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DRAFT RED HERRING PROSPECTUS
(This Draft Red Herring Prospectus will be updated upon filing with the RoC)
Please read Section 60B of the Companies Act, 1956
Book Building Issue
Dated November 01, 2012
SMC GLOBAL SECURITIES LIMITED
Our Company was incorporated in New Delhi on December 19, 1994 under the Companies Act, 1956, as amended (the “Companies Act”), as ‘SMC Global Securities Limited’, a public limited company.
Registered and Corporate Office: 11/6B, Shanti Chamber, Pusa Road, New Delhi 110 005, India Tel: +91 (11) 3011 1000 Fax: +91 (11) 2575 4365
For information on change in the registered office of our Company, see the section titled “History and Other Corporate Matters” on page 142.
Company Secretary and Compliance Officer: Mr. Suman Kumar Tel: +91 (11) 3011 1000 Fax: +91 (11) 2575 4365 E-mail: [email protected]
Website: www.smcindiaonline.com
PROMOTERS: MR. SUBHASH CHAND AGGARWAL, MR. MAHESH CHAND GUPTA, MS. SUSHMA GUPTA AND MR. DAMODAR KRISHAN AGGARWAL
FURTHER PUBLIC ISSUE OF 1,58,67,380 EQUITY SHARES OF FACE VALUE OF ` 2 EACH (“EQUITY SHARES”) OF SMC GLOBAL SECURITIES LIMITED (“SMC GLOBAL” OR “OUR COMPANY”) AGGREGATING ` [●] CRORE (HEREINAFTER REFERRED TO AS THE “ISSUE”). THE ISSUE COMPRISES A FRESH ISSUE OF 79,33,690 EQUITY SHARES BY OUR COMPANY (THE “FRESH ISSUE”) AND AN OFFER FOR SALE OF 79,33,690 EQUITY SHARES (THE “OFFER FOR SALE”) BY
MILLENNIUM INDIA ACQUISITION COMPANY INC. (THE “SELLING SHAREHOLDER”). THE ISSUE COMPRISES A NET ISSUE TO THE PUBLIC OF UP TO
1,45,98,000 EQUITY SHARES (“THE NET ISSUE”) AND A RESERVATION OF 6,34,690 EQUITY SHARES FOR SUBSCRIPTION BY ELIGIBLE EMPLOYEES (AS DEFINED HEREIN) (THE “EMPLOYEE RESERVATION PORTION”) AND 6,34,690 EQUITY SHARES FOR SUBSCRIPTION BY EXISTING RETAIL SHAREHOLDERS
OF OUR COMPANY (AS DEFINED HEREIN) (“SMC RETAIL SHAREHOLDER RESERVATION PORTION”). THE ISSUE WOULD CONSTITUTE 13.11% OF THE
POST ISSUE PAID-UP EQUITY CAPITAL OF OUR COMPANY AND THE NET ISSUE WOULD CONSTITUTE 92.00% OF THE ISSUE AND 12.06% OF THE POST
ISSUE PAID-UP EQUITY CAPITAL OF OUR COMPANY.
THE FACE VALUE OF THE EQUITY SHARE IS ` 2 EACH AND THE ISSUE PRICE IS [●] TIMES THE FACE VALUE.
THE PRICE BAND AND THE MINIMUM BID LOT WILL BE DECIDED BY OUR COMPANY AND THE SELLING SHAREHOLDER IN CONSULTATION WITH THE
BOOK RUNNING LEAD MANAGERS AND PUBLISHED ATLEAST ONE WORKING DAY PRIOR TO THE BID OPENING DATE, IN ONE HINDI NATIONAL DAILY
NEWSPAPER AND ONE ENGLISH NATIONAL DAILY NEWSPAPER, EACH WITH WIDE CIRCULATION (HINDI ALSO BEING THE REGIONAL LANGUAGE IN
THE STATE WHERE THE REGISTERED OFFICE IS LOCATED), WITH THE RELEVANT FINANCIAL RATIOS CALCULATED AT THE FLOOR PRICE AND AT THE
CAP PRICE. THE RELEVANT FINANCIAL RATIOS WILL ALSO BE DISCLOSED ON THE WEBSITES OF THE STOCK EXCHANGES (AS DEFINED BELOW) AND
SHALL ALSO BE PRE-FILLED IN THE APPLICATION FORMS AVAILABLE ON THE WEBSITES (WHERE AVAILABLE) OF THE STOCK EXCHANGES.
In case of revision in the Price Band, the Bidding Period will be extended for at least three additional Working Days after the revision of the Price Band subject to the Bidding Period not
exceeding 10 Working Days. Any revision in the Price Band and the revised Bidding Period, if applicable, will be widely disseminated by notification to the Stock Exchanges, by issuing a
press release, and also by indicating the change on the websites of the Book Running Lead Managers (“BRLMs”) and the Self Certified Syndicate Banks (“SCSBs”) and at the terminals of
the members of the Syndicate.
This Issue is being made through the Book Building Process where up to 50% of the Net Issue will be allocated on a proportionate basis to Qualified Institutional Buyers (“QIBs”) (“QIB
Portion”). Further, 5% of the QIB Portion will be available for allocation on a proportionate basis to Mutual Funds only. The remainder of the QIB Portion will be available for allocation on
a proportionate basis to QIBs including Mutual Funds, subject to valid Bids being received from them at or above the Issue Price. Not less than 15% of the Net Issue will be available for
allocation on a proportionate basis to Non-Institutional Bidders. Further, not less than 35% of the Net Issue will be available for allocation to Retail Bidders, subject to valid Bids being
received at or above the Issue Price, such that subject to availability of Equity Shares, a Retail Bidder is alloted not less than the Minimum Bid Lot, and the remaining Equity Shares, if
available, are alloted on a proportionate basis. Any Bidder may participate in this Issue through the ASBA process by providing the details of the ASBA Accounts in which the corresponding
Bid Amounts will be blocked by the SCSBs. For more information, specific attention is invited to the section titled “Issue Procedure” on page 397.
GENERAL RISKS
Investments in equity and equity-related securities involve a degree of risk and Bidders should not invest any funds in this Issue unless they can afford to take the risk of losing their
investment. Bidders are advised to read the Risk Factors carefully before making an investment decision in this Issue. For making an investment decision, Bidders must rely on their own
examination of our Company and this Issue, including the risks involved. The Equity Shares offered in this Issue have not been recommended or approved by the Securities and Exchange
Board of India (“SEBI”), nor does SEBI guarantee the accuracy or adequacy of this Draft Red Herring Prospectus. Specific attention of the Bidders is invited to the section titled “Risk
Factors” on page 13.
COMPANY’S AND THE SELLING SHAREHOLDER’S ABSOLUTE RESPONSIBILITY
Our Company, having made all reasonable inquiries, accepts responsibility for and confirms that this Draft Red Herring Prospectus contains all information with regard to our Company and
the Issue, which is material in the context of the Issue, that the information contained in this Draft Red Herring Prospectus is true and correct in all material aspects and is not misleading in
any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which make this Draft Red Herring Prospectus as a
whole or any of such information or the expression of any such opinions or intentions misleading in any material respect.
The Selling Shareholder having made all reasonable inquiries, accepts responsibility for and confirms the information relating to such Selling Shareholder contained in this Draft Red Herring
Prospectus is true and correct in all material aspects and is not misleading in any material respect.
LISTING
The Equity Shares of our Company are listed on the DSE, the LSE, the CSE, the ASE and the GSE and we propose to list our Equity Shares on the BSE and the NSE. We have received in-
principle approval from the DSE, the LSE, the CSE, the ASE, the GSE, the BSE and the NSE for the listing of the Equity Shares issued and transferred, as applicable, in the Issue pursuant to
letters dated [●] , [●] , [●] , [●] , [●] , [●] and [●] respectively. [●] is the Designated Stock Exchange.
BOOK RUNNING LEAD MANAGERS REGISTRAR TO THE ISSUE
Tata Securities Limited
One Forbes, Dr. V.B. Gandhi Marg,
Fort, Mumbai – 400 001
Tel: +91 (22) 6745 9000
Fax: +91 (22) 2261 8215
Email: [email protected]
Investor Grievance Email:
Website: www.tatacapital.com
Contact Person: Mr. Abhishek Jain
SEBI Registration No.: INM000011302
IL&FS Capital Advisors Limited
The IL&FS Financial Centre, 3rd Floor, Plot C-22, G
Block, Bandra Kurla Complex, Bandra (East)
Mumbai 400 051
Tel: +91 (22) 2659 3560
Fax: +91 (22) 2659 2966
Email: [email protected]
Investor Grievance Email:
Website: www.ilfscapital.com
Contact Person: Mr. Bhavin Ranawat / Mr. Ritesh Sapre
SEBI Registration No.: INM000011955
Link Intime India Private Limited
C-13, Pannalal Silk Mills Compound,
L.B.S Marg, Bhandup (West)
Mumbai 400 078, India
Tel: +91 (22) 2596 7878, 1-800-22-0878 (Toll Free)
Fax: +91 (22) 2596 0329
Email: [email protected]
Investor Grievance Email:
Website: www.linkintime.co.in
Contact Person: Mr. Sanjog Sud
SEBI Registration No: INR000004058
BID/ISSUE PROGRAM
BID OPENS ON [] [] BID CLOSES ON (FOR QIB BIDDERS)# []
BID CLOSES ON (FOR ALL OTHER BIDDERS) [] #Our Company and the Selling Shareholder in consultation with the BRLMs may consider closing the QIB Bidding Period a day before the Bid Closing Date for other
Bidders.
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TABLE OF CONTENTS
SECTION I – GENERAL .................................................................................................................................... 1
DEFINITIONS AND ABBREVIATIONS ......................................................................................................... 1 CERTAIN CONVENTIONS, USE OF FINANCIAL INFORMATION AND MARKET DATA AND
CURRENCY OF PRESENTATION .................................................................................................................. 9 FORWARD-LOOKING STATEMENTS ........................................................................................................ 12
SECTION II – RISK FACTORS ...................................................................................................................... 13
RISK FACTORS .............................................................................................................................................. 13
SECTION III – INTRODUCTION ................................................................................................................... 35
SUMMARY OF INDUSTRY ........................................................................................................................... 35 SUMMARY OF BUSINESS ............................................................................................................................ 38 SUMMARY FINANCIAL INFORMATION ................................................................................................... 44 THE ISSUE ...................................................................................................................................................... 55 GENERAL INFORMATION ........................................................................................................................... 56 CAPITAL STRUCTURE ................................................................................................................................. 68
SECTION IV – PARTICULARS OF THE ISSUE .......................................................................................... 88
OBJECTS OF THE ISSUE ............................................................................................................................... 88 BASIS OF ISSUE PRICE ................................................................................................................................. 95 STATEMENT OF TAX BENEFITS ................................................................................................................ 98
SECTION V – ABOUT US .............................................................................................................................. 108
INDUSTRY OVERVIEW .............................................................................................................................. 108 OUR BUSINESS ............................................................................................................................................ 119 KEY INDUSTRY REGULATIONS .............................................................................................................. 131 HISTORY AND OTHER CORPORATE MATTERS .................................................................................... 142 OUR MANAGEMENT .................................................................................................................................. 155 PROMOTER AND GROUP COMPANIES ................................................................................................... 170 DIVIDEND POLICY ..................................................................................................................................... 181
SECTION VI – FINANCIAL INFORMATION ............................................................................................ 182
FINANCIAL STATEMENTS ........................................................................................................................ 182 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.................................................................................................................................................. 286 MARKET PRICE INFORMATION ............................................................................................................... 313 FINANCIAL INDEBTEDNESS .................................................................................................................... 314
SECTION VII – LEGAL AND OTHER INFORMATION .......................................................................... 318
OUTSTANDING LITIGATION AND MATERIAL DEVELOPMENTS ..................................................... 318 GOVERNMENT AND OTHER APPROVALS ............................................................................................. 353 OTHER REGULATORY AND STATUTORY DISCLOSURES .................................................................. 374
SECTION VIII – OFFERING INFORMATION .......................................................................................... 387
TERMS OF THE ISSUE ................................................................................................................................ 387 ISSUE STRUCTURE ..................................................................................................................................... 391 ISSUE PROCEDURE ..................................................................................................................................... 397 MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION .................................................................. 431 MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ........................................................ 475
DECLARATION .............................................................................................................................................. 477
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SECTION I – GENERAL
DEFINITIONS AND ABBREVIATIONS
Unless the context otherwise indicates or implies, the following terms have the following meanings in this Draft
Red Herring Prospectus, and references to any statute or regulations or policies will include any amendments or
re-enactments thereto, from time to time.
Company Related Terms
Term Description
“SMC Global”, “the
Company” and “Our
Company”
SMC Global Securities Limited, a public limited company incorporated under the
Companies Act with its registered office at 11/6B, Shanti Chamber, Pusa Road,
New Delhi 110 005, India
AoA/Articles of
Association or Articles
The articles of association of our Company, as amended from time to time
Audit Committee The audit committee of the Board of Directors described in the section titled “Our
Management” on page 170
Auditors The statutory auditors of our Company, being M/s. Atul & Rajinder, Chartered
Accountants
Board or Board of
Directors
The board of Directors of our Company
Director(s) The directors of our Company
MoA/Memorandum of
Association
The memorandum of association of our Company, as amended from time to time
Promoter Mr. Subhash Chand Aggarwal, Mr. Mahesh Chand Gupta, Ms. Sushma Gupta and
Mr. Damodar Krishan Aggarwal
Promoter Group Unless the context otherwise requires, refers to such persons and entities
constituting the promoter group of our Company, in terms of regulation 2(1)(zb) of
the SEBI Regulations and mentioned in the section titled “Promoter and Group
Companies” on page 170
Registered Office The registered office of our Company situated at 11/6B, Shanti Chamber, Pusa
Road, New Delhi 110 005, India
Selling Shareholder Millennium India Acquisition Company Inc.
Subsidiaries SMC Capitals Limited, SMC Comtrade Limited, SMC Insurance Brokers Private
Limited, SMC Comex International DMCC, Moneywise Financial Services Private
Limited, SMC ARC Limited, SMC Investments and Advisors Limited, SMC
Finvest Limited, Moneywise Finvest Limited
“We” or “us” or “our” Our Company and where the context requires, the Subsidiaries on a consolidated
basis
Issue Related Terms
Term Description
Allotted/Allotment/Allot Unless the context otherwise requires, means the allotment of Equity Shares
pursuant to the Fresh Issue and the transfer of the Equity Shares pursuant to Offer
for Sale to successful Bidders pursuant to this Issue
Allottee A successful Bidder to whom the Equity Shares are Allotted
Allotment Advice Note or advice or intimation of Allotment sent to the Bidders after the Basis of
Allotment has been approved by the Designated Stock Exchange
Application Supported
by Blocked
Amount/ASBA
Application (whether physical or electronic) used by a Bidder to make a Bid
authorizing the SCSB to block the Bid Amount in the specified bank account
maintained with the SCSB. ASBA is mandatory for QIBs and Non Institutional
Bidders participating in the Issue
ASBA Account An Account maintained with an SCSB and specified in the Bid cum Application
Form submitted by ASBA Bidders for blocking the amount mentioned in the Bid
cum Application Form
ASBA Bid A Bid made by an ASBA Bidder
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Term Description
ASBA Bidder Any Bidder who Bids through ASBA
Bankers to the
Issue/Escrow Collection
Banks
The banks which are clearing members and registered with SEBI as bankers to an
issue and with whom the Escrow Account will be opened, in this case being [●]
Basis of Allotment The basis on which the Equity Shares will be Allotted to the successful Bidders
under the Issue, as described in the section titled “Issue Procedure – Basis of
Allotment” on page 410
Bid An indication to make an offer during the Bid/Issue Period by a Bidder pursuant to
submission of the Bid cum Application Form, to subscribe to or purchase the Equity
Shares of our Company at a price within the Price Band, including all revisions and
modifications thereto
Bid Amount The highest value of the optional Bids indicated in the Bid cum Application Form
and payable by the Bidder upon submission of the Bid.
Bid/Issue Closing Date The date after which the members of the Syndicate and SCSBs will not accept any
Bids. Such date shall be notified in an English national daily newspaper, a Hindi
national daily newspaper, each with wide circulation (Hindi also being the regional
language in the state where the Registered Office is located) and in case of any
revision, the extended Bid Closing Date shall also be notified on the website and
terminals of the Syndicate and SCSBs. Our Company and the Selling Shareholder in
consultation with the BRLMs may consider closing QIB Bidding Period a day
before the Bid Closing Date.
Bidding Centre / Bidding
Location
A centre for acceptance of the Bid cum Application Form.
Bid cum Application
Form
The form used by a Bidder, including an ASBA Bidder, to make a Bid and which
will be considered as the application for Allotment in terms of the Red Herring
Prospectus
Bidder Any prospective investor who makes a Bid pursuant to the terms of the Red Herring
Prospectus and the Bid cum Application Form, including an ASBA Bidder
Bid Lot [●]
Bid/Issue Period The period between the Bid Opening Date and the Bid Closing Date, inclusive of
both days, during which prospective Bidders can submit their Bids, including any
revisions thereof
Bid Opening Date The date on which the members of the Syndicate and SCSBs shall start accepting
Bids. Such date shall be notified in an English national daily newspaper, a Hindi
national daily newspaper, each with wide circulation (Hindi also being the regional
language in the state where the Registered Office is located).
Book Building Process The method of book building as described in Part A of Schedule XI of the SEBI
Regulations, in terms of which the Issue is being made
Book Running Lead
Managers / BRLMs
The book running lead managers to the Issue, in this case being Tata Securities
Limited and IL&FS Capital Advisors Limited
Cap Price Higher end of the Price Band, including revisions thereof, above which the Issue
Price will not be determined and above which no Bids will be accepted
Controlling Branches of
the SCSBs
Such branches of the SCSBs which coordinate Bids under the Issue by the ASBA
Bidders with the Registrar to the Issue and the Stock Exchanges, a list of which is
available on the SEBI website
Cut-off Price The Issue Price which will be any price within the Price Band. Only Retail Bidders,
Eligible Employees and SMC Retail Shareholders, whose Bid Amount does not
exceed ` 200,000 are entitled to Bid at the Cut-off Price. QIBs and Non-Institutional Bidders are not entitled to Bid at the Cut-off Price
Designated Branches Such branches of the SCSBs which will collect the Bid cum Application Form used
by ASBA Bidders, a list of which is available on
http://www.sebi.gov.in/pmd/scsb.html or at such other website which may be
prescribed by SEBI from time to time
Designated Date The date on which funds are transferred from the Escrow Accounts to the Public
Issue Account and the Registrar to Issue issues instructions to SCSBs for transfer of
funds from ASBA Accounts to the Public Issue Account in terms of the Red Herring
Prospectus
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Term Description
Designated Stock
Exchange
[●]
“Draft Red Herring
Prospectus” or “DRHP”
This draft red herring prospectus dated November 01, 2012, filed with SEBI,
prepared and issued in accordance with the SEBI Regulations, which does not
contain complete particulars of the price at which the Equity Shares will be Allotted
and the size of the Issue
Eligible Employee A permanent and full-time employee of our Company and/or its Subsidiaries
(excluding the Directors and such other persons not eligible under applicable laws,
rules, regulations and guidelines), who are Indian nationals based, working and
present in India as on the date of submission of the Bid cum application Form and
does not include Promoters and immediate relatives of Promoters (i.e. any spouse of
that person, or any parent, brother, sister or child of that person or of the spouse)
Eligible NRI A NRI resident in a jurisdiction outside India where it is not unlawful to make an
offer or invitation under the Issue and in relation to whom the Red Herring
Prospectus constitutes an invitation to subscribe to Equity Shares
Eligible QFIs QFIs from such jurisdictions outside India where it is not unlawful to make an offer
or invitation under the Issue and in relation to whom the Red Herring Prospectus
constitutes an invitation to purchase the Equity Shares offered thereby and who have
opened demat accounts with SEBI registered qualified depositary participants
Employee Reservation
Portion
The portion of the Issue, being 6,34,690 Equity Shares, available for allocation to
Eligible Employees.
Equity Listing
Agreement(s)
Equity listing agreement(s) entered into by our Company with the Stock Exchanges,
including all amendments made thereto from time to time.
Equity Share(s) Equity shares of our Company with a face value of ` 2 each. Escrow Account(s) Accounts opened with the Escrow Collection Banks for the Issue and in whose
favour the Bidders (excluding ASBA Bidders) will issue cheques or drafts in respect
of the Bid Amount
Escrow Agreement The agreement to be entered into amongst our Company, the Selling Shareholder,
the Registrar, the members of the Syndicate and the Escrow Collection Banks for
collection of the Bid Amounts and remitting refunds, if any, of the amounts to the
Bidders (excluding ASBA Bidders) on the terms and conditions thereof
First Bidder The Bidder whose name appears first in the Bid cum Application Form or the
Revision Form as the case may be
Floor Price Lower end of the Price Band and any revisions thereof, below which the Issue Price
will not be finalized and no Bids will be accepted
Fresh Issue The fresh issue of 79,33,690 Equity Shares aggregating up to ` [●] crore by our Company
IL&FS Capital IL&FS Capital Advisors Limited
Issue Further public issue by our Company of 1,58,67,380 Equity Shares for cash at a
price of ` [●] aggregating to ` [●] Crore comprising of the Fresh Issue and the Offer for Sale
Issue Agreement The agreement dated October 19, 2012 entered into amongst our Company, the
Selling Shareholder and the BRLMs pursuant to which certain arrangements are
agreed to in relation to the Issue
Issue Price The final price at which Equity Shares will be Allotted in terms of the Red Herring
Prospectus. The Issue Price will be decided by our Company and the Selling
Shareholder in consultation with the BRLMs on the Pricing Date
Issue Proceeds The proceeds of the Issue that is available to our Company and the Selling
Shareholder
Mutual Funds Mutual funds registered with SEBI under the SEBI (Mutual Funds) Regulations,
1996, as amended
Mutual Funds Portion 5% of the QIB Portion equal to a minimum of 3,64,950 Equity Shares available for
allocation to Mutual Funds only, out of the QIB Portion on a proportionate basis
Net Issue Issue less the Employees Reservation Portion, and SMC Retail Shareholder
Reservation Portion consisting of 1,45,98,000 Equity Shares to be Allotted
Net Proceeds The Proceeds from Fresh Issue after deducting the proportionate underwriting and
Issue management fee, selling commissions and other Issue expenses associated
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Term Description
with the Fresh Issue
Non-Institutional Bidders All Bidders, that are not QIBs, Retail Bidders, Eligible Employees and SMC Retail
Shareholders and who have Bid for Equity Shares for an amount more than ` 2,00,000 (but not including NRIs other than Eligible NRIs)
Non-Institutional Portion The portion of the Issue, being not less than 15% of the Net Issue or 21,89,700
Equity Shares, available for allocation to Non-Institutional Bidders
Non-Resident A person resident outside India, as defined under FEMA and includes a Non-
Resident Indian and FIIs registered with SEBI
Non-Resident Indian or
NRI
A person resident outside India, who is a citizen of India or a person of Indian origin
and will have the same meaning as ascribed to such term in the Foreign Exchange
Management (Deposit) Regulations, 2000, as amended
Offer for Sale Offer for sale of 79,33,690 Equity Shares by the Selling Shareholder
Price Band Price band of a minimum price (Floor Price) of ` [●] and a maximum price (Cap Price) of ` [●], including revisions thereof. The Price Band for the Issue will be decided by the Company and the Selling Shareholder, in consultation with the
BRLMs and advertised in an English national daily newspaper, a Hindi national
daily newspaper, each with wide circulation (Hindi also being the regional language
in the state where the Registered Office is located) at least one Working Day prior
to the Bid Opening Date, with the relevant financial ratios calculated at the Floor
Price and at the Cap Price
Pricing Date The date on which our Company and the Selling Shareholder, in consultation with
the BRLMs will finalize the Issue Price
Prospectus The Prospectus to be filed with the RoC in terms of Section 60 of the Companies
Act and SEBI Regulations, containing, among other things, the Issue Price that is
determined at the end of the Book Building Process, the size of the Issue and certain
other information and including any addenda or corrigenda thereof
Public Issue Account The bank account to be opened with the Bankers to the Issue to receive monies from
the Escrow Account(s) and the ASBA Accounts, on the Designated Date
Qualified Foreign
Investors or QFIs
Non-resident investors, other than SEBI registered FIIs or sub-accounts or SEBI
registered FVCIs, who meet ‘know your client’ requirements prescribed by SEBI
and are resident in a country which is (i) a member of Financial Action Task Force
or a member of a group which is a member of Financial Action Task Force; and (ii)
a signatory to the International Organisation of Securities Commission’s
Multilateral Memorandum of Understanding or a signatory of a bilateral
memorandum of understanding with SEBI.
Provided that such non-resident investor shall not be resident in a country which is
listed in the public statements issued by Financial Action Task Force from time to
time on: (i) jurisdictions having a strategic anti-money laundering/combating the
financing of terrorism deficiencies to which counter measures apply; and (ii)
jurisdictions that have not made sufficient progress in addressing the deficiencies or
have not committed to an action plan developed with the Financial Action Task
Force to address the deficiencies.
Qualified Institutional
Buyers or QIBs
Shall mean a mutual fund, venture capital fund and foreign venture capital investor
registered with the Board, a foreign institutional investor and sub-account (other
than a sub-account which is a foreign corporate or foreign individual), registered
with the Board, a public financial institution as defined in section 4A of the
Companies Act, 1956, a scheduled commercial bank, a multilateral and bilateral
development financial institution, a state industrial development corporation, an
insurance company registered with the Insurance Regulatory and Development
Authority, a provident fund with minimum corpus of ` 25 crore rupees, a pension fund with minimum corpus of ` 25 crore, National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of the Government
of India published in the Gazette of India, insurance funds set up and managed by
army, navy or air force of the Union of India, insurance funds set up and managed
by the Department of Posts, India
QIB Portion The portion of the Issue being up to 50% of the Net Issue or 72,99,000 Equity
Shares to be Allotted to QIBs, on a proportionate basis
Red Herring Prospectus The red herring prospectus to be issued in accordance with Section 60B of the
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Term Description
or RHP Companies Act and the SEBI ICDR Regulations
Refund Accounts Account(s) opened with Refund Bank(s) from which refunds of the whole or part of
the Bid Amount (excluding the ASBA Bidders), if any, will be made
Refund Bank(s) Escrow Collection Bank(s) with which Refund Account(s) are opened in this case
being, [●]
Registrar to the
Issue/Registrar
Link Intime India Private Limited
Registrar’s Agreement The agreement dated October 16, 2012 entered into amongst our Company, the
Selling Shareholder and the Registrar to the Issue pursuant to which certain
arrangements are agreed to in relation to the Issue
Retail Bidders Bidders (including HUFs and Eligible NRIs), other than Eligible Employees
submitting Bids under the Employee Reservation Portion and SMC Retail
Shareholders submitting Bids under the SMC Retail Shareholder Portion, who have
Bid for Equity Shares for an amount less than or equal to ` 200,000 in any of the bidding options in the Net Issue
Retail Portion The portion of the Net Issue, being not less than 35% of the Net Issue, or 51,09,300
Equity Shares at the Issue Price, available for allocation to Retail Bidders
SMC Retail Shareholders Individuals and HUFs who are equity shareholders of our Company (excluding such
other persons not eligible under applicable laws, rules, regulations and guidelines)
as at the date of the Red Herring Prospectus
SMC Retail Shareholder
Reservation Portion
The portion of the Issue, being 6,34,690 Equity Shares, available for allocation to
SMC Retail Shareholders.
Revision Form The form used by the Bidders, including the ASBA Bidders, to modify the quantity
of Equity Shares or the price options, as applicable, in any of their Bid cum
Application Forms or any previous Revision Form(s).
Self-Certified Syndicate
Bank or SCSB
Banks which are registered with SEBI under the SEBI (Bankers to an Issue)
Regulations, 1994, as amended and offer services of ASBA, including blocking of
ASBA Accounts, a list of which is available on
http://www.sebi.gov.in/pmd/scsb.html
Specified Cities Cities specified in the SEBI circular no. CIR/CFD/DIL/1/2011 dated April 29, 2011,
namely, Mumbai, Chennai, Kolkata, Delhi, Ahmedabad, Rajkot, Jaipur, Bengaluru,
Hyderabad, Pune, Baroda and Surat
Stock Exchanges Refers collectively to the Delhi Stock Exchange Limited (DSE), Ludhiana Stock
Exchange Limited (LSE), Calcutta Stock Exchange Limited (CSE), Ahmedabad
Stock Exchange Limited (ASE), the Guwahati Stock Exchange Limited (GSE), the
BSE Limited (BSE) and the National Stock Exchange of India Limited (NSE)
Syndicate Collectively, the BRLMs and the Syndicate Members
Syndicate Agreement The agreement to be entered into amongst the Syndicate, the Selling Shareholder
and our Company in relation to the collection of Bids (excluding Bids from the
ASBA Bidders) in this Issue
Syndicate Members [●]
Tata Securities / TSL Tata Securities Limited
Transaction Registration
Slip or TRS
The slip or document issued by the Syndicate, or the SCSB (only on demand), as the
case may be, to the Bidder as proof of registration of the Bid
Underwriters The BRLMs and the Syndicate Members
Underwriting Agreement The Agreement between the Underwriters, the Registrar, our Company and the
Selling Shareholder to be entered into, on or after the Pricing Date
Working Day Any day, other than Saturdays and Sundays, on which commercial banks in Mumbai
are open for business, provided however, for the purpose of the time period between
the Bid/Issue Closing Date and listing of the Equity Shares on the Stock Exchanges,
“Working Days” shall mean all days excluding Sundays and bank holidays in Delhi
or Mumbai in accordance with the SEBI circular no. CIR/CFD/DIL/3/2010 dated
April 22, 2010
Conventional and General Terms/ Abbreviations and References to Other Business Entities
Term Description
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6
Term Description
Act or Companies Act Companies Act, 1956, as amended
BAN Beneficiary account number
BSE The BSE Limited
CAGR Compounded annual growth rate
CDSL Central Depository Services (India) Limited
CLB Company Law Board
Competition Act The Competition Act, 2002, as amended
Competition
Commission
Competition Commission of India
CSR Corporate social responsibility
Depositories NSDL and CDSL
Depositories Act SEBI Depositories Act, 1996, as amended
Depository Participant or
DP
A depository participant as defined under the Depositories Act
DGCX Dubai Gold and Commodities Exchange DMCC
DP ID Depository participant’s identity
DTC Bill The Direct Tax Code Bill, 2010
EBITDA Earnings before interest, taxes, depreciation and amortization
ECS Electronic clearing service
EGM Extraordinary general meeting of the shareholders of a company
EPF Act Employees (Provident Fund and Miscellaneous Provisions) Act, 1952, as amended
EPS Earnings per share
FCNR Account Foreign currency non-resident account established in accordance with the FEMA
FDI Foreign direct investment
FEMA Foreign Exchange Management Act, 1999, as amended, together with rules and
regulations thereunder
FIIs Foreign institutional investors (as defined under the Securities and Exchange Board
of India (Foreign Institutional Investors) Regulations, 1995) registered with SEBI
FIPB Foreign investment promotion board
Fiscal or fiscal or
Financial Year or FY
A period of twelve months ended March 31 of that particular year, unless otherwise
stated.
FPO Further public offering
GIR No General index register number
GoI or Government Government of India
HR Human resources
HUF Hindu undivided family
ID Act Industrial Disputes Act, 1947, as amended
IFRS International financial reporting standards
Income Tax Act or I.T.
Act
Income Tax Act, 1961, as amended
Indian GAAP Generally accepted accounting principles in India
Industrial Policy The policy and guidelines relating to industrial activity in India, issued by the GoI
from time to time
Insurance Regulatory
and Development
Authority or IRDA
Statutory body constituted under the Insurance Regulatory and Development
Authority Act, 1999, as amended
MCA Ministry of Corporate Affairs, GoI
MCX Multi Commodity Exchange of India Limited
MCX-SX MCX Stock Exchange Limited
Minimum Wages Act Minimum Wages Act, 1948, as amended
MoU Memorandum of understanding
N/A Not applicable
NBFC Non-banking financial company
NEFT National electronic fund transfer
Non-Resident or NR A person resident outside India, as defined under the FEMA and includes a non-
resident Indian
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7
Term Description
NRE Account Non-Resident external account established in accordance with the FEMA
NRO Account Non-Resident ordinary account established in accordance with the FEMA
NSDL National Securities Depository Limited
NSE National Stock Exchange of India Limited
OCB A company, partnership, society or other corporate body owned directly or
indirectly to the extent of at least 60% by NRIs including overseas trusts in which
not less than 60% of the beneficial interest is irrevocably held by NRIs directly or
indirectly and which was in existence on October 3, 2003 and immediately before
such date was eligible to undertake transactions pursuant to the general permission
granted to OCBs under the FEMA. OCBs are not allowed to invest in this Issue.
PAN Permanent account number allotted under the I.T. Act
Preference Shares Preference Shares of our Company of ` 10 each RBI Reserve Bank of India
Re. One Indian rupee
Regulation S Regulation S of the U.S. Securities Act, 1933
RoC Registrar of Companies, National Capital Territory Delhi and Haryana
` / INR / Rupees/ Rs. Indian rupees
RTGS Real time gross settlement
RTI Right to information
SCRA Securities Contract (Regulations) Act, 1956, as amended
SCRR Securities Contracts (Regulation) Rules, 1957, as amended
SEBI Securities and Exchange Board of India constituted under the SEBI Act
SEBI Act Securities and Exchange Board of India Act, 1992, as amended
SEBI Insider Trading
Regulations
SEBI (Prohibition of Insider Trading) Regulations, 1992, as amended
SEBI Regulations SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, as
amended
STT Securities transaction tax
Supreme Court Supreme Court of India
US GAAP or U.S.
GAAP
Generally accepted accounting principles in the United States of America
U.S. Securities Act U.S. Securities Act of 1933, as amended
wef. With effect from
Industry/ Business Related Terms
Term Description
AMC Asset Management Company
AMFI Association of Mutual Funds of India
Commodities Segment An exchange for buying and selling of commodities for future delivery
Currency Segment Market where currency futures are traded
Derivatives Derivative is a financial product which derives its value from an underlying asset
(either financial or physical) on which it is based. The underlying asset can be
equity, currency, commodity or any other derivative
Equities (Cash) Segment Market where equities are traded and settlements are done in cash
Equities (Derivatives)
Segment
Markets where derivatives based on equities are traded; such derivatives are
typically futures contracts and options
Extreme Loss Margin Margins collected to cover losses than could occur outside the coverage of VaR
margins; fixed at the beginning of the month
F&O Futures and Options
Fixed Income Securities Debt instruments issued typically by corporate, Central and State governments,
public bodies, statutory corporations, banks, financial institutions, and other
corporate bodies. Typically such instruments pay a constant coupon and thus are
called fixed-income instruments
FPO Further (Follow-On) Public Offer
Futures Contract A standardised contract to buy or sell a specified security (also, commodity with
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8
Term Description
specific characteristics) in the future on a certain date at a market-determined price
(futures price). These contracts are traded on the futures exchange
FX / Foreign Exchange
Segment
Markets where foreign exchange (or currency or forex) is traded
FMC Forward Market Commission
HNI High Net worth Individual
IP Intellectual Property
IPR Intellectual Property Rights
IRDA Insurance Regulatory and Development Authority
IS Information System
Mark-to-Market Margin Margin requirement that triggers when the transaction price of a security differs
from its closing price on a particular day
M-Cap / Market
Capitalisation
Number of securities outstanding multiplied by the price of one unit of the security
Options Contract A financial product which provides a right, but not an obligation, to buy or sell an
asset or a derivative on an asset at a specified price during a specified period of time
OTC Market An over-the-counter contract is a bilateral contract in which two parties agree on
how a particular trade or agreement is to be settled in the future
OTCEI OTC Exchange of India
PE Private Equity; Investment made by a fund through equity or convertible
instruments in a company
PMS Portfolio Management Services
Portfolio Manager A portfolio manager as defined under the SEBI (portfolio Managers) Regulations,
1993, as amended
SENSEX BSE Sensitive Index
SPAN Standard Portfolio Analysis of Risk; a method of calculating initial margins
Strike Price The fixed price at which an option contract owner can purchase/sell the underlying
asset
STT Securities Transaction Tax
TWS Trading Working Station
VaR Margin Value at Risk Margin; margin collected upfront and intended to cover largest loss
scenario
VSAT Very Small Aperture Terminal
Wholesale Debt Market A market for the issuance, trading and settlement in fixed income securities of
various types
The words and expressions used but not defined in this Draft Red Herring Prospectus will have the meaning
assigned to such terms under the Companies Act, SEBI Act, the SCRA, the Depositories Act and the rules and
regulations thereunder.
Notwithstanding the foregoing, terms in the sections titled “Main Provisions of Articles of Association”,
“Statement of Tax Benefits”, “Key Industry Regulations”, “Financial Statements” and “Outstanding Litigation
and Material Developments” on pages 431, 98, 131, 182 and 318 in this Draft Red Herring Prospectus
respectively, will have the same meaning given to such terms in these respective sections.
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9
CERTAIN CONVENTIONS, USE OF FINANCIAL INFORMATION AND MARKET DATA AND
CURRENCY OF PRESENTATION
Certain Conventions
Unless otherwise specified or the context otherwise requires, all references to “India” in this DRHP are to the
Republic of India, together with its territories and possessions, and all references to the “US”, the “USA”, the
“United States” or the “U.S.” are to the United States of America, together with its territories and possessions.
Unless the context otherwise requires, a reference to the "Company" is a reference to SMC Global Securities
Limited and unless the context otherwise requires, a reference to "we", "us" and "our" refers to SMC Global
Securities Limited and its subsidiaries, as applicable in the relevant fiscal period, on a consolidated basis.
Financial Information
In this Draft Red Herring Prospectus, we have included (i) the audited restated unconsolidated financial
statements for fiscal 2008, 2009, 2010, 2011, 2012 and for the four months ended July 31, 2012; (ii) the audited
restated consolidated financial statements for fiscal 2008, 2009, 2010, 2011, 2012 and for the four months ended
July 31, 2012; and (iii) the unaudited unconsolidated/consolidated limited review financial statements for the
quarter ended September 30, 2012 and the six month-period ended September 30, 2012. These financial
statements except listed at (iii) above, are based on the audited standalone and consolidated financial statements
for such respective periods, which have been prepared in accordance with the Companies Act and Indian GAAP
and have been restated in accordance with the SEBI Regulations.
The fiscal year commences on April 1 and ends on March 31, and unless otherwise specified or the context
otherwise requires, all references to a particular fiscal year are to the twelve-month period ended March 31 of
that year.
Indian GAAP differs in certain material respects from U.S. GAAP and IFRS. We have not attempted to quantify
the impact of IFRS or U.S. GAAP on the financial data included in this Draft Red Herring Prospectus, nor do
we provide a reconciliation of the financial statements to those under U.S. GAAP or IFRS. Accordingly, the
degree to which the financial information prepared in accordance with Indian GAAP, Companies Act and the
SEBI Regulations included in this Draft Red Herring Prospectus will provide meaningful information is entirely
dependent on the reader’s level of familiarity with Indian accounting standards and accounting practices, Indian
GAAP, the Companies Act and the SEBI Regulations. See the section titled “Risk Factors – The proposed
adoption of IFRS could result in the financial condition and results of operations appearing materially different
than under Indian GAAP.” on page 28. Any reliance by persons not familiar with Indian accounting practices,
Indian GAAP, the Companies Act and the SEBI Regulations on the financial disclosures presented in this Draft
Red Herring Prospectus should accordingly be limited. In making an investment decision, investors must rely
upon their own examination of our Company, the terms of the Issue and the financial information relating to our
Company. Potential investors should consult their own professional advisors for an understanding of these
differences between Indian GAAP and IFRS or U.S. GAAP, and how such differences might affect the financial
information contained herein.
Currency and Units of Presentation
All references to “Rupees”, or “`” or “Rs.” are to Indian Rupees, the official currency of the Republic of India. All references to “US$” or “USD” or “U.S. Dollar” are to United States Dollars, the official currency of the
United States of America. All references to “AED” are to United Arab Emirates Dirham, the official currency of
the United Arab Emirates. In this Draft Red Herring Prospectus, any discrepancies in any table between the total
and the sums of the amounts listed therein are due to rounding-off. All figures mentioned in this Draft Red
Herring Prospectus are denominated in crore, unless otherwise specified.
Industry and Market Data
Unless stated otherwise, industry and market data used throughout this Draft Red Herring Prospectus have been
derived from industry publications. Industry publications generally state that the information contained in those
publications has been obtained from sources believed to be reliable but that their accuracy and completeness are
not guaranteed and their reliability cannot be assured. Although we believe that the industry and market data
used in this Draft Red Herring Prospectus is reliable, neither we nor the Selling Shareholder nor the BRLMs nor
any of their respective affiliates nor advisors have prepared or verified it independently. The extent to which the
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10
market and industry data used in this Draft Red Herring Prospectus is meaningful depends on the reader’s
familiarity with and understanding of the methodologies used in compiling such data.
Such data involves risks, uncertainties and numerous assumptions and is subject to change based on various
factors, including those discussed in the section titled “Risk Factors” on page 13. Accordingly, investment
decisions should not be based on such information.
In accordance with the SEBI Regulations, we have included in the section titled “Basis for the Issue Price” on
page 95, information pertaining to the peer group companies of our Company. Such information has been
derived from publicly available annual reports of the peer group companies.
Exchange Rates
This Draft Red Herring Prospectus contains translations of U.S. Dollar and other currency amounts into Indian
Rupees that have been presented solely to comply with the requirements of item (VIII) sub-item (G) of Part A of
Schedule VIII of the SEBI Regulations. It should not be construed as a representation that such currency
amounts could have been, or can be converted into Indian Rupees, at any particular rate or at all.
The exchange rates of the USD and AED into Indian Rupees for the last five Financial Years i.e. 2008, 2009,
2010, 2011 and 2012 and on monthly basis commencing from September, 2011 up till September 2012 are
provided below.
USD - INR
Fiscal Year Year/ Month
End
Average Low High
2008 49.75 43.48 39.22 53.76
2009 46.95 48.78 46.08 52.91
2010 45.45 45.87 44.05 47.62
2011 54.64 47.17 44.25 55.25
2012 54.05 53.48 49.26 57.47
Month
Sep-11 49.75 48.08 45.87 50.51
Oct-11 49.50 50.00 49.26 51.02
Nov-11 52.36 51.02 49.26 52.91
Dec-11 54.64 53.48 51.55 55.25
Jan-12 50.25 52.36 50.25 54.64
Feb-12 49.50 49.75 49.26 50.51
Mar-12 52.08 51.02 49.26 52.63
Apr-12 53.48 52.63 51.55 53.48
May-12 56.50 54.95 53.19 56.50
Jun-12 56.18 56.18 55.25 57.47
Jul-12 55.25 55.56 54.64 56.18
Aug-12 55.56 55.56 54.95 55.87
Sep-12 52.91 54.35 52.63 55.87
Source: Oanda
AED - INR
Fiscal Year Year/ Month
End
Average Low High
2008 13.55 11.83 10.70 14.64
2009 12.77 13.30 12.55 14.41
2010 12.41 12.50 12.00 12.99
2011 14.84 12.82 12.06 15.04
2012 14.71 14.56 13.42 15.67
Month
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11
Fiscal Year Year/ Month
End
Average Low High
Sep-11 13.55 13.07 12.52 13.76
Oct-11 13.46 13.61 13.42 13.87
Nov-11 14.22 13.91 13.40 14.43
Dec-11 14.88 14.53 14.03 15.04
Jan-12 13.70 14.25 13.66 14.93
Feb-12 13.48 13.55 13.44 13.77
Mar-12 14.18 13.91 13.42 14.33
Apr-12 14.60 14.33 14.04 14.60
May-12 15.36 14.93 14.49 15.36
Jun-12 15.31 15.31 15.02 15.67
Jul-12 15.08 15.08 14.84 15.31
Aug-12 15.15 15.13 15.02 15.22
Sep-12 14.37 14.81 14.33 15.20
Source: Oanda
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12
FORWARD-LOOKING STATEMENTS
All statements contained in this Draft Red Herring Prospectus that are not statements of historical facts
constitute “forward-looking statements”. Investors can generally identify forward-looking statements by
terminology such as “aim”, “anticipate”, “believe”, “continue”, “estimate”, “expect”, “intend”, “may”,
“objective”, “plan”, “potential”, “project”, “pursue”, “should”, “will”, “would”, or other words or phrases of
similar import. Similarly, statements that describe the strategies, objectives, plans or goals are also forward-
looking statements.
All statements regarding the expected financial condition and results of operations, business, plans and
prospects are forward-looking statements. These forward-looking statements include statements as to the
business strategy, the revenue, profitability, planned initiatives. These forward-looking statements and any other
projections contained in this Draft Red Herring Prospectus (whether made by us or any third party) are
predictions and involve known and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements or other projections. Important factors
that could cause actual results, performance or achievements to differ materially include, but are not limited to,
those discussed under the sections titled “Risk Factors”, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”, “Industry Overview” and “Our Business” on pages 13, 286, 108 and 119
of this Draft Red Herring Prospectus respectively.
The forward-looking statements contained in this Draft Red Herring Prospectus are based on the beliefs of our
management, as well as the assumptions made by and information currently available to our management.
Although we believe that the expectations reflected in such forward-looking statements are reasonable at this
time, we cannot assure investors that such expectations will prove to be correct. Given these uncertainties,
investors are cautioned not to place undue reliance on such forward-looking statements. If any of these risks and
uncertainties materialize, or if any of the underlying assumptions prove to be incorrect, the actual results of
operations or financial condition could differ materially from that described herein as anticipated, believed,
estimated or expected. All subsequent written and oral forward-looking statements attributable to us are
expressly qualified in their entirety by reference to these cautionary statements.
By their nature, certain market risk disclosures are only estimates and could be materially different from what
actually occurs in the future. As a result, actual future gains or losses could materially differ from those that
have been estimated. Our Company, the Selling Shareholder, the BRLMs, the Syndicate Members or their
respective affiliates do not have any obligation to, and do not intend to, update or otherwise revise any
statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying
events, even if the underlying assumptions do not come to fruition. In accordance with SEBI requirements, our
Company, the Selling Shareholder and the BRLMs will ensure that investors are informed of material
developments until the time of the grant of final listing and trading permissions with respect to Equity Shares
being offered in this Issue, by the Stock Exchanges. The Company and the Selling Shareholder will ensure that
investors are informed of material developments in relation to statements about our Company and the Selling
Shareholder in this Draft Red Herring Prospectus, Red Herring Prospectus and Prospectus until the Equity
Shares are Allotted to the investors.
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13
SECTION II – RISK FACTORS
RISK FACTORS
An investment in equity securities involves a high degree of risk. You should carefully consider all the
information in this Draft Red Herring Prospectus, including our financial statements and the related notes and
the sections titled “Our Business” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” beginning on pages 119 and 286, respectively, and the risks and uncertainties described
below, before making an investment in our Equity Shares. If anyone or some combination of the following risks
were to occur, our business, financial condition and results of operations could suffer, and the price of our
Equity Shares could decline and you may lose all or part of your investment. Unless specified in the relevant
risk factors below, we are not in a position to quantify the financial implication of any of the risks mentioned
below. Additional risks not presently known to us or that we currently deem immaterial may also impair our
business operations. The following factors have been considered for determining the materiality:
1. Some events may not be material individually but may be found material collectively;
2. Some events may have material impact qualitatively instead of quantitatively;
3. Some events may not be material at present but may have a material impact in the future.
The Risks described below are not the only risks which may affect our Company. This Draft Red Herring
Prospectus also contains forward-looking statements that involve risks and uncertainties. The actual results of
our operations could differ materially from those anticipated in these forward-looking statements as a result of
certain factors, including the risks we face as described below. You should also consider the warning regarding
forward looking statements in the section titled “Forward-Looking Statements” beginning on page 12.
Unless otherwise stated, financial information included in this section for the four month period ended July 31,
2012 and the Financial Years 2012, 2011, 2010, 2009 and 2008 has been derived from our restated and audited
consolidated financial statements as of and for the four month period ended July 31, 2012 and the Financial
Years ended March 31, 2012, March 31, 2011, March 31, 2010, March 31, 2009 and March 31, 2008. For
further information, see the section titled “Certain Conventions, Use of Financial Information and Market Data
and Currency of Presentation – Financial Information” and the section titled “Financial Statements”.
You should not invest in this Issue unless you are prepared to accept the risk of losing all or part of your
investment, and you should consult your tax, financial and legal advisors about the particular consequences to
you of an investment in the Equity Shares.
INTERNAL RISK FACTORS
1. Restrictive or penal order may be passed against us by SEBI in ongoing and / or future proceedings that could restrict, stop or hamper our operations or services, or a part thereof, or levy penalties in connection therewith,
which may in turn adversely affect our operations and profitability.
SEBI issued a post enquiry show cause notice dated April 16, 2012 under regulation 28(1) of the SEBI
(Intermediaries) Regulations, 2008 (“Post Enquiry Show Cause Notice”) enclosing copy of designated
authority’s report dated December 12, 2011 which report provides that SEBI vide letter dated March 26, 2009
advised NSE to examine the matter and submit a report. NSE vide letter dated April 01, 2009 had submitted to
SEBI that an inspection of the clearing operations of our Company pertaining to F&O segment was conducted
during December 2008 and major violations relating to wrong reporting of margin and non-collection of dues
from trading members on time were observed. Subsequently, the Disciplinary Action Committee of NSE, after
taking into account the nature of the observations and submission by our Company inter-alia levied certain
penalty. Thereafter, SEBI conducted an inspection of the books of accounts, documents and various other
records maintained and furnished by our Company. On conclusion of the inspection process a designated
authority was appointed vide order dated August 31, 2010 to enquire into the possible violations of the
provisions of law by our Company as observed during the inspection.
The Post Enquiry Show Cause Notice provides that the allegations of violations committed by our Company are
grave and serious in nature and therefore the penalty recommended by the designated authority is not
commensurate with the violations committed. Further, the Post Enquiry Show Cause Notice states that our
Company failed to collect the requisite margin from its trading members and it allowed them to take additional
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14
positions and risk in F&O segment. There can be no assurance that SEBI will not pass an order that could
restrict, stop or hamper our operations or services, or a part thereof, or levy penalties under Regulation 27(i) to
27(v) of SEBI (Intermediaries) Regulations, 2008, which may in turn adversely affect part of our operations and
profitability. For details of the SEBI’s show cause notice, please refer to the section titled “Outstanding
Litigation and Material Developments” beginning on page 318 of this Draft Red Herring Prospectus.
2. There are certain criminal cases pending against us and some of our Directors.
There are certain criminal cases pending against our Company and some of our Directors. These include sixteen
criminal cases against us and some of our Directors under various sections of Indian Penal Code including 406,
409, 420, 467, 468, 120(B) which have been pending before various adjudicatory authorities. Any adverse
outcome from these proceedings may have an adverse effect on our reputation and business or cause the price of
our Equity Shares to decline. For details of the above criminal cases, please refer to the section titled
“Outstanding Litigation and Material Developments” beginning on page 318 of this Draft Red Herring
Prospectus.
3. Our Company and our Subsidiaries are involved in a number of legal and regulatory proceedings that, if determined against us or our Subsidiaries, could have a material adverse impact on our business, financial
conditions and results of operations.
There are certain outstanding legal proceedings against us pending at various levels of adjudication before
various courts, tribunals, authorities and appellate bodies in India. Should any new development arise, such as
change in applicable laws or rulings against us by the appellate courts or tribunals, we may need to make
provisions in our financial statements, which may increase our expenses and current liabilities. We cannot give
you any assurance that these legal proceedings will be decided in our favour. Any adverse decision may have a
significant effect on our business and financial condition, the implementation of our current or future projects
and our results of operations. Details of the proceedings that have been initiated against us and the amounts
claimed against us in these proceedings, to the extent ascertainable, are set forth below:
Litigation against our Company
Sr.
No.
Nature of the litigation Number of outstanding
litigations
Aggregate amount involved
(`) in crore 1. Civil Cases 14 Non Quantifiable
2. Cases under Negotiable Instrument Act
Nil Nil
3. Consumer Complaints 26 0.71
4. Arbitration Proceedings 10 0.68
5. Labour Matters 3 Non Quantifiable
6. Tax Cases 3 Non Quantifiable
Total 56 1.39
Litigation against our Subsidiaries
Sr.
No.
Nature of the litigation Number of outstanding
litigations
Aggregate amount involved
(`) in crore 1. Civil Cases 6 0.25
2. Cases under Negotiable Instrument Act
Nil Nil
3. Consumer Complaints 12 0.33
4. Arbitration Proceedings 9 0.44
5. Labour Matters 6 0.03
6. Tax Cases 8 0.07
Total 41 1.12
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15
For further details of the legal proceedings, please see the section titled “Outstanding Litigation and Material
Developments” on page 318 of this Draft Red Herring Prospectus.
4. We have previously been penalized in past for not complying with the stock exchanges and regulator(s) directions and circulars and may face further penalties from any exchange and/or other regulatory bodies that
govern us in cases of non-compliance in future.
We have been penalized by various exchanges and regulators in the past with a total penalty of ` 0.37 crore for certain deficiencies noticed by exchanges and regulators on account of lapses such as discrepancies pertaining
settlement of funds and wrong reporting of margin collections, the PAN number not being available on contract
note, shortfall in collection of daily margins, receipts from clients through own bank accounts in some instances/
payments to clients through own bank account in some instances, non-issue of statement of accounts to some
constituents and error in format of contract notes. There can be no assurance that we will not be subjected to
such penalties in the future, which may in turn adversely affect our operations and profitability. For details of
the past penalties, please refer to the section titled “Outstanding Litigation and Material Developments”
beginning on page 318 of this Draft Red Herring Prospectus.
5. Certain of our Subsidiaries and our Group Companies have incurred losses during the last three fiscal years and the four month period ending July 31, 2012, which may adversely affect our results of
operations.
Certain of our Subsidiaries have incurred losses in the last three fiscal years and the four month period ending
July 31, 2012, as set forth in the table below:
(` in crore)
Subsidiary Four month
period ending July
31, 2012
Fiscal 2012 Fiscal 2011 Fiscal 2010
SMC Investments
and Advisors
Limited
1.41 9.43 21.45 6.85
SMC Capital
Limited
1.20 1.28 1.34 1.69
Moneywise
Financial Services
Private Limited
- - - 0.16
SMC Insurance
Brokers Private
Limited
- - 5.20 15.03
SMC Comex
International
DMCC
- - 0.37 0.47
SMC ARC Limited - - 0.19 -
In the event that these Subsidiaries continue to incur losses or any of our other Subsidiaries incur losses, our
Company’s consolidated results of operations and financial condition will be adversely affected. Further, our
Group Companies are also loss making companies as per their audited financial statements for past three fiscals
and which may affect our reputation. For further details, see the section titled “History and Other Corporate
Matters” and “Our Promoter and Group Companies” beginning on page 142 and page 170, respectively.
6. We had negative net cash flows in recent fiscal years.
We had negative net cash flows in the past three fiscals (on consolidated basis), the details of which is
summarized below:
(` in crore)
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16
Particulars Four month
period
ending July
31, 2012
Fiscal 2012 Fiscal 2011 Fiscal 2010
Net cash from operating activities 7.49 (46.84) (47.83) (76.64)
Net cash from / (used in) investing activities 7.67 31.15 25.79 (58.21)
Net cash generated from / (used in) financing
activities
(40.09) 30.79 27.50 112.96
Adjustment on account of change in minority
interest
- 22.84 - 24.23
Net increase (decrease) in Cash & Cash
Equivalents
(24.93) 37.94 5.46 2.34
For further details please see the sections titled “Financial Statements” beginning on page 182.
7. Net Proceeds would not result in creation of fixed assets and our Objects of the Issue have not been appraised.
We intend to use a portion of the Net Proceeds towards enhancing margin requirements at stock exchange(s),
part repayment of the term loan, investment in our subsidiary, SMC Comtrade and other General Corporate
Purpose. The Net Issue proceeds shall not result in the creation of any fixed assets.
None of the Objects have been appraised by any bank or financial institution or any other independent third
party organisation. The funding requirements of our Company and the deployment of the Net Proceeds of the
Issue are currently based on management estimates. The funding requirements of our Company are dependent
on a number of factors which may not be in the control of our management, including variations in interest rate
structures, changes in our financial condition and current commercial conditions and are subject to change in
light of changes in external circumstances or in our financial condition, business or strategy. For further details
on the use of the Issue Proceeds, please see the section titled "Objects of the Issue" beginning on page 88.
8. Our Company has entered into several agreements including shareholders’ and share subscription agreements and our inability to comply with such covenants may result in violation of certain provisions
of these agreements leading to breach of our contractual obligations.
Our Company has entered into several agreements with its investors including various shareholders’ agreements
and share subscription agreements. These covenants include:
i. Our Company, Mr. Subhash Chand Aggarwal, Mr. Mahesh Chand Gupta, other promoter group individuals and Bennett, Coleman & Co. Limited (“BCCL”) have entered into a shareholders’
agreement dated March 10, 2008 and an amendment agreement dated December 18, 2010. Our
shareholders agreement with Bennett, Coleman & Co. Limited requires us to have the Company’s shares
listed on the BSE and/or NSE by March 31, 2013, failing which BCCL and our Company shall appoint a
reputed consultant to valuate the shares of our Company and the Promoters shall either buy-back the
shares or find a third party buyer to buy the BCCL shares at the price arrived at by the third part
consultant or at a price not less than the price which ensures a 12% annualized return, whichever is
higher.
ii. Our Company, Mr. Subhash Chand Aggarwal, Mr. Mahesh Chand Gupta, other promoter group individuals and the Selling Shareholder have entered into a share subscription agreement dated May 12,
2007 pursuant to which our Company and the promoters shall ensure that the equity shares of our
Company are listed on the BSE and/or the NSE by June 30, 2013.
iii. Our share subscription agreement with the Selling Shareholder can be terminated at the option of the Selling Shareholder, if by June 30, 2013, conditions exist to list the Equity Shares on the BSE and/or
NSE and the promoters decide not to seek such listing for their own reasons or unless such listing is
postponed at the request of the Selling Shareholder.
iv. In accordance with our shareholders agreement with the Selling Shareholder, we are required to file our red herring prospectus within 30 days of obtaining SEBI clearance.
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In case we fail to comply with our obligations under these agreements we may be in breach of our contractual
obligations. For further details of such agreements, please see the section titled “History and Other Corporate
Matters” beginning on page 142.
9. Investment out of the Net Proceeds in certain of our Subsidiaries may be in the form of equity or unsecured loan. Should the Company decide to make an investment through unsecured loan, in the
event of default on repayment of such loan or inability of our Subsidiaries to repay such loan, our
Company will not be in a position to enforce any security in order to recover such loan amounts
Our Company proposes to infuse funds out of the Net Proceeds from the Fresh Issue in certain of our operating
Subsidiaries, in order to achieve the Objects. For further details, please see the section titled “Objects of the
Issue” beginning on page 88. Investment out of the Net Proceeds from the Fresh Issue in certain of our
Subsidiaries may be in the form of equity or unsecured loan, including for instance, the investment by our
Company in SMC Comtrade, towards margin maintenance at the various commodity exchanges that it is
registered with in India. In the event of default on repayment of such loan or inability of our Subsidiaries to
repay such loan, our Company will not be in a position to enforce any security in order to recover such loan
amounts
10. We face intense competition in our businesses, which may limit our growth and prospects.
Our Company faces significant competition in all our lines of business. We compete with other Indian and
foreign brokerage houses, investment banks, insurance brokers, wealth managers and distributors of financial
products, operating in the market segments in which we are present. For further details, please refer to the
section titled “Our Business - Competition” beginning on page 119 of this Draft Red Herring Prospectus.
We compete on the basis of a number of factors and our competitors may have advantages over us, including,
but not limited to substantially greater financial resources, longer operating history than us in certain of our
businesses, greater brand recognition among consumers or a larger customer base than us. Also, certain Indian
and foreign commercial banks have begun offering services that we currently provide, such as broking,
depository participant services, merchant banking which has increased competition. These competitive pressures
may affect our business, and our growth will largely depend on our ability to respond in an effective and timely
manner to these competitive pressures.
11. Our growth will depend on our ability to develop our brand and failure to do so will negatively impact our ability to effectively compete in this industry.
We believe that we need to continue to build our brand, particularly in our new businesses, like investment
banking and wealth management which will be critical to achieving widespread recognition of our services.
Promoting and positioning our brand will depend largely on the success of our marketing efforts and our ability
to provide high quality services. The brand promotion activities that we may undertake may not yield increased
revenues, and even if they do, any increased revenues may not offset the expenses we incur in building our
brand. If we are unable to promote and maintain our brand, our business, financial condition and results of
operations could be adversely affected.
12. We have not complied with certain corporate governance requirements mentioned under Clause 49 of the Equity Listing Agreement relating to the composition of our Board.
Although we are currently in compliance under clause 49 of the Equity Listing Agreement, we have not
complied with certain corporate governance requirements envisaged under Clause 49 of the Equity Listing
Agreement, relating to the composition of our Board. The Securities Contracts (Regulation) Act, 1956
prescribes certain penalties for non-compliance with the conditions of the Equity Listing Agreement. While no
penalties or suspension of trading has been imposed on us by the Stock Exchanges, we cannot assure you that
such action will not be taken in the future or that we will remain in compliance with the Equity Listing
Agreement. In case the Stock Exchange(s) impose any penalty or take any action against us, it may have an
adverse effect on our operations and financial condition.
13. Some of our records relating to the forms and reports to be filed with the Stock Exchange(s), including those required pursuant to various SEBI Regulations and guidelines are not traceable and we cannot
assure you if these forms were duly filed on a timely basis or at all .
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We have been unable to locate copies of certain regulatory records that we are required to file under various
guidelines and regulations prescribed by SEBI and/or the Stock Exchanges(s), including prescribed forms and
filings under Regulation 7 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
Since copies of these are unavailable with us, we cannot assure you that these forms or reports were duly filed
on a timely basis, or at all. We cannot assure you that records of these forms will be available in the future or
that we will not be subject to any penalty imposed by the competent regulatory authority in this respect. If either
the Stock Exchange(s) or SEBI impose any penalty or take any action against us, it may have an adverse effect
on our operations and financial condition.
14. We have not obtained certain licenses under certain state legislations and there can be no assurance that relevant authorities will issue such licenses or approvals to us in a timely manner or at all which may
adversely affect our results of operations.
We have not obtained licenses under the relevant state legislations governing the registration of shops and
establishments for our branches. There can be no assurance that the relevant authorities will issue such licenses
or approvals to us or that they will be issued on time.
Further, the competent authority under the relevant state legislations governing the registration of shops and
establishments, may find us in violation of the such legislation and impose statutory penalty for not obtaining
the registration, which may adversely affect our results of operations.
15. Our auditors had certain qualifications in their Audit Report for Fiscal 2010 and Fiscal 2011.
Our auditors, for such relevant specific periods, had qualified their audit reports on our consolidated financial
statements for the audited fiscal year March 31, 2010 and fiscal year March 31, 2011 and for the unconsolidated
financial statements for the audited fiscal year March 31, 2011. For further details see “Financial Statements –
Restated Consolidated Financial Statement – Auditor’s Report – 6 (e)” on page 286 and “Financial Statements
– Restated Unconsolidated Financial Statement – Auditor’s Report – 6 (f)” of this Draft Red Herring Prospectus.
Our Auditors in their restated consolidated financial statements and restated unconsolidated financial statements,
which been included in this Draft Red Herring Prospectus, have indicated that necessary adjustments pertaining
to such qualifications, wherever required, have been incorporated.
16. We operate in businesses which are subject to extensive regulatory requirements and any failure to comply with any of such regulations could subject us to penalties or sanctions.
Our businesses are subject to extensive regulation by the SEBI, the FMC, the RBI and the IRDA and other
governmental regulatory authorities. We are also regulated by industry self-regulatory organisations, stock and
commodities exchanges. The regulatory environment in which we operate is also subject to change and we may
be adversely affected as a result of new or revised legislation or regulations imposed by the SEBI, other
governmental regulatory authorities or self-regulatory organizations. We are also subjected to periodic reviews,
requests for submission of information, audit and inspections from various regulatory agencies. Non-compliance
with any of these regulations and/or adverse findings may expose us to various actions by the respective
authorities which may adversely affect our business operations and financial condition.
We are also subject to changes in Indian law, as well as to changes in regulations and accounting principles.
There can be no assurance that the laws governing the Indian financial services sector will not change in the
future or that such changes would not adversely affect our business and future financial performance. We face
the risk of significant intervention by regulatory authorities in all jurisdictions in which we conduct our
business. Among other things, we could be fined, prohibited from engaging in some of our business activities or
subject to limitations or conditions on our business activities.
Furthermore, we are required to incur substantial costs to monitor compliance and comply with such regulations.
If we are found to have violated an applicable regulation, administrative or judicial proceedings may be initiated
against us that may result in censures, fines, trading bans, deregistration or suspension of our business licenses,
the suspension or disqualification of our officers or employees, or other adverse consequences. We could also be
subjected to constraints or conditions on operating our business activities and may incur fines, receive
regulatory cautions or show cause notices and be barred from engaging in certain business activities. The
imposition of any of these or other penalties or restrictions could have a material adverse effect on our business,
reputation, financial condition and results of operations.
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17. We engage employees on a contractual basis for carrying out certain of our operations and we are responsible for paying the wages of such employees, if the independent contractors, through whom such
workers are hired, default on their obligations, which could have an adverse effect on our results of
operations and financial condition. In order to retain operational efficiencies, we engage independent contractors who in turn engage on-site
employees on a contract basis for performance of certain of our ancillary operations. As of September 30, 2012,
we have engaged 846 employees on contractual basis at our office(s). Although we do not engage these
employees directly, we are responsible for any wage payments to be made to such employees in the event of
default by such independent contractors. Any requirement to fund their wage requirements may have an adverse
impact on our results of operations and financial condition. In addition, under the Contract Labour (Regulation
and Abolition) Act, 1970, as amended, we may be required to absorb a number of such employees on
contractual basis as permanent employees. Thus, any such order from a regulatory body or court may have an
adverse effect on our business, financial condition and results of operations.
18. Our risk management policies and procedures may leave us exposed to unidentified or unanticipated risk
which could adversely affect our business and results of operations.
We are exposed to a variety of risks, including liquidity risk, interest rate risk, credit risk, operational risk and
legal risk. The effectiveness of our risk management is limited by the quality and timeliness of available data.
Our risk management techniques may not be fully effective in mitigating our risks in all market environments or
against all types of risk, including risks that are unidentified or unanticipated. Some methods of managing risks
are based upon observed historical market behaviour. As a result, these methods may not predict future risk
exposures, which could be greater than the historical measures indicated. Other risk management methods
depend upon an evaluation of information regarding markets, customers or other matters. This information may
not in all cases be accurate, complete, up-to-date or properly evaluated. Management of operational, legal or
regulatory risk requires among other things, policies and procedures properly to record and verify a number of
transactions and events. Although we have established these policies and procedures, they may not be fully
effective. Our future success will depend, in part, on our ability to respond to new technological advances and
emerging finance sector standards and practices on a cost-effective and timely manner. The development and
implementation of such technology entails significant technical and business risks. There can be no assurance
that we will be a