Initial public offers and due diligence the role of a investment banker conducted at kotak securities ltd
(A case study conducted at Hassan Kotak Securities ltd..., Hassan)<br /> Initial Public Offers and Due Diligence: <br /> The Role of a Investment Banker”<br /> Project report Submitted to the University of Mysore, Mysore<br />in partial fulfillment of the requirement for the award of the<br />degree in Master of Business Administration.<br />by<br /> SUKANYA J<br />Reg.No.08MB3753<br />Guide<br /> HARISH KUMAR<br />HARANAHALLI RAMASWAMY<br />INSTITUTE OF HIGHER EDUCATION, HASSAN<br />2010<br />HARANAHALLI RAMASWAMY INSTITUTE OF HIGHER EDUCATION<br />HASSAN<br />CERTIFICATE<br />Certified that, the project entitled<br /> Initial Public Offers and Due Diligence: The Role of a Investment Banker”<br />conducted at KOTAK SECURITIES LIMITED Hassan, is a bonafide work carried out by Ms. Sukanya .j in partial fulfillment for the award of degree in Master of Business Administration of the University of Mysore, Mysore during the year 2009-10.<br /> Guide Principal (Harish Kumar) (S.R. Jayaram) DECLARATION<br />I hereby declare that this project report entitled <br /> Initial Public Offers and Due Diligence:<br /> The Role of a Investment Banker”<br /> (A case study conducted at Hassan Kotak Securities Ltd., Hassan)<br />has been prepared by me under the guidance of Mr. HARISH KUMAR Department of Business Administration, Haranahalli Ramaswamy Institute of Higher Education, Hassan.<br />I further declare that this project report is prepared from the information collected from the kotak Securities ltd, and that the same is purely for academic purpose and that the report has not been submitted to any other institution of higher learning for the award of any degree, diploma or other similar title.<br />Date: 17-6-2009 SUKANYA . J <br />Place: Hassan Reg. No: 08MB3753 <br />ACKNOWLEDGEMENT<br />I, express my deep sense of gratitude and sincere thanks to, Mr.NAVEEN KUMAR S.R. Manager (Fin) of Kotak Securities ltd. who gave me an opportunity to conduct this Research Project. I state with great pleasure this report would not have been possible without the wonderful help from various quarters, the list of which is quite too long.<br />I will take this opportunity to express my deep sense of gratitude to Mr. HARISH KUMAR Dept. of Management studies, HRIHE, Hassan for his guidance, continuous encouragement and valuable suggestions at every stage of the Project.<br />I would also like to extend my deep sense of gratitude to my parents and all my family members, friends, who have directly or indirectly supported and helped me in the completion of my project successfully <br />Last, but not the least I would like to extend my thanks to all the unseen hands that have made this project possible.<br />Date: 17-6-2009 SUKANYA . J <br />Place: Hassan Reg. No: 08MB3753 <br /> <br />CONTENTS<br />Chapter No.TitlePage No. 01INTRODUCTION8-121.1 Executive summary 1.2 statement of problem1.3 objective of study1.4 scope of study1.5 Research Methodology 1.6 Sampling plane1.7 Data collection1.8 Limitations of the study1.9 Research process9101011111111121202 CHAPTER 2 13-442. INDUSRTY PROFILE2.1 COMPANY PROFILE13-2021-4003 REVIEW AND LITRATURE45-752.2 What is IPO,s2.3 Role of Intermediaries2.4 The Investment Banker2.5 The procedure for issue of an IPO2.6 Due-Diligence - process2.7 The Prospectus2.8 Application form 46-5051-5253-5657-5858-6565-7374-75 2.9 Data collection and interpretation 77-81Chapter 582-86 3. 6 Findings 3.7 Suggestion3.8 Conclusion 8384-8584 3.9 BIBLIOGRAPHY86<br /> <br /> LIST OF TABLE & CHARTS<br />TABLE NO.TITLE OF TABLESPAGE NO.T3Non institutional and qualified institutional investor categories 77T 3.1 Final demand 77T 3.2Allocation to employees78T 3.3Allocation to retail investor 78T 3.4Allocation to non institutional investor 79-80T 3.5Allocation to QIBs80<br /> <br /> <br /> CHAPTER 1<br />INTRODUCTION<br /> <br /> <br />1.1 EXECUTIVE SUMMERRY<br />This report, as the Title “Initial Public Offers and Due Diligence: The Role of a Investment Banker”, is an attempt to bring forth the importance of the process of Due Diligence and the significance of the vital role played by the Investment Banker in managing the issue of an Initial Public Offer (IPO). <br />When a Company issues an IPO, it means it is going public. The issue of an IPO introduces a great degree of transparency in a Company’s operations. All the relevant and updated information pertaining to the company is laid down before the investors so that they may make an investment decision. Again, there are set procedures, rules, regulations and laws to be followed in laying down this information before the investors. A document called the ‘Prospectus’ must be prepared. The Prospectus captures all the necessary information that is to be made available to the investors. Apart from the Prospectus, there are various other company documents that need to be verified and summarized in order to present them before the investors. <br />An Investment Banker is appointed for the purpose of managing the issue of an IPO of a Company. The Investment Banker plays a fiduciary role by coordinating the activities of the Company, the Regulatory Bodies, and the Investors. The Investment Banker has responsibilities towards the<br />Company, to manage the entire process of issue of its IPO, and to present the Company’s information before the investors in a concise and unambiguous form.<br />Investors, to give them all the relevant and updated information on the Company, while at the same time protecting their interests.<br />Regulatory Bodies such as the Securities and Exchange Board of India, to adhere to all secretarial and legal compliance.<br />In order to fulfill all his responsibilities well, the Investment Banker must work diligently. The process through which he verifies and summarizes the Company’s information is thus called the process of Due Diligence. He must issue Due Diligence Certificates at various points during the issue process, saying that the company documents have all been verified and are correct. This report will take the reader through the entire process of the Issue of an IPO and will lay special emphasis on the dynamic role played by the Investment Banker<br />1.2 Statement of problem<br />The decision by a company to go public is a critical one as it results in the dilution of ownership stake and the diffusion of corporate control. In this respect, an Initial Public Offer (IPO) is the first public offer of securities by a company since its inception. The Investment Banker acts as an intermediary between the issuing company and the ultimate investors who purchase these securities.<br />Managing an IPO involves a number of mechanical and intellectual efforts that need to be applied in activities such as channeling the financial surplus of the society into productive investment avenues, exercising Due Diligence to ensure the adequacy and appropriateness of the disclosures made in the Prospectus, and guiding and coordinating the other intermediaries associated with the issue. The project will address all the above activities involved in the management of IPOs to bring forth the significance of the dynamic role played by the Investment Banker in this sphere.<br />Title of the project<br />“Initial Public Offers and Due Diligence: The Role of a Investment Banker”<br />1.3 Objectives of study<br />To study and understand the concept of and procedure involved in Initial Public Offers (IPOs).<br />To study and understand the process of Due Diligence and its significance in Initial Public Offers.<br />To analyze the effect of Initial Public Offers on the issuing company, investors and the stock market.<br />To understand the role of an Investment banker in managing Initial Public Offers.<br />1.4 Scope of study<br />The scope of the project is confined to the companies mandated to the Investment Banking Division (IB) of ICICI Securities Ltd. (I-SEC). Moreover, it is confined to companies going in for IPOs.<br />1.5 Research methodology<br />The researcher conducted a descriptive research to arrive at the analysis and findings. A descriptive research is the suitable kind of research methodology which has been used for conducting this study because the study involves an in depth knowledge and a lot information about the subject matter.<br /> 1.6 Sampling plan <br />The sampling technique employed was judgmental sampling because the researcher had the liberty of selecting the sector and the years to be considered for arriving at the conclusion. <br />1.7 Data collection: <br />Secondary data consists of information that already exists somewhere having been collected for some purpose. The secondary data used in the research was collected from the following sources:<br />www.emamigroup.com<br />www.bseindia.com<br />www.capitalmarkets.com<br />www.companylawinfo.com<br />1.8 Limitations of the study<br /> If any incorrect information is furnished by the clients, the same will be carried forward in this project work.<br />Although Initial Public Offers are issued by many companies, this study is confined to a few companies only. These are companies that fall within the clientele of ICICI Securities Ltd (I-SEC).<br />1.9 Research process<br />The study begins with the understanding of the topic under discussion, i.e. Initial Public Offers and Due Diligence: The Role of a Investment Banker. It explains the importance and the critical role played by an investment banker . Taking the case study of emami ltd the researcher has tried to explain the basis for allocation of shares by the investment banker for emami IPO. Moreover the researcher has tried to justify the sources from where investment banker raises funds for the IPO<br /> <br /> <br /> CHAPTER 2<br /> <br /> 2. INDUSTRY PROFILE<br />KOTAK SECURITIES LIMITED.<br />Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock broking and distribution arm of the kotak mahendra group. The company was set up in 1994.<br />Kotak securities limited is a corporate member of both, <br />The Bombay Stock Exchange. (BSE)<br /> The National stock Exchange. (NSE)<br />Its operation include stock broking and distribution of various financial products –including <br />Private and secondary placement of debt and equity and mutual funds.Currently Kotak securities limited is the one of the largest broking house in India, with Wide geographical reach. The company has four areas of business. They are as follows:<br />Institutional Equities.<br />Retail.(Equities and other financial products).<br />Portfolio Management.<br />Depository services.<br />And other areas services.<br />Institutional Business. <br /> This division primarily covers secondary market broking. It caters to the needs of foreign and Indian institutional investors in Indian equities (both local shares and GDRs). The division also incorporates a comprehensive research cell with sectored analysts who cover all the major areas of the Indian economy. <br />Client Money Management. <br /> This division provides professional portfolio management services to high net-worth individuals and corporate. Its expertise in research and stock broking gives the company the right perspective from which to provide its clients with investment advisory services.<br />Retail distribution of financial products.<br /> Kotak Securities has a comprehensive retail distribution network, comprising 870 offices (own and franchisees) across 309 cities and towns, servicing 590,000 customers. This network is used for the distribution and placement of a range of financial products that includes company fixed deposits, mutual funds, Initial Public Offerings, secondary debt and equity and small savings schemes.<br />Depository Services. <br /> Kotak Securities is a depository participant with the National Securities Depository Limited and Central Depository Services (India) Limited for trading and settlement of dematerialized shares. Since it is also in the broking business, investors who use its depository services get a dual benefit. They are able to use its brokerage services to execute transactions and its depository services to settle these.<br /> Kotak Institutional Equities, among the top institutional brokers in India. It mainly covers secondary market broking and the marketing of equity offerings, including IPOs, to domestic and foreign institutional investors. Its full-fledged research division comprises 26 analysts engaged in macro-economic studies, industry-and company-specific equity research.<br /> Kotak Institutional Equities has full financial service capability, which includes derivatives, facilitating market access through affiliates and the distinctive offering of corporate access to investors. The division services over 250 clients including FIIs, domestic institutions and mutual funds. The division has sales desks in Mumbai, London and New York, with the India desk also servicing clients in Hong Kong, Singapore, Japan and Australia. <br />Evolution of Indian Stock Market<br /> Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago. The earliest records of security dealings in India are merger and obscure. The East India Company was the dominant institution in those days and business in its loan securities used to be transacted towards the close of the eighteenth century.<br /> By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers recognized by banks and merchants during 1840 and 1850.<br /> The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60. In 1860-61 the American Civil War broke out and cotton supply from United States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87).<br /> At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a place in a street (now appropriately called as Dallal Street) where they would conveniently assemble and transact business. In 1887, they formally established in Bombay, the "
Native Share and Stock Brokers' Association"
(which is alternatively known as “The Stock Exchange "
). In 1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Trading Pattern of the Indian Stock Market<br /> Trading in Indian stock exchanges is limited to listed securities of public limited companies. They are broadly divided into two categories, namely, specified securities (forward list) and non-specified securities (cash list). Equity shares of dividend paying, growth-oriented companies with a paid-up capital of at least Rs.50 million and a market capitalization of at least Rs.100 million and having more than 20,000 shareholders are, normally, put in the specified group and the balance in non-specified group.<br /> Two types of transactions can be carried out on the Indian stock exchanges: (a) Spot delivery transactions "
for delivery and payment within the time or on the date stipulated when entering into the contract which shall not be more than 14 days following the date of the contract” and<br /> (b) Forward transactions "
delivery and payment can be extended by further period of 14 days each so that the overall period does not exceed 90 days from the date of the contract"
<br /> The latter is permitted only in the case of specified shares. The brokers who carry over the outstanding pay carry over charges (can tango or backwardation) which are usually determined by the rates of interest prevailing.<br /> A member broker in an Indian stock exchange can act as an agent, buy and sell securities for his clients on a commission basis and also can act as a trader or dealer as a principal, buy and sell securities on his own account and risk, in contrast with the practice prevailing on New York and London Stock Exchanges, where a member can act as a jobber or a broker only.<br /> The nature of trading on Indian Stock Exchanges are that of age old conventional style of face-to-face trading with bids and offers being made by open outcry. However, there is a great amount of effort to modernize the Indian stock exchanges in the very recent times. <br /> The rules, regulations and economic policy of government also effects on share market and also tax-policy of government also effects on market to the investment and trading business.<br /> Know a day’s business is expanding in financial sector, because of more buyers and more <br />Sellers and computation is very high in the city and also computation from other share broking companies.<br />The growth of financial sector in India at present is nearly 9-10% per year. The rise in the growth of the economy. The financial policies and the monetary policies are able to stable growth rate. The reforms, pertaining to the monetary policies and the macroeconomic policies over the last five years has influenced the Indian economy to the core.<br />However global economic activity decelerated towards the end of the calendar year resulting in investment concerns on account of the sub-prime crisis in the US and other developed nations. Naturally the effects of this slowdown spilled over into developing economies also and we are looking ahead with some degree of concern over the prospects in the near future.<br /> The economic environment and prospects of India got the attention of global investors and the FII inflows continued even in the current financial year. The net FII investors peaked at USD 7 billion in September 2007. The increased liquidity combined with excellent performance of the corporate sector helped growth of equity market significantly. The sense touched the peak level of 21,206 in the month of January 2008. As a reasultthe volume in the market also went up to unprecedented level. The combined daily market turnover touched the record level of Rs 1 lakh crore for the first time in the history of capital market. The average daily turnover in the cash segment of NSE which was 7,812 crore in the year 2006-07 crossed was Rs 20,000 crore in October, 2007. Similarly the average volume in the derivative segment which was Rs 29,543 crore in 2006-07 reached a high of Rs 83,348 crore in October 2007. There has been a considerable increase in other areas of the industry such as mutual funds. IPO’s and insurance products also, 612 mutual fund schemes were launched during the year against 413 last year.<br />In recent days economic collapsed in variation of the foreign investors fund main effect of the Indian economy in 2008-2009 the Bombay Stock Exchange (BSE) the sensex was 13,400 in the month of 13th July 2009. In other side National Stock Exchange (NSE) 3,974 is in the same month of 2009.<br />However the market witnessed deep corrections in the end of January 2009 as a fall out of sub-prime crisis and related economic concerns in the US. Consequently volumes went down below half of the peak and the index corrected by more than 30% from its peak level. The dark clouds caused by global events and its possible impact on the Indian economy continue to cast a shadow on the outlook of the markets in the near future. <br /> However global economic activity decelerated towards the end of the calendar year resulting in investment concerns on account of the sub-prime crisis in the US and other developed nations. Naturally the effects of this slowdown spilled over into developing economies also and we are looking ahead with some degree of concern over the prospects in the near future.<br /> The economic environment and prospects of India got the attention of global investors and the FII inflows continued even in the current financial year. The net FII investors peaked at USD 7 billion in September 2007. <br /> The increased liquidity combined with excellent performance of the corporate sector helped growth of equity market significantly. The sensex touched the peak level of 21,206 in the month of January 2008. As a result the volume in the market also went up to unprecedented level. The combined daily market turnover touched the record level of Rs 1 lakh crore for the first time in the history of capital market. The average daily turnover in the cash segment of NSE which was 7,812 crore in the year 2006-07 crossed was Rs 20,000 crore in October, 2007. Similarly the average volume in the derivative segment which was Rest 29,543 core in 2006-07 reached a high of Rs 83,348 crore in October 2007. There has been a considerable increase in other areas of the industry such as mutual funds. IPO’s and insurance products also, 612 mutual fund schemes were launched during the year against 413 last year.<br /> A significant portion of the company‘s income arises from stock broking operations, which are largely dependent on the conditions of the stock market. The stock market activity depends largely upon the economic growth momentum and a combination of several factors like low inflation, growing domestic savings, surging portfolio investments into India etc. <br /> The unusual developments in the global economy indicate heightened uncertain and new challenges for the emerging market economies like India .However several policy measures introduced by the government to reduce the growing rate of inflation like imposing price controls, further monitory tighten, increasing cash reserve ratio etc, consistently increasing savings and investment rate, expectation of a healthy GDP growth rate compared to other competing emerging markets and healthy corporate earnings has the potential to attract strong foreign capital flows in the Indian capital market.<br /> The management of then view that the company will be able to reasonably perform in the given economic environment by containing its efforts to reach new geographic areas and new client segments with its broad based product line and service capability.<br /> <br /> 2.1 COMPANY PROFILE<br /> BACKGROUND AND INCEPTION OF THE COMPANY:<br /> Kotak Securities Ltd. 100 % subsidiary of Kotak Mahindra Bank is one of the oldest and largest broking firms in the Industry. The company’s offerings include stock broking through the branch and Internet, Investments in IPO, Mutual funds and Portfolio management service.<br /> Kotak Securities has a full-fledged research division involved in Macro Economic studies, Sectoral research and Company Specific Equity Research combined with a strong and well networked sales force which helps deliver current and up to date market information and news. Kotak Securities’ network spans over 321 cities with 877 Bombay was consolidated.<br />The company is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), providing dual benefit services wherein the investors can avail the company’s brokerage services for executing the transactions and the depository services for settling them.Kotak Securities Ltd. processes more than 4, 00,000 trades a day which is much higher even than some of the renowned international brokers.Kotak Securities Limited has over Rs. 4100 crore of Assets under Management (AUM) as of 31st March, 2009. The portfolio Management Service provides top class service, catering to the high end of the market. <br />Portfolio Management from Kotak Securities comes as an answer to those who would like to grow exponentially on the crest of the stock market, with the backing of an expert. Unlike many other companies, Kotak Securities Ltd. has a Centralized Risk Management System and an in-house Research Team which allows it to offer the same levels of service to customers across all locations. Kotak Securities was awarded as the most customer responsive company in the Financial Institution sector by AVAYA Global Connect Award both in 2006 and 2007.<br />Kotak Securities Ltd has been the first in providing many products and services which have now become industry standards. Some of them are:<br />Facility of Margin Finance to the customers.<br />Investing in IPOs and Mutual Funds on the phone.<br />SMS alerts before execution of depository transactions.<br />Mobile application to track portfolios.<br />Auto Invest - A systematic investing plan in Equities and Mutual funds.<br />Provision of margin against securities automatically against shares in the customer’s Demat account.<br />Planning for your future relies on planning the right kinds of long term investments. There are many different types of long term financing investments, and everyone needs to have some sort of investments for their future. Let's face it. You will not be able to work forever. No matter how healthy you are, there will come a time when you will not be able to work, due to health problems or simply aging. What will you do for an income when the time comes to retire? This is why planning your long term investments carefully is so important. There are many reasons to invest. You can create wealth, beat inflation, achieve financial goals like buying a car or paying for college, and retirement. You can choose from many investing options. You can invest in Equities, IPO's, Mutual Funds, Insurance, PMS and other several asset classes,we see investing from your perspective, and make recommendations based on actually listening. <br /> Kotak Securities, Ltd. offers stock broking services and distributes financial products in India. The company primarily provides secondary market broking services in equity shares and global depository receipts. It also offers portfolio management services to high net-worth individuals and corporate. In addition, the company distributes a range of financial products, including company fixed deposits, mutual funds, initial public offerings, secondary debt, equity, and small savings schemes. Further, it provides Internet broking services and depository services. The company was founded in 1994 and is based in Mumbai, India. Kotak Securities, Ltd. is a subsidiary of Kotak Mahindra Bank.<br />More than 15 years of history in Indian Capital Market: Kotak securities limited have more than 15 years of in-depth broking experience in the Indian Capital Market. More than 9.5 lake clients and over Rs 4100 crores (as of 31st Mar.’09) in Assets under Management reflect the trust reposed in our expertise. <br />2.Facility of Online Trading in Feb. 2000: <br />In the year 2000, the simple concept of providing individuals with the facility to trade online. This revolution has given the company the first mover advantage in online trading. As a creative innovator, company experts uses advanced technology in online trading to meet client requirements such as customized online trading platforms and many other services. <br />3.Strong Shareholders:<br /> Kotak securities limited main back bone is strong share holders because of the company research, recommendation and company infrastructure facilities.Company mainly based on good board of directors chairman uday Kotak and other expert directors who are good experts in the field of share buying recommendation to the customers of the company.<br />Wide range of products. The wide range on offer includes – <br />Equities<br />Derivatives<br />Currency trading.<br />Future and option (F&O)<br />Custody accounts.<br />Mutual funds.<br />General insurance.<br />Loans against shares.<br />IPO<br />Portfolio Management service.(PMS)<br />Margin funding.<br />MULTICHANNEL SERVICE:<br />Internet.<br />Phone.<br />Branch trading.<br /> Mobile alerts and short message service.<br /> COMPANY’S DEEP REACH IN INDIA<br /> We have a pan-India network of offices in 321 cities 877 outlets with industry <br /> Certified executives and a dedicated Call Centre to provide you quality services. <br />In India leading retail financial services contributor Kotak securities limited today is a leading retail financial services company in India with a growing presence in the Middle East. The company rides on its rich experience in the capital market to offer its clients a wide portfolio of savings and investment solutions.<br /> The extent of value-added products and services offered ranges from equities and derivatives to Mutual Funds, Life & General Insurance and third party Fixed Deposits. The needs of over more than 9,50000 clients are met via multichannel services - a countrywide network of 877offices, phone service, dedicated Customer Care centre and the Internet. Kotak securities limited have membership in, and are listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The company has not merged with <br />any other company a single player service provider in our country.Kotak securities limited has its own identity in our country company single player provides good information about trading stock. Company is developing day to day expanding business not only in India also in so many countries.<br />In over sea company has its own prestige its service to customers is very valuable <br /> Kotak Securities Ltd online trading account customer can buy and sell shares in an instant. Any time customer want, from anywhere you like.<br /> <br /> Kotak Securities Ltd online trading account comes with a depository participant account where customer can keep all shares, in safe custody with National Securities Depository.<br /> Customer can also link a Kotak Securities online trading account to an Internet companying account of your choice, so that you can move cash in and out of this account easily, without the bother of writing cheques all the time. <br /> Trading is super fast, extremely safe and highly secure at Kotak Securities. Apart from providing the most advanced trading platform in the country, Kotak Securities also offers facilities like instant cash transfer, after-market order, limit against shares and four times exposure on margin.<br />Kotak Securities Launches Online Trading Service<br /> Kotak Securities Ltd. has launched an online trading service to provide information on currency derivatives and equity players. The platform will provide information on real time basis, using the same trading system. <br /> The company now offers a single platform for investments in equities, Mutual Funds and currency derivatives. Available margin can be used for any of the three segments. The online trading service is expected to provide opportunities to importers and exporters to hedge their future payables and receivables facilitate borrowers who can hedge fiscal loans for interest and principal payments. The service will also be a platform for resident Indians to hedge their offshore investments.<br />Kotak Securities Launches Smart Order<br /> Kotak Securities Ltd. announced the launch of Smart Order, a new service from Kotak Securities that will help clients buy and sell stocks at the best possible rates from either of the stock exchanges BSE or NSE. The service will offer customers the best available price between NSE and BSE. Once the customer selects Smart Order to buy or sell.<br /> It executes the order at the best combination of price and quantity by doing a dynamic search. As per Kotak Securities it is better than having a dealer who decides the choice of stock exchange that will give the a better price and then executes the deal and the Smart Order does the same but the advantage is that it is done instantly. Smart Order will be available without any extra charge and will be provided to all online clients of Kotak Securities<br />Expanding range of online products and services.<br /> A Kotak security limited has proven expertise in providing online services. In the year 2000, the company was the first stock broker in the country to offer Internet Trading. <br /> This was followed by integrating the first Bank Payment Gateway in the country for Internet Trading, and many other industry firsts. Riding on this experience, and harnessing company personal investor’s expertise as the leading online broker in Europe, is helping the company to rapidly expand its business in this segment.<br /> Presently, clients can trade online in equities, derivatives, currency futures, mutual funds and IPOs, and select from multiple bank payment gateways for online transfer of funds. Strategic B2B agreements with Axis Bank and Federal Bank enable the respective bank’s clients to open account to effortlessly trade via a sophisticated Online Trading platform.<br /> Further, deployment Kotak securities limited state-of-the-art globally accepted systems and processes are already scaling up the sales of Mutual Funds and Insurance.<br />A growing footprint in the country.<br /> With a presence in almost all the major states of India, the network of 877offices across 321 cities and towns presently covers Andhra Pradesh,Bihar, Chhattisgarh, Goa, Gujarat, Haryana, Jammu& Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, New Delhi, Orissa, Punjab, Rajasthan, Tamil Nadu & Pondicherry, Uttar Pradesh, Uttarakhand andWestBengal <br />BOARD OF DIRECTORS;<br />Uday S. Kotak - (Chairman)<br />Romesh C. khanna<br />Sukanth kelkar<br />C. jayaram<br />Bipin R. shah<br />Narayan S.A<br />Kotak Securities Limited Auditors;<br /> Price water house,<br /> Charted accountants, <br /> Mumbai -21.<br />Kotak Securities Limited Registrar;<br />Computer age management services pvt, limited<br />158, rayala towers, 2nd floor,<br />Anna salai,<br />Chennai – 600 002.<br />Tel ; 044-2852 1839.<br />Kotak Securities Limited regd. Office: <br />Kotak securities limited.<br />Bakhtawer, Nariman point,<br />Mumbai – 21. <br /> Nature of business;<br /> Kotak Securities Ltd. 100 % subsidiary of Kotak Mahindra Bank is one of the oldest and largest broking firms in the Industry. The company’s offerings include stock broking through the branch and Internet, Investments in IPO, Mutual funds and Portfolio management service. <br /> Kotak Securities has a full-fledged research division involved in Macro Economic studies, Sectoral research and Company Specific Equity Research combined with a strong and well networked sales force which helps deliver current and up to date market information and news. Kotak Securities’ network spans over 321 cities with 877 outlets, with an employee workforce beyond 5100.<br /> The company is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), providing dual benefit services wherein the investors can avail the company’s brokerage services for executing the transactions and the depository services for settling them. Kotak Securities Ltd. processes more than 950000 trades a day which is much higher even than some of the renowned international brokers.<br /> Kotak Securities Limited has over Rs. 4100 crore of Assets under Management (AUM) as of 31st March, 2009. The portfolio Management Service provides top class service, catering to the high end of the market. Portfolio Management from Kotak Securities comes as an answer to those who would like to grow exponentially on the crest of the stock market, with the backing of an expert. Unlike many other companies, Kotak Securities Ltd. has a Centralized Risk Management System and an in-house Research Team which allows it to offer the same levels of service to customers across all locations.<br />Kotak Securities Ltd has been the first in providing many products and services which have now become industry standards. Some of them are:<br />Facility of Margin Finance to the customers <br />Investing in IPOs and Mutual Funds on the phone <br />SMS alerts before execution of depository transactions <br />Mobile application to track portfolios <br />Auto Invest - A systematic investing plan in Equities and Mutual funds <br />Provision of margin against securities automatically against shares in the customer’s Demat account <br />Trading services<br /> Trading is super fast, extremely safe and highly secure at Kotak Securities. Apart from providing the most advanced trading platform in the country, Kotak Securities also offers facilities like instant cash transfer, after-market order, limit against shares and four times exposure on margin. <br /> Portfolio Management Service; by Kotak securities which is one of the most popular services offered by the 2500 crore group. The Portfolio Management Service combines competent fund management, dedicated research and technology to ensure a rewarding experience for its clients. Special relationship managers are appointed to manage your investments in the best possible manner and make sure that you get maximum returns of your investments. A constant vigil on the performance of your portfolio will give you a fair idea on the various aspects of your investments. <br />The relationship managers with a minimum experience of 2 years are the best in the industry and are well versed with the different trends in the market. Let us take a look at the equity PMS-es offered by Kotak Securities Limited. Unfortunately, they have chosen NOT to publicly disclose details such as the minimum amount to be invested, management fees or the profit sharing structure. I imagine that, like mostthingin life, these are negotiable. Origin o Market cap Rs 4000 crores, Stock selection using criteria such as GARP, high ROI, etc.·ClassicPortfoliFlexi o Multi cap portfolio, based on the observation that “present market conditions hints at growth as a central premise to support valuations” - whatever that means.· Invest Guard Plan o ‘CPPI Model’ - Invests across shares and fixed income products, moving from shares into fixed interest investments when the fund’s value drops below a predetermined “floor”. When markets start to move up, the product increases its holdings in shares, tapping into these growth opportunitiesCORe Portfolio Depository services<br /> Customer can open a Depository Participant (DP) account, either through a Kotak Securities branch or through a Kotak Securities franchisee. <br /> There is no fee for opening a DP account with Kotak Securities Ltd. However a nominal deposit (refundable) is charged towards services, which are adjusted against all future billings. Kotak Securities offers dematerialization/rematerialisation services to individual and corporate investors. <br /> Dematerialization is the process by which a client can get physical certificates converted into electronic balances maintained in his account with the DP. Dematerialization is the process by which a client can get his electronic holdings converted into physical certificates. <br /> Kotak Securities Ltd also offers Pledge facility, which enables you to obtain loans against their dematerialized shares. So customer gets liquidity without having to sell their shares. <br />Other Investment Products.<br /> "
section provides exhaustive information on various mutual fund schemes. You can also download from our site forms of various mutual fund schemes including HDFC MF, JF MF, Pioneer ITI MF. <br />Derivatives trading<br /> It also provides derivatives trading services through our ground network of share shops. With Kotak Securities Ltd you can invest in index and stock futures as well as stock and index options on the NSE. Keep track of the derivatives market with "
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. <br />Kotak Securities Limited <br />Multi Commodity Exchange.<br />National Commodity & Derivatives Exchange Limited.<br />India Pepper & Spice Trade Association.<br />Gold commodity exchange.<br />Silver commodity exchange.<br />National Multi Commodity Exchange of India Limited.<br />Kotak securities limited accounting policy and procedure:<br />Basis of Financial statement Preparation<br /> <br /> The financial statements are prepared under the historical cost convention on accrual basis and in accordance with the Companies Act, 1956, and the Accounting Standards specified in Rule 3 of Companies (Accounting Standards) Rules, 2006.<br /> <br />Use of Estimates:<br /> The preparation of the financial statements in conformity with the accounting standard generally accepted in India requires, the management to make estimates that affect the reported amount of assets and liabilities, disclosure of contingent liabilities as at the financial statement and reported amounts of revenues and expenses For the year. Actual results could differ from these estimate.<br />Investments:<br /> Investments are classified as long-term or current based on their Nature and intended holding period. Long-term investments are stated a Cost less provision for diminution, other than temporary; in value Current investments are stated at lower of cost and market value / net Asset value.<br /> Income<br /> Brokerage income is recognized on the trade date of transaction, upon Confirmation of the transactions by stock exchanges and clients. Income from depository services, penal charges and portfolio management services are recognized on the basis of agreements entered into with Clients and when the right to receive the income is established. Commission income from financial products distribution is recognized on the basis of agreement entered with principals and when the right to Receive the income is established. Interest income from margin funding business is recognized on loans given to clients on time proportion Basis. Other interest incomes are recognized on time proportion basis. Dividend income is recognized when the right to receive the income is Established.<br />2.3 Vision and mission statement; <br /> <br />Vision of Kotak securities limited<br /> <br />The global Indian Financial service bands: <br /> Our customers will enjoy the benefit of dealing with a global Indian brand that best understands their needs and deliveries customaries pragmatic solution across multiple platforms we will be world class Indian financial service group.<br /> Our technology and best practices will be standard along international lines while our understanding of customers will be uniquely Indian. We will be more than a repository of our customer’s savings.We the group will be a single window to every financial service in a customer’s universe.<br />The most preferred employer in financial services.<br /> A culture of empowerment and a sprite of enterprise attract bright minds with an enterprinnial streak to join us and stay with us working with a home grown professionally managed<br />Company. Which has partnership with international leaders gives our people a perspective that is universal as well as unique?<br />The Most Trusted Financial Services Company.<br /> We will create a culture of truest across all our consultants adhering to high standards of Compliance and corporate governance will be an integrated part of building trust.<br />Value Creation.<br /> Value creation rather than size alone will be our business driveras to be a leading financial and commodities intermediary for individual and institutional clients from India and overseasCompany will continually strive to raise the product and service standard by intelligent application of technology and processes<br />MISSION<br /><ul><li>Company upholds uncompromising ethical standards and strives to maintain a distinctive identity in public mind through innovation and quality
Company is committed to achieve profitable progress, consistently.Company freely shares investment experience across all ages and strata of society to encourage wise investment for a better future.
Company understands and respects customer needs to consistently deliver total quality solutions through constant skills up gradation
Company believes that their culture helps to attract and retain the best talent</li></ul> OWNERSHIP PATTERN:<br /> Kotak securities limited are a 100% ownership of Kotak Mahindra group which was owned by Kotak Mahindra bank. The company under the control of chairman and board of directors.<br /> ACHIVEMENT AND AWARDS<br />The company launches portfolio management services after obtaining required registratration from SEBI. Kotak become a depository participant under National Securities Depository Ltd (NSDL) and begins providing depository services through its branches. Kotak becomes a member of the BSE in MUMBAI and activities Bombay Online Trading in different branches.<br />Kotak Securities’ Accolades include:<br />Best Brokerage Firm in India by Asia money in 2008, 2007 & 2006<br />Best Performing Equity Broker in India - CNBC Financial Advisor Awards 2008<br />Avaya Customer Responsiveness Awards (2007 & 2006) in Financial Services Sector<br />The Leading Equity House in India in Thomson Extel Surveys Awards for the year 2007<br />Euro money Award (2007 & 2006) - Best Provider of Portfolio Management: Equities<br />Euro money Award (2005)-Best Equities House In India<br />Finance Asia Award (2005)-Best Broker In India<br />Finance Asia Award (2004)- India’s best Equity House<br />Prime Ranking Award (2003-04)- Largest Distributor of IPO’s<br /> FUTURE GROWTH & PROSPECTUS:<br /> <br /> The company is providing loan against share & loan for commodity trading to the clients of Kotak ltd. Focus during the year was on capital & commodity market. The number of clients also showed upward increase which enabled the company to broad base the lending. However during the year regulatory restrictions were imposed limiting the near month delivery volume of clients as well as brokers since our commodity based lending was primarily to clients who did delivery transactions in commodity futures exchanges this step has impacted commodity lending. inspite of this commodity based lending showed growth of 59%.Though there has been slight easing of the delivery volume restrictions imposed last year, the restrictions still continue. However, the company is exploring all steps to improve business through extensive efforts. Since growth of capital market in general has opened up increased opportunities in stock related lending, company is taking steps to augment availability of funds for lending.<br /> The company increased its office network by adding 50 new offices by focusing more on the northern states of the country. The thrust given to geographic expansion is continuing.<br /> <br />McKINSEY 7-S-Model<br /> The 7-S-Model is better known as McKinsey 7-S. This is because the two persons who developed this model, Tom Peters and Robert Waterman, have been consultants at McKinsey & Co at that time.<br /> <br /> Those seven elements are distinguished in so called hard S’s and soft S’s. The hard elements are feasible and easy to identify. They can be found in strategy statements, corporate plans, organizational charts and other documentations.<br />PRIVATEThe Hard S’sStrategy Actions a company plans in response to or anticipation of changes in its external environment.Structure Basis for specialization and co-ordination influenced primarily by strategy and by organization size and diversity. Systems Formal and informal procedures that support the strategy and structure. (Systems are more powerful than they are given credit)The Soft S’sThe culture of the organization, consisting of two componentsStyle / Culture:· Organizational Culture: the dominant values and beliefs, and norms, which develop over time and become relatively enduring features of organizational life.· Management Style: more a matter of what managers do than what they say; How do a company’s managers spend their time? What are they focusing attention on? Symbolism – the creation and maintenance (or sometimes deconstruction) of meaning is a fundamental responsibility of managers.Staff The people/human resource management – processes used to develop managers, socialization processes, ways of shaping basic values of management cadre, ways of introducing young recruits to the company, ways of helping to manage the careers of employeesSkills The distinctive competences – what the company does best, ways of expanding or shifting competences Shared Values / Super ordinate Goals Guiding concepts, fundamental ideas around which a business is built – must be simple, usually stated at abstract level, have great meaning inside the organization even though outsiders may not see or understand them.<br />Kotak securities limited structure in Hassan. <br /><ul><li> MANAGER</li></ul> SENIOR EXECUTIVE<br /> EXECUTIVE EXECUTIVE<br /> <br />Kotak securities limited organization structure.<br /> MANAGING DIRECTOR <br />CFO COO CTO CHR CWC CMC<br /> <br /> <br /> SENIOR VP <br /> OPERATION<br /> MANAGER<br />CHIEF<br />FINANCE<br /> MANAGER<br /> SENIOR VP CHIEF MANAGER<br /> <br />COMPLIANCE<br /><ul><li>CFO-chief financial officer
CHR-chief officer human resource</li></ul> SWOT ANALYSISInternal Strengths WeaknessesExternal Opportunities Threats<br />STRENGTHS:<br /><ul><li>Kotak is one of the leading retail financial service companies in the country and in the Middle East with membership in NSE and BSE.
Company continues to achieve cost efficiencies through the application of technology.
Kotak is a charter member of the financial planning standards board of India and is one of the largest brokers in the country.
It is listed on the BSE & NSE and its market capitalization is over Rs.777.6 crores
It is the first Indian stock broking company to commence domestic retail brokerage operations in any foreign country through its joint venture
Lack of efficient and effective strategies in attracting customers.
OPPORTUNITIES:</li></ul> The India financial market has a very high growth potential. The macroeconomic fundamental are sound to allow the economy to make rapid strides. Economic expansion will result in greater disposable incomes and larger number of investors.<br /><ul><li> Introduction of new instruments in the F&O segment etc.
Changes in India political economic conditions.
Changes in government polices and regulation.Dependency on international market</li></ul> CHAPTER 3<br /> REVIW AND LITRATURE<br /> <br /> <br /> <br />REVIEW AND LITRATUER <br />2.2 What is an IPO?<br />An IPO or an Initial Public Offer is a company's first sale of equity shares to general public. Shares offered in an IPO are often, but not always, those of newly set up companies seeking outside equity capital and a public market for their shares. <br />“An initial public offer is an equity product that allows you to buy cheap tomorrow’s possible winners”<br /> -George Mathew<br />An Initial Public Offering (IPO) can be a good investment avenue for equity investors. While the IPO market is dry these days, a fresh crop is expected soon. Let us take five minutes to understand IPOs and to decide whether to invest in them or not. <br />Suppose your friend owns a business, his company is profitable and he wants to grow the company faster. For this he needs money. Instead of debt, he wants to offer a part of his company for sale in the stock market. He will make, what is called, a ‘public offer’ of shares (after a number of procedures and regulatory processes). If the issue is successful, his company will ‘list’ or begin to trade in a stock exchange. So, an IPO is a fresh offer, where a company that is not yet trading, wants to sell shares directly to the investors. The shares can be offered ‘at par’, that is, at face value of Rs 2 Rs 5 or Rs 10, or at a premium. After this, your friend is no longer the only owner but will have ‘diluted’ his share. The ‘owners’ of the company may now be thousands of people he may not even know. Yet, if he holds the majority shares, he will still take all the decisions about the company. All the share holders are now entitled to vote, may get dividends and bonuses. They also have the option to exit from the shares by selling their stock in the secondary market, making a capital appreciation or loss as the price changes from the issue price. <br />Why may a Company need an IPO?<br /> To meet short-term requirements, the company may approach banks, lenders or may even accept fixed deposits from the public/shareholders. To meet its long-term requirements, funds can be raised either through loan from lenders, Banks, Institutions etc., (which carry financial burden) or through the issue of capital. Capital can be raised through private placement of shares, public issue, rights issue, etc. Public Issue means raising funds from the public. Promoters of the company may have plans for the company that may require infusion of money. The main purpose of the public issue, amongst others, is to raise money through the public and to get its shares listed at any of the recognized stock exchanges in India. The following may be some other reasons for a company to go public:<br />Raising funds to finance capital expenditure programs like expansion, diversification, modernization, etc;<br />Financing of increased working capital requirements;<br />Financing acquisitions like a manufacturing unit, brand acquisitions, tender offers for shares of another firm, etc;<br />Debt financing ;<br />Exit route for exiting investors. <br /> An IPO has two sides to it, consisting of advantages and disadvantages. Moreover, it needs to be balanced, and this is done by the Regulatory Bodies such as The Securities and Exchange Board of India (SEBI), so that it does not fall on one side. Due to this property of an IPO, it has been referred to as a “Coin” in this report. <br />What are the two sides of IPO coin?<br />AdvantagesDisadvantagesMoney non-refundable except in the case of winding up or buy back of shares No financial burden i.e. no fixed rate of interest payable. However, in order to service the equity, dividend may be paid. Enhances shareholder's value if the company performs well Greater Transferability Trading & Listing of securities at stock exchanges Better Liquidity of securities Helps building reputation of promoters, company & its products / services, provided the company performs well Time consuming process Expensive Several Legal formalities. Involvement of many intermediaries Transparency Requirements and public disclosure of information may lead to lack of privacy Continuous Compliance of provisions of listing agreement and other legal requirements Constant scrutiny of performance by investors May lead to takeover of the company Securities of the company may be made subjective to speculative attacks. <br />How is the “coin” made to balance (Controls)?<br />Applicable Laws<br />A Company is required to comply with the following laws in connection with a public issue:<br />Provisions of The Companies Act, 1956 <br />Securities Contracts (Regulations) Act, 1956 <br />SEBI Rules & Regulations <br />Compliance to the Listing Agreement with the concerned stock exchanges after the listing of securities. <br />RBI regulations in case of foreign/NRIs equity participation. <br />The Regulatory Framework<br />Up to 1992, the Controller of Capital Issue (CCI) formed under the Capital Issues Control Act controlled the capital primary market. The premium on issue of equity shares issued through the primary markets was done in accordance with the Capital Issues Control Act.<br />The CCI guidelines were abolished with the introduction of Securities & Exchange Board of India (SEBI) .The SEBI Act came into force on 30th January, 1992 and with its establishment, all public issues are governed by the rules & regulations issued by SEBI.<br />SEBI – The Regulatory Body<br />SEBI was formed to promote fair dealing in issue of securities and to ensure that the capital markets function efficiently, transparently and economically in the better interests of both the issuers and the investors.<br />The promoters should be able to raise funds at a relatively low cost. At the same time, investors must be protected from unethical practices and their rights must be safeguarded so that there is a steady flow of savings into the market. There must be proper regulation and code of conduct and fair practice by intermediaries to make them competitive and professional.<br />Since its formation, SEBI has been instrumental in bringing greater transparency in capital issues. Under the umbrella of SEBI, companies issuing shares are free to fix the premium, provided adequate disclosure is made in the offer documents.<br />The greater focus being investor protection, SEBI has become a vigilant watchdog.<br />2.3 Role of Intermediaries<br />Many intermediaries are involved in connection with the public issue. The following are the intermediaries who have to be registered with SEBI and must have a valid certificate from SEBI to act as intermediaries: -<br />Investment Bankers <br />Registrar and Share Transfer Agents <br />Bankers to the Issue <br />Underwriters <br />Stock Brokers and Sub Brokers <br />Depositories <br />Investment Bankers play the most vital role amongst all intermediaries. They assist the company right from preparing the prospectus to the listing of securities at the stock exchanges. Investment Bankers play a fiduciary role between SEBI, the Client Company and the investors. Investment Bankers also have to verify the correctness and propriety of all the information provided in the prospectus. It is mandatory for them to carry out Due Diligence for all the information provided in the prospectus and they must issue a certificate to this effect to SEBI. A Company may appoint more than one Investment Banker provided Inter-Se Allocation of Responsibilities between the Investment Bankers is properly structured.<br />Underwriters are those intermediaries who underwrite the securities offered to the public. In case there is under subscription, underwriters subscribe to the unsubscribed amount so that the issue is successful. Before the opening of the Issue, decisions such as who will be the underwriter and what amount can be underwritten have to be taken. This information must be disclosed to not only the Regulatory Framework, but also to the investors.<br />Registrar & Share Transfer Agents processes all applications received from the public. Invalid applications have to be rejected, and the valid ones considered. At times, there may be an oversubscription. In such cases, they must arrive at a valid basis of allotment of shares among the applicants. They handle the dispatch of share certificates and refund orders.<br />Bankers to the Issue are banks that accept application from the public on behalf of the company. These applications are then forwarded to the Registrar and Share Transfer Agent for further processing.<br />Stock Brokers & Sub-Brokers are those intermediaries who, through their contacts, invite the public for subscribing shares for which they get commission. The stockbrokers and Sub Brokers play an important part in the distribution of shares to the public, and need to also be informed about the company and its performance.<br />Depositories are the intermediaries who hold securities in dematerialized form on behalf of the shareholders.<br /> <br />SEBI lays down guidelines and regulations for all the above intermediaries. The main purpose is to maintain discipline and transparency in the Issue Process. The intermediaries, in turn, are bound to adhere to the guidelines and rules put down by SEBI.<br />2.4 The Investment Banker Enters<br />The Investment Banker must prove his competence to his clients and show his areas of core competency to attract clients. Moreover, he must do so while adhering to the strict regulatory framework put down by SEBI, The Companies Act, The Government, and other regulatory bodies. Therefore, the only way for him to strive to stay in the competition and be among the best is neither through great innovations or entrancing creativity, but rather through just being excellent at his job.<br /> <br />The following illustration is an attempt to depict the role of an Investment Banker:<br />REGULATORY BODIES<br />Compliance to Regulatory Framework<br />INVESTORISSUERINVESTMENT BANKER<br />Capital Market Info.<br />Interest Protectn.<br />The Investment Banker plays a vital role in channeling the financial surplus of the society into productive investment avenues. The Investment Banker has a fiduciary role in relation to the investors. He has to ensure that only quality paper emanates from his firm. He is required to exercise due diligence to ensure the adequacy and appropriateness of the disclosures made in offer document.<br />The Investment Banker is the leader among all the intermediaries associated with the issue. He is required to guide and co-ordinate the activities of the Registrar to the issue, Banker to issue, Advertising Agency, Printers, Underwriters, Brokers, etc.<br />The Investment Banker has to ensure the compliance of all the laws and regulations governing the securities market. He may also be called upon to assist the statutory authorities in developing a regulatory framework for the orderly growth of capital markets. <br />General Obligations and Responsibilities<br />The Investment Banker must meet the following general obligations and responsibilities:<br />Every Investment Banker must abide by the code of conduct as specified by SEBI.<br />An Investment Banker should not carry on any business other than that in the securities market. An exception to this rule is a bank or a public financial institution that has been granted a certificate of registration under these regulations.<br />Every Investment Banker must maintain his own books of accounts, records and documents. This includes the balance sheets, Profit and Loss Accounts, Copy of Auditor’s Report, Statements of Financial Position, etc. This must also be easily accessible to SEBI. This must be done so that SEBI can monitor the capital adequacy of the Investment Banker.<br />All issues should be managed by at least one Investment banker functioning as the lead Investment banker.<br />Every lead Investment banker must enter into an agreement with his client company and other Investment Bankers setting out their mutual rights, liabilities and obligations relating to such issue and in particular to disclosures, allotment and refund, before taking up the assignment relating to an issue. <br />Size of IssueNo. of Investment bankersLess than Rs. 50 CroresTwoBetween Rs. 50-100 CroresThreeBetween Rs. 100-200 CroresFourBetween Rs. 200-400 CroresFiveAbove Rs. 400 CroresFive or more as may be agreed by SEBI<br />Where there are more than one lead Investment Banker to the issue, the responsibilities of each such Investment Banker must be clearly demarcated and a statement furnished to SEBI.<br />A Lead Investment Banker cannot manage the issue of any associated Body Corporate.<br />A Lead Investment Banker cannot associate with any other Investment Banker without registration under SEBI.<br />The Investment Banker may even have to accept Underwriting obligations in some cases.<br />The lead Investment banker, who is responsible for verification of the contents of the prospectus in respect of an issue and the reasonableness of the views expressed therein, must submit to SEBI at least two weeks prior to the opening of the issue for subscription, a Due Diligence Certificate.<br />The Lead Investment Banker must submit the Particulars of the Issue, the Draft Prospectus and any other literature intended to be circulated among the shareholders.<br />The lead manager undertaking the responsibility for refunds or allotment of securities in respect of any issue must continue to be associated with the issue till the subscribers have received the share certificates or refund of excess application money.<br />The above obligations and responsibilities may be considered as constraints within which the Investment Banker must operate. Keeping these constraints in mind, the Investment Banker’s <br />objective function becomes that of maximizing the benefit derived by the Client Company and the investors out of the Issue.<br />The next chapter will explain the procedure involved in managing the Issue of an IPO, from the Investment Banker’s point of view.<br />2.5 The Procedure for the Issue of an IPO<br />Many of these steps can be undertaken prior to formal launch of the offering and filing of the offer document with SEBI and other regulators<br />Preparing for IPO.<br />Review business plan.<br />Capital structuring.<br />Initiate research.<br />Corporate governance.<br />Financial statements.<br />Due diligence.<br />Business and legal due diligence.<br />Re-stated audited financials.<br />Exemptions and approvals.<br />Offer document.<br />Business overview.<br />Management discussion.<br />Statutory disclosures.<br />Pre-issue marketing.<br />Meeting with institutional investors.<br />Research briefings.<br />Corporate publicity.<br />Launch IPO<br />File with SEBI.<br />Road shows.<br />Preparing for IPO – Financial Statements<br />SEBI Guidelines require disclosure of previous five years accounts after making the following adjustments: <br />Audit qualifications for all non-standard accounting practices, failure to make provisions or other adjustments<br />Prior period items <br />Changes in accounting policies or incorrect accounting policy<br />All financial information (EPS, book value, etc.) presented in the Offer Document should be based on the adjusted accounts <br />The above accounts have to be certified by the auditors<br />Management Discussion and Analysis Report (MD&A) along with the Annual Report<br />Besides the accounts the financial ratios, capitalization statement and statement of tax benefits have to be certified by the auditors<br />Matters which needs to be addressed while re-stating accounts<br />Accounting for deferred taxed; segmental reporting;<br />Complete disclosure will be required regarding joint ventures and foreign operations<br />Preparing for IPO – Capital Structuring<br />Examine need for corporate action to arrive at optimal capital structure and attractive issue price<br />Bonus issue of shares<br />Split face value of shares<br />SEBI Guidelines require<br />No outstanding convertible instruments/ securities<br />No partly paid shares<br />Recent amendments to the DIP guidelines - In case of initial public offer by an unlisted company,<br />If the issue price is Rs 500/- or more, the issuer company shall have a discretion to fix the face value below Rs. 10/- per share subject to the condition that the face value shall in no case be<br />Less than Rs. 1 per share.<br />If issue price is less than Rs 500 per share, the face value shall be Rs. 10/- per share.<br />2.6 Due Diligence – Process Overview<br />The process involves understanding the gamut of the company’s operations, compliance with procedures and guidelines and presenting a fair picture to investors.<br />Approvals, regulations, litigations<br />Risk factors associated with the company and the external environment<br />Analysis of applicable regulations like FDI/FII, etc<br />Business activities past performance financial results<br />Industry background, competition & business environment<br />Description of the company’s business<br />Financial performance for the last five years<br />Objects of the issue<br />Future plans and strategy of the company<br />Management’s discussion and analysis of the financial results<br />Material contracts agreements<br />Enabling provisions of MoA & AoA for allowed lines of business<br />Letters of Contract with each member of the issue management team<br />Loan agreements & sanction letters with FIs/ Banks<br />Deeds of hypothecation executed in favor of the lenders<br />Underwriting agreements<br />Agreement with the KMP<br />Purchase order with major suppliers<br />All utilities contracts & permissions <br />Syndicate & Escrow agreement<br />Promoters & Management<br />Quality, experience, qualifications, reporting structures, composition of Board of Directors<br />Quality of human resources <br />Details of KM.<br />Offer Document – Three Distinct Sections<br />Formally divided into Part I & II as per Companies Act format, covering three sections - issue structure, operating details, and general & statutory information<br />Issue structure<br />Capital structure of the company<br />Terms and conditions governing the instruments being issued<br />Operating details<br />Information gathered during the Due Diligence process<br />Highlight the company's strengths and operations<br />General and statutory information<br />Description on the basis of allotment<br />Auditors report<br />Extracts of the Articles of Association<br />List of Material Contracts and Documents<br />Reservations and Firm Allotment<br />Reservations can be made for the following investors<br />Permanent employees (not exceeding 10% of the issue)<br />Indian Mutual Funds<br />Foreign Institutional Investors<br />NRI investors<br />Indian and Multilateral Development Financial Institutions<br />Scheduled Banks<br />Firm allotment can be made to the following investors<br />Permanent employees (not exceeding 10% of the issue)<br />Indian Mutual Funds<br />Foreign Institutional Investors<br />NRI investors<br />Indian and Multilateral Development Financial Institutions<br />Scheduled Banks<br />IMPORTANT NOTES TO REMEMBER<br />Firm allotment can be made at a price higher than the issue price<br />Firm allotments are locked in for one year<br />Persons to whom firm allotment has been made cannot apply in the portion for the public<br />Category of investors for whom reservation has been made cannot apply in the portion for the public<br />Above mentioned condition is not applicable to employees<br />NOTE:<br />The Investment Banker Representative only has an advisory role in selection of the above intermediaries. The final decision for selection will rest with the Issuer Company.<br />Filing of the prospectus with SEBI along with due-diligence certificate and SE's (only draft prospectus)<br />10 Copies of the Draft Prospectus, the Inter Se Certificate, and a floppy containing the Draft Prospectus, MOU, Filing Fee and a Due-Diligence Certificate is submitted to the Regional SEBI Office / SEBI Mumbai (as the case may be).IB representative submits 10 Copies of the Draft Prospectus to SE’s where listing is sought. A copy of the draft prospectus is filed along with a request letter from the Company for Demat of shares to both NSDL & CDSL. An acknowledgment is obtained from the SEBI Office, wherever submitted.<br />Replying to all observations<br />On receipt of observations from SEBI, IB representative to SEBI covering all the observations within the stipulated time submits a reply.<br />Submission of complaints / material changes report<br />A complaint / material changes report is submitted by the IB Representative to SEBI, 21 days after filing of the Draft Prospectus, stating the complaints received, if any, from public/institutions and the amendments to be made in the Draft Prospectus.<br />Receipt of SEBI card<br />All the observations given by SEBI are incorporated and the final prospectus is filed to SEBI.<br />Underwriting of the issue<br />On receipt of SEBI Card, if the company intends to get its issue underwritten the following documents are sent to the Brokers/Investment Bankers by the IB Representatives inviting them to participate in the underwriting:<br />Draft prospectus<br />Underwriting agreements<br />Performa for devolvement made by the Underwriters (if any)<br />Certificate regarding the net worth of the Underwriters (confirmation letter )<br />Consent letter to act as Brokers to the issue <br />Finalization of underwriting<br />On receipt of underwriting confirmations, the IB In charge in consultation with the Company finalizes the underwriting amount.<br />Filing of Final Draft Prospectus <br />The Final Draft Prospectus is filed to SEBI after incorporating all the observations as specified in the acknowledgment card before filing with ROC.<br />Filing of material documents with ROC:<br />On finalization of underwriters to the issue by IB representative, all material documents as mentioned in the Prospectus along with a copy of the Prospectus duly signed by the Board of Directors (of the Issuer Company) are filed with ROC. <br />Filing of Due-Diligence Certificate with SEBI<br />A Due - Diligence Certificate is filed with SEBI by IB Representative on filing of prospectus to ROC.<br />Preparation of Application Form<br />Issue Application Form is prepared as per the Ministry of Finance and SEBI guidelines.<br />Printing of Share Application Forms and Prospectus.<br />On receipt of the ROC card the IB Representative arranges for the Issue Application Forms and Prospectus to be printed.<br />Preparation of distribution schedule for dispatch of Issues Applications Forms & Prospectus.<br />A distribution schedule is prepared by the IB Representative for dispatch of Issue Application Forms and Prospectus to Brokers, SEs, Underwriters, and Bankers to the issue, Advertisement agency, Investment Bankers etc. <br /> <br />Submission of printed copies of Prospectus to SEBI <br />IB representative submits 5 printed copies of prospectus to SEBI Regional and Mumbai offices, at least 10 days before the opening of the issue.<br />Arranging for the Opening of the Issue.<br />IB representative makes all necessary arrangements for opening of issue.<br />Filing of the Due-Diligence Certificate with SEBI.<br />A Due - Diligence Certificate is filed with SEBI by IB representative before the opening of the issue informing that no corrective action is required.<br />Filing of the Auditor's Certificate regarding receipt of promoter's contribution.<br />IB representative ensures that Auditor's certificate, confirming the receipt of promoter's contribution, giving the detailed list of Promoter's group, is filed with SEBI and SE's (where listing is sought) by the Issuer Company, at least one day before the opening of the issue. He also ensures that 1% of the issue amount is deposited with Regional Stock Exchange at least one day before the opening of the issue by the Issuer Company.<br />Filing of Final Compliance Certificate with SEBI:<br />A Final Compliance Certificate is filed with SEBI before the closure of issue.<br />Closure of issue<br />On receipt of 90 % subscription (as per the details provided by Bankers to the issues and Registrar's to the issue) the issue is closed on the earliest closing date, if any. If the issue is still unsubscribed, it is kept open for a total period of 10 working days, before the devolvement notices are served to the underwriters of the issue.<br />Filing of 3- Day Compliance Report with SEBI<br />IB representative files a 3-Day Compliance Report with SEBI.<br />Filing of 78- Day Compliance Report with SEBI<br />IB representative files a 78-Day Compliance Report with SEBI <br />Assisting the Issuer Company in completion of listing formalities<br />Whenever and wherever required, IB representative assists the issuer company in completing the listing formalities by referring to the checklist of documents to be filed with the stock exchanges for listing securities in case of public issues. <br />The above procedure brings out the involvement of the Investment banker in the Issue Process. The next few chapters will focus on some key points such as the Prospectus, the Due Diligence, Post-Issue Monitoring Reports, and so on.<br />The Investment Banker must work diligently in order to ensure that all relevant and updated information is captured aptly and truly in the Prospectus. The importance of the Prospectus must therefore be understood. The next chapter explains the Prospectus in detail, so that the reader may understand its significance and purpose.<br />2.7 The Prospectus<br />The `Prospectus’ is the most important document for the company to come out with a public issue. Pursuant to Section 2(36) of The Companies Act, `Prospectus’ means any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate. The purpose of the Prospectus is to provide all the necessary and true information to investors about a Company in order to enable him to make an investment decision.<br />The Prospectus is a document by way of which the investor gets all the information pertaining to the company in which he is going to invest. It gives the detailed information about the company, its promoters and directors, group companies, capital structure, terms of the present issue, details of the proposed project, particulars of the issue etc.<br />There may be two kinds of Prospectus: <br />An Ordinary Prospectus is a formal written offer to sell securities that provides an investor with the necessary information to make an informed decision. It is used in case of an IPO Issue under the Fixed- Price Process, where the investors know the Price of the IPO beforehand. It explains a proposed or existing business enterprise and must disclose any material risks and information according to the securities laws. <br />A Red Herring Prospectus is a preliminary prospectus issued by underwriters or issuers to gauge interest in a prospective offering. It is used in the case of an IPO issue under the book-building process, where applicants are to bid for the IPOs. It receives its name from the warning, printed in red, that information in the document is incomplete or subject to change before the issue. It relates to a registration statement filed with the Securities and Exchange Board of India that has not yet become effective. <br />There are certain mandatory disclosures that have to be made in the prospectus. These are included in Schedule II of the Companies Act, 1956. Moreover, SEBI (Disclosure and Investor Protection), Guidelines, 2000 give details about the contents of prospectus<br />Vetting by SEBI/Stock Exchanges<br />A Company cannot come out with public issue unless a Draft Prospectus is filed with SEBI. <br />A Company cannot file the Prospectus directly with SEBI. It has to be filed through an Investment Banker. After the preparation of the Prospectus, the Investment Banker along with the Due Diligence Certificate and other compliance sends the same to SEBI for vetting<br />SEBI on receiving the same scrutinizes it and may suggest changes within 21 days of receipt of the Prospectus. <br />If the issue size is upto Rs. 20 crores, the Investment Bankers is required to file the Prospectus with the regional office of SEBI falling under the jurisdiction in which the registered office of the Company is situated. If the issue size is more than Rs. 20 crores, Investment bankers are required to file prospectus at SEBI, Mumbai office. <br />The Prospectus is also to be filed with the concerned Stock Exchanges along with the application for listing of securities. Presently, Companies approaching the Stock Exchange for public issues should obtain In-Principal Approval from such Stock Exchanges. <br />Contents of the Prospectus<br />The word "
.<br />The name of the Issuer Company and address of the registered office of the company, along with telephone fax number and E-mail address. <br />The nature, number, price and amount of the instruments offered. <br /> Risk in Relation to First Issue and General Risk of Investment Clauses.<br />Issuer’s Absolute Responsibility Clause.<br />Various Disclaimer Clauses of the SEBI, the Stock Exchanges, the Investment Banker, and the Company.<br />Various Undertakings by the Company and its Board of Directors.<br />The names and address of the Investment bankers, and other intermediaries involved in the Issue.<br />The Issue Opening and Closing Dates.<br />Risk Factors associated with the Issue and Management Perception to handle these factors thereof.<br />Information on various transactions by the issuer Company.<br />Government Approvals and Filing.<br /> Listing with the Stock Exchanges.<br />Credit Rating.<br />Instructions to investors on who can apply and how to apply.<br />Information on the utilization of Issue Proceeds.<br />Full details on the Capital Structure of the Company and Shareholding Pattern.<br />Terms of the Offer and Rights of Shareholders.<br />Basis of Allotment of Shares.<br />History of the Company and details on its present business, market position, etc.<br /> Details of existing facilities.<br /> Details of project cost and means of financing the project.<br />Full Financial Details and Financial Statements for last five years, complete with the Auditor’s Report.<br />Details on Promoters and their Background.<br />Basis of the Issue Price.<br />Statutory and other Information.<br /> Outstanding litigation, defaults, adverse events and material developments.<br />Material contracts and Inspection of Documents.<br />The Prospectus is prepared after much verification and clarification between the Client Company, the Regulatory Bodies and the Investment Banker. The contents of the Prospectus must be reliable and relevant. The Investment Banker performs Due Diligence in order to ensure this and Issues Certificates of Due Diligence at various stages. The next chapter explains the concept of Due Diligence in detail.<br />Due Diligence<br /> A Company that wants to issue IPOs needs to first gets listed. Several other formalities are also involved in the entire process of issuing IPOs. An Investment Banker is thus appointed for managing the process for the issue of IPOs.<br />The Investment Banker must perform a fiduciary role by balancing the interests of the investors, the client companies and the regulatory bodies (e.g., SEBI), all at once. Within these constraints, he must perform DUE DILIGENCE, which is making sure that all relevant and updated information of the Client Company is captured in the Prospectus. This is because the Prospectus is the main document that an investor would go through while deciding on whether to invest in a company. This is why the Prospectus is aimed at revealing every detail about the company, which could have an impact on the investor’s decision.<br />The process of Due Diligence is a time-consuming one and it involves a number of mental efforts. It involves the verification of various documents provided by the Client Company. The information and calculations in these documents need to be checked, summarized, modified and updated so that it may be accurately stated in the Prospectus. Any wrong inaccurate information needs to be identified and corrected by the Investment Banker. If left uncorrected, it is passed on to the Prospectus. This could ultimately put the Investment Banker’s reputation and license at stake in extreme cases.<br />In order to ensure a flawless Prospectus, the Investment Banker must therefore work diligently and skeptically. All relevant details about the client must be backed with supporting evidence.<br />The following are some details that need to be scrutinized for a typical client company:<br />General:<br />The MOA and AOA provide information on the company, its business, and its norms, rules and regulations. These documents need to be checked in order to get a good picture about the kind of business the company is engaged in, the risk attached to it, and the procedures followed by it. Various clearances and approvals also need to be looked into in order to be sure that the company has been carrying on a fully legal and approved business.<br />Company Details:<br />A brief history of the company gives an insight into the changes in office addresses, conversion to Public Limited Company, and so on. The present business of the company gives investors an idea on the risk attached. Further details may be provided, regarding the achievements and milestones attained, in order to give an idea about the success of the company.<br />Project Details:<br />Full project details give the investor a chance to determine the viability of the very project for which the company is issuing IPOs. Project cost estimates, technology to be adopted, Project Appraisal Report, and other such statements enable the investor to decipher the potential of a particular project.<br />A SWOT Analysis of the company and the industry in which it is operating also illustrates the areas that it can exploit and the ones that it is vulnerable to. An overview of the industry in which it operates is also needed in order to judge the present and future performance of the company, and also to know the external factors that may affect its performance. Any unusual events and future anticipated changes must also be brought to the attention of the investors.<br />Promoters:<br />The promoters’ reputation and capability affects the success of the company. Therefore, their age, qualifications and work experience have to be revealed. Also, the other ventures that they may be promoting and the number of shares held by them need to be known, in order to know the promoters’ share in the control of the company and their ownership stake.<br />Directors:<br />The Directors of the company must also have a good reputation and must be capable enough to run the company. Their brief bio-data must be disclosed and any changes in directors, details of other directorships and details of remuneration must be known.<br />Auditors:<br />The names and addresses of the Auditors and any changes in Auditors need to be disclosed. The Auditors employed must have a good recognition in the market and must be of repute. They must be known to be accurate in their work.<br />Product Details, Raw Materials, Plant & Machinery:<br />The entire details on the availability of raw material, technology used to make the product, existing cost of Plant & Machinery, import of raw material, approvals and even the method of manufacture of the product need to be disclosed. The description of the product itself, its market demand scenario, price trend and relative market position must be captured aptly. <br />This information illustrates the performance of the product in the market and the profit the company would be expected to make. The disclosures on input and output are needed so that any future scarcity or unfavorable events that may affect the company can be anticipated.<br />Marketing:<br />Existing competition and the proposed marketing strategy should be effectively summarized so that the standing of the company in the market is brought out. The chances of a successful performance can also be brought out from this information.<br />Outstanding Litigation:<br />Criminal prosecution, non-payments or pending disputes are likely to affect the finances and operations of the company. In turn, they affect the investor’s decision since he may not be willing to take the risk of investing in a company with too much outstanding litigation.<br />Companies under the same management:<br />Details such as names and addresses of companies under the same management and details of the capital issue made by them during the last three years need to be furnished. Also, any particulars of strikes/ lockouts or any form of labor unrest should be specified. Promise vs. Performance should also be given. Such details are necessary since the performance of a company under the same management can be used as a parameter to predict the performance of the concerned company.<br />11. Consents:<br />Consent Letters from Auditors, Company Secretary, Legal Advisors, Lead Managers, Bankers, etc. need to be obtained to act in their capacity.<br />12. Land, Civil Work and Assets:<br />Land may have been leased; architects and contractors may have been appointed. Supporting papers for all such agreements need to be scrutinized and the terms and conditions weighed. Any change in assets must also be mentioned.<br />Financial Assistance:<br />Applications made by the company to Banks/ Financial Institutions must be checked. The corresponding Sanction Letters, Principle terms of the loan and assets charged, as security must also be disclosed.<br />Financial Information:<br />The performance of the company in the past has to be evaluated on the basis of financial figures. The Balance Sheet, Profit & Loss Account, Key Accounting Ratios, Capitalization Statements, Tax Shelter Statements, etc. have to be provided for the company, for the last five years, and for its subsidiaries, for the last three years. The Auditor’s Certificate regarding the financial statements is also needed. It is on this basis that one can see if the company is doing well in the market, whether it is healthy, what its credit worthiness is how its profitability is, etc. These calculations form the crucial crux of the investor’s decision.<br />Miscellaneous:<br />Notes on Investor Grievances and Redressed, Notes on Corporate Governance, Amalgamations/ Mergers need to be additionally provided.<br />The above disclosures need to be made in order to open up the information on the company before the investors. SEBI is a ‘vigilant watchdog’ for the protection of the investors’ interests, and is thus justified in laying down the Disclosure and Investor Protection Guidelines for any Public Issue. The Investment Banker’s duty is to follow these Guidelines and to perform Due Diligence, so that the investors are given a Prospectus that they can rely on and make a suitable investment decision.<br />2.8 The Application Form<br />The Application Form is an Instrument whereby investors can apply for an IPO. An investor’s signature on an Application Form means that he has gone through the Prospectus of the Company and that he would like to be registered as the holder of Equity Shares that would be allocated to him. The Investor may apply for an IPO anytime between the Opening and the Closing of the Issue.<br />The Application Form must contain Undertakings by Investors about their acceptance of the Terms of the Offer, the decision of the Board of Directors, etc. It also contains all the necessary details about the denomination in which shares will be issued, minimum subscription, mode of payment, and so on.<br />In brief, the main contents of an Application Form are as follows:<br />Name of the Issuer Company along with registered office address, telephone number, and fax and email id.<br />Nature, numbers, price and amount of the issue.<br />Offer Opening and Closing Dates.<br />Broker, Sub-Broker, Bank Branch and Registrar’s respective Stamps and Codes.<br />Applicant’s undertaking.<br />Minimum Subscription and other instructions for payment.<br />Applicant’s details on address, Father’s/Husband’s Name, Bank Particulars, Details of Nominee, if any, Age, Status (whether Individual, Body Corporate, Company, NRI, Bank or Other) and Occupation.<br />Applicant’s PAN/ GIR No.<br />Applicant’s Depository Account details.<br />Bank’s Counterfoil details.<br />An Abridged Prospectus of the Issuer Company which contains all details of the Prospectus in brief, as specified by the SEBI DIP Guidelines.<