ankit w_presentation_spriha
TRANSCRIPT
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FINANCIAL MARKET ANALYSIS AND INFORMATION CONTENT OF IPO GRADES
BY:
Ankit Wankhede [ VJTI Mumbai ]
SESSION OBJECTIVESTo gain an understanding of the Securities Market in India Primary Markets Secondary Markets Initial Public Offering IPO Process IPO Rating/Grading
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REFORMS IN THE SECURITIES MARKET Establishment of SEBI on April 2, 1992 Depositories Act 1996 Demutualisation of stock exchanges Screen based nation-wide trading Dematerialisation and electronic transfer of securities Rolling settlement and ban on deferral products Sophisticated risk management and derivatives
trading Book building
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REFORMS IN THE SECURITIES MARKET 251 securities most active securities put on
rolling settlement on T + 5 basis in 2001 T+3 rolling settlement commenced for listed
securities in 2002, subsequently in T+2 basis in 2003
Commencement of trading in derivatives – Futures in 2000, Options in 2001
T+1 settlement system for transaction in government securities in 2005
SEBI allowed the short selling and Direct Market Access (DMA) facility for all investors in India in 2008.
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PRODUCTS IN SECURITIES MARKET
Securities is defined in the Securities Contracts (Regulation) Act, 1956 and includes:
1. Shares, scripts, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or body corporate;
(a) derivatives;
(b) units of any other instrument issued by any collective investment scheme to the
investors in such schemes;
(c) security receipt as defined in clause (zg) of section 2 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
(d) units or any other such instrument issued to the investors under any mutual
fund scheme;
(e) any certificate or instrument (by whatever name called), issued to an investor
by any issuer being a special purpose distinct entity which possesses any debt or
receivable, including mortagage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be.
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PRODUCTS IN SECURITIES MARKET
Securities is defined in the Securities Contracts (Regulation) Act, 1956 and includes:
2. Government Securitiessuch other instruments as may be declared by
the Central Government to be securities; and
3. Rights or interest in securities.
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Market Participants in Securities Market1. Issuers of Securities 2. Investors in Securities3. Intermediaries
DCA – Department of Company Affairs, DEA – Department of Economic Affairs
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SECURITIES MARKET
Primary Market1) This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).
2) In a primary issue, the securities are issued by the company directly to investors.
3) The company receives the money and issues new security certificates to the investors.
4) Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.
5) Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public.
Secondary Market (Stock) OTC Exchange Traded Market
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LEGISLATIONS GOVERNING SECURITIES MARKET The SEBI Act, 1992 which established SEBI to protect
investors and develop and regulate securities market; The Companies Act, 1956, which sets out the code of
conduct for the corporate sector in relation to issue, allotment and transfer of securities, and disclosures to be made in public issues;
The Securities Contracts (Regulation) Act, 1956, which provides for regulation of transactions in securities through control over stock exchanges;
The Depositories Act, 1996 which provides for electronic maintenance and transfer of ownership of demat securities; and
The Prevention of Money Laundering Act, 2002 which prevents money laundering and provides for confiscation of property derived from or involved in money laundering.
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FUNCTIONS OF STOCK MARKETS Provide liquidity to securities Enable Price discovery Provide Marketability Provide Safety and Transparency Mobilisation of Resources Enable investors to buy or sell securities at prices
close to their intrinsic value Provide educative value to investors by making
available various kinds of information
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STOCK MARKET INDICATORS
Stock Market Capitalizations to GDP ratio Turnover ratio – total value of shares traded
on country’s stock exchange divided by stock market capitalization
BOMBAY STOCK EXCHANGE(BSE)• Oldest stock exchange in
asia(Estd.1875) Demutualised in 2005
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SENSEX Sensex is an index. It is an indicator of all the prices of the major companies
of the BSE It is calculated using a “market-captialisation weighted”
methodology. As per this methodology , the level of index at any point of time reflects the total market value of 30 components stock relative to base period.
SENSEX was coined by Deepak Mohoni around 1990 while writing market analysis columns for business newspaper.
OBJECTIVES OF SENSEX Measure market movement Benchmark for fund performance Benchmark for index based derivative products
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BSE’S ONLINE TRADING SYSTEM (BOLT) Trading on BOLT from Monday to Friday Scrips traded on the BSE (based on qualitative and
quantitative parameters) A - Scrips with most liquidity and credible track record B1 - Scrips with relatively liquidity and good track record B2 - Scrips with comparatively low liquidity T – Settled on a trade-to-trade basis as a
surveillance measure S – Scrips forming part of the BSE – Indonext Segment TS – Scrips in BSE – Indonext Segment, settled on a trade-
to-trade basis as a surveillance measure F – Fixed Income securities G – Government Securities Z – Scrips that have failed to comply with the listing
requirement of BSE.
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NATIONAL STOCK EXCHANGE (NSE)
Objectives for being set up(a) establishing a nationwide trading facility for all types
of securities, (b) ensuring equal access to all investors all over the
country through an appropriate communication network,
(c) providing a fair, efficient and transparent securities market using electronic trading system,
(d) enabling shorter settlement cycles and book entry settlements, and
(e) meeting the international benchmarks and standards.
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MARKET SEGMENTS Capital Market Segment Wholesale Debt Market Segment Futures and Options Segment NIFTY Nifty is an indicator of the major companies
of NSE Comprises of 50 stocks OBJECTIVES OF NSE Establishing nationwide trading facilities for
all types of securities Providing fair, efficient and transparent
securities market using electronic trading system
Meeting international benchmark and standardsApril 15, 2023 15
DEPOSITORIES
Depositories Act 1996 Purpose of the act
Ensuring free transferability of securities with speed, accuracy & security by
Making securities of public limited companies freely transferable, subject to certain exceptions;
Dematerializing the securities in the depository mode; and
Providing for maintenance of ownership records in a book entry form.
Depositories in India – NSDL & CSDL
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NATIONAL SECURITIES DEPOSITORY LIMITED (NSDL)
NSDL is the first depository to be set up in India. It was registered by SEBI on June 7, 1996 It is a joint venture of:
IDBI (Industrial Development Bank of India Limited); NSE (National Stock Exchange); and UTI (Unit Trust of India).
DEPOSITORY PARTICIPANTS It is an agent of the depository It is the intermediary between the depository and
the investor They perform their actions in variety of securities
at Depository on behalf of the client
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Step: 1 Seller gives delivery out instructions to his DP to move securities from his account to his broker’s account.
Step: 2 Securities are transferred from broker’s account to CC on the basis of a delivery out instruction.
Step: 3 On the pay-out day securities are moved from CC to buying broker’s account.
Step: 4 Buying broker gives instructions and securities move to the buyer’s account.
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INITIAL PUBLIC OFFERING (IPO)
An initial public offering (IPO) or stock market launch is a type of public offering where shares of stock in a company are sold to the general public for the first time.
This is done by offering those shares to the public, which were held by the promoters or the private investors.
IPO Grading is based on risk and return on an Investment. It is classified as grade1(High risk ,High Return) to Grade5(Low risk, Low return)
This is why doing an IPO is also referred to as "going public."
IPO’s 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.
IPO PROCESSDecision to Go for IPO
Appointment of BRLM and Legal Counsel
Due Diligence
Drafting and Draft
Red Herring
Filing with SEBI & Stock
Exchanges
Funds Transferred
to Issuer
Listing
ROC Filing & Final
Prospectus
Pricing & Allocation
Book Building
Pre-Marketing
SEBI Clearance
& ROC Filing
Road shows
COMPANY
INTERMEDIARY STRUCTURE – PARTIES INVOLVED
Book Running Lead Managers (BRLM)
Book Runners Legal Counsel(Underwriters)
Broker Or Syndicate
Advertising Agency
PrintersEscrow Bankers
RegistrarsIPO Grading
AgencyLegal Counsels
Issuer Company Self Certified Syndicate Banks
(SCSB)Auditors
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IPO RATING
IPO Ratings, IPO Grading and IPO Ranking are among the few popular inputs investor's uses before applying in an initial public offerings IPO.
IPO Grading is provided by SEBI approved rating agencies including CRISIL, CARE and ICRA. IPO Grading is designed to provide investors an independent, reliable and consistent assessment of the fundamentals of IPO Issuer Companies.
CRISIL IPO Rate Assessment
5/5 Strong fundamentals
4/5 Above average fundamentals
3/5 Average fundamentals
2/5 Below average fundamentals
1/5 Poor fundamentals
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IPO GRADING REPRESENTS AN INDEPENDENT RELATIVE ASSESSMENT OF FUNDAMENTALS OF THE EQUITY BASED ON THE FOLLOWING:
A) Business Prospects: This comprises: 1. Industry prospects 2. Company prospects - the alignment between industry opportunities, the company's strategy and its capabilities.B) Financial Prospects - This includes a rigorous assessment of accounting quality using advanced tools devised by Research.C) Management quality - An assessment of the ability of the management to handle uncertainty in terms of capitalizing on future business opportunity and mitigating the impact of contingencies.4) Corporate governance - An evaluation of the company's governance architecture to determine if it is structured such that the risks and rewards of business are equally available to all shareholders in keeping with the basic tenets of a joint-stock company
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ELIGIBILITY CRITERIA
PRIMARY CRITERIA FOR IPO
SEBI GUIDELINES
a) Net tangible assets of at least Rs. 3 crore in each of the preceding three full years
b) Distributable profits for at least three out of the immediately preceding five years
c) Net worth of at least Rs. 1 crore in each of the preceding three full years
d) The issue size should not exceed 5 times the pre-issue net worth
e) If there has been a change in the company’s name, at least 50% of the revenue for preceding one year should be from the new activity denoted by the new name
ALTERNATIVE ROUTE FOR COMPANIES WHICH DO NOT COMPLY WITH SEBI
GUIDELINES
ALTERNATIVE I
a) Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs)
b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years
ALTERNATIVE II
a) The “project” is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s).
b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years. In addition to satisfying the aforesaid eligibility norms, the company shall also satisfy the criteria of having at least 1000 prospective allottees in its issue.
EXEMPTIONS TO CERTAIN CATEGORY ENTITIES FROM ELIGIBILITY NORMS
The following categories of entities are eligible for exemption from entry norms:-
A banking company including a local area bank set up under the Banking Regulation Act, 1949
A corresponding new bank set up under the Banking Companies Act, 1970
An infrastructure company Whose project has been appraised by a Public Financial Institution (PFI) Not less than 5% of the project is financed by any of the PFI
Rights Issue by a listed company
PRICINGThere are two ways in which the price is determined in the IPO.
FIXED PRICE ISSUES
Offer Price :- Price at which the securities are offered and would be allotted is made known in advance to the investorsDemand :- Demand for the securities offered is known only after the closure of the issuePayment:- 100 % advance payment is required to be made by the investors at the time of application.Reservations:- 50 % of the shares offered are reserved for applications below Rs. 1 lakh and the balance for higher amount applications.
BOOK BUILDING ISSUES
Offer Price:- A 20% price band is offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding. Demand:- Demand for the securities offered, and at various prices, is available on a real time basis on the BSE website during the bidding periodPayment:- 10% advance payment is required to be made by QIB’s along with the application, while other categories of investors have to pay 100% advance along with the applicationReservations:- 50% of the shares offered are reserved for QIB’s, 35% of small investors and the balance of all other investors.
MARKETING PLAN FOR IPO
Direct marketing to shareholders/ stakeholders
Public Relation Plan
Conference Plan i.e. Press & Broker
Conferences, Analysis
Media Plan
Stationery distribution
schedule (Form & Prospectus
Corporate Ads
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WHY DO COMPANIES GO PUBLIC?
Prestige Getting Rich Because of the increased scrutiny, public
companies can usually get better rates when they issue debt.
it possible to implement things like employee stock ownership plans, which help to attract top talent
A listed company can issue more stock and raise fresh capital faster than an unlisted company. They can also offer their own stock to buy out a company. Hence, mergers and acquisitions are easier for listed companies since they can issue stock as part of the deal.
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WHAT SHOULD INCLUDE IN IPO GRADING? IPO grading should consider the valuation
aspect of the company’s IPO.
It should also take into account market factors such as:
1)Liquidity ,Demand, Supply situation of the scrip
2)Market Sentiment at the time of issue Issue price from scope of grading
It should have ongoing Validity
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CASE STUDY – JUST DIAL
Introduction – Just Dial
Just Dial has established itself as the undisputed leader of local search in India. It provides comprehensive and updated B2B and B2C services in India. The service is available on a number of platforms like phone, internet, mobile internet and SMS. In keeping with the latest technological trends, Just Dial has also launched its own mobile app for Android, IOS and blackberry.
According to CRISIL research, the business plan for Just Dial is stable and reliable as it is a negative working capital and a debt-free business model. Also, being the first mover in the niche and by having superiority in technology, databases and having a business model that is hard to replicate exactly, Just Dial is likely to remain the market leader in local search for quite some time to come.
Profit and Revenue:-
According to CRISIL research report, Just Dial has maintained an astounding 39% Compounded Annual Growth Rate (CAGR) over the last four year. Starting off with Rs. 50,000 investment in 1997, Just Dial's revenue grew from Revenues grew from Rs 85 lakh in March 1997 to Rs 200 crore in March 2011. For the nine months of FY13, Just Dial recorded revenues of Rs 271.6 crore and net profits of Rs 47 crore.
IPO:-
On March 20, 2013, Justdial had obtained approval from Securities and Exchange Board of India (SEBI) for its proposed Initial public offering (IPO).
Just Dial sold shares worth Rs. 950 crore in the IPO which was the largest sale by a domestic internet company in India. The IPO opened on 20 May 2013 with existing stakeholders selling nearly 17.5 million shares in a price band of Rs.470-543.
The public issue saw a sale of a 25.02% stake in Just Dial, valuing the company at between Rs.3,290 crore and Rs.3,800 crore.
Unlike previous public offers, Just Dial adopted a scheme "safety net" for retail investors proposed by the capital market regulator SEBI in 2012 where the company promoters assure that they will buy back shares from the retail applicants at the IPO price, if its stock falls sharply during the first six months after listing.
Citigroup Global Markets India Pvt. Ltd. And Morgan Stanley India Co. Pvt. Ltd. Managed the share sale for Just Dial IPO.
Just Dial is also the biggest success story over the past year in terms of stock market listing. Its initial public offering received bids for nearly 12 times the shares on sale. Despite stock market volatility and most investors sitting on the sidelines, the company made an impressive debut in June 2013. From its offer price of Rs 530 a share, the stock almost doubled to hit a record high of Rs 1,046.05 on October 7, 2013. Though the stock is off its peak now, the price rise has catapulted the company into the top 200 companies in the BT 500 listing - it's ranked 180.
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Share Price of Just Dial Stock since the Initial Public Offering
6th June 2013
July 2013
September 2013
November 2013
January 2014
February 2014
March 2014
3rd April 2014
605.1 686 767.05 1128.25 1547.65 1478.55 1630.35 1596.80
Just Dial plans post IPO:-
They believe that investment in brand building campaign will help us further strengthen our brand and lead to greater search volume from our users and greater number of paid advertisers.
Just Dial intends to further develop dedicated category portals to attract SMEs in particular businesses.
They are a local search player and there is no competition to talk about. We see huge opportunity in Online to offline.
Just Dial plans to expand our operations to other markets as opportunity rise by licensing the “Just Dial” brand and selling our rights and offering service arrangements to other parties to conduct these operations as we are doing in US and Canada.
Going public raises cash and provides many benefits for a company.
IPO is one of the forms of raising the capital and which is the effective one though it has defects.
Getting in on a hot IPO is very difficult, if not impossible. An IPO company is difficult to analyze because there isn't a lot of
historical info. Lock-up periods prevent insiders from selling their shares for a
certain period of time. The end of the lockup period can put strong downward pressure on a stock.
Road shows and red herrings are marketing events meant to get as much attention as possible. But one should not get influenced by the hype.
The valuation aspect of the IPO should also be taken into consideration while grading so that it can be of much use to the retail investors.
A few market factors such as liquidity in the market demand and supply of the scrip, market sentiment etc. should also be taken care of while grading an IPO.
BIBILIOGRAPHY Web Based
Invetopedia - www.invetopedia.com
Bombay Stock Exchange - www.bseindia.com
Just Dial - www.justdial.com
Wikipedia - www.wikipedia.com
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THANK YOU