), that in the after-market trading of an IPO, the
underwriting syndicate, by standing ready to buy back shares at the offer price (“price
stabilization”), compensates uninformed investors for the adverse selection cost they
face in bidding for IPOs. This dominates ex ante compensation by underpricing. The
reason is that stabilization exploits information about investor demand whereas
underpricing must be based on information. However, liquidity and syndication costs
constrain the use of stabilization which, in equilibrium, generates some underpricing
as well. We develop a model that formalizes this intuition and generates several
empirical implications.

12
Jain, B. A., O. Kini (1994), point out that the change in operating performance of
firms as they make the transition from private to public ownership. A significant
decline in operating performance subsequent to the initial public offering (IPO) is
found. Additionally, there is a significant positive relation between post-IPO
operating performance and equity retention by the original entrepreneurs but no
relation between post-IPO operating performance and the level of initial underpricing

Jain, B. A., O. Kini (1995), mention that by comparing the post-issue operating
performance of venture capitalist-backed IPOs with a matched sample of non-venture
capitalist-backed IPOs. We find that venture capitalist-backed IPO firms exhibit
relatively superior post-issue operating performance compared to non-venture capital-
backed IPO firms. Further, the market appears to recognize the value of monitoring
by venture capitalists as reflected in the higher valuations at the time of the IPO.
Finally, we find that proxies for the quality of venture capitalist monitoring are
positively related to post-issue operating performance.

Jay R. Ritter (1998), summaries that Companies going public, especially young
companies, face a market that is subject to sharp swings in valuations. Pricing deals
can be difficult, even in stable market conditions, because insiders presumably have
more information than potential outside investors. To deal with these potential
problems, market participants and regulators insist on the disclosure of material
information.

K. C. John Sasi Kumar (2011), concluded that the performance of IPO’s has been
cheering to the investors. Retail investors can go for the IPO market for safe and
secured investment. Even though the recent economic development has slowed the
process of IPO issue we could expect speedy recovery of both the economy and IPO
activities.

13
Madhumita Gosh (2012), pointed out that, in the recent past a majority of IPOs
haven’t performed well because valuation wise they are priced more than the
fundamentals. This has happened mainly due to the greed of promoters, who want to
price their issue invariably at a much higher price. In such cases merchant bankers’
role also comes under scanner as they usually don’t give proper advice to the
promoters in the wake of losing the business.

Mahesh Nayak (2010), point out that, IPOs have grown in size and entered their own
brave new world. Further he states that raising money in India’s booming economy
cannot be a onetime affair; if a company does not maintain a good relationships with
investors and rewards them well it may not able to go back to them when it want to
raise money later.

Nitish Ranjan & T P Madhusoodanan (2015), pointed out that IPOs in India have
yielded abnormal returns in the very short term. The abnormal performance is also
indicative of pricing errors in the issue process. The issues are under-priced whether
the mechanism is fixed price or book building; we find that small size issues are more
likely to be under-priced than larger issues. We formulate a model with homogenous
investor beliefs to show that size is an important factor and that the underpricing is
inversely proportional to size. This mechanism also suggests that IPOs will always be
underpriced. However, in the presence of informed investors, a signaling equilibrium
doesn’t exist and optimally high value firms don’t signal their value as aggressively as
the lower value firms. Despite such aggressiveness, the lower value firm ends up
leaving money on the table, while the high value firm issue doesn’t leave money on
the table. The model can explain hot (cold) markets by increased (decreased)
sensitivity of the uninformed investor to the signaling by the firm. The hot/cold
markets also influence the probability of a high/low value firm coming up with an
IPO as imputed by the wider market.

14
Prithvi Haldea (2016), pointed out that, IPOs in India have become an instrument of
trading rather than investment and a majority of people are parking their money into
such IPOs just to make a fast buck at the time of listing. So, in my view, they are not
the investors who are investing money as per the valuations of the company by taking
a long term horizon.

Rajendra Kanoongu (2017), stated that, investors should wait for the project
implementation of the company to take place and then take a real value of stock. If they
are looking for listing then they better not to apply in the IPO and rather buy from the
secondary market. They also mentioned major reasons for the underformance of new
issues; one is the uncertain market trend, wherein investors are not in a position to take a
call whether the pricing is right or wrong. Secondly, the investors themselves, who are
waiting for the listing gain and want to exit on the first day. And thirdly, to a certain
extent there were ambitious valuations and though I will not say it is very high but were
optimistic.

Reena Agarwal (2017), concluded that, there is a general perception that the large trading
volume in initial public offerings is mostly due to “flippers” that are allocated shares in
the offering and immediately resell them. On average, however, flipping accounts for
only 19% of trading volume and 15% of shares offered during the first two days of
trading. Institutions do more flipping than retail customers and hot IPOs are flipped much
more than cold IPOs. Institutions do not quickly flip cold IPOs to take advantage of price
support activities by the underwriter.

Saurabh Ghosh (2004), concluded that the Indian IPO market experienced a
dramatic swing in terms of volume of new IPOs. The IPO volume series was auto
correlated over the entire period and especially during the hot period. This shows a
firm’s decision to go public over the last decade depended on the number of other
companies that were getting listed over the previous months. The autocorrelation in
the underpricing series was weak as compared to the IPO volume series. Underpricing
derived from the price changes over the six months (or more) perhaps also captured
the changing investors’ expectation with the availability of new information rather
than investors’ optimism perse.

15
 So Indian corporate bodies might have depended more on long lasting market
sentiments to decide on the timing of their IPOs.

Sunil Damania (2011), mention that, the primary market has been always been a
great area of interest for retail investors. But over the last few years the quality of
IPOs and their issue prices have been a matter of concern. Due to this investors are
losing faith in the IPO system and this is a very dangerous sign for the country. For
any new investor to enter the market, the primary market is the first step. If that first
experience of investment is not a happy one, it is unlikely that investors would
continue investing in the market

Vaidyanathan R. & Alok Pande (2008), pointed out the degree of under pricing in
the Indian stock markets has reduced over the years which is good for the firms
getting listed as under pricing is an indirect cost to the firm. A unique contribution of
this study is that the after market in India regards the final offer price which has been
after book building as a credible signal for the firm’s under pricing. Another
important parameter driving the under pricing positively is the listing delay whereas
the money spent on marketing the issue is not reducing the under pricing of the firms
significantly. This study also finds that the gains from IPOs get diffused within one
month of the listing of the firms and on an average the gains in one month after listing
are lesser than those of the market.

Vikkraman P. and K.C.John Sasi Kumar (2009) , find out the fundamental risk and
returns involved in investment of IPOs and the performance of initial public offers for
the last five years. The researcher assumes that the investments in IPOs are very safe,
risk free, and make good returns. It was found from the research that returns out of
IPOs during the short period is very promising.

16
Richard P. Kleeburg (2005), This valuable resource is for the executives and
advisers of any firm considering making the transition from a private to public
company. An IPO is not just a short-term financial transaction. It often marks the
turning point in the life of a company, enabling it to launch new products, enter new
markets, accelerate its growth, and attract valuable employees. If an IPO is the way to
grow, then a "balance scorecard" approach needs to be used - an honest evaluation of
the process and consideration of whether an IPO, despite its glamour, will or will not
produce the desired results. Initial Public Offerings uncovers many of the successful
approaches and common pitfalls to going public. It helps officials decide whether an
IPO or other financing alternatives is the right strategy, determine which stock market
to use, plan and execute the IPO, and stay on track following the IPO - helping
companies reach their true potential for success.

Arindam Banerjee (2015), One of the striking features that makes any capital market
an attractive investment avenue is its liquidity. In this regard, the importance and
relevance of Initial Public Offers (IPOs) go beyond explanation. Simply speaking,
IPOs serve the purpose of companies going public; the process by which the business
owned by one or several individuals is converted into a business owned by many.
Several experts are of the opinion that, IPOs strengthen the financial architecture of
the entire capital market by enhancing liquidity, while others say, that they bring
along with it an array of fraudulent practices that have a strong potential of eroding
the investors’ confidence. From the company’s point of view, an IPO can even mark
the turning point in an organization’s life. Following an IPO, a company can increase
its growth potential, launch its new products as well as enter new markets. IPOs are a
general feature of any booming capital market that increases the overall market
capitalization. Of late, the global capital markets have performed considerably well
and one primary reason attributed to the same is the surge of public offers that have
flooded the markets.

17
 CHAPTER 3 - COMPANY PROFILE

ZOMATO LTD

Incorporated in 2010, Zomato Limited is one of the leading online Food Service
platforms in terms of the value of food sold as of Dec 31, 2020. Its B2C offerings
include food delivery and dining-out services where customers can search and
discover restaurants, order food delivery, book a table, and make payments for dining
out at restaurants while under the B2B segment, it generates revenue from Hyperpure
(supply of high-quality ingredients and kitchen products to restaurants) and Zomato
Pro, customer loyalty program.

As of December 31, 2020, Zomato has established a strong footprint across 23

countries with 131,233 active food delivery restaurants, 161,637 active delivery
partners, and an average monthly food order of 10.7 million customers.

Zomato's technology platform connects customers, restaurant partners and delivery

partners, serving their multiple needs. Customers use its platform to search and
discover restaurants, read and write customer-generated reviews and view and upload
photos, order food delivery, book a table and make payments while dining out at
restaurants. On the other hand, the company provides restaurant partners with
industry-specific marketing tools which enable them to engage and acquire customers
to grow their business while also providing a reliable and efficient last-mile delivery
service. Zomato also operates a one-stop procurement solution, Hyperpure, which
supplies high-quality ingredients to restaurant partners. Thus the company also
provide its delivery partners with transparent and flexible earning opportunities.

18
NYKAA - FSN E Commerce Ventures Ltd

Incorporated in 2012, Nykaa is a consumer technology platform, delivering a content-

led, lifestyle retail experience to consumers. The company has a diverse portfolio of
beauty, personal care, and fashion products, including their own brand products
manufactured by them. The company operates under 2 major verticals:

Nykaa: Beauty and personal care

Nykaa Fashion: Apparel and accessories

Under the Beauty and Personal Care Offering, the company has 197,195 SKUs from
2,476 brands primarily across make-up, skincare, haircare, bath and body, fragrance,
grooming appliances, personal care, and health and wellness categories as of March
31, 2021. For beauty and personal care offerings, Nykaa's business is mainly
inventory-led. The company manufactures its owned brand beauty and personal care
products through third-party manufacturers and are sold under their brand name such
as "Nykaa Cosmetics", "Nykaa Naturals" and "Kay Beauty".

Apparel and accessories verticals consist of 1,350 brands and over 1.8 million SKUs
with fashion products across four consumer divisions: women, men, kids, and home.
Nykaa Fashion also has six owned brands.

The company provides an omnichannel shopping experience to its customers by

providing both online and offline shopping channels. Online channels include mobile
apps, websites, and mobile sites while offline channel consists of 73 physical stores
spread across 38 cities in India.

19
 REASONS FOR INITIAL PUBLIC OFFERING

 To raise funds for financing capital expenditure needs like expansion diversification
etc.

 To finance increased working capital requirement

 As an exit route for existing investors

 For debt financing.

ADVANTAGES OF IPO TO COMPANY

 Stock holder Diversification

 Easier to raise new capital

 Enhances liquidity

 Establishes value for the company

 Corporate Image

DISADVANTAGES OF IPO TO COMPANY

 Cost of Reporting

 Disclosure

 Complex legal procedures

 Inactive market low price

 Control

20
 ADVANTAGES OF INVESTING IN IPO

1. Opportunity to Act Early

Initial public offering is the time when the shares of a company are rolled out for the
first time for public investors. So, you get the perfect opportunity to enter your
positions during the early days. IPO may be helpful for withdrawing quick benefits in a
brief timeframe period. You can hold your positions for long periods as well.

2. Benefits in the Long-Term

This is probably the main benefit of investing in an IPO which has been attracting
investors from long time. Investing in an IPO can help you extract great returns in the
long hauls. IPO investments are a sort of equity investments and can be leveraged fur
fulfilling you long term goals like retirement planning.

3. Price Transparency

The complete information about the price valuation of equity shares in an IPO is
available in the prospectus filed by the company and is available publicly. Thus, you
get an access to similar data as some of the greatest investors. However, this changes in
post-IPO situation. The cost after IPO would depend on the changes in the sectorial
performance and investor interest.

4. Small Investments may Provide Great Returns

The price in the IPO prove out to be the cheapest price that you are offered for
investing in the equity shares of a company that has the potential to grow big.
However, the stock prices may soar at the time of listing itself and help you in
extracting huge profits over a short span. There have been IPOs this year with listing
gains of over 70 per cent.

21
 DISADVANTAGES OF INVESTING IN IPO

1. Time Consuming

Investing in an IPO requires you to have a through study about the company and its
past performance. The same is though available in the prospectus of the company but
understanding the same is tedious and time consuming.

2. Risk involved in selling shares

In the modern times, many investors plan to sell the shares just after listing to extract
listing gains. But the same is not always possible. Generally with highly successful
offerings, selling is very easy but in case of others, there may be an uncertainty with
respect to the availability of buyers for buying your shares.

3. Privacy

Applying for an IPO requires lot of investor information in the paperwork and
application. It may include some of your data which otherwise you may not want the
world to see. However, you are supposed to provide the same.

4. Not a Defined pricing post IPO

The cost of individual shares after the IPO would depend on the changes in the
company’s performance and other parameters such as investor interest and market
performance. Thus, the investor needs to keep track of the shares even after the IPO.

22
 THE RISK FACTOR INVOLVED IN INVESTING IN IPO

Investing in IPO is often seen as an easy way of investing, but it is highly risky and
many investment advisers advise against it unless you are particularly experienced and
knowledgeable.

The risk factor can be attributed to the following reasons:

 UNPREDICTABLE:

The Unpredictable nature of the IPO’s is one of the major reasons that investors advise
against investing in IPO’s. Shares are initially offered at a low price, but they see
significant changes in their prices during the day. It might rise significantly during the
day, but then it may fall steeply the next day.

 NO PAST TRACK RECORD OF THE COMPANY :

No past track record of the company adds further to the dilemma of the shareholders as
to whether to invest in the IPO or not. With no past track record, it becomes a difficult
choice for the investors to decide whether to invest in a particular IPO or not, as there
is basis to decide whether the investment will be profitable or not.

 POTENTIAL OF STOCK MARKET:

Returns from investing in IPO are not guaranteed. The Stock Market is highly volatile.
Stock Market fluctuations widely affect not only the individuals and household, but the
economy as a whole. The volatility of the stock market makes it difficult to predict
how the shares will perform over a period of time as the profit and risk potential of the
IPO depends upon the state of the stock market at that particular time.

23
 RISK ASSESSMENT:

The possibility of buying stock in a promising start-up company and finding the next
success story has intrigued many investors. But before taking the big step, it is
essential to understand some of the challenges, basic risks and potential rewards
associated with investing in an IPO. This has made Risk Assessment an important part
of Investment Analysis. Higher the desired returns, higher would be the risk involved.
Therefore, a thorough analysis of risk associated with the investment should be done
before any consideration.

For investing in an IPO, it is essential not only to know about the working of an IPO,
but we also need to know about the company in which we are planning to invest.
Hence, it is imperative to know:

 The fundamentals of the business

 The policies and the objectives of the business

 Their products and services

 Their competitors

 Their share in the current market

 The scope of their issue being successful

 It would be highly risky to invest without having this basic knowledge about
the company.

24
There are 3 kinds of risks involved in investing in IPO

BUSINESS RISK:

It is important to note whether the company has sound business and management
policies, which are consistent with the standard norms. Researching business risk
involves examining the business model of the company.

FINANCIAL RISK:

Is this company solvent with sufficient capital to suffer short-term business setbacks?
The liquidity position of the company also needs to be considered. Researching
financial risk involves examining the corporation's financial statements, capital
structure, and other financial data.

MARKET RISK:

It would beneficial to check out the demand for the IPO in the market, i.e., the appeal
of the IPO to other investors in the market. Hence, researching market risk involves
examining the appeal of the corporation to current and future market conditions.

25
 PRICING OF ISSUE

CONTROLLER OF CAPITAL ISSUE

During the Controller of Capital Issue (CCI) regime the issues were priced by the
company and approved by CCI. Generally the CCI was very conservative and hardly
allowed premium issues.

ARRIVAL OF SEBI

After the Arrival of SEBI free market policy is followed for pricing of issue. Merchant
Bankers are responsible for justifying the premium. The company was allowed to give
future profit projections. A company can issue shares to applicants in the firm
allotment category at higher price than the price at which securities are offered to
public. Further, an eligible company is free to make public/rights issue in any
denomination determined by it in accordance with the Companies Act, 1956 and SEBI
norms.

DECIDING PREMIUM BY BID SYSTEM

Since year 2000 SEBI has changed pricing formula. The promoters cannot give future
projections and merchant banker alone cannot decide the pricing of IPO. At present,
50%of the IPO is reserved for the wholesale investors and 50% is for the small
investor. The Lead-Manager starts road show in consultation with Institutional
Investors. Then they call for bid at recommended prices. Once, bids are received
pricing is open for discussion. The mean bid price is accepted and allocation is done.

26
 BOOK BUILDING ISSUE

WHAT IS BOOK BUILDING?

Book Building is basically a capital issuance process used in Initial Public Offering
(IPO), which aids price and demand discovery. It is a process used for marketing a
public offer of equity shares of a company and is a common practice in most developed
countries.

Book Building is so-called because the collection of bids from investors is entered in a
"book". These bids are based on an indicative price range. The issue price is fixed after
the bid closing date.

PERSONS INVOLVED IN THE BOOK-BUILDING PROCESS

The principal intermediaries involved in the Book Building process are the company;
Book Running Lead Managers (BRLM) and syndicate members who are
intermediaries registered with SEBI and are eligible to act as underwriters. Syndicate
members are appointed by the BRLM.

HOW IS THE BOOK BUILT?

A company that is planning an initial public offer appoints a category-I Merchant

Banker as a book runner. Initially, the company issues a draft prospectus which does
not mention the price, but gives other details about the company with regards to issue
size, past history and future plans among other mandatory disclosures. After the draft
prospectus is filed with the SEBI, a particular period is fixed as the bid period and the
details of the issue are advertised.

27
The book runner builds an order book, that is, collates the bids from various investors,
which shows the demand for the shares of the company at various prices.

For instance, a bidder may quote that he wants 50,000 shares at Rs.500 while another
may bid for 25,000 shares at Rs.600. Prospective investors can revise their bids at
anytime during the bid period that is, the quantity of shares or the bid price or any of
the bid options.

BASIS OF DECIDING THE FINAL PRICE

On closure of the book, the quantum of shares ordered and the respective prices offered
are known. The price discovery is a function of demand at various prices, and involves
negotiations between those involved in the issue. The book runner and the company
conclude the pricing and decide the allocation to each syndicate member.

PAYMENT FOR THE SHARES

The bidder has to pay the maximum bid price at the time of bidding based on the
highest bidding option of the bidder. The bidder has the option to make different bids
like quoting a lower price for higher number of shares or a higher price for lower
number of shares. The syndicate member may waive the payment of bid price at the
time of bidding. In such cases, the issue price may be paid later to the syndicate
member within four days of confirmation of allocation. Where a bidder has been
allocated lesser number of shares than he or she had bid for, the excess amount paid on
bidding, if any will be refunded to such bidder. Advantage of the Book Building
process versus the Normal IPO marketing process Unlike in Book Building, IPO’s are
usually marketed at a fixed price. Here the demand cannot be anticipated by the
merchant banker and only after the issue is over the response is known. In book
building, the demand for the share is known before the issue closes. The issue may be
deferred if the demand is less. This process allows for price and demand discovery.

28
 Fixed Price Issue

In a Fixed Price Issue, the price of the offerings are evaluated by the company
along with their underwriters. They evaluate the company's assets, liabilities, and
every financial aspect. They then work on these figures and fix a price for their
offerings. The price is fixed after considering all the qualitative and quantitative
factors. In a fixed price issue, the fixed price may be undervalued during the
company’s IPO. The price is mostly lower than the market value. As a result,
investors are always very interested in fixed price issue and ultimately revalue the
company positively.

DIFFERENCE IN FIXED PRICE PROCESS AND BOOK BUILDING

PROCESS

Features Fixed Price Process Book Building Process

Price at which the securities are Price at which securities will be

offered/ allotted is known in offered/ allotted is not known in
Pricing
advance to the investor. advance to the investor. Only an
indicative price range is known.

Demand for the securities offered Demand for the securities offered can
Demand
is known only after the closure of be known everyday as the book is built.
the issue.

Payment 100% of the price of the Payment only after allocation

Payment
share at the time of bidding for
the share

COST OF PUBLIC ISSUE.

29
The cost of public issue is normally between 8 and 12 percent depending on the size of
the issue and on the level of marketing efforts. The important expenses incurred for

a public issue are as follows:

Underwriting expenses: The underwriting commission is fixed at 2.5 % of the

nominal value (including premium,if any) of the equity capital being issued to public.

Brokerage: Brokerage applicable to all types of public issues of industrial securities

are fixed at 1.5% whether the issue is underwritten or not. The managing brokers (if
any) can be paid a maximum remuneration of 0.5% of the nominal value of the capital
being issued to public.

Fees to the Managers to the Issues : The aggregate amount payable as fees to the
managers to the issue was previously subject to certain limits. Presently, however, there
is no restriction on the fee payable to the managers of the issue.

Fees for Registrars to the Issue : The compensation to the registrars, typically based
on a piece rate system, depends on the number of applications received, number of
allotters, and the number of unsuccessful applicants.

Printing Expenses: These relate to the printing of the prospectus, application forms,
broachers, share certificate, allotment/refund letters, envelopes, etc.

Postage Expenses: These pertain to the mailing of application forms, brochures, and
prospectus to investors by ordinary post and the mailing of the allotment/refund letters
and share certificates by register posts.

Advertising and Publicity Expenses: These are incurred primarily towards statutory
30
announcements, other advertisements, press conferences, and investor’s conferences.

Listing Fees: This is the concerned fee payable to concerned stock exchange where the
securities are listed. It consists of two components: initial listing fees and annual listing
fees.

Stamp Duty: This is the duty payable on share certificates issued by the company. As
this is the state subject, it tends to vary from state to state.

INTERMEDIARIES & THEIR ROLES IN IPO

The following are the important intermediaries involved in the process-

MERCHANT BANKERS

Eligibility criteria- SEBI issues an authorization letter to the finance companies, which
are eligible to work as merchant bankers. The eligibility criteria depend on network
and infrastructure of the company. The company should not be engaged in activities
that are banned for merchant bankers by SEBI. SEBI issues authorization letter valid
for 3 years and the company has to pay necessary fees. Such merchant banker can be
appointed as lead manager for IPO. Responsibility-lead managers are fully responsible
for the content and correctness of the prospectus.

They must ensure the commencement to the completion of the IPO. Certain guidelines
are laid down in section 30 of the SEBI act 1992 on the maximum limits of the
intermediaries associated with the issue.

GUIDELINES FOR LEAD MANAGERS BY SEBI

31
Size of the Issue No of Lead Managers

50 Cr 2

50-100 Cr 3

100-200 Cr 4

200-400 Cr 5

Above 400 Cr 1 or more as agreed by board

The number of co managers should not exceed the number of lead managers. There can
be only 1 adviser to the issue. There is no limit on the number of underwriters.

BROKERS

All the recognized stock exchange members are called brokers and A broker offer
marketing support, underwriting support, disseminates information to investors about
the issue and distributes issues stationary at retail investor level. The brokers are
governed by rules of SEBI and the respective stock exchange. The brokers are key
tothe success of the issue. The brokers appoint sub brokers who are in direct contact
with the investors.

UNDERWRITERS

The underwriter is the principle player in the IPO providing the firm with- Reputation-
as the underwriter is legally liable and because he has ongoing dealing with the
customers to whom he sells shares. The underwriter puts his reputation on the line.

Underwriting involves a commitment from the underwriter to subscribe to the shares of

a particular company to the extent it is under subscribed by the public or existing
shareholders of the corporate. An underwriter should have a minimum net worth of 20
lacs and his total obligation at any time should not exceed 20 times his net worth. A
commission is paid to the writers on the issue price for undertaking the risks of under

32
subscription. The maximum rate of underwriting commission paid is as follows.

UNDERWRITING COMMISSION TABLE

Nature of Issue On amount Devolving on On amounts subscribed

Underwriters by the public
Equity shares 2.5% 2.5%
preference shares and
Debentures
Issue amount up to Rs5 2.5% 2.5%
lacs
Issue amount 2.0% 1.0%
exceeding %

The fees for underwriter and broker are decided by the company within the maximum
possible limit as fixed by the SEBI.

BANKERS TO THE ISSUE

Any scheduled bank registered with SEBI can be appointed as the banker to the issue.
They get fees on amount collected by them. There are no restrictions on the number of
bankers to the issue. The main function of banker involves collection of duly filed
application forms with money (cheque/drafts) maintains a daily report, transferring the
proceeds to the share application money collected with the application forms to the
registrar.

REGISTRAR AND TRANSFER AGENTS

33
Registration with SEBI is mandatory to take on responsibilities as a registrar or share
transfer agent. The registrar provides administrative support to the issue process. Each
agent is registered with SEBI. They have to maintain net worth and infrastructure
criteria. They have to renew their License periodically. He collects all application from
the bank and ensures reconciliation of funds and of application amount and participates
in process of basis of allotment. If the IPO is oversubscribed they provide
computerized program for allotment. They manage refund orders and allotment letters.
They provide the final list of allotees to Lead Manager ROC and stock exchange. If the
company wants they also manage post issue IPO functions relating to shareholders
register for the company.

DEPOSITORIES

Since the year 2000 it’s compulsory that all fresh issue of shares must be made only in
the dematerialized format (DMAT). The Depository institute issues unique number of
every IPO or company, when shares are allotted to the company/registrar provides
shareholders register to depository in electronic form. Thus automatically all
shareholders get allotment in their DMAT account.

LEGAL ADVISOR

Normally the company for the purpose of IPO does this appointment. He is responsible
legal compliance of IPO process. There are other intermediaries like Advertising
Agents etc. but the company governs their role.

SEBI REQUIREMENTS FOR IPO

34
SEBI has laid down entry norms for entities making a public issue/ offer. The same
are detailed below

Entry Norms: Entry norms are different routes available to an issuer for accessing
the capital market by way of a public issue. They are meant for protecting the
investors by restricting fund raising by companies if they do not satisfy the entry
requirements.

(i) An unlisted issuer making a Public Issue (i.e. IPO) is required to satisfy the
following provisions:

Entry Norm I (commonly known as “Profitability Route”) The Issuer Company

shall meet the following requirements:

(a) Net Tangible Assets of at least Rs. 3 crores in each of the preceding three full
years of which not more than 50% are held in monetary assets. However, the limit of
fifty percent on monetary assets shall not be applicable in case the public offer is
made entirely through offer for sale.

(b) Minimum of Rs. 15 crores as average pre-tax operating profit in at least three of
the immediately preceding five years.

(c) Net worth of at least Rs. 1 crore in each of the preceding three full years.

(d) If the company has changed its name within the last one year, at least 50%
revenue for the preceding 1 year should be from the activity suggested by the new
name.

(e) The aggregate of the proposed issue and all previous issues made in the same
financial year in terms of issue size does not exceed five times its pre-issue net worth
as per the audited balance sheet of the preceding financial year.

To provide sufficient flexibility and also to ensure that genuine companies are not
limited from fund raising on account of strict parameters, SEBI has provided for the
alternative route to the companies not satisfying any of the above conditions, for
accessing the primary Market, as under:

Entry Norm II (Commonly known as “QIB Route”)

35
 Issue shall be through book building route, with at least 75% of net offer to the public
to be mandatory allotted to the Qualified Institutional Buyers (QIBs). The company
shall refund the subscription money if the minimum subscription of QIBs is not
attained.

(ii) A listed issuer making a public issue (i.e. FPO) is required to satisfy the
following requirements:

(a) If the company has changed its name within the last one year, at least 50%
revenue for the preceding 1 year should be from the activity suggested by the new
name.

(b) The aggregate of the proposed issue and all previous issues made in the same
financial year in terms of issue size does not exceed five times its pre-issue net worth
as per the audited balance sheet of the preceding financial year.

Any listed company not fulfilling these conditions shall be eligible to make a public
issue (i.e. FPO) by complying with QIB Route as specified for IPOs i.e. issue shall be
through book building route, with at least 75% to be mandatory allotted to the
Qualified Institutional Buyers (QIBs).

SEBI NORMS

SEBI has come up with Investor Protection and Disclosure Norms for raising funds
through IPO. These rules are amended from time to time to meet with the requirement
of changing market conditions.

DISCLOSURE NORMS

Risk Factor - The Company/Merchant Banker must specify the major risk factor in the
front page of the offer document.

Issuers Responsibility - It is the absolute responsibility of the issuer company about the
36
true and correct information in the prospectus. Merchant Banker is also responsible for
giving true and correct information regarding all the documents such as material
contracts, capital structure, appointment of intermediaries and other matters.

Listing Arrangement - It must clearly state that once the issue is subscribed where the
shares will be listed for trading.

Disclosure Clause - It is compulsory to mention this clause to distinctly inform the

investors that though the prospectus is submitted and approved by SEBI it is not
responsible for the financial soundness of the IPO.

Merchant Bankers Responsibility - Disclaimer Clause the Lead Manager has to certify
that disclosures made in the prospectus are generally adequate and are in conformity
with the SEBI Guidelines.

Capital Structure - The company must give complete information about the Authorized
capital, Subscribed Capital with top ten shareholders holding pattern, Promoters
interest and their subscription pattern etc. Also about the reservation in the present
issue for Promoters, FII`s, Collaborators, NRI`s etc. Then the net public offer must be
stated very clearly.

Auditors Report - The Auditors have to clearly mention about the past performances,
Cost of Project, Means of Finance, Receipt of Funds and its usage prior to the IPO.
Auditor must also give the tax-benefit note for the company and investors.

INVESTOR PROTECTION NORMS

37
Pricing of Issue - The pricing of all the allocations for the present issue must follow the
bid system. The reservation must be disclosed for different categories of investors and
their pricing must be specified clearly.

Minimum Subscription - If the company does not receive minimum subscription of

90% of subscription in each category of offer and if the issue is not underwritten or the
underwriters are unable to meet their obligation, then fund so collected must be
refunded back to all applicants.

Basis of Allotment - In case of full subscription of the issue, the allotment must be
made with the full consultation of the concerned stock exchange and the company must
be impartial in allotting the shares.

Allotment/Refund - Once the allotment is finalized, the refund of the excess money
must be made within the specified time limits otherwise the company must pay interest
on delayed refund orders.

Dematerialization of Shares -As per the provisions of the Depositories Act, 1996, And

SEBI Rules, now all IPO will be in Demat form only.

Listing of Shares - It is mandatory on the part of the promoters that once the IPO is
fully subscribed, and then the underlying shares must be listed on the stock exchange.

SEBI GUIDELINES
38
IPO of Small Companies Public issue of less than five crores has to be through OTCEI

(Over the Counter Exchange of India) and separate guidelines apply for floating and

listing of these issues.

Public Offer of Small Unlisted Companies (Post-Issue Paid-Up Capital up to Rs.5

crores) Public issues of small ventures which are in operation for not more than two
years and whose paid up capital after the issue is greater than 3 crores but less than 5
crores the following guidelines apply.

1. Securities can be listed where listing of securities is screen based.

2. If the paid up capital is less than 3 crores then they can be listed on the Over The
Counter Exchange of India (OTCEI).

3. Appointment of market makers mandatory on all the stock exchanges where

securities are proposed to be listed.

SIZE OF THE PUBLIC ISSUE

Issue of shares to general public cannot be less than 25% of the total issue. In case of
IT, Media and Telecommunication sectors, this stipulation is reduced subject to the
conditions that

1. Offer to the public is not less than 10% of the securities issued.

2. A minimum number of 20 lakh securities is offered to the public

3. Size of the net offer to the public is not less than Rs.30 crores.

PROMOTERS CONTRIBUTION

1. Promoters should bring in their contribution including premium fully before the
issue.

2. Minimum promoter’s contribution is 20-25% of the public issue.

39
3. Minimum lock in period for promoter’s contribution is five years.

4. Minimum lock in period for firm allotment is three years.

COLLECTION CENTERS FOR RECEIVING APPLICATIONS

1. There should be at least 30 mandatory collection centers, which should include

invariably the places where stock exchanges have been established.

2. For issues not exceeding Rs.10 crores the collection centers shall be situated at:-

The 4 metropolitan centers’ viz. Mumbai Delhi Kolkata Chennai

All such centers where stock exchanges are located in the region in which the
registered office of the company is situated.

REGARDING ALLOTMENTS OF SHARES

1. Net Offer the general public has to be at least 25% of the total issue size for listing
on a stock exchange.

2. It is mandatory for a company to get its shares listed at the regional stock exchange
where the registered office of the issuer is located.

3. In an issue of more than 25 crores the issuer is allowed to place the whole issue by
book-building.

4. Minimum of 50% of the Net Offer to the public has to be reserved for the investors
applying for less than 1000 shares.

5. There should be at least 5 investors for every 1 lakh equity offered.

6. Quoting of PAN or GIR No. in application for the allotment of securities is

compulsory where monetary value of investment is Rs.50000/- or above.

7. Indian development financial institutions and Mutual Fund can be allotted securities
40
up to 75% of the issue amount.

8. A venture capital fund shall not be entitled to get its securities listed on any stock
exchange till the expiry of 3 years from the date of issuance of securities.

9. Allotment to categories of FIIs and NRIs/OCBs is up to maximum of 24%, which

can be further extended to 30% by an application to the RBI-supported by a resolution
passed in the General Meeting.

TIMEFRAMES FOR ISSUE AND POST-ISSUE FORMALITIES

The minimum period for which the public issue is to be kept open is 3 working days
and the maximum for which it can be kept open is 10 working days. The minimum
period for right issue is 15 working days and the maximum is 60 working days. A
public issue is affected if the issue is able to procure 90% of the total issue size within
60 days from the date of the earliest closure of the public issue.

1. In case of oversubscription the company may have he right to retain the excess
application money and allot shares more than the proposed issue, which is referred to
as “green-shoe” option

2. Allotment has to be made within 30 days of the closure of the Public issue and 42
days in case of Rights issue

3. All the listing formalities of a Public Issue have to be completed within 70 days

from the date of closure of the subscription list.

DISPATCH OF REFUND ORDERS.

1. Refund orders have to be dispatched within 30 days of the closure of the issue.

2. Refunds of excess application money i.e. non-allotted shares have to be made within
30 days of the closure of the issue.

OTHER REGULATIONS
41
1. Underwriting is not mandatory but 90% subscription is mandatory for each issue of
capital to public unless it is disinvestment where it is not applicable.
2. If the issue is undersubscribed then the collected amount should be returned back
3. If the issue size is more than Rs500 crores, voluntary disclosures should be made
regarding the deployment of funds and an adequate monitoring mechanism put in place
to ensure compliance.
4. There should not be any outstanding warrants for financial instruments of any other
nature, at the time of the IPO.
5. In the event of the initial public offer being at a premium and if the rights under
warrants or other instruments have been exercised within 12 months prior to such
offer, the resultant shares will be not taken into account for reckoning the minimum
promoters contribution further, the same will also be subject to lock-in.
6. Code of advertisement as specified by SEBI should be adhered to
7. Draft prospectus submitted to SEBI should also be submitted simultaneously to all
stock exchanges where it is proposed to be listed.

RESTRICTIONS ON ALLOTMENTS

1. Firm allotments to mutual funds, FII and employees are not subject to any lock-in
period.

2. Within 12 months of the public issue no bonus issue should be made.

3. Maximum percentage of shares, which can be distributes to employees cannot be

more than 5% and maximum shares to be allotted to each employee cannot be more
than 200.

42
 IPO LISTING ON STOCK MARKET

Qualifications for listing Initial Public Offerings (IPO) are as below:

1. Paid up Capital

The paid-up equity capital of the applicant shall not be less than 10 crores and the
capitalization of the applicant's equity shall not be less than 25 crores.

For this purpose, the post issue paid up equity capital for which listing is sought shall
be taken into account. Capitalisation will be the product of the issue price and the post
issue number of equity shares. In respect of the requirement of paid-up capital and
market capitalisation, the issuers shall be required to include, in the disclaimer clause
of the Exchange required to put in the offer document, that in the event of the market
capitalisation (Product of issue price and the post issue number of shares) requirement
of the Exchange not being met, the securities would not be listed on the Exchange.

2. Conditions Precedent to Listing:

The Issuer shall have adhered to conditions precedent to listing as emerging from inter-
alia from Securities Contracts (Regulations) Act 1956, Companies Act 1956/2013,
Securities and Exchange Board of India Act 1992, any rules and/or regulations framed
under foregoing statutes, as also any circular, clarifications, guidelines issued by the
appropriate authority under foregoing statutes.

43
3. Atleast three years track record of either:

 The applicant seeking listing; or

 The promoter/promoting company, incorporated in or outside India or

 Partnership firm and subsequently converted into a Company (not in existence as a

Company for three years) and approaches the Exchange for listing. The Company
subsequently formed would be considered for listing only on fulfillment of
conditions stipulated by SEBI in this regard.

For this purpose, the applicant or the promoting company shall submit annual reports
of three preceding financial years to NSE and also provide a certificate to the
Exchange in respect of the following:

 That the company has not referred to the Board of Industrial & Financial
Reconstruction (BIFR) &/OR No proceedings have been admitted under
Insolvency and Bankruptcy Code against the issuer and Promoting companies.

 The company has not received any winding up petition admitted by a NCLT

 The net worth of the company should be positive. (Provided this criteria shall not
be applicable to companies whose proposed issue size is more than Rs.500 crores)

4. The applicant desirous of listing its securities should satisfy the exchange on the
following:

Redressal Mechanism of Investor grievance

The points of consideration are:

 Details of pending investor grievances against Issuer, listed subsidiaries and top 5
listed group companies by Market Cap.

 Arrangements or mechanism evolved for redressal of  investor grievances including

through SEBI Complaints Redress System.

44
Defaults in payment

Defaults in respect of payment of interest and/or principal to the debenture/bond/fixed

deposit holders by the applicant, promoters/promoting company(ies), group companies,
Subsidiary Companies shall also be considered while evaluating a company's
application for listing. The securities of the applicant company may not be listed till
such time it has cleared all pending obligations relating to the payment of interest
and/or principal.

MARKETING OF IPO

The role of marketing, and particularly promotion, in the pricing and trading of
Securities is fairly limited.

PRELIMINARY REQUIREMENTS

The company has to complete all legal requirements, appoint all intermediaries and
once they get SEBI card (approval), the process of marketing of IPO can commence.

TIMING OF IPO

This the most important factor for the success of IPO. If, secondary market is
depressed, if there is political unrest, if serious international problems are prevailing
then it is considered to be negative factors for timing of IPO’s. If these factors are
favorable then the Company must find out about the timing of other prestigious IPO’s.
Marketing initial public offers (IPO’s) through the secondary market SEBI approved a
proposal of marketing IPO’s through the secondary market. It proposes to use the
existing infrastructure of stock exchanges (terminals, brokers and systems),

45
presently being used for secondary market transactions, for marketing IPO’s with a
view to get

rid of certain inherent disadvantages faced by issuers and investors like tremendous
load on banking and postal system and huge costs in terms of money and time
associated with the issue process.

THE EFFECTS OF MARKETING ON IPO’S

An investment banker’s marketing campaign for an IPO is critical. This campaign, as

much as anything that precedes or follows it, will determine the success or failure of
the IPO. The key is to stimulate investor demand for the stock so that, the demand will
exceed the supply. Through the marketing effort, the underwriter attempts to create an
imbalance in the supply/demand equation for the issue, so that there are more buyers
than sellers when the stock is finally released for sale to the public.

The reputation of an investment banker could expand a firm’s investor base at a lower
cost than the firm can, since the promotional efforts of an investment banker on behalf
of the firm would be more creditable. The efforts of an investment banker to promote
an IPO through increased media coverage will increase retail interest in that stock.

The effects of an investment banker’s promotional efforts are not only important for
explaining the initial returns of some IPO’s, but also for explaining the rankings of
investment bankers.

Promoting an issue sufficiently to insure a run-up in its early aftermarket prices attracts
further investor interest catches the interest of analysts and helps to maintain or expand
the investor base of the stock.

If the sole motivation of a road show were to sell IPO’s to their regular institutional
investors and if those investors were to hold onto these stocks, then there would be no
motivation for an investment banker to do more than a minimal amount of promotion
since there would be no need to attract retail investors in early aftermarket trading.

46
TYPES OF MARKETING AN IPO

PRESS CONFERENCE

Promoters and Lead Managers call for press conference in each major investment
center. Reporters are briefed about the issue. They carry it as news-item in their papers.

INVESTORS CONFERENCE

The prospective investors are called by Invitation. The promoters and lead Managers
give presentations. They reply to the questions of the investors to boost their
confidence.

ROAD-SHOW

This is like the investors conference but normally is done abroad for marketing
ADR/GDR issues. It is an expensive process and requires a lot of legal compliances.
The company has to observe the rules of the concerned country. However, road shows
are becoming more and more popular in India.

NEWSPAPER ADVERTISEMENT

The Company releases statutory advertisements in leading newspapers. The company

has to publish abridges prospectus in leading newspapers. It is the responsibility of the
promoters to ensure that the issuing company and their group companies should not
release any commercial advertisement, which may influence the investor’s decision for
investment.

47
 IPO PROCESS

1. Issuer Company - IPO Process Initialization

Appoint lead manager as book runner
Appoint registrar of the issue
Appoint syndicate members

2. Lead Manager's - Pre Issue Role - Part 1

Prepare draft offer prospectus document for IPO
File draft offer prospectus with SEBI
Road shows for the IPO

3. SEBI – Prospectus Review

SEBI review draft offer prospectus
Revert it back to Lead Manager if need clarification or changes (Step 2)
EBI approve the draft offer prospectus, the draft offer prospectus is now
become Offer Prospectus

4. Lead Manager - Pre Issue Role - Part 2

Submit the Offer Prospectus to Stock Exchanges, registrar of the issue and
get it approved
Decide the issue date & issue price band with the help of Issuer Company
Modify Offer Prospectus with date and price band. Document is now called
Red Herring Prospectus
Red Herring Prospectus & IPO Application Forms are printed and posted to
syndicate members; through which they are distributed to investors

5. Investor – Bidding for the public issue

48
 Public Issue Open for investors bidding
Investors fill the application forms and place orders to the syndicate members
(syndicate member list is published on the application form)

Syndicate members provide the bidding information to BSE/NSE

electronically and bidding status gets updated on BSE/NSE websites
Syndicate members send all the physically filled forms and cheques to the
registrar of the issue
Investor can revise the bidding by filling a form and submitting it to
Syndicate member
Syndicate members keep updating stock exchange with the latest data
Public Issue Closes for investors bidding

6. Lead Manager – Price Fixing

Based on the bids received, lead managers evaluate the final issue price
Lead managers update the 'Red Herring Prospectus' with the final issue price
and send it to SEBI and Stock Exchanges

7. Registrar - Processing IPO Applications

Registrar receives all application forms & cheques from Syndicate members
They feed applica They feed applicant data & additional bidding information on computer systems

Send the cheques for clearance

Find all bogus application
Finalize the pattern for share allotment based on all valid bid received
Prepare 'Basis of Allotment'
Transfer shares in the demat account of investors
Refund the remaining money though ECS or Cheques

49
 Lead manager – Stock Listing
Once all allocated shares are transferred in investors dp accounts, Lead
Manager with the help of Stock Exchange decides Issue Listing Date
Finally share of the issuer company gets listed in Stock Market

GRADING OF IPO’S

Investment decisions in IPOs are becoming increasingly difficult, given the flurry of
public offers that hit the market these days. Differentiating a good offer from a bad
one, assessing the company fundamentals and verifying the credentials are becoming
more complex. In this backdrop, the Securities and Exchange Board of India's decision
to make IPOs (initial public offers) grading by credit rating agencies mandatory, is
likely to provide some respite to retail investors.

However, the rating is unlikely to throw much light for short-term investors or traders
seeking to make a quick buck from the `listing gains'. We take a look at what the
grading system proposes to do and what changes, if any, it is likely to bring in.

In a move, which does not appear to have any precedence elsewhere in the world of
capital markets, the SEBI has introduced compulsory grading of initial public offers
that will hit the market from now on. Credit rating agencies such as the CRISIL and
ICRA will grade the various forthcoming IPOs on a five-point scale from grade 5
(indicating strong fundamentals) to grade 1 (indicating poor fundamentals).

This grading, which will be based on the agencies' assessment of company

fundamentals, will consider the following five parameters — earnings per share,
financial risks, accounting quality, corporate governance and management quality.

Thus, the rating awarded to an IPO will mirror the company's general health in terms
of these qualitative and quantitative factors.

50
The IPO pricing, however, is not factored in for the purpose of rating. These ratings,
apart from being available in the respective offer documents of the companies, can also
be viewed on the respective rating agency's Web site.

For instance, a company X decides to tap the primary market for raising capital. The
rating agencies will now be required to grade the company. This process will include
market checks, plant visits and practice of due diligence apart from studying the other
already-specified macro factors. At the end of the process, say, X is awarded grade 1
(indicating poor fundamentals). This would mean that the company is fundamentally
weak and investments in that company could be risky. However, the rating does not go
on to say whether such an offer is to be avoided or not.

In a similar manner, if X gets a grade 5 (the highest one possible), it does not mean a
blanket approval from the rating agency to invest in the public offer. It only means that
X is fundamentally sound on the basis of metrics used by the rating agency. Thus, in
general, the grading process that has been introduced is meant to make the retail
investors aware of the health of the company's business. It cannot be interpreted as a
recommendation to invest or avoid any offer that is so rated.
IPO grade 1: Poor fundamentals

IPO grade 2: Below-average fundamentals

IPO grade 3: Average fundamentals

IPO grade 4: Above-average fundamentals

IPO grade 5: Strong fundamental

ADVANTAGES OF IPO GRADING

51
 IPO grading, a hitherto optional exercise, has been made compulsory to encourage
only serious companies.

 Over the long-term, it is likely to help SEBI regulate the IPO market by helping it
protect the investors from cases of vanishing companies. The rating will also
facilitate the not-so- well known companies in tapping the primary market for
capital.

 Retail investors, on the other hand, stand to benefit the most. The grading system
that purports to give a professional perspective of the company's fundamentals is
likely to help investors establish the credentials of the company they plan to invest
in.

 Neutral agencies can be more objective in their evaluation of a public offer

compared to other market participants.

 This apart, it is likely to help investors weed out companies with poor
fundamentals or those with a spurious background at the preliminary stage.

DISADVANTAGES OF IPO GRADING

 More often than not, the pricing of any IPO is what influences the decision of any
investor. The rating agencies, in this case, will not talk about ``what price'' and
``what time'' aspects of the offer.

 Given that the decision to invest or avoid investments in any IPO is most often a
function of the pricing, the lack of this aspect in the present IPO grading system
could make the whole process an unfinished task.

 Rating agencies (experienced in debt rating) could face trouble with rating the
equities, which, unlike debt rating, is more dynamic and cannot be standardized.
Further, IPO grading mechanism is a globally-unique initiative; it could increase
the cost of raising capital in India and urge companies to seek capital overseas.

 Markets, in the short term, can be price-driven and not purely motivated by
company fundamentals. That is to say that, at times, even good companies at a
higher price could be a bad investment choice, while the not-as-good ones could be
52
 a steal at lower prices.

 Despite having disclaimers, a higher graded IPO may well tempt small investors
into falsely believing that a high premium would come about on listing.

 Investors may get deluded by a low-graded IPO, which could become a `missed
opportunity' in the future. The purpose of introducing grading, thus, might get
defeated if it leads to a false sense of buoyancy or alarm among investors.

HIGHLIGHTS OF IPO GRADING

Till such time the utility of the IPO grading system is unraveled, it is advisable for
investors to use the grades only as an additional input to make an informed decision.
Investors need to be convinced about the business potential, pricing and valuations of
an IPO, together with the grading, to make a final choice.

IPO grading is a welcome move from the regulator of the capital market. It is going to
bring better efficiency to the market. There is a challenge for the investors to arrive at
an informed investment decision based on voluminous and complex disclosure
documents. Small investors will be the happier lot with this decision because an
independent, reliable and unbiased assessment of the fundamentals of the issuer
company will facilitate an informed investment decision.

The major parameters to be considered by a rating agency for the assessment include
management quality, business prospects, industry and company, financial performance,
corporate governance, project related factors, compliance track record, litigation
history and capital history. The grading provides the investors an independent
assessment of the disclosures in the offer documents to the extent that they affect the
issuer’s fundamentals to take an informed decision. The grading could be particularly
useful for assessing the offerings of companies accessing the equity markets for the
first time where there is no track record of their market performance.

Needless to say, the rating is not intended to comment on the pricing of the issue nor
would it purport to provide an assessment of the market risk associated with the

53
investment. As in the case of rating of debt instruments, it is an additional tool
available to the investors to take an informed investment decision.

The Disclosure for Investor Protection (DIP) guidelines has come a long way from the
initial days of Sebi, with the present set of disclosure norms coupled with the IPO
grading a decidedly positive move. The disclosures in the offer documents are as per
Sebi DIP guidelines and currently there are no assessments of quality especially on the
management bandwidth of the issuer. A proper assessment of the management quality
is very critical for the long-term sustainability of a corporate entity in a highly
competitive world. Rating agencies have the expertise to do this job.

Issuers may be worried about a lower grading than expected and also the additional
cost and effort. However, this worry would not last long because the issuers will soon
realize that the extra cost and effort put into grading is only going to benefit them.
Getting listed is a long process; it could take up to a year or more depending upon the
preparedness of the issuer. A listed company has huge responsibilities to fulfill. A
better prepared issuer company could complete the IPO process faster and will be in a
better position to the meet the expectations of the market. To become a successful
listed company, an unlisted company should act like a listed company much before the
IPO. It is better to be fully prepared before the plunge than regretting after listing and
exhibiting poor performance. The compulsory IPO grading will facilitate the issuer to
become a mature corporate citizen faster. Additionally, the grading will help better
quality issuers to benchmark themselves and project their underlying strength better. A
perceptional change from the issuers is essential here.

Though there has been criticism initially from the intermediaries involved in the IPOs,
it is a matter of time before the merchant bankers, brokers and investment advisors
derive the benefits of grading. For the merchant bankers, it will give additional comfort
to their due diligence responsibilities. IPO grading as an investment guidance tool is
54
going to be accepted sooner or later. It will widen and deepen market participation and
facilitate the move towards a more mature equity IPO market. Moreover, private equity
investors, strategic investors, institutional investors or any large investors can afford to
conduct third party due diligence on the issuer company before taking an equity
investment decision. The retail investor does not have the privilege and hence this gap
could be filled up with compulsory IPO grading system. This is a beginning and if
there is a continuous effort to improve the process of grading, this new development
could substantially benefit the retail investor.

IPO grading is intended to run parallel to the filing of offer document with SEBI and
the consequent issuance of observations. Since issuance of observation by SEBI and
the grading process, function independently, IPO grading is not expected to delay the
issue process.

The IPO grading process is expected to take into account the prospects of the industry
in which the company operates, the competitive strengths of the company that would
allow it to address the risks inherent in the business and capitalise on the opportunities
available, as well as the company’s financial position.

While the actual factors considered for grading may not be identical or limited to the
following, the areas listed below are generally looked into by the rating agencies,
while arriving at an IPO grade

1. Business Prospects and Competitive Position

i. Industry Prospects
ii. Company Prospects
2. Financial Position
3. Management Quality
4. Corporate Governance Practices
5. Compliance and Litigation History
6. New Projects—Risks and Prospects

It may be noted that the above is only indicative of some of the factors considered in
the IPO grading process and may vary on a case to case basis.

IPO grading does not consider the price at which the shares are offered in the issue.
IPO grading is done without taking into account the price at which the security is

55
offered in the IPO. Since IPO grading does not consider the issue price, the investor
needs to make an independent judgment regarding the price at which to bid
for/subscribe to the shares offered through the IPO. All grades obtained for the IPO
along with a description of the grades can be found in the Prospectus. Abridged
Prospectus, issue advertisement or any other place where the issuer company is
making advertisement for its issue. Further the Grading letter of the Credit Rating
Agency which contains the detailed rationale for assigning the particular grade will be
included among the Material Documents available for Inspection.

An IPO grade is NOT a suggestion or recommendation as to whether one should

subscribe to the IPO or not. IPO grade needs to be read together with the disclosures
made in the prospectus including the risk factors as well as the price at which the
shares are offered in the issue.

IPO Grading is intended to provide the investor with an informed and objective
opinion expressed by a professional rating agency after analyzing factors like business
and financial prospects, management quality and corporate governance practices etc.
However, irrespective of the grade obtained by the issuer, the investor needs to make
his/her own independent decision regarding investing in any issue after studying the
contents of the prospectus including risk factors carefully.

SEBI does not play any role in the assessment made by the grading agency. The
grading is intended to be an independent and unbiased opinion of that agency. The
grading is intended to be an independent and unbiased opinion of a rating agency.
SEBI does not pass any judgment on the quality of the issuer company. SEBI’s
observations on the IPO document are entirely independent of the IPO grading
process or the grades received by the company.

REVIEW ON RECENT IPO OF SELECTED COMPANIES

ZOMATO LTD

56
SECTOR: Food Delivery & Dining Out Services

Competitive Strengths:

 Among the leading Food Service Delivery platforms.

 Recognized consumer brand equity across India.

 Widespread and efficient on-demand hyperlocal delivery network.

 A strong network of 131,233 restaurants and 161,637 delivery partners.

Objects of the Issue:

The net proceeds from the IPO will be utilized towards the following objectives;

 Funding organic and inorganic growth initiatives.

 Meet general corporate purposes.

IPO Details:

IPO Opening Date Jul 14, 2021

IPO Closing Date Jul 16, 2021

Issue Type Book Built Issue IPO

Face Value ₹1 per equity share

IPO Price ₹72 to ₹76 per equity share

Listing At BSE, NSE

Market Lot 195 Shares

Issue Size Eq Shares of ₹1

(aggregating up to
₹9,375.00 Cr)

SUBSCRIPTION DETAILS:

57
Investor Category Subscription (times)

Qualified Institutions 51.79

Non-Institutional Buyers 32.96

Retail Investors 7.45

Employees 0.62

FINANCIAL PERFORMANCE:

On the financial performance front, on a consolidated basis, Zomato has posted a total
turnover/net profit (Loss) of Rs. 1397.72 cr. / Rs. - (1010.51) cr. (FY19), Rs. 2742.74
cr. / Rs. - (2385.60) cr. (FY20) and Rs. 2118.42 cr. / Rs. - (816.43) cr. (FY21). It has
been incurring heavy losses for all these years. FY21 posted lower loss following other
activities coupled with the declined top line.

For the last three fiscals, Zomato has (on a consolidated basis) posted negative EPS Rs.
- (2.99) and a negative RoNW of - (49.09). The issue is priced at a P/BV of 5.04 based
on its NAV of Rs. 15.09 and at a P/BV of 2.91 based on its post-issue NAV of Rs.
26.10 (at the upper price band). Despite heavy operational losses, it has a positive
NAV. Thanks to hefty premiums collected on the equity placements that have helped it
to post positive book value.

Conclusion / Investment Strategy:

The negative P/E makes this mega primary offer a costly bet. Earlier two loss-making
food chain IPOs of Burger King and Barbeque Nation have rewarded investors in the
medium term, but they were in the hotel sector that enjoys good margins, whereas this
company is purely dependent on third party supply and is primarily in the food
delivery business.

This being the first mover in the segment, its listing performance hinges on ongoing
uncertainty and the future prospects. National Restaurant Association of India (NRAI)
58
moving Competition Commission of India (CCI) for level playing field between
restaurants and online food aggregators is a major concern for a while. Being mega
offer, chances of allotment are higher. There is no harm in skipping this IPO with
inflated valuations.

NYKAA – FSN E Commerce Ventures Ltd

SECTOR: Beauty & Personal Care, Apparel & Accessories.

Competitive Strengths:

 One of India's leading specialty beauty and personal care companies.

 Major brands offering their products on Nykaa's platform for sale

 Capital efficient business with strong growth and profitability

 Company's advanced technology platform

 Founder-led company with an experienced management team

Objects of the Issue:

 Investment of ₹ 420 million in certain of their subsidiaries, namely, FSN Brands

and / or Nykaa Fashion for funding the set-up of new retail stores;

 ₹ 420 million towards capital expenditure to be incurred by the company and

investment in certain of their subsidiaries, namely, Nykaa E-Retail, Nykaa Fashion
and FSN Brands for funding the set-up of new warehouses;

 ₹ 1,560 million towards repayment or prepayment, of outstanding borrowings

availed by the company and one of their subsidiaries, namely, Nykaa E-Retail;

 Expenditure of ₹ 2,340 million to acquire and retain customers by enhancing the

visibility and awareness of the brands; and

59
 General corporate purposes.

IPO Details:

IPO Opening Date Oct 28, 2021

IPO Closing Date Nov 1, 2021

Issue Type Book Built Issue IPO

Face Value ₹1 per equity share

IPO Price ₹1085 to ₹1125 per

equity share

Listing At BSE, NSE

Market Lot 195 Shares

Issue Size Eq Shares of ₹1

(aggregating up to
₹5,351.92 Cr)

SUBSCRIPTION DETAILS:

Investor Category Subscription (times)

Qualified Institutions 91.18

Non-Institutional Buyers 112.02

Retail Investors 12.24

Employees 1.88

FINANCIAL PERFORMANCE:

60
On the financial performance front, for the last three fiscals, on a consolidated basis,
FSNEV has posted revenue/ net profit (Loss) of Rs. 1116.38 cr. / Rs. - (24.54) cr.
(FY19), Rs. 1777.85 cr. / Rs. - (16.34) cr. (FY20) and Rs. 2452.64 cr. / Rs. 61.95 cr.
(FY21). For the first three months ended on June 30, 2021, of FY22 it has earned a net
profit of Rs. 3.52 cr. on a revenue of Rs. 821.71 cr.

For the last three fiscals, on a consolidated basis, FSNEV has posted an average EPS of
Rs. 0.44 and an average RoNW of 2.82%. The issue is priced at a P/BV of 72.72 based
on its NAV of Rs. 15.47 as of June 30, 2021, and at a P/BV of 40.04 based on its post-
issue NAV of Rs. 28.10 per share (based on the upper cap of the price band). If we
annualize FY22 earnings and attribute it on fully diluted post issue equity, then the
asking price is at a P/E of around 377.51 making it an exorbitantly priced offer.

Conclusion /Investment Strategy:

Well, this IPO created hype ever since it filed its DRHP and was eagerly awaited. Post
Zomato episode, this IPO too created a fancy among primary market investors.
However, based on its financial parameters, the issue is exorbitantly priced and hence
risk seekers/cash surplus investors may consider investment for a long term reward.
Others may avoid.

CHAPTER 4 –DATA ANALYSIS AND INTERPRETATION

61
The survey of the research as being done in the form of questionnaire and the
information is collected from the Google forms and the sample size is 50 the
following is the outcome of the survey.

Age of the respondent

8.70%

21.30% 37.40%

32.60%

18-25 26-40 41-60 Above 60

INTERPRETATION:

Almost all the age group is covered under the study. The above chart shows us the age
of the respondents. Majority of the respondents are in the age of 18-25 i.e.37.40%%,
while 26-40 is 32.0%, age group of 41-60 are 21.30%,while the remaining
respondents are above 60 years i.e. 8.7%.

62
Gender

35.75%

64.25%

Male Female

INTERPRETATION:

From the above survey we can see that there are 64.25% are male respondent and
35.75% are female respondents.

63
1. Do you have Demat account?

18.75%

82.35%

Yes No

INTERPRETATION:

The following chart shows that how many respondent have their Demat account.
82.35 % said yes they have account in bank and only 18.65% said no for the same.

64
2. Which is your preferred investment options in Stock Market?

8.55%

35.45% 56%

Shares Mutual Funds Bonds

INTERPRETATION:

According to the chart 56% of respondents invest in shares which is the highest,
35.45% respondents invest in mutual funds and remaining 8.55% respondents invest
in bonds.

65
3. For what term you invest your money in stock market?

29.30%
40.10%

30.60%

Less than 1 year 2-5 year More than 5 year

INTERPRETATION:

The above chart shows that investment period of respondents is mostly less than 1
year ie. 40.10% which is short term. Long term period 30.60% respondents invest for
2-5 year and 29.30% invest for more than 5 years.

66
4. Do know about Initial Public offering (IPO) in Indian stock market?

25%

75%

Yes No

INTERPRETATION:

The above chart shows 75% respondents have the awareness of Initial Public Offering
(IPO) in Indian stock market, while only 25 % respondents have no awareness of IPO.

67
 5. From where you got the knowledge of IPO in stock market?

8.00%

12.50% 28.20%

51.30%

Websites Brokers Newspapers Others

INTERPRETATION:

The above chart shows that 51.30% respondents got knowledge of IPO from their
brokers which is the highest., 28.20% of respondents prefer websites,12.5% of
respondents prefer newspapers and remaining respondents got knowledge from other
sources.

68
 6. What is your reaction towards investing in IPO?

10.05%

26.25%

63.70%

Positive Negative Cant'say

INTERPRETATION:

The above chart shows the reaction of the respondents towards investing in IPO.
63.70% respondents have positive reaction towards investing in IPO, while 26.25%
respondents have negative reaction and 10.05% respondents can't say about their
reaction.

69
 7. How can you describe your IPO investment experience in Indian
stock market?

19.10%

35.65%

45.25%

Limited Moderate Extensive

INTERPRETATION:

The above chart shows the IPO investment experience. 45.25% respondents said
moderate experience, while 35.65% respondents said Limited experience and 19.10%
said they have extensive experience.

70
 8. Why do you invest into an IPO?

45.62%

54.38%

Listing Gains Long Term Gains

INTERPRETATION:

The following chart shows the reason of respondents to invest in an IPO. 54.38%
respondents invest in an IPO to earn gains on Listing. While 45.62% of respondents
invest in the IPO for Long Term Gains.

71
9. What do see before investing in an IPO?

19.11%
25.20%

25.28%
30.41%

Promoters background Sector performance

Performance of existing companies Premium Amount

INTERPRETATION:

The following chart shows what respondents see before investing in an IPO. 30.41%
of investors do the analysis of performance of existing companies, 25.28% see sector
performance, 25.20% see Premium amount and remaining 19.11% see Promoters
background before investing in an IPO.

72
10. How do you feel about the procedure for IPO’s in Indian Stock
Market?

22.47%
23.50%

28.56% 25.47%

Easy Difficult Complicated Lengthy

INTERPRETATION:

The above chart shows that how the respondents feel towards the procedure for IPO’s
in Indian stock market. 28.56% of respondents feel the procedure for IPO’s are
complicated, 25.47% feel procedure are difficult, 23.50% feel procedure are easy and
remaining 22.47% feel the procedure are lengthy.

73
11. Do you go by the Grading before investing in an IPO?

4.52%

95.48%

Yes No

INTERPRETATION:

The above chart shows the result of respondents towards grading before investing in
an IPO. And it shows 95.48% of the respondents are saying yes they go by the
grading before investing in an IPO and 4.52% of respondents said no they don’t go by
the grading before investing in an IPO.

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12. How much amount you invest in IPO’s?

8.69%

15.90% 40.26%

35.15%

Upto 10,000 10,000-50,000 50,000-1,00,000 Above 1,00,000

INTERPRETATION:

The above chart shows the amount of investment made by the respondents in an
IPO’s. About 40.26% of respondents invested upto 10,000, 35.15% of respondents
invested 10,000-50,000, 15.90% of respondents invested 50,000-1,00,000 and
remaining 8.69% of respondents invested above 1,00,000 in IPO’s.

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13. How much percentages have you gained on IPO Listing?

16.71% 16.35%

32.38%
34.56%

Upto 5% 5%-10% 10%-15% Above 15%

INTERPRETATION:

The above chart shows the how much percentage of gain respondents got on IPO
Listing. About 34.56% of respondents gained 5%-10%, 32.38% of respondents gained
10%-15%, 16.71% of respondents gained above 15% and remaining 16.35% of
respondents gained only upto 5% on IPO Listing.

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14. What difficulties did you faced after applying for IPO’s?

28.67% 25.68%

45.65%

No clarity in allotment
Refund Problem
Delay in crediting alloted shares to DEMAT Account

INTERPRETATION:

The following chart shows difficulties faced by respondents after applying for IPO’s.
45.65% of respondents faced refund problem, 28.67% of respondents faced delay in
crediting alloted shares to DEMAT Account and remaining 25.68% of respondents
had no clarity in allotment.

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15. What is your advise to new investors investing in IPO?

32.50%
35.30%

5.00% 27.20%

Risk factors Performance of Company

Premium Amount All of the Above

INTERPRETATION:

The above chart shows the advise of the respondents to new investors in IPO. 35.30%
of respondents advised that all mentioned options should be taken into consideration,
32.50% of the respondents advised for risk factors, 27.20% advised for performance
of the company and remaining 5% advised for premium amount.

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 CHAPTER 5 – SUGGESTION AND CONCLUSION

SUGGESTION

After making the project, I would like to say SEBI is playing very important role in
regulating the risk and financial aspects of the investors. Also the DIP guideline is
framed in such a manner, which can be understood by any individual. Overall the
process and the various intermediaries, which are involved in IPOs or initial public
offering, are doing very important task.

I found the following points very important from the investor point of view while
doing this project:

1. The IPOs should be consumer friendly: Any investor should be able to analyze the
IPO in its simplest form and should be able to understand of whether to apply for
it or not.

2. IPOs should be graded which is already started. But I think such kind of grading is
not enough because it doesn’t give enough information about the company; it only
says what the level of grade that a company deserves is.

3. I would suggest shortening the time between application and allocation or listing.
We know SEBI and other intermediaries has done great job in doing so in the
past, but looking at the current scenario we think it’s very important to do so. This
would help investor in investing the same money in other IPOs if he is not allotted
shares in that particular company.

4. Marketing of IPO should help the investors know about risk and rewards,
performance of the company which help investors in better decision making.

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 CONCLUSION

According to the study, respondents who are investors have 82.35% of the population
have their Demat Accounts. There are 56% of the investors who preferred to invest in
equity shares in comparison to the mutual funds and Bonds. The investors who have
demat account preferred to invest the money for less than 1 year in stock market. As
per the study 40.10% still preferred to invest money for less than 1 year in stock
market. When they invest in stock market 75% of the investors know about the Initial
Public Offering (IPO) in Indian stock market. Most of the investors got knowledge
about IPO from their brokers, so about 51.20% prefer brokers while investing in IPO.
Most of respondents gave a positive reaction towards investing in IPO.

As per the study the respondents had limited to moderate IPO investment experience
in Indian stock market. These investors invest in IPO for Listing gains, 54.38% prefer
listing gains while 45.62% invest for long term gains. When they invest in the IPO
investors mostly study the performance of the existing companies, the sectors
performance in which they are investing, premium amount and promoters
background. About 28.56% of the population found the IPO procedure complicated
while 25.47% found it difficult, some found it easy or lengthy. The study also shows
95.48% of the respondents go by grading before investing in the IPO.Most of the
investors invest upto 10,000 to ranging from 50,000. Most of the investors earn
between 5% to 15% in IPO. Difficulties where also faced like No clarity in allotment,
Refund problem and delay in crediting alloted shares in DEMAT account. Most of the
investors advised to look at all the factors such as risk, performance of the company
and premium amount while investing in IPO.

80
IPO in Indian stock market will further grow in size and complexity while acting as
an important agent of economic growth and intermingling different segments of the
financial sector. It automatically follows that the future of investing and trading
depends not only in internal dynamics by ongoing returns but also on global trends in
the financial sector.

The IPO in stock market is re-defined and re-engineered with the use of Information
Technology and it is sure that the future of IPO will offer more sophisticated
investment opportunities to the investors with the continuous improvements by SEBI.

In the wake of strong global IPO market activity over the past few months, Indian
markets continue to reach new highs. The strong momentum seems to continue with
several companies planning for an IPO later this year. Detailed regulations for direct
overseas listing are much awaited as they are expected to provide further impetus and
opportunities for Indian companies. They may also facilitate better benchmarking
between peers, promote best practices and increase cross-border collaboration.

81
 BIBLIOGRAPHY

WEBSITES

WWW.MONEYCONTROL.COM

WWW.SEBI.GOV.IN

WWW.INVESTOPEDIA.COM

WWW.CHITTORGARH.COM

REFERENCE BOOKS:

Initial Public Offering in Indian Stock Market, By Prasanna Chandra.

IPO Markets- Prospectives & Experience, By Vandana Shah.

 APPENDIX

AGE:*
a) 18-25

b) 26-40

c) 41-60

d) Above 60

Gender: *

 Male

 Female

1. Do you have Demat account?*

a) Yes

b) No

2. Which is your preferred investment options in Stock Market? *

a) Shares

b) Mutual Funds

c) Bonds

3. For what term you invest your money in stock market? *

a) Less than 1 year

b) 2-5 years

c) Above 5 years
4. Do know about Initial Public offering (IPO) in Indian stock market?*

a) Yes

b) No

5. From where you got the knowledge of IPO in stock market?*

a) Websites

b) Brokers

c) Newspapers

d) Others

6. What is your reaction towards investing in IPO? *

a) Positive

b) Negative

c) Can't say

7. How can you describe your IPO investment experience in Indian stock
market? *

a) Limited

b) Moderate

c) Extensive
8. Why do you invest into an IPO? *
a) Listing Gains

b) Long Term Gains

9. What do see before investing in an IPO? *

a) Promoters Background

b) Sector Performance

c) Performance of existing companies

d) Premium Amount

10. How do you feel about the procedure for IPO’s in Indian Stock
Market? *

a) Easy

b) Difficult

c) Complicated

d) Lengthy

11. Do you go by the Grading before investing in an IPO? *

a) Yes

b) No
12. How much amount you invest in IPO’s? *
a) Upto 10,000

b) 10,000-50,000

c) 50,000-1,00,000

d) Above 1,00,000

13. How much percentages have you gained on IPO Listing? *

a) Upto 5%

b) 5% - 10%

c) 10% - 15%

d) Above 15%

14. What difficulties did you faced after applying for IPO’s? *
a) No clarity in allotment

b) Refund Problem

c) Delay in crediting alloted shares to DEMAT Account

15. What is your advise to new investors investing in IPO’s? *

a) Risk factors

b) Performance of Company

c) Premium Amount

d) All of the above