Final project on fpo


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Final project on fpo

  2. 2. A follow on public offering is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations. Usually these kinds of public offerings are made by companies wishing to refinance, or raise capital for growth. Money raised from these kinds of secondary offerings goes to the company, through the investment bank that underwrites the offering. Investment banks are issued an allotment, and possibly an overallotment which they may choose to exercise if there is a strong possibility of making money on the spread between the allotment price and the selling price of the securities. This sort of follow-on public offering is a way for a company to increase outstanding stock and spread market capitalization or the company's value over a greater number of shares. Secondary offerings in which new shares are underwritten and sold dilute the ownership position of stockholders who own shares that were issued in the IPO. Typically, such an offering occurs when the founders of a business and perhaps some of the original financial backers, determine that they would like to decrease their positions in the company. This kind of follow-on offering is common in the years following an IPO, after the termination of the lock-up period. Owners of closely held companies sell shares to loosen their position - usually gradually, so that the company's share price doesn't plummet as a result of high selling volume. This kind of offering does not increase the number of shares of stock on the market, and it is most commonly performed in the case of a company that is very thinly traded. Follow-on offerings of this sort do not dilute owners' holdings, and no new shares are released. There is no "new" underwriting process in this kind of offering. The basic difference between Initial Public Offer (IPO) and Follow on Public Offer (FPO) is as the names suggest IPO is for the companies which have not listed on an exchange and FPO is for the companies which have already listed on exchange but want to raise funds by issuing some more equity shares. A follow-on offering can be either of two types (or a mixture of both): dilutive and non-dilutive. A follow-on offering is an offering of securities by a shareholder of the company (as opposed to the company itself, which is a primary offering). A follow on offering is preceded by release of prospectus similar to IPO. In the case of the dilutive offering, the company's board of directors agrees to increase the share float for the purpose of selling more equity in the company. This new inflow of cash might be used to pay off some debt or used for needed company expansion. When new shares are created and then sold by the company, the number of shares outstanding increases and this causes dilution of earnings on a per share basis. Usually the gain of cash inflow from the sale is strategic and is considered positive for the longer term goals of the company and its shareholders. Some owners of the stock however may not view the event as favorably over a more short term valuation horizon. The non-dilutive type of follow-on public offering is when privately held shares are offered for sale by company directors or other insiders (such as venture capitalists) who may be looking to diversify their holdings. Because no new shares are created, the offering is not dilutive to existing shareholders, but the proceeds from the sale do not K.E.S SHROFF COLLEGE Page 2
  3. 3. benefit the company in any way. Usually however, the increase in available shares allows more institutions to take non-trivial positions in the company. Going public will raises cash, and usually a lot of it. Being publicly traded also opens many financial doors:  Because of the increased scrutiny, public companies can usually get better rates when they issue debt.  As long as there is market demand, a public company can always issue more stock. Thus, mergers and acquisitions are easier to do because stock can be issued as part of the deal.  Trading in the open markets means liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent. This study analyses the performance of FPO issued in India. The reason behind the selection of this topic is, there has been a pool of companies making public offers at present, and investors have the wide choice of selecting their portfolios, the ultimate success of these FPO companies are depends on the returns they provide to the shareholders. The purpose of this study is to know the performance of FPOs in short run as well as long run. Objectives of the Study Every task we are doing is for a specific objective. Following objectives are designed for this study.  To understand the business logic behind the issue of follow-on Public Offering.  To study the share price movements in short run as well in long run.  To analyze the differences in the returns of the FPO on the day of listing, to those who invested in secondary market and to those who invested through primary market.  To find out the performance of the FPOs after their public offer.  To assess the recent trends in the Indian FPO market. Follow-on Public Offering (FPO) in India Follow-on Public Offering in India means issuance of stock to the public in the country's capital markets subsequent to the company's Initial public offering. This is done by giving to the public, shares that are either owned by the promoters of the company or by issuing new shares. During a Follow-on Public Offer the shares are given to the public at a discount on the intrinsic value of the shares and this is the reason that the investors buy shares during the follow-on Public Offering in order to make profits for themselves. During the company's Follow-on Public Offering in India, an electronic book is opened for at least five days. During this period of time, bidding takes place which means that people who are interested in buying the shares of the company make an offer within the fixed price band. Once the book building is closed then the issuer as well as the book runner of the follow-on Public Offering evaluate the offers and then determine a fixed price. K.E.S SHROFF COLLEGE Page 3
  4. 4. Decision to go for FPO Usually an FPO is part of a business' financing strategy. A well-planned and executed business startup will have specific goals for growth and revenue accompanied by financing needs and options to achieve each step of the path. The typical pattern is to start the business with an initial investment from own pocket, friends and family, supplemented by loans. Then, when an actual product exists, find an angel or venture capital firm to invest in getting the company growing at a rate that will justify an FPO. The rule of thumb for being ready to FPO is that the company is growing, has a definite need for much larger funding, it has a good story, and this is a good time in the market for that type of company. Each industry has different criteria for growth and revenue in going public; therefore, it is important to research publicly traded companies of similar size in the industry to see how much revenue they were making when they went public. One of the most important factors considered in deciding whether a company is ready to FPO is its growth rate. The company should not only have three years history that shows growth, but growth at an accelerating rate. Usual growth rates considered optimal are 40 percent for technology companies and 20-30 percent for manufacturing and service. The "ideal" is considered to be what bankers call "40/40": 40 percent growth rate and 40 percent rate of return. Few companies are this dynamic, but potential growth and revenue are critical to how a company will be valued and how much money can be raised by an FPO. K.E.S SHROFF COLLEGE Page 4
  5. 5. Managing an FPO Managing an FPO is the integral part of the entire FPO story. The following are the main issues in managing an FPO.  Complete Business Plan It is a detailed document supporting the corporate profile. Firm has to fully disclose all aspects of the business including debt, the use of proceeds, critical processes, and any other factor that may be important in the success of the business. It is important to show that firm has considered a wide variety of factors and have a plan of how to deal with them.  Corporate Profile It is a document describing a company's financials, business, their backgrounds, and a description of the market for their product or service. The corporate profile is presented to potential underwriters or investment bankers to interest them in participating in the FPO.  Economic Analysis It involves providing information for potential investors on the economic viability of the business. Absolute necessities are rate of growth and net profit margins. Other financial ratio analysis and market analysis are useful.  Financial Reporting Quarterly, audited financial statements for the past three years must be prepared by a professional, accredited accounting firm.  Management Team An organizational chart with key players that have strong background and experience that fit with projected plans.  Money K.E.S SHROFF COLLEGE Page 5
  6. 6. The FPO process is costly and it can't all be financed by the FPO itself. In addition to internal staff needed to prepare the FPO, there are the external audits, legal and investment banker's fees.  Underwriters A good investment banker is critical for the FPO. They draft prospectus, assist with the filing, solicit investors, determine the offering price and sell the stock. Their compensation is usually a percentage of the offering plus options on buying a certain number of shares of stock in the future. Conducting due diligence on a number of firms to assess which one is the right one for the particular business. Underwriters usually specialize in different types of businesses or industries and finding the right match makes the whole process smoother and more profitable. Advantages of going public  The increase in the capital An FPO allows a company to raise funds for utilizing in various corporate operational purposes like acquisitions, mergers, working capital, research and development, expanding plant and equipment and marketing.  Liquidity The shares once traded have an assigned market value and can be resold. This is extremely helpful as the company provides the employees with stock incentive packages and the investors are provided with the option of trading their shares for a price.  Valuation The public trading of the shares determines a value for the company and sets a standard. This works in favor of the company as it is helpful in case the company is looking for acquisition or merger. It also provides the share holders of the company with the present value of the shares.  Increased wealth The founders of the companies have an affinity towards FPO as it can increase the wealth of the company, without dividing the authority as in case of partnership. K.E.S SHROFF COLLEGE Page 6
  7. 7. General Benefits of Listing Benefits of Listing are summarized as under.  Listing provides an opportunity to the corporate or entrepreneurs to raise capital to fund new projects or undertake expansions or diversifications and for acquisitions.  Listing also provides an exit route to private equity investors as well as liquidity to the ESOP-holding employees.  Listing also helps generate an independent valuation of the company by the market.  Listing raises a company's public profile with customers, suppliers, investors, financial institutions and the media. A listed company is typically covered in analyst reports and may also be included in one or more of indices of the stock exchanges.  Listing increases a company's ability to raise further capital through various routes like preferential issue, rights issue, Qualified Institutional Placements and ADRs/GDRs/FCCBs, and in the process attract a wide and varied body of institutional and professional investors.  Listing leads to better and timely disclosures and thus also protects the interest of the investors.  Listing on BSE provides a continuing liquidity to the shareholders of the listed entity. This in turn helps broaden the shareholder base. K.E.S SHROFF COLLEGE Page 7
  8. 8. Companies listed in Stock Exchanges generally find that the market perception of their financial and business strength is enhanced. Costs or Drawbacks of Going Public A firm’s management and investors must weigh the above benefits of going public against several costs, including the following.  Under pricing FPOs appear to be substantially underpriced for various reasons, which create problems to the issuing firm.  Issuance Cost Normally underwriter will charge up to 8 percent of offering proceeds for an FPO as underwriter spread. There are also other costs include management’s time in preparing for the offering.  Loss of Control K.E.S SHROFF COLLEGE Page 8
  9. 9. New equity holders may press the firm to change its investment, financing, or dividend policies, and may also attempt to replace the firm’s management team, including the original entrepreneurs.  Agency Costs of Managerial Discretion Separating ownership and control leads to such costs, though they can be mitigated with monitoring and incentive contracting.  Performance Pressure Management will face pressure for performance from investors, the financial press, equity research analysts, and bond rating agencies. K.E.S SHROFF COLLEGE Page 9
  10. 10. CHAPTER:-2 PROCESS OF FPO FPOs are among the riskiest equity investments in the stock market. The firm generally has only a short earnings history and no history in public valuation. Here discussed the process by which a firm goes public with its equity. Though the actual offering of shares to the public generally occurs on a single day, the overall process of going public extends for few months and entails a variety of cost.  Employing an Underwriter Firms that choose to go public generally hire an investment-banking firm to underwrite the offering. The underwriter assists the firm in all legal procedures, and negotiates the potential public investors regarding the offer price. The underwriters mitigate principal-agent problems by structuring the deal and recommending certain financial structures within the firm. An investment bank can also be effective in mitigating information asymmetry problems associated with an FPO because; it becomes well informed about the operations and prospects of the issuer, and, has expertise in determining a fair price for the issue.  Bearing the Costs of Going Public The FPO firm has to bear three categories of costs in the process of going public. They are, firstly, Compensation paid to the underwriters. For their services underwriter charges a fee, called the underwriter spread, generally expressed as a percentage of the proceeds of the offering. Secondly, additional expenses like legal services, printing and auditing, and thirdly, Management’s efforts to market the offering. An FPO imposes substantial administrative burden on the focal firm’s management.  Projection of the Firm Before a firm can make its FPO, it must provide pro forma projections of the asset, operational, ownership, management, governance and capital structures that the K.E.S SHROFF COLLEGE Page 10
  11. 11. company will exhibit the offering. Many firms go public to raise funds for capital expenditures, acquisitions, or working capital. An FPO often results in substantial changes in the firm’s ownership structures, management and capital structures. All these changes must be projected before the FPO is made.  Price Discovery The process by which the underwriter determines the price of an FPO is called price discovery, which typically involves two steps. First, the underwriter establishes a reasonable range of potential offer prices; secondly, the underwriter identifies number of investors who may be interested in purchasing the firm’s shares. Finally, the underwriter determines the offer price as the intersection of aggregate demand and supply.  Selecting the Offering Methods An FPO firm has a choice of two methods of selling shares. In the Firm Commitment method, the underwriter agrees to purchase all shares offered at a fixed price, and then takes the risk of reselling the shares to the public. In the Best Efforts method, the underwriter makes no guarantee about the price. Instead, the underwriter only agrees to conduct a search for interested buyers. Thus, in a Firm Commitment contract the underwriter acts as a Dealer, whereas in a Best Efforts contract the underwriter acts as a Broker. In the firm commitment method the underwriter assumes price risk, but in the best efforts method the issuing firm assumes price risk. FPO Process Time table For private companies, the subsequent issue of securities to the public is referred to as a follow-on Public Offering. FPO's are extremely speculative and rarely do they result in large gains for investors. However, since capital is often needed to grow a private K.E.S SHROFF COLLEGE Page 11
  12. 12. company and values of companies are best determined in the marketplace, FPO's continue to be used as a way for growing private companies. FPO's are often one of the hottest topics in financial management. Behind the glamour and the glitz of Follow-on Public Offerings there is a tremendous amount of hard work and personal sacrifice. FPO's require a core group of highly skilled professionals who must literally work around-the-clock for one year. Therefore, one of the first steps to a successful FPO is the formation of a seasoned, experienced team of professionals who will make the FPO happen. Once an FPO team (Investment Banker, Legal Council, SEBI Expert, Outside Auditor, etc.) has been formed, and then can establish a plan for the FPO Process. Before the FPO Process is complete, it is essential to implement all of the necessary controls, procedures, and systems that will now be required within "public life." Staff changes must be made, new financial systems tested, functions like human resources must be managed, etc. The entire FPO process is much more involved than most people realize. A great FPO team and proper planning is the key to a smooth FPO process.  FPOs of small companies Public issue of less than five crores has to be through OTCEI and separate guidelines apply for floating and listing of these issues. If the companies Post Issued Paid-Up Capital is up to Rs.5 crores then they are considered as small companies and they have separate guidelines for issue of FPO. Public issues of small ventures which are in operation for not more than two years and whose paid up capital after the issue is greater than 3 crores but less than 5 crores the following guidelines apply:  Can list their securities only in exchanges where trading of securities is screen based  If the paid up capital is less than 3 crores then they can only be listed on the Over the Counter Exchange of India (OTCEI) K.E.S SHROFF COLLEGE Page 12
  13. 13.  Appointment of market makers mandatory on all the stock exchanges where the securities are proposed to be listed The appointment of market makers shall be subject to the following:-  Each market maker should offer a continuous two-way quote for a minimum period of 18 months from the date on which the securities are admitted for dealing.  Buy and sell quotes offered by the market maker shall be with a minimum depth of 3 marketable lots;  Bid-ask spread (difference between quotations for sale and purchase) shall not at any time exceed 10%;  Market maker should have at least 5% of the post-issued capital of the company as inventory.  Size of the Public Issue Issue of shares to general public cannot be less than 25% of the total issue, in case of information technology, media and telecommunication sectors this stipulation is reduced subject to the conditions that:  Offer to the public is not less than 10% of the securities issued.  A minimum number of 20 lakh securities is offered to the public, and  Size of the net offer to the public is not less than Rs. 30 crores.  Promoter Contribution  Promoters should bring in their contribution including premium fully before the issue  Minimum Promoters contribution is 20-25% of the public issue.  Minimum Lock in period for promoters contribution is five years  Minimum lock in period for firm allotments is three years.  Collection centers for receiving applications  There should be at least 30 mandatory collection centers, which should include invariably the places where stock exchanges have been established.  For issues not exceeding Rs.10 crores (including premium, if any), the collection centers shall be situated at:- K.E.S SHROFF COLLEGE Page 13
  14. 14. • The four metropolitan centers viz. Bombay, Delhi, Calcutta, Madras; and, • At all such centers where stock exchanges are located in the region in which the registered office of the company is situated.  Regarding allotment of shares  Net Offer to the General Public has to be at least 25% of the Total Issue Size for listing on a Stock exchange.  It is mandatory for a company to get its shares listed at the regional stock exchange where the registered office of the issuer is located.  In an Issue of more than Rs. 25 crores the issuer is allowed to place the whole issue by book-building  Minimum of 50% of the Net offer to the Public has to be reserved for Investors applying for less than 1000 shares.  There should be at least 5 investors for every 1 lakh of equity offered (not applicable to infrastructure companies).  Quoting of Permanent Account Number or GIR No. in application for allotment of securities is compulsory where monetary value of Investment is Rs.50,000/- or above.  Indian development financial institutions and Mutual Fund can be allotted securities up to 75% of the Issue Amount.  A Venture Capital Fund shall not be entitled to get its securities listed on any stock exchange till the expiry of 3 years from the date of issuance of securities.  Allotment to categories of FIIs and NRIs/OCBs is up to a maximum of 24%, which can be further extended to 30% by an application to the RBI - supported by a resolution passed in the General Meeting.  Timeframes for the Issue and Post- Issue formalities  The minimum period for which a public issue has to be kept open is 3 working days and the maximum for which it can be kept open is 10 working days. The minimum period for a rights issue is 15 working days and the maximum is 60 working days.  A public issue is affected if the issue is able to procure 90% of the Total issue size within 60 days from the date of earliest closure of the Public Issue. In case of over-subscription the company may have the right to retain the excess application money and allot shares more than the proposed issue, which is referred to as the ‘green-shoe’ option.  A rights issue has to procure 90% subscription in 60 days of the opening of the issue. K.E.S SHROFF COLLEGE Page 14
  15. 15.  Allotment has to be made within 30 days of the closure of the Public Issue and 42 days in case of a Rights issue.  All the listing formalities for a public Issue has to be completed within 70 days from the date of closure of the subscription list.  Dispatch of Refund Orders  Refund orders have to be dispatched within 30 days of the closure of the Public Issue.  Refunds of excess application money i.e. for un-allotted shares have to be made within 30 days of the closure of the Public Issue.  Other regulations pertaining to FPO  Underwriting is not mandatory but 90% subscription is mandatory for each issue of capital to public unless it is disinvestment in which case it is not applicable.  If the issue size is more than Rs. 500 crores voluntary disclosures should be made regarding the deployment of the funds and an adequate monitoring mechanism to be put in place to ensure compliance.  There should not be any outstanding warrants or financial instruments of any other nature, at the time of initial public offer.  Code of advertisement specified by SEBI should be adhered to.  Draft prospectus submitted to SEBI should also be submitted simultaneously to all stock exchanges where it is proposed to be listed.  Restrictions on other allotments  Firm allotments to mutual funds, FIIs and employees not subject to any lock-in period.  Within twelve months of the public/rights issue no bonus issue should be made.  Maximum percentage of shares, which can be distributed to employees, cannot be more than 5% and maximum shares to be allotted to each employee cannot be more than 200.  Auction Method for more disclosures from companies The pure auction method of book building in share sales to prevent delayed shocks in the form of holes in the books of accounts, in which institutional bidders could bid at any price above the floor price instead of restricting them to bid in a band fixed by investment bankers. Allotment of shares would be done to those whose bids are at top prices, starting from the highest bidder.  Relaxations to public issues by infrastructure companies K.E.S SHROFF COLLEGE Page 15
  16. 16. These relaxations would be applicable to Infrastructure Companies as defined under Section 10(23G) of the Income Tax Act, 1961, provided their projects are appraised by any Developmental Financial Institution (DFI) or IDFC or IL&FS. The projects must also have a participation of at least 5% of the project cost (in debt and/or equity) by the appraising institution.  The infrastructure companies will be exempted from the requirement of making a minimum public offer of 25 per cent of its securities.  The requirement of 5 shareholders per Rs. 1 lakh of offer is also waived in case of offerings by infrastructure companies.  For public issues by infrastructure companies, minimum subscription of 90% would no longer be mandatory provided disclosure is made about the alternate source of funding which the company has considered, in the event of under subscription in the public issue.  Infrastructure companies are permitted to freely price the offerings in the domestic market provided that the promoter companies along with Equipment Suppliers and other strategic investors subscribe to 50% of the equity at the same or a higher price than what is being offered to the public. Adequate disclosures about the justification for the pricing will be required to be made in the offer documents.  The Infrastructure Companies would be allowed to keep their issues open for 21 days. The relaxation would give infrastructure companies sufficient time to mobilize funds for their issues.  Schedule to commence Trading  In consultation with market intermediaries, listing with stock exchanges to be made within 12 days of closure of public issue with effect from 1st may 2010. K.E.S SHROFF COLLEGE Page 16
  17. 17. CHAPTER:-3 PRICING THE FOLLOW-ON PUBLIC OFFERING The determination of Follow-on Public Offering price depends heavily upon the company and market conditions. It is the price at which the underwriter offers the issues to public. The underwriters keep several factors in their mind while setting the public offering price. These are financial statements of the company, that is, if or not it is profitable, company's growth rates, public trends, current market conditions, investor confidence. Sometimes the underwriters go for a road shows, widely recognized as the "dog and pony show", to create a hype about their issues. The determination of Follow-on public offering price also depends on the success of those road shows. Process of Fixing the Price Follow-on Public Offering Price is determined through several phases. These are discussed below.  Firstly, the company and its underwriters determine a price range within which they are going to set their stock's price.  Then the underwriter puts together a prospectus which comprises the price range. That prospectus is submitted to the Securities and Exchange Board of India (SEBI).  The next phase of pricing starts just before the day of offering. In this phase the company and its underwriter fix the final price at which the public can buy the issue.  Finally the phase of observation, that is, the company will observe its value assessment by the market after the issue starts trading. Issue Price A company that is planning an FPO appoints lead managers to help it decide on an appropriate price at which the shares should be issued. There are two ways in which the price of an FPO can be determined: either the company, with the help of its lead managers, fixes a price or the price is arrived at through the process of book building. Quiet Period There are two time windows commonly referred to as "quiet periods" during an FPO's history. The first and the one linked above is the period of time following the filing of the company's S-1 but before SEBI staff declares the registration statement effective. K.E.S SHROFF COLLEGE Page 17
  18. 18. During this time, issuers, company insiders, analysts, and other parties are legally restricted in their ability to discuss or promote the upcoming FPO. The other "quiet period" refers to a period of 40 calendar days following an FPO's first day of public trading. During this time, insiders and any underwriters involved in the FPO are restricted from issuing any earnings forecasts or research reports for the company. Regulatory changes enacted by the SEBI as part of the Global Settlement enlarged the "quiet period" from 25 days to 40 days. When the quiet period is over, generally the lead underwriters will initiate research coverage on the firm. Reasons for under pricing of FPO There is the possibility of FPOs being underpriced. There are a number of reasons for the under pricing of FPOs and here are some of the important reasons.  Litigation Risk The underwriter is an intermediary between the issuer and the capital market and makes pricing decisions that maximize his own welfare. The underwriter sets the issue price knowing that he will be sued in the future if there is evidence that the courts will judge as indicative of overpricing. There is under pricing on average, and there exists a positive probability of successful litigation against the underwriter.  The winner’s Curse The existence of both informed and uninformed traders and shows that under pricing emerges to encourage participation by uninformed traders who would otherwise suffer the ‘winner’s curse’ in trading with the informed. That is, uninformed investors realize that they tend to be more successful in obtaining shares of overpriced FPOs. To get them to participate, all FPOs must be discounted.  Signaling Models In these models, the intrinsically higher valued firms strategically underprice their stock in order to deter mimicking by lower valued competitors. High valued firms are underpriced in order to encourage information production by investors that will then be revealed in the secondary market price. An economic role for the underwriter as an intermediary also emerges in that risk-averse issuing firms may underprice in order to induce some investors to reveal information about market conditions. K.E.S SHROFF COLLEGE Page 18
  19. 19. Book Building Book building refers to the process of generating, capturing, and recording investor demand for shares during an FPO (or other securities during their issuance process) in order to support efficient price discovery. Usually, the issuer appoints a major investment bank to act as a major securities underwriter or book runner. The “book” is the off-market collation of investor demand by the book runner and is confidential to the book runner, issuer, and underwriter. Where shares are acquired, or transferred via a book build, the transfer occurs off-market and the transfer is not guaranteed by an exchange’s clearing house. Where an underwriter has been appointed, the underwriter bears the risk of non- payment by an acquirer or non-delivery by the seller. Book building is a common practice in developed countries and has recently been making inroads into emerging markets as well. Bids may be submitted on-line, but the book is maintained off-market by the book runner and bids are confidential to the book runner. The price at which new shares are issued is determined after the book is closed at the discretion of the book runner in consultation with the issuer. Generally, bidding is by invitation only to clients of the book runner and, if any, lead manager, or co-manager. Generally, securities laws require additional disclosure requirements to be met if the issue is to be offered to all investors. Consequently, participation in a book build may be limited to certain classes of investors. If retail clients are invited to bid, retail bidders are generally required to bid at the final price, which is unknown at the time of the bid, due to the impracticability of collecting multiple price point bids from each retail client. Although bidding is by invitation, the issuer and book runner retain discretion to give some bidders a greater allocation of their bids than other investors. Typically, large institutional bidders receive preference over smaller retail bidders, by receiving a greater allocation as a proportion of their initial bid. All book building is conducted ‘off-market’ and most stock exchanges have rules that require on-market trading be halted during the book building process. The key differences between acquiring shares via a book build (conducted off- market) and trading (conducted on-market) are:  Bids into the book are confidential vs transparent bid and ask prices on a stock exchange;  Bidding is by invitation only. It means only clients of the book runner and any co- managers may bid; K.E.S SHROFF COLLEGE Page 19
  20. 20.  The book runner and the issuer determine the price of the shares to be issued and the allocations of shares between bidders in their absolute discretion. Book Building is essentially a process used by companies raising capital through Public Offerings-both Initial Public Offers and Follow-on Public Offers (FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process. The Process:  The Issuer who is planning an offer nominates lead merchant bankers as 'book runners'.  The Issuer specifies the number of securities to be issued and the price band for the bids.  The Issuer also appoints syndicate members with whom orders are to be placed by the investors.  The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction.  The book normally remains open for a period of 5 days.  Bids have to be entered within the specified price band.  Bids can be revised by the bidders before the book closes.  On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels.  The book runners and the Issuer decide the final price at which the securities shall be issued.  Generally, the number of shares is fixed; the issue size gets frozen based on the final price per share.  Allocation of securities is made to the successful bidders. The rest get refund orders. BSE's Book Building System  BSE offers a book building platform through the Book Building software that runs on the BSE Private network.  This system is one of the largest electronic book building networks in the world, spanning over 350 Indian cities through over 7000 Trader Work Stations via leased lines, VSATs and Campus LANS. K.E.S SHROFF COLLEGE Page 20
  21. 21.  The software is operated by book-runners of the issue and by the syndicate members, for electronically placing the bids on line real-time for the entire bidding period. In order to provide transparency, the system provides visual graphs displaying price v/s quantity on the BSE website as well as all BSE terminals. Underwriting Underwriting refers to the process that a large financial service provider like bank, insurer or investment house uses to assess the eligibility of a customer to receive their products such as equity capital, insurance, mortgage, or credit. The name derives from the Lloyd's of London insurance market. Financial bankers, who would accept some of the risk on a given venture in exchange for a premium, would literally write their names under the risk information that was written on a Lloyd's slip created for this purpose. The Underwriting Process in FPO The underwriting process begins with the decision of what type of offering the company needs. The company usually consults with an investment banker to determine how best to structure the offering and how it should be distributed. Securities are usually offered in either the new issue, or the additional issue market. Initial Public Offerings are issues from companies’ first going public, while additional issues are from companies that are already publicly traded. In addition to the IPO and additional issue offerings, offerings may be further classified as:  Primary Offerings - proceeds go to the issuing corporation.  Secondary Offerings - proceeds go to a major stockholder who is selling all or part of his/her equity in the corporation.  Split Offerings - a combination of primary and secondary offerings. The next step in the underwriting process is to form the syndicate. Because most new issues are too large for one underwriter to effectively manage, the investment banker, also K.E.S SHROFF COLLEGE Page 21
  22. 22. known as the underwriting manager, invites other investment bankers to participate in a joint distribution of the offering. The group of investment bankers is known as the syndicate. Members of the syndicate usually make a firm commitment to distribute a certain percentage of the entire offering and are held financially responsible for any unsold portions. Under the most common type of underwriting, firm commitment, the managing underwriter makes a commitment to the issuing corporation to purchase all shares being offered. If part of the new issue goes unsold, any losses are distributed among the members of the syndicate. Whenever new shares are issued, there is a spread between what the underwriters buy the stock from the issuing corporation for and the price at which the shares are offered to the public. The price paid to the issuer is known as the underwriting proceeds. The spread of the underwriting proceeds is split into the following components:  Manager's Fee - goes to the managing underwriter for negotiating and managing the offering.  Underwriting Fee - goes to the managing underwriter and syndicate members for assuming the risk of buying the securities from the issuing corporation.  Selling Concession - goes to the managing underwriter, the syndicate members, and to selling group members for placing the securities with investors. In most underwritings, the underwriting manager agrees to maintain a secondary market for the newly issued securities. In the case of hot issue there is already a demand in the secondary market and no stabilization of the stock price is needed. However many times the managing underwriter will need to stabilize the price to keep it from falling too far below. The managing underwriter may offers to buy at prices that bear little or no relationship to actual supply and demand. In addition, the underwriter may not enter a stabilizing bid higher than the highest bid of an independent market maker, nor may the underwriter buy stock ahead of an independent market maker. K.E.S SHROFF COLLEGE Page 22
  23. 23. CHAPTER :- 4 FPO GRADING FPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the follow-on public offering of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. All FPOs that come out in India need a mandatory FPO grading. This grading is assigned by a credit agency and is in a scale of 1 to 5. The number indicates the following:  1: Poor fundamentals  2: Below average fundamentals  3: Average fundamentals  4: Above average fundamentals  5: Strong fundamentals. The most important thing about FPO Grading is that it doesn’t consider price. This is an important aspect because everything is relative to price. Most companies that come out with FPOs these days are not leaving anything on the table for investors, so that makes the price aspect even more important. K.E.S SHROFF COLLEGE Page 23
  24. 24. That means one can’t take a look at the FPO grading, and make a decision to buy. If the company has poor fundamentals or below average fundamentals, then one can decide not to participate in the FPO, but one can’t take a decision to buy based on the grading alone. A company rated 5 has strong fundamentals, but The FPO grading doesn’t tells how they stack up relative to the price. It doesn’t tell whether the company has left anything on the table for the investors or not, and therefore one don’t know whether the issue is worth subscribing or not. FPO grading takes into account the prospects of the company, industry it operates in, financials, management strength, corporate governance, litigation history and the prospects of its new projects. A company which takes out an FPO needs to get their issue graded, and doesn’t have an option to reject the grading. If they don’t like the grading, they can get a second opinion, but have to disclose everything that they got in the offer document. The company does pay the rating agency for the grading, so there is a conflict of interest, which is characteristic of this industry. FPO grading was introduced to help investors with one more data point, and enable them to make a better decision. It is a useful thing to know about, but without including price in the score, it lacks a serious element needed to make a decision. FPO grading can be done either before filing the draft offer documents with SEBI or thereafter. However, the Prospectus, as the case may be, must contain the grades given to the FPO by all Credit Rating Agencies (CRA) approached by the company for grading such FPO. FPO grading is mandatory. A company which has filed the draft offer document for its FPO with SEBI, on or after 1st May, 2007, is required to obtain a grade for the FPO from at least one CRA. Factors Considered for Grading FPO The FPO grading process is expected to take into account the prospects of the industry in which the company operates, the competitive strengths of the company that would allow it to address the risks inherent in the business and capitalise on the opportunities available, as well as the company’s financial position. While the actual factors considered for grading may not be identical or limited to the following, the areas listed below are generally looked into by the rating agencies, while arriving at an FPO grade. K.E.S SHROFF COLLEGE Page 24
  25. 25.  Business Prospects and Competitive Position • Industry Prospects • Company Prospects  Financial Position  Management Quality  Corporate Governance Practices  Compliance and Litigation History  New Projects—Risks and Prospects It may be noted that the above is only indicative of some of the factors considered in the FPO grading process and may vary on a case to case basis. The major FPO grading agencies in India are, CRISIL Limited, Fitch Ratings India Private Ltd., ICRA Ltd, and Credit Analysis & Research Ltd. (CARE) CHAPTER :- 5 FPO SCAMS FPO Scams are well structured game played by the absolute opportunists consisting of intermediaries, financiers and bank employees, who make a lot of money by controlling shares meant for retail investors in Follow-on Public Offer (FPO), as the per the statement of the Securities Exchange Board of India. In the last few years, the capital market in India went through a rapid transformation. The increased use of information technology and the integration of financial markets have stepped up the risk profile of the capital market. K.E.S SHROFF COLLEGE Page 25
  26. 26. FPO Scams - Causes  Two of the most common factors of the major FPO scams in India were the tacit consent of the banks and the poor surveillance techniques.  The Depository Participants must be provided the proof of identity and proof of address as a routine check for the opening Demat accounts. This was not followed.  Numerous dematerialized accounts and bank accounts had been opened under false names and the FPO applications were made in non existing names. FPO Scams - How it was done?  At first bank accounts were opened up in fictitious or "benami" names, which allowed these fictitious account holders to open demat accounts.  The master account holders, the person who had executed the planning acts as an intermediary on behalf of the financiers.  The shares acquired at the FPOs were disposed on the date of listing at a premium to get more than the amount of money invested.  The banks played an important part by means of opening bank accounts and giving loans to the fictitious entities for the purpose of earning fee incomes. CHAPTER :- 6 REQUIREMENTS WITH RESPECT TO THE LISTING OF SECURITIES ON A RECOGNIZED STOCK EXCHANGE The following revised eligibility criteria for listing of companies on the Exchange, through Initial Public Offerings (IPOs) & Follow-on Public Offerings (FPOs), effective from August 1, 2006. Eligibility Criteria for IPOs/FPOs  Companies have been classified as large cap companies and small cap companies. A large cap company is a company with a minimum issue size of Rs. 10crores and market capitalization of not less than Rs. 25crores. A small cap company is a company other than a large cap company.  In respect of Large Cap Companies : K.E.S SHROFF COLLEGE Page 26
  27. 27.  The minimum post-issue paid-up capital of the applicant company (hereinafter referred to as "the Company") shall be Rs. 3crores; and  The minimum issue size shall be Rs. 10crores; and  The minimum market capitalization of the Company shall be Rs. 25crores (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price).  In respect of Small Cap Companies :  The minimum post-issue paid-up capital of the Company shall be Rs. 3crores; and  The minimum issue size shall be Rs. 3crores; and  The minimum market capitalization of the Company shall be Rs. 5crores (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price); and  The minimum income/turnover of the Company should be Rs. 3crores in each of the preceding three 12-months period; and  The minimum number of public shareholders after the issue shall be 1000.  A due diligence study may be conducted by an independent team of Chartered Accountants or Merchant Bankers appointed by the Exchange, the cost of which will be borne by the company. The requirement of a due diligence study may be waived if a financial institution or a scheduled commercial bank has appraised the project in the preceding 12 months.  For all companies :  In respect of the requirement of paid-up capital and market capitalisation, the issuers shall be required to include in the disclaimer clause forming a part of the offer document that in the event of the market capitalisation (product of issue price and the post issue number of shares) requirement of the Exchange not being met, the securities of the issuer would not be listed on the Exchange.  The applicant, promoters and/or group companies, should not be in default in compliance of the listing agreement. K.E.S SHROFF COLLEGE Page 27
  28. 28.  The above eligibility criteria would be in addition to the conditions prescribed under SEBI (Disclosure and Investor Protection) Guidelines, 2000. CHAPTER :-7 CASE STUDY This study analyse the individual company on the basis of return expected, actual return, and the relation between them with the help of t-test, Beta and Alpha. The following methodology is used to analyze the listing returns and first day returns. Return = Today’s closing - Previous day’s closing K.E.S SHROFF COLLEGE Page 28
  29. 29. Previous day’s closing  In the next step, daily stock price of companies are matched with BSE 200 index by using Microsoft Access.  After matching the data, the Security returns (Ri) and Market returns (Rm) are calculated with the help of following Formula. Where, RI =Return on security Rm =Return on Market index Pt=Present day closing share price Pt-1=Previous day closing share price Pi= Present day closing index Pi-1=Previous day closing index K.E.S SHROFF COLLEGE Page 29
  30. 30.  In the next stage, average, Beta, Alpha and required returns (Re) are calculated. Re= α + β(Rm) Where, Re=the return required on the investment α = the security alpha Rm=the return on the market index β=the security beta  After calculating all these statistical items, t-test is done by taking year wise average of individual companies.  And at last final sheet of all those calculated results are made for the analysis and interpretation purpose. K.E.S SHROFF COLLEGE Page 30
  31. 31. 1. National Mining Development Corporation Limited (NMDC). Incorporated in 1958, NMDC Ltd is a fully Government of India owned public enterprise. NMDC is under the administrative control of the Ministry of Steel, Government of India. NMDC involved in the exploration of wide range of minerals including iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, beach sands etc. NMDC is the India's single largest iron ore producer and exporter, presently producing about 30 million tons of iron ore from 3 fully mechanized mines viz., Bailadila Deposit- 14/11C, Bailadila Deposit-5, 10/11A (Chhattisgarh State) and Donimalai Iron Ore Mines (Karnataka State) which are awarded ISO 9001-2000 certification. NMDC has the only mechanized diamond mine in the country with a capacity of 1.00 lakh carats/annum at Panna (Madhya Pradesh State). Apart from iron ore NMDC is developing Magnesite mine in Jammu and Arki Lime Stone Project in Himachal Pradesh. In the past, NMDC had developed many mines like Kiriburu, Meghataburu iron ore mines in Bihar, Khetri Copper deposit in Rajasthan, Kudremukh Iron Ore Mine in Karnataka, Phosphate deposit in Mussorie, some of which were later handed over to other companies in public sector and others became independent companies. Table No: 1 Table showing Actual and Expected returns of NMDC Year Ri Re 2005 0.005397957 0.002560894 2006 0.003789954 0.002546041 2007 0.008662766 0.002664751 2008 -0.009840068 -0.00095391 2009 0.00470441 0.003089045 2010 -0.002367121 0.001235989 Average 0.001724649 0.001857134 K.E.S SHROFF COLLEGE Page 31
  32. 32. t-test 0.964043791 Beta 0.692294472 Alpha 0.001119899 Chart No: 1 Chart showing Actual and Expected returns of NMDC The study reveals that return on security of this company is fluctuating year to year. Return is highest in the year 2007 and lowest in the year 2008 with the negative return. In t-test there is insignificant difference between Actual Return and Expected return. Expected Return indicates that Return expected to get at the end of the period, in 2009 there is high Expected Return and in the year 2008 there is negative Required Return as shown in the above table. In the year 2005,2006,2007,2009 actual returns were more than the average. Similarly in the year 2005,2006,2007,2009 expected returns were more than the average. Beta indicates systematic risk. If we consider the beta value of this company which is below 1, it is the indication that the company stocks are non-aggressive in nature. Alpha indicates that if market does not give any return, then what % of return this security will give. If we apply this to above table we can tell that this company is giving positive return. K.E.S SHROFF COLLEGE Page 32
  33. 33. 2. National Thermal Power Corporation Limited (NTPC). Incorporated in 1975, National Thermal Power Corporation Limited (NTPC) is the largest power generating company in India. It has emerged as an ‘Integrated Power Major’, with presence in the entire value chain of power generation business. Apart from power generation, which is the mainstay of the company, NTPC has already ventured into consultancy, power trading, ash utilization and coal mining. NTPC ranked 317th in the ‘2009, Forbes Global’ ranking of the World’s biggest companies. The total installed capacity of the company is 30,644 MW (including JVs) with 15 coal based and 7 gas based stations, located across the country. In addition under JVs, 3 stations are coal based & another station uses naphtha/LNG as fuel. By 2017, the power generation portfolio is expected to have a diversified fuel mix with coal based capacity of around 53000 MW, 10000 MW through gas, 9000 MW through Hydro generation, about 2000 MW from nuclear sources and around 1000 MW from Renewable Energy Sources (RES). NTPC has adopted a multi-pronged growth strategy which includes capacity addition through green field projects, expansion of existing stations, joint ventures, subsidiaries and takeover of stations. In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as fresh issue and 5.25% as offer for sale by Government of India. NTPC thus became a listed company in November 2004 with the government holding 89.5% of the equity share capital. The rest is held by Institutional Investors and the Public. The issue was a resounding success. NTPC is among the largest five companies in India in terms of market capitalization. The current offering (FPO) is to divestment of 5% in NTPC Limited by Government of India, which owns approximately 89.5% of NTPC’s Equity Share capital. In 2009, NTPC contributed 28.6% of the total power generation of India. In 2009, NTPC was the top independent power producer in Asia, and ranked second in the world, on the basis of asset worth, revenues, profits and return on invested capital. Table No: 2 Table showing Actual and Expected returns of NTPC K.E.S SHROFF COLLEGE Page 33
  34. 34. Year Ri Re 2005 0.001446619 0.001523638 2006 0.001033571 0.001434375 2007 0.00272007 0.001858816 2008 -0.000763857 -0.002256101 2009 0.001302704 0.002511394 2010 -0.00299441 0.000334652 Average 0.00045745 0.000901129 t-test 0.690255446 Beta 0.813222761 Alpha 0.000198284 Chart No: 2 Chart showing Actual and Expected returns of NTPC The study reveals that return on security of this company is fluctuating year to year. Return is highest in the year 2007 and lowest in the year 2010 with the negative return. In t-test there is insignificant difference between Actual Return and Expected return. Expected Return indicates that Return expected to get at the end of the period, in 2009 there is high Expected Return and in the year 2008 there is negative expected Return as shown in the above table. In the year 2005,2006,2007,2009 actual returns were more than the average. Similarly in the year 2005,2006,2007,2009 expected returns were more than the average. Beta indicates systematic risk. If we consider the beta value of this company which is below 1, it is the indication that the company stocks are non-aggressive in nature. Alpha indicates that if market does not give any return, then what % of return this security will give. If we apply this to above table we can tell that this company is giving positive return. K.E.S SHROFF COLLEGE Page 34
  35. 35. 3. Birla Shloka Edutech Limited (BSEL). Incorporated in 1992, Birla Shloka Edutech Ltd is a Yash Birla Group Company in educational arena. Birla Shloka Edutech provides educational services through reliable, budget friendly and ethical approaches. Birla Shloka Edutech Ltd. Presently provides end to end solutions in sales and services of various educational products to various educational institutes and government organisations. The services provided by the company include ICT and Multimedia in Private Schools, ICT solutions in government schools, Hardware, equipments and Software Product Sale. The Equity Shares of the Company are presently listed on BSE, CSE and ASE and the shares issued through this FPO are proposed to be listed on all of these exchanges Table No: 3 Table showing Actual and Expected returns of Birla Shloka Edutech Ltd Year Ri Re 2005 0.00701949 5 0.306336389 2006 -0.00147804 0.306346765 2007 0.00382516 8 0.306504446 2008 0.00101331 8 0.304936763 2009 0.00335714 1 0.306749207 2010 0.00455388 7 0.305904814 Average 0.00304849 5 0.306129731 T-test 2.70320E- 12 Beta 0.30632983 6 Alpha 0.30585447 K.E.S SHROFF COLLEGE Page 35
  36. 36. 3 Chart No: 3 Chart showing Actual and Expected returns of Birla Shloka Edutech Ltd The study reveals that return on security of this company is fluctuating year to year. Return is highest in the year 2005 and lowest in the year 2006 with the negative return. In t-test there is insignificant difference between Actual Return and Expected return. Expected Return indicates that Return expected to get at the end of the period, in 2009 there is high Expected Return and in the year 2008 there is low expected Return as shown in the above table. In the year 2005, 2007, 2009, 2010 actual returns were more than the average. Similarly in the year 2005, 2006, 2007, 2009 expected returns were more than the average. K.E.S SHROFF COLLEGE Page 36
  37. 37. Beta indicates systematic risk. If we consider the beta value of this company which is below 1, it is the indication that the company stocks are non-aggressive in nature. Alpha indicates that if market does not give any return, then what % of return this security will give. If we apply this to above table we can tell that this company is giving positive return. 4. ICICI BANK. Incorporated in 1994, ICICI Bank is part of the ICICI group. ICICI Bank is India's largest private sector commercial bank. ICICI Bank together with its subsidiaries, offer products and services in the areas of commercial banking to retail and corporate customers (both domestic and international), treasury and investment banking and other products like insurance and asset management. The Bank’s commercial banking operations for retail customers consist of retail lending and deposits, private banking, distribution of third- party investment products and other fee-based products and services, as well as issuance of unsecured redeemable bonds. The Bank provides a range of commercial banking and project finance products and services to corporations, growth-oriented middle market companies, and small and medium enterprises, including loan products, fee and commission-based products and services, deposits, and foreign exchange and derivatives products. Table No: 4 Table showing Actual and Expected returns of ICICI Bank Year Ri Re 2003 0.003255594 0.003534203 2004 0.001211527 0.00106917 2005 0.002033529 0.001675141 2006 0.001947848 0.001999193 2007 0.001609055 0.002660895 2008 -0.002902987 -0.003578809 2009 0.003569888 0.003690147 2010 0.001979195 0.000358483 Average 0.001587956 0.001426053 K.E.S SHROFF COLLEGE Page 37
  38. 38. t-test 0.883011979 Beta 1.244696784 Alpha 0.000149762 Chart No: 4 Chart showing Actual and Expected returns of ICICI Bank The study reveals that return on security of this company is fluctuating year to year. Return is highest in the year 2009 and lowest in the year 2008 with the negative return. In t-test there is insignificant difference between Actual Return and Expected return. Expected Return indicates that Return expected to get at the end of the period, in 2009 there is high Expected Return and in the year 2008 there is negative expected Return as shown in the above table. In the year 2003, 2005, 2006, 2007, 2009, 2010 actual returns K.E.S SHROFF COLLEGE Page 38
  39. 39. were more than the average. Similarly in the year 2003, 2005, 2006, 2007, 2009 expected returns were more than the average. Beta indicates systematic risk. If we consider the beta value of this company which is below 1, it is the indication that the company stocks are non-aggressive in nature. Alpha indicates that if market does not give any return, then what % of return this security will give. If we apply this to above table we can tell that this company is giving positive return. 5. Andhra Bank. Andhra Bank was registered on 20 November 1923 and commenced business on 28 November 1923 with a paid up capital of Rs 1.00 lakh and an authorised capital of Rs 10.00 lakhs. The Bank crossed many milestones and the Bank's Total Business as on 30.06.2008 stood at Rs.83,256 Crores with a Clientele base over 1.74 Crores. The Bank is rendering services through 2139 Business Delivery Channels consisting of 1371 branches, 66 Extension Counters, 38 Satellite Offices and 664 ATMs spread over 21 States and 2 Union Territories as at the end of June, 2008. All Branches are 100% computerized, 1186 units viz., 1101 Branches, 68 Extension Counters, 15 Service Centers networked under Cluster Banking solution and providing "Any Branch Banking (ABB)". Real Time Gross Settlement (RTGS) Facility and National Electronic Fund Transfer (NEFT) facility has been introduced in 723 Branches. To provide value-added services to Customers, the Bank has set up its own 664 ATMs as on 30.06.2008. Of which 03Mobile ATMs and two with Biometric access. Besides, ATM sharing arrangements with several Banks including SBI group, IDBI Bank, UTI Bank, HDFC Bank, Indian Bank and others under National Financial Network Switch covering 24856 ATMs. Bank is migrating to "Centralized Core Banking Solution". 118 Branches have already migrated to CBS. It is proposed to cover 550 branches by September 2009. This will benefit the customers, who will have access to banking and financial services anytime, anywhere through multiple delivery channels Andhra Bank is a pioneer in introducing Credit Cards in the country in 1981 Our Bank introduced Internet Banking Facility (AB INFI-net) to all customers of cluster linked branches. Table No: 5 Table showing Actual and Expected returns of Andhra Bank K.E.S SHROFF COLLEGE Page 39
  40. 40. Year Ri Re 2002 0.004180809 0.001267461 2003 0.004368996 0.003357948 2004 0.002695103 0.001357991 2005 0.000456576 0.001847662 2006 7.88564E-05 0.002143862 2007 0.001087146 0.00266882 2008 -0.002042379 -0.002420596 2009 0.003066897 0.003475943 2010 -0.00064074 0.000783701 Average 0.001472363 0.001609199 t-test 0.887215624 Beta 1.005811045 Alpha 0.000615038 Chart No: 5 Chart showing Actual and Expected returns of Andhra Bank The study reveals that return on security of this company is fluctuating year to year. Return is highest in the year 2003 and lowest in the year 2006 with the negative return. In t-test there is insignificant difference between Actual Return and Expected return. Expected Return indicates that Return expected to get at the end of the period, in 2009 there is high Expected Return and in the year 2008 there is negative expected Return as shown in the above table. In the year 2002, 2003, 2004, 2009 actual returns were more than the average. Similarly in the year 2003, 2005, 2006, 2007, 2009 expected returns were more than the average. Beta indicates systematic risk. If we consider the beta value of this company which is above 1, it is the indication that the company stocks are aggressive in nature. Alpha K.E.S SHROFF COLLEGE Page 40
  41. 41. indicates that if market does not give any return, then what % of return this security will give. If we apply this to above table we can tell that this company is giving positive return. CHAPTER :- 8 FINDINGS The finding in the study indicates that, how efficiently the Follow-on Public Offerings are performing in India. The study reveals the following findings;  The study reveals that only Andhra bank and Birla power solutions earned return on listing price and Listing Return is more in the case of Birla Power solutions Ltd compared to that of Andhra Bank. It shows that FPOs of other remaining companies could not get return on listing price. Which indicates FPOs which were made recently did not get return on listing price.  It is found that return on listing price is more in the case of NSE compared to that of BSE. The study shows that FPOs which were listed on NSE earned good return compared to listing on BSE.  First Day Trading Returns are more in the case of BPCL and REC. Except Andhra Bank; all companies are earned positive return. The study shows that the most of the FPOs on the first day of their trading have got positive returns to the investors.  The finding of the study reveals that all companies yielded positive first day returns to the investors on issue price in NSE and in the case of BSE there was a negative return to the Andhra Bank. K.E.S SHROFF COLLEGE Page 41
  42. 42.  The study reveals that the first day return on listing price is higher in the case of Rural Electrification Corporation in both BSE and NSE, whereas the lowest return is in the case of Andhra Bank in NSE and that is negative return in the case of BSE.  The finding of the study reveals that first day return on listing price is more in the case of NSE compared to that of BSE when average is taken in to consideration.  The finding of the study reveals that the long term return on the FPO is highest in the case of Birla Shloka Edutech, also considered as the most consistent return earned company and Birla Power Solutions is the biggest loser in the Long Term Return.  The study reveals that none of the FPOs were under priced. It indicates that chances are more in the case of IPOs to be under priced.  The study finds that there was no significant difference between the actual returns earned and returns what was expected.  The finding of the study reveals that all company’s stocks are non-aggressive in nature except Andhra Bank.  The study finds that all the companies except Birla Power Solutions Ltd are showing positive return even though market return is zero. CHAPTER :- 9 SURVEY 1-DO YOU THINK SEBI’S REGULATION FOR FPO IS OK? OUT OF ANSWER GIVEN YES 10 6 NO 10 4 K.E.S SHROFF COLLEGE Page 42
  43. 43. In this question from 10 people 6 people says that SEBI’S regulation for FPO is ok and from 10 people 4 people says that SEBI’S regulation for FPO is not good. 2-DO YOU PREFER TO INVESTING IN FPO? OUT OF ANSWER GIVEN YES 10 8 NO 10 2 K.E.S SHROFF COLLEGE Page 43
  44. 44. In this question from 10 people 8 people says that they are prefer to invest in FPO and from 10 people 2 people says that they are not ready to prefer to invest in FPO. 3-DO YOU THINK THAT FPO WOULD PERFORM SAME AS THE IPO OF THAT SAME COMPANY? OUT OF ANSWER GIVEN YES 10 6 NO 10 4 K.E.S SHROFF COLLEGE Page 44
  45. 45. In this question from 10 people 6 people says that FPO should perform same as IPO of that same company and from 10 people 4 people says that FPO should not perform same as IPO of that same company. 4-DO YOU CONSIDER CRA’S RATING FOR MAKING YOUR INVESTMENT DECISION IN FPO? K.E.S SHROFF COLLEGE Page 45
  46. 46. OUT OF ANSWER GIVEN YES 10 5 NO 10 5 In this question from 10 people 5 people says that they consider CRA’S rating for making investment decision in FPO and from 10 people 5 people says that they should not consider CRA’S rating for making investment decision in FPO. K.E.S SHROFF COLLEGE Page 46
  47. 47. 5-DO YOU THINK THAT THERE ARE SOME DRAWBACK OF INVESTING IN FPO? OUT OF ANSWER GIVEN YES 10 7 NO 10 3 In this question from 10 people 7 people says that there are drawbacks to invest in FPO and from 10 people 3 people says that there is no drawbacks to invest in FPO. K.E.S SHROFF COLLEGE Page 47
  48. 48. 6-DO YOU THINK THAT CURRENT ELIGIBILITY CRITERIA IS OK TO INVEST IN FPO? OUT OF ANSWER GIVEN YES 10 5 NO 10 5 In this question from 10 people 5 people says that current eligibility criteria is ok to invest in FPO and from 10 people 5 people says that current eligibility criteria to invest in FPO should not proper. K.E.S SHROFF COLLEGE Page 48
  49. 49. 7-DO YOU THINK THE CURRENT COMPANIES WHICH HAVE ISSUED FPO ARE PROFIT MAKING COMPANIES? OUT OF ANSWER GIVEN YES 10 6 NO 10 4 In this question from 10 people 6 people says that current companies which have issued FPO are profit making company and from 10 people 4 people says that current companies which have issued FPO are not profit making companies. K.E.S SHROFF COLLEGE Page 49
  50. 50. 8-DO YOU THINK THAT FPO GENERATES LIQUIDITY IN THE STOCK MARKET? OUT OF ANSWER GIVEN YES 10 4 NO 10 6 In this question from 10 people 4 people says that FPO generates liquidity into the stock market and from 10 people 6 people says that FPO does not generates liquidity into the stock market. K.E.S SHROFF COLLEGE Page 50
  51. 51. CHAPTER :- 10 CONCLUSION It is noted that getting in to a FPO is possible but not difficult as IPO. It depends on how an investor approaches to an FPO. The process of underwriting involves raising money from investors by issuing new securities. Companies hire investment banks to underwrite an FPO. It is not that much hard to analyze the stock of an established company, an FPO company is easy to analyze because there is lot of historical information. It all depends on the investors’ way of analysis. SEBI has laid down certain guidelines for issuing FPO which protects and helps the investors in their decision for investing. The various returns associated with the FPOs are analyzed in this study which helped to know the performance of FPOs during this period. There has been a trend that IPOs will be under priced, but in the study it is found that none of the FPOs were underpriced. It is found that Rural Electrification Corporation Limited is the best company in terms of listing returns and Birla Shloka Edutech Limited is best in terms of long term returns. It is the indication that FPOs issued in recent years have fetch much long term returns as earlier FPOs, first day returns are more in the this years. It shows that share prices of recent FPOs have closed higher on the day of their listing. K.E.S SHROFF COLLEGE Page 51
  53. 53.  Books  International Financial Management by P.K.Jain, Josette Peyrard, Surendra.S.Yadav, published by MACMILLAN INDIA LTD, 2001.  Financial Management by I.M.Pandey, by Vikas publishing house pvt ltd, 9th edition. K.E.S SHROFF COLLEGE Page 53