INITIAL PUBLIC OFFER

ByDr. Vinita Kalra

Associate ProfessorRSMT, Varanasi

PROSPECTUSAny company making a public issue is required to file its prospectus with the Securities and Exchange Board of India.A prospectus can be of two types

Draft Offer DocumentThe Draft Offer Document must be filed with SEBI at least 21 days before the company files it with the ROC/ Stock Exchange

Red Herring ProspectusRed Herring Prospectus" is a prospectus which does not have details of either price or number of shares being offered or the amount of issue

PROSPECTUS• Description of the offering

• History of the business

• Description of management

• Price (Price Band)

• Issue open date – Issue Closing Date • Minimum Subscription

• Use of proceeds

•Description of the underwriting• Financial information• Risks to buyers

The final prospectus must contain:

PROSPECTUSFunctions of prospectus :

• It set out all the information that you must make public under the listing rules.

• It acts as a marketing tool for shares for the company for describing the company and it’s prospective.

• It sets out the price of the company shares and how much capital you can raise from the market.

IPO VALUATIONFactors to be considered1. Financial Results:

AssetsCost of capitalHistorical & Projected growth rate of sales & earningsLong term debtProfit marginsGeneral & admn. Expenses

2. Legal Considerations:Environmental IssuesPatents, TrademarksLegislation:-positive or negative

IPO VALUATIONFactors to be considered3. The Company:

Cost of productionExperience and quality of managementGrowth opportunitiesMarket shareRaw material suppliersScope of product line, new product development

4. Comparison with peers:Market value of other listed companiesComparison of P/E of listed co. with new co.Future prospective in the specific sector

Oversubscription of IPOWhen demand of shares is more than supply of shares on an IPO

• Pro rata basis• Green Shoe option

A provision contained in an underwriting agreement that gives the underwriter the right to sell investors more shares than originally planned by the issuer.