IPO Case Studies CA VIVEK JAIN

IPO Case Studies CA VIVEK JAIN

Objective To give insight into the Applicable Guidelines, Issue Process and Critical Issues pertaining to the Initial Public Offer (IPO) based on the Practical Case Studies Page 2 of 43

Agenda IPO IPO Process and and Timeline Eligibility and and Listing Listing Criteria IPO IPO Size Size and and Promoters Contribution Key Key Regulations Restructuring IPO IPO Valuation Methodology Pre-Issue Placements Underwriting IPO IPO Grading Green Green Shoe Shoe Option Option Fast Fast Track Track Issues Issues Page 3 of 43

IPO A Complex Process Book Runners MOU Listing Agreements Listing Agreements International Wrap International Wrap Offerors PoA Software usage agreements Agreements with Stock Exchanges Syndicate Agreement ISSUER COMPANY Depository 3- Tri-party agreements Agreements Registrars MoU Underwriting Agreement Red DRHP Herring Prospectus RHP Prospectus CAN Escrow Agreement Page 4 of 43

IPO Process Pre Issue Marketing Post Issue Due Diligence Drafting of Prospectus IPO Grading Statutory Approvals Appointing Intermediaries Valuation and Pricing Marketing Strategy Arranging Firm Allotments Circulating Quality Research Report Printing and Distribution of Stationery Timing of Issue Media Strategy for Wide Publicity Road shows Press Brokers Analyst One to One Meets Analyst Meets / Plant Visits NRI Investors Retail Distribution Advertising campaigns Positioning & Marketing to Institutional & Retail Investors Price Discovery Finalizing Basis of Allotment Documentation with Depositories Credit into Investor Accounts Listing Approvals from the Stock Exchanges Post Issue Research Support for Sustained Coverage Long term value Creation Page 5 of 43

IPO Timeline W1 W3 W5 W7 W9 W11 W13 W15 W17 W19 W21 W23 W25 Appointment of Merchant Banker Due Diligence of Company Preparation of Offer Document Appointment of Intermediaries Marketing Strategy Development SEBI Filing and Observations Stock Exchanges Formalities Decide Pricing & File with ROC Distribution of Stationery Issue Marketing Issue Period Basis of Allotment Despatches and Payouts Listing Formalities Complete Post Issue Reports Page 6 of 43

Eligibility Criteria for IPO Eligibility Criteria for Unlisted Companies Category I Net Tangible Assets, Profitability and Net Worth Track Record Net Tangible Assets Rs. 3 Crores (3 Years) + Track Record of Distributable Profits Sec 205 of Cos. Act (3 / 5 Years) + Net Worth Rs. 1 Crore (3 Years) + IPO Size <= 5X Pre-issue Networth Category II (Companies Not Falling under Category I) (a) Issue through Book Building Route at least 50% Allotted to QIBs OR + Participation by FIs / Banks >= 15% of Project (10% from Appraisers) + (b) Minimum Post Issued Capital Rs. 10 crores OR Compulsory Market Making >= 2 years (Min 300 Shares) +10% Quote end 5% Inventory Page 7 of 43

Exemptions - Eligibility Criteria Banking Company under Section 5 of Banking Regulation Act, 1949 Correspondent New Bank Infrastructure Company whose Project is Appraised by a PFI / IDFC / IL&FS or Bank which was earlier an PFI 5% of the Project Cost is Financed by Appraiser(s) / Institutions Jointly or Severally Rights Issues Exemptions from Eligibility Norms Page 8 of 43

Listing Criteria Sr. No. Particulars Large Cap BSE Small Cap NSE 1 Minimum Post Issue Capital Rs. 3 Crs Rs. 3 Crs Rs. 10 Crs 2 Minimum Issue Size Rs. 10 Crs Rs. 3 Crs - 3 Minimum Market Capitalisation Rs. 25 Crs Rs. 5 Crs Rs. 25 Crs 4 Minimum Turnover - Rs. 3 Crs (3 Years) - 5 Minimum Allottees 1,000 Nos. 1,000 Nos. 1,000 Nos. Effective Date : August 1, 2006 Page 9 of 43

Issue Size Minimum Issue Size >= 10% or 25% as the case may be of each kind of securities are offered to the Public through Advertisement in the Newspapers 10% of Size Offer Pursuant to Exemption u/s 19 (2)(b) of SCRR, 1957 Minimum 20 lakh securities to be offered Minimum Issue Size of Rs. 100 Crs Issue through Book Building Allocation of 60% of Issue Size to QIBs Page 10 of 43

Promoter s Contribution Promoters Contribution Lock-in Requirements (Unlisted Companies) Public Issue by Listed Companies Promoter s Contribution and Lock-in Requirements Not less than 20% of Post Issue Capital Securities Ineligible for Computation of Promoters Contribution Acquired for consideration other than Cash and Revaluation of Assets or Capitalization of Intangible Assets in last 3 years Bonus Issues out of Revaluation Reserves or Reserves without Accrual of Cash Resources in last 3 years Issued to the Promoters at a Price Lower than the IPO Price during the preceding One year from the date of SEBI filing, unless the difference in price is brought in Entire Pre-issue Capital locked-in for One year from date of allotment in IPO or Commencement of Commercial Production, whichever is later. Transfer of Locked-in shares among pre-issue shareholders allowed, provided lock-in continues with transferee Promoter s holding up to 20% of Post-issue Capital Locked-in for Three years and excess Promoter s Holding locked-in for One year on LIFO basis No requirement for Promoters Contribution if company listed for Three Years and has paid Dividends for last Three Years In case of Excess over Minimum Promoter's Contribution, will attract Preferential Issue Guidelines Page 11 of 43

Key Regulations Book Building Guidelines Allotment Bidding On-line Display Price Discovery Allotment on Proportionate Basis to all categories 50% allocation to QIBs 15% to Non-Institutional Investors applying for an amount > Rs. 1,00,000 35% to Retail investors applying for an amount of <= Rs. 1,00,000 Spill-over permitted amongst all above categories including the reserved categories Bidding Mandatory on Electronically-linked Platform of the Stock Exchanges Bidding Terminals at all Centers where there is a Stock Exchange On-line, Real Time Graphical Display of Demand and Price at the Bidding Terminals is mandatory Bidding Permitted by using a Price Band having 20% Range Price Band during the Bidding Period can be revised within a 20% band, provided Book is kept open for 3 days after Revision Bidding at different Price Levels Permitted (3 Price Bids) Retail Investor may Bid at CUT-OFF Page 12 of 43

Key Regulations Book Building Guidelines Margin Collection Bidding Period Offer Document Freedom to determine Margin amount collected with bids from QIBs subject to a Minimum of 10% Minimum 10% for QIBs and uniform for other Categories or 100% QIBs cannot Withdraw Bids after Bid Closure Date DIP Guideline 11.3.4.1 (i) Mandatory Period of Three Working Days and up to Seven Working Days In case of Revision in Price Band Maximum of Ten Working Days ( Clause 11.3.1 (viii) (d) Maximum of Thirteen Days) Rule 19 (2) (b) of SCRR, 1957 Two Working Days Red Herring Prospectus filed with RoC with Price Band used for bidding Prospectus filed along with Discovered Price post bidding Page 13 of 43

Restructuring Essential Ingredient of IPO Complete all Capital Restructuring Exercise before going to the Market Capital and Corporate Restructuring Promoter / Promoter Group Holdings Split of Shares (Clause 3.7.1 (i)(a)) No restriction on Face Value of shares if issue price is higher than Rs.500/- subject to minimum of Re.1/- Face value of shares to be Rs.10/- if issue price is less than Rs.500/- Consolidation or De-merger of Companies Holding structure of the Company or Group of Companies Leverage Position of the Company Market Prefers a Clean Company and Places Higher Value Track Record of the Promoters and Associate Companies Page 14 of 43

Tantla Solutions (Dec 2006) Book Built Issue Bid Opening Date Monday, December 11, 2006 Bid Closing Date Thursday, December 14, 2006 1.58 Cr equity shares of Rs. 2/- each Price Band of Rs. 230/- Rs. 265/- Background of the Case Existing Promoters Acquired the company in 1999-2000 and commenced business related to SMS Centre and WAP Gateway (Pursuant to the provision of SEBI (SAST) Regulations, 1997) Name changed to Tantla Solutions from earlier Prism Foods Limited (Incorporated as Maruti Dairy Products Limited) Listed on Hyderabad, Ahmadabad and Madras Stock Exchange Further Listing sought on BSE and NSE Page 15 of 43

Tantla Solutions (Dec 2006) Declared as Vanishing Company by Co-ordination and Monitoring Committee ( CMC ) Joint Initiative of Ministry of Company Affairs ( MCA ) and SEBI Takeover under SEBI (SAST), Regulation, 1997 Completed Change of Business in 2000 Critical Issues January, 15, 2004 Removal from the list of Vanishing Companies Change in Face Value from December 2005 from Rs. 10/- to Rs. 2/- Earlier Promoters A and B were Prohibited by SEBI from Dealing in and Accessing Capital Markets Company was Suspended during December 1999 to April 2000 Approval Process was Extended to almost One Year DRHP date December 3, 2005 Issue finally opened in December 2006 Page 16 of 43

IPO Valuation Methodology Pre-IPO and Post IPO valuation Pre-money Valuation Valuation of the Company on an as-is-where-is basis Valuation assuming that the Current set of Activities Continue Post-money Valuation Pre-money Valuation + Value of Primary Funds raised in the IPO or Valuation based on Projections including the Projects in which the Issue Proceeds are Deployed Pre-IPO Plays Important aspect in Valuation Creates Benchmarks Improves Perception Perception that a reputed Investor has done due-diligence and invested a significant portion sets benchmark Valuation Eg: M&M Financial, Suzlon, Cairn India Page 17 of 43

IPO Pricing Free Pricing Differential Pricing Firm Allotment to be at a Price equal to or Higher than IPO Price Composite Issue Public Issue Valuation Methodology Discounting Cash Flows Trading Multiple P/E Multiple EV / EBIDTA NAV or Price to Book Value Multiple Return on Net worth Transaction Multiple Page 18 of 43

Valuation Methodology Discounted Cash Flow (DCF) Analysis Trading Multiples Transaction Multiples Net Asset Value (NAV) Fundamental or Theoretical valuation Estimates firm s value by discounting expected free cash flows at a rate which reflects the risk of the cash flows Terminal Value Perpetuity Discount Factor (The resulting free cash flows at a cost of capital that reflects company specific risk) Market Valuation Investors view on prospects of an entire industry sector and specific companies Considerations for peer group include similar size, life of assets and similar management quality Difficult to establish peer group on account of diverse business activities Acquisition related Valuation Applies Multiples of related Industry Transactions to the valuation of a business Measures Premium paid for Acquiring Control and places value on intangible strategic factors Useful when the historical costs of assets purchased is not comparable to its Current Market Value NAV is based on Expected Future Cash Flows the market expects from the asset Two Methods Replacement Cost Future Cash Flows Page 19 of 43

Pre-IPO Placements Further Issue of Shares Company is prohibited to make further issue of Capital after filing a Draft Offer Document with SEBI till the listing of the shares referred in offer document Now permitted to issue further shares, provided full disclosure in regards to total capital to be raised is given in Draft Offer Document (Circular dated March 31, 2006) Page 20 of 43

Reliance Petroleum (Apr 2006) Book Built Issue Background of the Case Issue opened on Thursday, April 13 2006 Issue closed on Thursday, April 20 2006 In DRHP, RPL had proposed to offer 180 Cr shares Rs. 2,700 Crs raised through Pre-IPO placement of 45 Crs equity shares at Rs. 60/- Shares locked-in for One Year from date of Allotment 90 Cr equity shares were subscribed by RIL one day prior to issue opening at Rs. 62/- -- Total Promoters Contribution Rs. 5,580 Crs IPO Available to the Public was 45 Crs shares with price band of Rs. 57/- Rs. 62/- per share Issue Size - Rs. 2790 Crs Page 21 of 43

Reliance Petroleum (Apr 2006) Critical Issues First Company to Utilise the Pre-IPO Placement Guidelines (Circular - March 31, 2006) after filing of DRHP with SEBI (10% of the Total Post Issue Capital) Pre IPO amount in Excess of Rs. 60/- per share would be refunded to the Investors (20 nos.) Final Allotment at Rs. 60/- per shares against Price Band of Rs. 57/- to Rs. 62/- per Share Page 22 of 43

Underwriting Hard Underwriting Underwriter agrees to buy his commitment at its earliest stage Guarantees a fixed amount to the issuer from the issue If the shares are not subscribed by investors, the issue is devolved on underwriters and they have to bring in the amount by subscribing to the shares Soft Underwriting UNDERWRITING = INSURANCE Underwriter agrees to buy the shares at later stages as soon as the pricing process is complete Subsequently, he places those shares with Institutional Investors Also holds an option to invoke a force majeure (acts of God) clause In case there are certain factors beyond the control that can affect the underwriter's ability to place the shares with the buyers Page 23 of 43

Underwriting Conditions Compulsory for Book Built Issue for Net Offer to the Public Incase of Companies making IPO under Clause 2.2.2 Underwriting 50% Not compulsory for Fixed Price Issue Minimum 5% or Rs.25 Lacs whichever is Less 20 times the Net worth of the Underwriter BRLM to enter into Underwriting Agreement with Issuing Company Syndicate Member to enter into Agreement with BRLMs Page 24 of 43

IPO Grading (Unlisted Companies) IPO Grading Compulsory from May 1, 2007 Five-point point scale Higher score indicating stronger Fundamentals and vice versa All the grades to be disclosed Activity to run parallel to the filing of draft offer document Price of the IPO not taken into account for Grading IPO Grade : Price Matrix First IPO Grading High Grade High Price High Grade Low Price CRISIL Kiri Dyes and Chemicals Ltd 2/5 (Subscription 1.3 times) Low Grade High Price Low Grade Low Price ICRA SRS Entertainment 2/5 Page 25 of 43

IPO Grading (Unlisted Companies) Business Prospects and Competitive Position Industry Prospects Company Prospects Financial Position Management Quality Factors Considered for IPO Grading Corporate Governance Practices Compliance and Litigation History New Projects Risks and Prospects Key Components of Investment Decision Fundamental Analysis Returns Analysis Investor Preference Page 26 of 43

BluPlast Industries (June 2006) Fixed Price Issue Rs.10/- plus Rs. 22/- (1.1 Crore shares) Issue Opened on Monday, June 5, 2006 Issue Closed on Friday, June 9, 2006 Not Underwritten Background of the Case Forthwith Refund the application money if Minimum Subscription not received (Clause 6.33.20 and 6.33.21) Critical Issues Underwriting is Not Compulsory in Fixed Price Issue (Clause 8.11.1) Should Issue Company Underwrite? Yes. It acts as Insurance Extension of Time upto Twenty One Days Page 27 of 43

Emaar MGF (Feb 2008) Background of the Case Book Built Issue (Grade 4/5 by CARE) Bid Opening Date Friday, February 1, 2008 Bid Closing Date Wednesday, February 6, 2008 Bid Closing Date Extended Monday, February 11, 2008 Withdrawal on Friday, 8 February 2008 Offer to Public - 10.4% Original Price Band: Rs. 610/- to Rs. 690/- First Revision : Rs. 540/- to Rs. 630/- Second Revision: Rs. 530/- to Rs. 630/- Issue Size Rs. 7,077 Crs (Higher End of Price Band) Revised Issue Size Rs. 5,436 Crs (Lower End of Price Band) Page 28 of 43

Emaar MGF (Feb 2008) Critical Issues Book Built Issues Compulsory Underwriting (Clause 11.3.3) Pre-IPO Placement 1.5% (Circular dated March 31, 2006) Extension of Time 3 Days (Max of 13 Days) Maximum Revision in Price + 20% w.r.t. Floor Price (11.3.1.(viii)(b)) Revision in Price Band 13.12% (w.r.t. Floor Price) Rule 19(2)(b) of SCRR, Minimum 60% allotment to QIBs Page 29 of 43

Wockhardt Hospitals (Jan 2008) Background of the Case Book Built Issue (Grading 4/5 by FITCH) Bid Opening Date Thursday, January 31, 2008 Bid Closing Date Tuesday, February 5, 2008 Bid Closing date Extended Thursday, February 7, 2008 Issue Withdrawn on - Thursday, February 7, 2008 due to poor response to Issue Original Price Band Rs. 280/- to Rs. 310/- Revised Price Band Rs. 225/- to Rs. 260/- (On January 30, 2008, before Issue opening) Page 30 of 43

Wockhardt Hospitals (Jan 2008) Compulsory Underwriting Provision of Pre-IPO placement in RHP, but no placement done before issue Extension of Time Two Days (Before the Date of Opening of the Bids) Revision in Price + 20% w.r.t. Floor Price (Clause 11.3.1 (viii)(b)) Revision in Price Band 19.64% (w.r.t. Floor Price) 50% allocation to QIBs Critical Issues Page 31 of 43

Deccan Aviation (May 2006) Book Built Issue for 2. 45 Crs shares Bid Opening Date Thursday, May 2006 Bid Closing Date Tuesday, 23, 2008 Background of the Case Price Band of Rs. 150/- to Rs. 175/- per share First Indian IPO to ever get extended Meant to close on May 23, 2006 but the date was extended till May 26, 2006 Price band was also changed Marginally to Rs. 146/- to Rs. 175/- per share Deccan Aviation IPO had been Subscribed 1.23 on closure (May 26, 2006) Page 32 of 43

Deccan Aviation (May 2006) Revision in Price Critical Issues Extension of Time Friday, May 26, 2006 (Three Days) Does it mean that the Issuer Company cannot extend the Time if there is No Revision? End Result Issue was Subscribed Page 33 of 43

Green Shoe Option Stabilisation of Post Listing Price Agreement of Stabilizing Agent with Promoter or Pre-Issue Shareholder for Borrowing Shares for Price stabilization Excess Allotment upto 15% of the Total Issue Size to Stabilizing Agent Disclosure on : Name of SA Stabilisation Period : 30 Days Maximum increase in Capital in case of Allotment of shares Maximum Amount to be received by the Issuer Company in case of Further Allotment Separate GSO Account Amount to be Maintained Step I Over-allotment Step II II Sourcing of Additional Shares by SA Step III III Stabilisation Process Security trades Security trades Down on on Listing Up on on Listing Page 34 of 43

ICICI Bank ( Dec 2005) Book Built Issue Bid Opening Date Thursday, December 1, 2005 Bid Closing Date Tuesday, December 6, 2005 Stabilising Agent JM Morgan Stanley under Green Shoe Option Concept Price Stabilisation Background of the Case Critical Issues Process: Issue Size 1,00,000 shares Green Shoe Offer 10,000 shares Total Offer 1,10,000 shares Page 35 of 43

ICICI Bank ( Dec 2005) Capital Structure (Scenario I) Purchase 2,500 shares Remittance to Lender-7,500 + 2,500 shares Final Capital Structure 1,07,500 shares Critical Issues Capital Structure (Scenario II) Purchase 10,000 shares Remittance 0 + 10,000 shares Final Capital structure 1,00,000 shares Capital Structure (Scenario III) Purchase Nil shares Remittance 10,000 + 0 shares Final Capital structure 1,10,000 shares Page 36 of 43

D. S. Kulkarni Developers (Apr 2008) Background of the Case COMPOSITE ISSUE of 1.10 Crs Equity Shares of Rs. 10/- each aggregating Rs. 211.75 Crs Rights Issue 55,00,000 Equity Shares of Rs. 10/- each for cash at a premium of Rs. 100/- per Equity Share Rights Issue of Rs. 60.5 Crs Ratio One Rights Share for every Two Shares held (1 : 2) Offer Opened on : March 30, 2006 Last date for receiving request for Split Forms : April 15, 2006 Offer Closed on : April 29, 2006 Public Issue 55,00,000 Equity Shares of Rs. 10/- each for cash at a price of Rs. 275/- per Equity Share Public Issue of Rs. 151 Crs Issue Opened on : April 25, 2006 Issue Closed on : May 3, 2006 Page 37 of 43

D. S. Kulkarni Developers (Apr 2008) Critical Issues Differential Pricing (Clause 3.4.3 of (DIP) Guidelines, 2000) Can we have Rights Issue Under Book Building Route? Can we have Rights Issue at a Fixed Price and Public Issue under Book Building Route or Vice versa? Gap between the Dates of Closure of the Public Issue and Rights Issue in a Composite Issue (MS Shoes Issue in 1995) Page 38 of 43

Balaji Teleflims (Oct-Nov-2001) Background of the Case 28 Lac equity shares at a price of Rs. 130/- per share through the 90% book building route Book Building Portion of the Issue 6th October 2000 to 12th October 2000 Fixed Price Portion of the Issue 27th October 2000 to 3rd November 2000 Disclosure in the Offer Document dated 20th October 2000 - No intention to alter its Capital Structure within a period of Six Months Proposal of Merger of BTL with Nine Network Entertainment India Pvt. Ltd. in the Board Meeting on 21st November 2000 Lead Managed by one of the Five Top Merchant Bankers Co-Managers: Two of the Leading Merchant Bankers Page 39 of 43

Balaji Teleflims (Oct-Nov-2001) Failure to exercise Due Diligence Critical Issues Lead managers came to know about the Merger Proposal on 21st November, 2000 Not alerted the Regulatory Authority as soon as they came to know SEBI (Merchant Bankers) Regulation 1992, Code of Conduct for Merchant Bankers Clause 8.7.1 states No further Issue Capital till all formalities are completed Show Cause Notice to Merchant Bankers by SEBI Warning Issued Page 40 of 43

Fast Track Issue Amendment on November 29, 2007 Clause 2.1.1 and 2.1.2 Filing of Offer Document Not Applicable Listed > 3 years w.r.t. Reference Date Average MCap >= Rs. 10,000 Crs. for One Year (upto previous quarters) Trading Turnover >= 2% (Six months preceding the month of Reference Date) >= 95% of Inventors Grievance Redressed (Quarter preceding the month of Reference Date) Compliance with Listing Agreement 3 Years Qualification by Auditors <= 5% Impact on Net Profit (respective year) No prosecution by SEBI against the Issuer Company s Promoters and Whole-time Director Page 41 of 43

Fast Track Issue Promoter Group Holding 100% Dematerialised Form Notes : Reference Date Date of Filling of RHP / Prospectus with ROC Reference Date Rights Issue Date of filling of Letter of Offer with Designated SE Average MCap Daily MCap (of Public Shareholdings) No. of Trading Days Page 42 of 43

Thank You CA VIVEK JAIN