Initial Public Offers and Due Diligence

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(A case study conducted at Hassan Kotak Securities ltd..., Hassan)
Initial Public Offers and Due Diligence:
The Role of a Investment Banker”
Project report Submitted to the University of Mysore, Mysore
in partial fulfillment of the requirement for the award of the
degree in Master of Business Administration.
by
Reg.No.
Guide
HARANAHALLI RAMASWAMY INSTITUTE OF HIGHER EDUCATION, HASSAN
2010
1

HARANAHALLI RAMASWAMY INSTITUTE OF HIGHER
EDUCATION
HASSAN
CERTIFICATE
Certified that, the project entitled
Initial Public Offers and Due Diligence: The Role of a Investment Banker”
conducted at KOTAK SECURITIES LIMITED Hassan, is a bonafide work
carried out by Ms. in partial fulfillment for the award of degree in Master of
Business Administration of the University of Mysore, Mysore during the year
2009-10.
Guide Principal

DECLARATION
I hereby declare that this project report entitled
2

Initial Public Offers and Due Diligence:
The Role of a Investment Banker”
(A case study conducted at Hassan Kotak Securities Ltd., Hassan)
has been prepared by me under the guidance of Mr. HARISH KUMAR
Department of Business Administration, Haranahalli Ramaswamy Institute of
Higher Education, Hassan.
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.
Date: 17-6-2009
Place: Hassan Reg. No:
3

ACKNOWLEDGEMENT
I, express my deep sense of gratitude and sincere thanks to, (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.
I will take this opportunity to express my deep sense of gratitude to for his
guidance, continuous encouragement and valuable suggestions at every stage of
the Project.
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
Last, but not the least I would like to extend my thanks to all the unseen
hands that have made this project possible.
Date: 17-6-2009
Place: Hassan
Reg. No:
4

CONTENTS
Chapter No. Title Page No.
01 INTRODUCTION 8-12
1.1 Executive summary 9
1.2 statement of problem 10
1.3 objective of study 10
1.4 scope of study 11
1.5 Research Methodology 11
1.6 Sampling plane 11
1.7 Data collection 11
1.8 Limitations of the study 12
1.9 Research process
12
02 CHAPTER 2 13-44
2. INDUSRTY PROFILE 13-20
2.1 COMPANY PROFILE 21-40
03 REVIEW AND LITRATURE 45-75
2.2 What is IPO,s 46-50
2.3 Role of Intermediaries 51-52
2.4 The Investment Banker 53-56
2.5 The procedure for issue of an IPO
57-58
2.6 Due-Diligence - process
5

2.7 The Prospectus 58-65
2.8 Application form 65-73
74-75
2.9 Data collection and interpretation 77-81
Chapter 5 82-86
3. 6 Findings 83
3.7 Suggestion 84-85
3.8 Conclusion 84
3.9 BIBLIOGRAPHY 86
6

LIST OF TABLE & CHARTS
TABLE NO. TITLE OF TABLES PAGE NO.
T3 Non institutional and qualified 77
institutional investor categories
T 3.1 Final demand 77
T 3.2 Allocation to employees 78
T 3.3 Allocation to retail investor 78
T 3.4 Allocation to non institutional investor 79-80
T 3.5 Allocation to QIBs 80
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CHAPTER 1
INTRODUCTION
8

1.1 EXECUTIVE SUMMERRY
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).
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.
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
 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.‟
 Investors, to give them all the relevant and updated information on the Company,
while at the same time protecting their interests.
 Regulatory Bodies such as the Securities and Exchange Board of India, to adhere to
all secretarial and legal compliance.
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
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1.2 Statement of problem
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.
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.
Title of the project
“Initial Public Offers and Due Diligence: The Role of a Investment Banker”
1.3 Objectives of study
To study and understand the concept of and procedure involved in Initial Public
Offers (IPOs).
To study and understand the process of Due Diligence and its significance in Initial
Public Offers.
To analyze the effect of Initial Public Offers on the issuing company, investors and
the stock market.
To understand the role of an Investment banker in managing Initial Public Offers.
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1.4 Scope of study
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.
1.5 Research methodology
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.
1.6 Sampling plan
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.
1.7 Data collection:
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:
 www.emamigroup.com
 www.bseindia.com
 www.capitalmarkets.com
 www.companylawinfo.com
 www.projectskart.com
11

1.8 Limitations of the study
If any incorrect information is furnished by the clients, the same will be carried
forward in this project work.
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).
1.9 Research process
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
1
2

CHAPTER 2
13

2. INDUSTRY PROFILE
KOTAK SECURITIES LIMITED.
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.
Kotak securities limited is a corporate member of both,
 The Bombay Stock Exchange. (BSE)
 The National stock Exchange. (NSE)
Its operation include stock broking and distribution of various financial products –including
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:
 Institutional Equities.
 Retail.(Equities and other financial products).
 Portfolio Management.
 Depository services.
 And other areas services.
Institutional Business.
This division primarily covers secondary market broking. It caters to the
needs of foreign and Indian institutional investors in Indian equities (both local shares
14

and GDRs). The division also incorporates a comprehensive research cell with
sectored analysts who cover all the major areas of the Indian economy.
Client Money Management.
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.
Retail distribution of financial products.
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.
Depository Services.
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.
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.
Kotak Institutional Equities has full financial service capability, which includes
derivatives, facilitating market access through affiliates and the distinctive offering of
1
5

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.
Evolution of Indian Stock Market
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.
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.
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).
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
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
1
6

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.
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
(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"
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.
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.
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.
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.
Know a day s business is expanding in financial sector, because of more buyers and more‟
1
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Sellers and computation is very high in the city and also computation from other share broking
companies.
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.
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.
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.
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
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13,400 in the month of 13
th
July 2009. In other side National Stock Exchange (NSE) 3,974 is
in the same month of 2009.
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.
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.
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 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
19

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.
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.
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.
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.
2
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2.1 COMPANY PROFILE
BACKGROUND AND INCEPTION OF THE COMPANY:
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.
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.‟
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.
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.
Kotak Securities Ltd has been the first in providing many products and services which have
now become industry standards. Some of them are:
21

Facility of Margin Finance to the customers.
Investing in IPOs and Mutual Funds on the phone.
SMS alerts before execution of depository transactions.
Mobile application to track portfolios.
Auto Invest - A systematic investing plan in Equities and Mutual funds.
Provision of margin against securities automatically against shares in the customer s‟
Demat account.
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.
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.
1. 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
22

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.
2.Facility of Online Trading in Feb. 2000:
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.
3.Strong Shareholders:
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.
Wide range of products.
The wide range on offer includes –
Equities
Derivatives
Currency trading.
Future and option (F&O)
Custody accounts.
Mutual funds.
General insurance.
Loans against shares.
IPO
Portfolio Management service.(PMS)
Margin funding.
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MULTICHANNEL SERVICE:
Internet.
Phone.
Branch trading.
Mobile alerts and short message service.
COMPANY S DEEP REACH IN INDIA‟
We have a pan-India network of offices in 321 cities 877 outlets with industry
Certified executives and a dedicated Call Centre to provide you quality services.
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.
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
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.
24

In over sea company has its own prestige its service to customers is very valuable
Kotak Securities Ltd online trading account customer can buy and sell shares in
an instant. Any time customer want, from anywhere you like.
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.
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.
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.
Kotak Securities Launches Online Trading Service
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.
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.
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Kotak Securities Launches Smart Order
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.
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
Expanding range of online products and services.
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.
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.
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.
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.
A growing footprint in the country.
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,
26

Goa, Gujarat, Haryana, Jammu& Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra,
New Delhi, Orissa, Punjab, Rajasthan, Tamil Nadu & Pondicherry, Uttar Pradesh, Uttarakhand
andWestBengal
BOARD OF DIRECTORS;
 Uday S. Kotak - (Chairman)
 Romesh C. khanna
 Sukanth kelkar
 C. jayaram
 Bipin R. shah
 Narayan S.A
Kotak Securities Limited Auditors;
Price water house,
Charted accountants,
Mumbai -21.
Kotak Securities Limited Registrar;
Computer age management services pvt, limited
158, rayala towers, 2
nd
floor,
Anna salai,
Chennai – 600 002.
Tel ; 044-2852 1839.
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Kotak Securities Limited regd. Office:
Kotak securities limited.
Bakhtawer, Nariman point,
Mumbai – 21.
Nature of business;
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.
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.
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.
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
28

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 Ltd has been the first in providing many products and services which
have now become industry standards. Some of them are:
Facility of Margin Finance to the customers
Investing in IPOs and Mutual Funds on the phone
SMS alerts before execution of depository transactions
Mobile application to track portfolios
Auto Invest - A systematic investing plan in Equities and Mutual funds
Provision of margin against securities automatically against shares in the customer s‟
Demat account
Trading services
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.
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.
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
29

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
Customer can open a Depository Participant (DP) account, either through a Kotak
Securities branch or through a Kotak Securities franchisee.
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.
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.
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.
3
0

Other Investment Products.
"Mutual Fund" 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.
Derivatives trading
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 "Derivatives Info Kit" and
find out which strike to buy/sell using Black & Scholars Option calculator. Content features
at Kotak Securities Ltd online trading in equities is made easy with the help of jargon-free
investment advice. If you experience our language, presentation style or content, you will find
a common thread--the one that helps you make informed investment decisions and Simplifies
investing in stocks.
Track domestic and international stock indices with "Indices at a Glance". Get real-time
stock quotes, live NSE ticker, daily top 5 gainers/losers, volume toppers and more market
statistics, all at Kotak Securities. Know about the market as it happens through "Live Markets".
Keep abreast of the latest news and developments not only in the stock market but also in the
world outside with "Live News" brought to you by Reuters. We also have a tie-up with Capital
Market News Service for "Archive News".
Kotak Securities Limited
Multi Commodity Exchange.
National Commodity & Derivatives Exchange Limited.
India Pepper & Spice Trade Association.
Gold commodity exchange.
Silver commodity exchange.
National Multi Commodity Exchange of India Limited.
3
1

Kotak securities limited accounting policy and procedure:
Basis of Financial statement Preparation
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.
Use of Estimates:
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.
Investments:
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.
Income
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
3
2

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.
2.3 Vision and mission statement;
Vision of Kotak securities limited
The global Indian Financial service bands:
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.
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.‟
The most preferred employer in financial services.
33

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
Company. Which has partnership with international leaders gives our people a perspective that
is universal as well as unique?
The Most Trusted Financial Services Company.
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.
Value Creation.
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
MISSION
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
34

OWNERSHIP PATTERN:
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.
ACHIVEMENT AND AWARDS
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.
Kotak Securities Accolades include:‟
Best Brokerage Firm in India by Asia money in 2008, 2007 & 2006
Best Performing Equity Broker in India - CNBC Financial Advisor Awards 2008
Avaya Customer Responsiveness Awards (2007 & 2006) in Financial Services Sector
The Leading Equity House in India in Thomson Extel Surveys Awards for the year
2007
Euro money Award (2007 & 2006) - Best Provider of Portfolio Management: Equities
Euro money Award (2005)-Best Equities House In India
Finance Asia Award (2005)-Best Broker In India
Finance Asia Award (2004)- India s best Equity House‟
Prime Ranking Award (2003-04)- Largest Distributor of IPO s‟
35

FUTURE GROWTH & PROSPECTUS:
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.
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.
McKINSEY 7-S-Model
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.
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.
3
6

The Hard S s‟
Strategy
Structure
Systems
The Soft S s‟
Style / Culture
Staff
Actions a company plans in response to or anticipation of changes in its
external environment.
Basis for specialization and co-ordination influenced primarily by strategy
and by organization size and diversity.
Formal and informal procedures that support the strategy and structure.
(Systems are more powerful than they are given credit)
The culture of the organization, consisting of two components
:
· 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.
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
37

of helping to manage the careers of employees
Skills
The distinctive competences – what the company does best, ways of
expanding or shifting competences
Guiding concepts, fundamental ideas around which a business is built – must
Shared Values / be simple, usually stated at abstract level, have great meaning inside the Super
ordinate Goals organization even though outsiders may not see or understand them.
38

Kotak securities limited structure in Hassan.
MANAGER
SENIOR EXECUTIVE
EXECUTIVE EXECUTIVE
39

Kotak securities limited organization structure.
MANAGING DIRECTOR
CFO COO CTO CHR CWC
CMC
SENIOR VP
OPERATION
MANAGER
CHIEF
FINANCE
MANAGER
SENIOR VP CHIEF MANAGER
COMPLIANCE
40

CFO-chief financial officer
COO-chief operating officer
CTO-chief Technological officer
CMC-chief manager corporate commodities
CWC-chief officer wealth centre
CHR-chief officer human resource
41

42

STRENGTHS:
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
Kotak renders quality equity trading services.
It launched branches exclusively for women investors.
It brand is popular and the brand image can be capitalised.
It has well experienced staff and good infrastructure.
It follows corporate governance norms and adopts best management practices.
Wide number of products and services and also branches.
Good research team which give suggestion to buy different sectors.
WEAKNESS:
Unable to market their products & services more efficiently
Many of their competitors have significantly greater financial, technical,
marketing and other resources than available to Kotak.
Unable to compete with the brokerage rates of their competitors.
Less number of branches in north India.
43

Lack of efficient and effective strategies in attracting customers.
OPPORTUNITIES:
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.
Introduction of new instruments in the F&O segment etc.
o Trapping new markets.
o Target the rural and sub urban areas.
o Growing India economy opens up huge market for stock broking companies.
o Company believes that their culture helps to attract and retain the best talent.
o Company is committed to achieve profitable progress consistently
o The manifold increase in capital mobile station from the primary market.
o Increase the resource mobilization by mutual funds
o Phenomenal growth in secondary market volumes.
THREAT:
o The stock broking industry has recently witnessed intense competition falling
brokerage rates & the entry of several big player. Increased level of competition
is a cause of concerns.
o Competition from financial institution like banks investing firms etc.
o Uncertainty in the market.
o Changes in India political economic conditions.
o Changes in government polices and regulation.Dependency on
international market
44

CHAPTER 3
REVIW AND LITRATURE
45

REVIEW AND LITRATUER
2.2 What is an IPO?
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.
“An initial public offer is an equity product that allows you to buy cheap tomorrow s‟
possible winners”
-George Mathew
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.
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
46

their stock in the secondary market, making a capital appreciation or loss as the price changes
from the issue price.
Why may a Company need an IPO?
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:
 Raising funds to finance capital expenditure programs like expansion, diversification,
modernization, etc;
 Financing of increased working capital requirements;
 Financing acquisitions like a manufacturing unit, brand acquisitions, tender offers for
shares of another firm, etc;
 Debt financing ;
 Exit route for exiting investors.
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.
47

48

What are the two sides of IPO coin?
Advantages Disadvantages
Money non-refundable except in the case of Time consuming process
winding up or buy back of shares Expensive
No financial burden i.e. no fixed rate of Several Legal formalities.
interest payable. However, in order to Involvement of many intermediaries
service the equity, dividend may be paid. Transparency Requirements and public
Enhances shareholder's value if the disclosure of information may lead to
company performs well lack of privacy
Greater Transferability Continuous Compliance of provisions
Trading & Listing of securities at stock of listing agreement and other legal
exchanges requirements
Better Liquidity of securities Constant scrutiny of performance by
Helps building reputation of promoters, investors
company & its products / services, provided May lead to takeover of the company
the company performs well Securities of the company may be
made subjective to speculative attacks.
4
9

How is the “coin” made to balance (Controls)?
Applicable Laws
A Company is required to comply with the following laws in connection with a public
issue:
 Provisions of The Companies Act, 1956
 Securities Contracts (Regulations) Act, 1956
 SEBI Rules & Regulations
 Compliance to the Listing Agreement with the concerned stock exchanges after the
listing of securities.
 RBI regulations in case of foreign/NRIs equity participation.
The Regulatory Framework
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.
The CCI guidelines were abolished with the introduction of Securities & Exchange Board of
India (SEBI) .The SEBI Act came into force on 30
th
January, 1992 and with its
establishment, all public issues are governed by the rules & regulations issued by SEBI.
SEBI – The Regulatory Body
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.
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
50

code of conduct and fair practice by intermediaries to make them competitive
and professional.
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.
The greater focus being investor protection, SEBI has become a vigilant watchdog.
2.3 Role of Intermediaries
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: -
Investment Bankers
Registrar and Share Transfer Agents
Bankers to the Issue
Underwriters
Stock Brokers and Sub Brokers
Depositories
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.
51

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.
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.
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.
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.
Depositories are the intermediaries who hold securities in dematerialized form on behalf of
the shareholders.
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.
52

2.4 The Investment Banker Enters
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.
The following illustration is an attempt to depict the role of an Investment Banker:
REGULATORY
BODIES
Compliance to Regulatory
Framework
ISSUER INVESTMEN INVESTOR
T BANKER
Capital
InterestMarket
Protectn.
53

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.
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.
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.
General Obligations and Responsibilities
The Investment Banker must meet the following general obligations and responsibilities:
 Every Investment Banker must abide by the code of conduct as specified by SEBI
1
.
 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.
 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.
 All issues should be managed by at least one Investment banker functioning as the
lead Investment banker.
 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.
54

Size No. of Investment
of bankers
Issue
Less Two
than
Rs. 50
Crores
Betwe Three
en Rs.
50-
100
Crores
Betwe Four
en Rs.
100-
200
Crores
Betwe Five
en Rs.
200-
400
Crores
Above Five or more as may be
Rs. agreed by SEBI
400
Crores
55

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.
 A Lead Investment Banker cannot manage the issue of any associated Body
Corporate.
 A Lead Investment Banker cannot associate with any other Investment Banker
without registration under SEBI.
 The Investment Banker may even have to accept Underwriting obligations in some
cases.
 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.
 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.
 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.
 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‟
 objective function becomes that of maximizing the benefit derived by the
Client Company and the investors out of the Issue.
 The next chapter will explain the procedure involved in managing the Issue of an
IPO, from the Investment Banker s point of view.‟
56

2.5 The Procedure for the Issue of an IPO
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
 Preparing for IPO.
 Review business plan.
 Capital structuring.
 Initiate research.
 Corporate governance.
 Financial statements.
 Due diligence.
 Business and legal due diligence.
 Re-stated audited financials.
 Exemptions and approvals.
 Offer document.
 Business overview.
 Management discussion.
 Statutory disclosures.
 Pre-issue marketing.
 Meeting with institutional investors.
 Research briefings.
 Corporate publicity.
 Launch IPO
57

 File with SEBI.
 Road shows.
Preparing for IPO – Financial Statements
 SEBI Guidelines require disclosure of previous five years accounts after making the
following adjustments:
 Audit qualifications for all non-standard accounting practices, failure to make
provisions or other adjustments
 Prior period items
 Changes in accounting policies or incorrect accounting policy
 All financial information (EPS, book value, etc.) presented in the Offer Document should
be based on the adjusted accounts
 The above accounts have to be certified by the auditors
 Management Discussion and Analysis Report (MD&A) along with the Annual Report
 Besides the accounts the financial ratios, capitalization statement and statement of tax
benefits have to be certified by the auditors
 Matters which needs to be addressed while re-stating accounts
 Accounting for deferred taxed; segmental reporting;
 Complete disclosure will be required regarding joint ventures and foreign operations
Preparing for IPO – Capital Structuring
 Examine need for corporate action to arrive at optimal capital structure and attractive issue
price
 Bonus issue of shares
 Split face value of shares
 SEBI Guidelines require
 No outstanding convertible instruments/ securities
58

 No partly paid shares
 Recent amendments to the DIP guidelines - In case of initial public offer by an unlisted
company,
 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
 Less than Rs. 1 per share.
 If issue price is less than Rs 500 per share, the face value shall be Rs. 10/- per share.
2.6 Due Diligence – Process Overview
The process involves understanding the gamut of the company s operations, compliance with‟
procedures and guidelines and presenting a fair picture to investors.
Approvals, regulations, litigations
 Risk factors associated with the company and the external environment
 Analysis of applicable regulations like FDI/FII, etc
Business activities past performance financial results
 Industry background, competition & business environment
 Description of the company s business‟
 Financial performance for the last five years
 Objects of the issue
 Future plans and strategy of the company
 Management s discussion and analysis of the financial results‟
Material contracts agreements
 Enabling provisions of MoA & AoA for allowed lines of business
 Letters of Contract with each member of the issue management team
 Loan agreements & sanction letters with FIs/ Banks
 Deeds of hypothecation executed in favor of the lenders
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 Underwriting agreements
 Agreement with the KMP
 Purchase order with major suppliers
 All utilities contracts & permissions
 Syndicate & Escrow agreement
Promoters & Management
 Quality, experience, qualifications, reporting structures, composition of Board of
Directors
 Quality of human resources
 Details of KM.
Offer Document – Three Distinct Sections
Formally divided into Part I & II as per Companies Act format, covering three sections - issue
structure, operating details, and general & statutory information
Issue structure
 Capital structure of the company
 Terms and conditions governing the instruments being issued
Operating details
 Information gathered during the Due Diligence process
 Highlight the company's strengths and operations
General and statutory information
 Description on the basis of allotment
 Auditors report
6
0

 Extracts of the Articles of Association
 List of Material Contracts and Documents
Reservations and Firm Allotment
Reservations can be made for the following investors
 Permanent employees (not exceeding 10% of the issue)
 Indian Mutual Funds
 Foreign Institutional Investors
 NRI investors
 Indian and Multilateral Development Financial Institutions
 Scheduled Banks
Firm allotment can be made to the following investors
 Permanent employees (not exceeding 10% of the issue)
 Indian Mutual Funds
 Foreign Institutional Investors
 NRI investors
 Indian and Multilateral Development Financial Institutions
 Scheduled Banks
IMPORTANT NOTES TO REMEMBER
 Firm allotment can be made at a price higher than the issue price
 Firm allotments are locked in for one year
 Persons to whom firm allotment has been made cannot apply in the portion for
the public
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 Category of investors for whom reservation has been made cannot apply in the portion
for the public
 Above mentioned condition is not applicable to employees
NOTE:
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.
 Filing of the prospectus with SEBI along with due-diligence certificate
and SE's (only draft prospectus)
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.
 Replying to all observations
On receipt of observations from SEBI, IB representative to SEBI covering all the
observations within the stipulated time submits a reply.
 Submission of complaints / material changes report
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.
 Receipt of SEBI card
All the observations given by SEBI are incorporated and the final prospectus is filed to SEBI.
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 Underwriting of the issue
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:
 Draft prospectus
 Underwriting agreements
 Performa for devolvement made by the Underwriters (if any)
 Certificate regarding the net worth of the Underwriters (confirmation letter )
 Consent letter to act as Brokers to the issue
 Finalization of underwriting
On receipt of underwriting confirmations, the IB In charge in consultation with the
Company finalizes the underwriting amount.
 Filing of Final Draft Prospectus
The Final Draft Prospectus is filed to SEBI after incorporating all the observations as
specified in the acknowledgment card before filing with ROC.
 Filing of material documents with ROC:
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.
 Filing of Due-Diligence Certificate with SEBI
A Due - Diligence Certificate is filed with SEBI by IB Representative on filing of
prospectus to ROC.
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 Preparation of Application Form
Issue Application Form is prepared as per the Ministry of Finance and SEBI guidelines.
 Printing of Share Application Forms and Prospectus.
On receipt of the ROC card the IB Representative arranges for the Issue Application Forms
and Prospectus to be printed.
 Preparation of distribution schedule for dispatch of Issues Applications
Forms & Prospectus.
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.
 Submission of printed copies of Prospectus to SEBI
IB representative submits 5 printed copies of prospectus to SEBI Regional and Mumbai
offices, at least 10 days before the opening of the issue.
 Arranging for the Opening of the Issue.
IB representative makes all necessary arrangements for opening of issue.
 Filing of the Due-Diligence Certificate with SEBI.
A Due - Diligence Certificate is filed with SEBI by IB representative before the
opening of the issue informing that no corrective action is required.
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 Filing of the Auditor's Certificate regarding receipt of promoter's contribution.
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.
 Filing of Final Compliance Certificate with SEBI:
A Final Compliance Certificate is filed with SEBI before the closure of issue.
 Closure of issue
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.
 Filing of 3- Day Compliance Report with SEBI
IB representative files a 3-Day Compliance Report with SEBI.
 Filing of 78- Day Compliance Report with SEBI
IB representative files a 78-Day Compliance Report with SEBI
 Assisting the Issuer Company in completion of listing formalities
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.
65

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.
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.
2.7 The Prospectus
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.
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.
There may be two kinds of Prospectus:
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
66

the IPO beforehand. It explains a proposed or existing business enterprise and must
disclose any material risks and information according to the securities laws.
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.
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
Vetting by SEBI/Stock Exchanges
A Company cannot come out with public issue unless a Draft Prospectus is filed
with SEBI.
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
SEBI on receiving the same scrutinizes it and may suggest changes within 21 days
of receipt of the Prospectus.
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.
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.
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Contents of the Prospectus
The word "Prospectus".
The name of the Issuer Company and address of the registered office of the
company, along with telephone fax number and E-mail address.
The nature, number, price and amount of the instruments offered.
Risk in Relation to First Issue and General Risk of Investment Clauses.
Issuer s Absolute Responsibility Clause.‟
Various Disclaimer Clauses of the SEBI, the Stock Exchanges, the Investment
Banker, and the Company.
Various Undertakings by the Company and its Board of Directors.
The names and address of the Investment bankers, and other intermediaries
involved in the Issue.
The Issue Opening and Closing Dates.
Risk Factors associated with the Issue and Management Perception to handle
these factors thereof.
Information on various transactions by the issuer Company.
Government Approvals and Filing.
Listing with the Stock Exchanges.
Credit Rating.
Instructions to investors on who can apply and how to apply.
Information on the utilization of Issue Proceeds.
Full details on the Capital Structure of the Company and Shareholding Pattern.
Terms of the Offer and Rights of Shareholders.
Basis of Allotment of Shares.
History of the Company and details on its present business, market position, etc.
Details of existing facilities.
Details of project cost and means of financing the project.
Full Financial Details and Financial Statements for last five years, complete with
the Auditor s Report.‟
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Details on Promoters and their Background.
Basis of the Issue Price.
Statutory and other Information.
Outstanding litigation, defaults, adverse events and material developments.
Material contracts and Inspection of Documents.
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.
Due Diligence
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.
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.
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.‟
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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.
The following are some details that need to be scrutinized for a typical client company:
1. General:
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.
2. Company Details:
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.
3. Project Details:
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.
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
70

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.
4. Promoters:
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.
5. Directors:
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.
6. Auditors:
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.
7. Product Details, Raw Materials, Plant & Machinery:
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.
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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.
8. Marketing:
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.
9. Outstanding Litigation:
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.
10. Companies under the same management:
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.
11. Consents:
Consent Letters from Auditors, Company Secretary, Legal Advisors, Lead
Managers, Bankers, etc. need to be obtained to act in their capacity.
12. Land, Civil Work and Assets:
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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.
13. Financial Assistance:
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.
14. Financial Information:
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.
15. Miscellaneous:
Notes on Investor Grievances and Redressed, Notes on Corporate Governance,
Amalgamations/ Mergers need to be additionally provided.
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‟
73

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.
2.8 The Application Form
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.
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.
In brief, the main contents of an Application Form are as follows:
Name of the Issuer Company along with registered office address, telephone
number, and fax and email id.
Nature, numbers, price and amount of the issue.
Offer Opening and Closing Dates.
Broker, Sub-Broker, Bank Branch and Registrar s respective Stamps and Codes.‟
Applicant s undertaking.‟
Minimum Subscription and other instructions for payment.
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.
Applicant s PAN/ GIR No.‟
Applicant s Depository Account details.‟
Bank s Counterfoil details.‟
An Abridged Prospectus of the Issuer Company which contains all details of the
Prospectus in brief, as specified by the SEBI DIP Guidelines.
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The main purpose of the Application Form is to remind Investors once again about
the contents and position of the Issuer Company, and to take all the investors details‟
required for the allotment of shares. The Registrar of Companies (ROC) receives all
Application Forms where the Basis of Allotment is also decided.
The Application Forms are processed to arrive at the number of shares to be allotted
to the applicants, according to the Basis of Allotment. Any details that are left unfilled or
incorrectly filled can make the Form liable to be rejected. Therefore the applicant must
also go through the Checklist provided in the Application Form in order to ensure that the
Form has been correctly filled.
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CHAPTER 4
76

2.9 DATA INTERPRETATION AND ANALYSIS
Part –I Basis of allotment
Emami ltd.
The Issue is being made through the 100% Book Building Process wherein up to 10% of the
issue is reserved for Employees of the Company. Up to 50% of the net Issue to the public shall
be allocated on a discretionary basis to Qualified Institutional Buyers ("QIBs"). Further, not
less than 25% of the net Issue to the public shall be available for allocation on a proportionate
basis to Non-Institutional Bidders and not less than 25% of the net Issue to the public shall be
available for allocation on a proportionate basis to Retail Bidders, subject to valid bids being
received at or above the Issue Price.
The Issue received 1,78,347 bids for 181,533,600 shares resulting in 36.31 times subscription.
The details of the applications received in the Issue from Employees, Retail,
3. Non Institutional and Qualified Institutional investor categories are as under:
Category No. of Applications No. of Shares Bid Subscription
Qualified Institutional Buyers 76 96,437,000 42.86
Non Institutional Investors 1,110 18,813,000 16.72
Retail Investors 177,018 65,859,000 58.54
Employees 143 423,800 0.85
3.1 Final Demand
A sample of the final demand at different bid prices is as under:
Bid Pirce (Rs.) No. of Shares % of Total Cumulative Total Cumulative %
60 1,777,550 0.95 187,286,044 100
61 42,000 0.02 185,508,494 99.05
62 318,900 0.17 185,466,494 99.03
63 31,400 0.02 185,147,594 98.86
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The Basis of Allotment was finalized in consultation with The Stock Exchange,
Mumbai (BSE) on March 21, 2005
3.2 A) Allocation to Employees
The Basis of Allocation to the Emami Limited, who have bid at cut-off or at the Issue Price
of Rs. 70/- per Equity Share was finalized in consultation with BSE. The total number of
shares allotted in this category is 4,23,800. The allotment was full & firm for all valid bids.
The under subscribed shares of the employees reservation portion being 76,200 Equity
Shares have been apportioned for allocation in the Retail and the Non Institutional
category in the ratio of 50:50.
3.3 B) Allocation to Retail Investors
The Basis of Allocation to Retail Investors, who have bid at cut-off or at the Issue Price of
Rs. 70/- per Equity Share, was finalized in consultation with BSE. The category was
oversubscribed 58.54 times. The total number of shares allotted in this category is
11,62,300 Equity Shares. The category-wise details of the Basis of Allocation are as under:
No. of No. of % to Total No. % to No. Of Ratio Total
total of total Shares No. of
Shares Application Shares applied Allocated Shares
allocated
100 47709 26.95 4770900 7.24 100 1:57 83700
200 33142 18.72 6628400 10.06 100 0.184028 116900
300 17969 10.15 5390700 8.19 100 0.273611 95500
400 8430 4.76 3372000 5.12 100 0.360417 59600
500 13269 7.5 6634500 10.07 100 3:34 117000
600 4860 2.75 2916000 4.43 100 0.434028 51400
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700 51639 29.17 36147300 54.89 100 0.520139 638200
3.3 C)Allocation to Non Institutional Investors
The Basis of Allocation to the Non Institutional Investors, who have bid for at the Issue
Price of Rs. 70/- per Equity Share, was finalized in consultation with BSE. The
category was oversubscribed 16.72. The total number of shares allotted in this category
is 11,63,900 Equity Shares. A sample of category-wise details of the Basis of
Allocation is as under:
No. of No. of % to Total % to No. Of Ratio Total
total No. of total Shares No. of
Shares Application Shares applied Allocated Shares
allocated
800 62 5.59 49600 0.26 100 1:02 3100
900 13 1.17 11700 0.06 100 8:13 800
1000 174 15.68 174000 0.92 100 21:29 12600
1100 18 1.62 19800 0.11 100 FIRM 1800
1200 12 1.08 14400 0.08 100 FIRM 1200
1300 8 0.72 10400 0.06 100 FIRM 800
2500 18 1.62 45000 0.24 200 FIRM 3600
4000 10 0.9 40000 0.21 200 FIRM 2000
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5400 9 0.81 48600 0.26 300 FIRM 2700
10500 1 0.09 10500 0.06 600 FIRM 600
12100 1 0.09 12100 0.06 700 FIRM 700
13500 1 0.09 13500 0.07 800 FIRM 800
15000 14 1.26 210000 1.12 900 FIRM 12600
20000 41 3.69 820000 4.36 1200 FIRM 49200
30000 3 0.27 90000 0.48 1900 FIRM 5700
50000 2 0.18 100000 0.53 3100 FIRM 6200
100000 9 0.81 900000 4.78 6200 FIRM 55800
150000 4 0.36 600000 3.19 9300 FIRM 37200
300000 1 0.09 300000 1.59 18600 FIRM 18600
500000 1 0.09 500000 2.66 30900 FIRM 30900
2038400 1 0.09 2038400 10.84 126100 FIRM 126100
3.5 D) Allocation to QIBs
Category FIs/Banks MFs FIIs
Insurance
VCs Others Total
Companies
No. of
38,000 17,92,000 4,18,000 2,000 - - 22,50,000
Shares
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Interpretation
Allocation of the shares is done in consultation with the investment banker. Thus if we look at
the allocation pattern of the shares it becomes clear that the investment banker/ company not
only has to follow the guidelines of SEBI but also need to closely watch the market condition
.Basically it s the investment banker on whose suggestion the time of issue is decided by the‟
company . This is basically because the secondary market needs to be heated for the company
to get good returns. Though the companies have generally no obligation to do specifically what
investment bankers suggest but because investment bankers have the expertise hence their
suggestions generally prevail.
8
1

CHAPTER 5
82

3.6 Findings
During the first half of year 2004, a number of events took place that lead to scams and
scandals. There was the Mini Budget, the Exim Policy, the Interim Budget, more Reforms and
confusion over the government s intention to offer for sale its stake in the divested and not yet‟
divested PSUs. The rising rupee, interest rate differential and the rising secondary market were
added propellers to the existing momentum. Dazzled by the returns provided by most entrants
in the Primary Market in 2003, domestic investors have used the heated markets to gain profits
and get ready for the „IPO Wave to make up for all their earlier losses.‟
The inability to find a mechanism that correctly discovers the price has resulted in a viscous
circle: Issuing Companies don t step out unless the secondary market is heated. Again, a‟
buoyant secondary market means a pricey Initial Public Offer.
The book- building process has added to the uncertainty. The visible manifestations of this are
gimmicks such as fixing the floor price in the price band or offering a discount to the issue
price to the retail investors. The result is that most of the subscription is at the lower end of the
price band, thereby taking the entire process far from its purpose of reaching a crescendo at a
significantly higher price.
Institutional investors can influence the floor price or price band even before the issue opens by
depressing prices in the run-up to the building of the book. Lower the floor price or the band
range, higher are the chances of over-subscription or premium on listing.
The fixed- price issues, in this sense become symbolic of the Issuer Company knowing its
worth and presenting a concrete picture to the investors about the purpose of issuing its IPO.
8
3

3.8 Conclusion
The issue of an IPO by a Company involves a number of stages, each calling for a great deal of
verification. The relevant and updated information on the Company has to be captured
precisely in the Prospectus. The decision by the Investors on whether to invest in a Company is
influenced significantly by the information contained in the Prospectus. The Regulatory Bodies
are also involved and there are set procedures that must be followed. Legal compliance has to
be maintained. Moreover, the Company s potential should not be understated in or lost in the‟
Prospectus because of the weight of such rules, regulations and formalities.
The Investment Banker s job is thus to handle the entire Issue of the IPO of a Company by‟
guiding it and coordinating the activities of the various intermediaries involved. The number of
successful issues handled by the Investment Banker also adds to his reputation in the market. It
is for this reason that he must be very careful and lay stress on the process of Due Diligence,
for any minor non-compliance could prove to be fatal.
A Company must enter its equity shares into the market by providing the investors with a
concrete picture of itself, its business and its plans. It is only if the investors are convinced
with the good potential of the Company that they will invest in its IPO
3.7 Suggestions
The following are some suggestions to the Issuing Company, to Sebi and with special
emphasis, to the investors:
To The Issuer Company
The issuer must stress on Corporate Governance. The SEBI Regulations and the Companies
Act should be understood well.
The Board of Directors, Auditors and other executives should be formed keeping the
regulations for Corporate Governance in mind.
The Issuer Company must provide fixed and concrete project implementation details. Any
scope of doubt or ambiguity in the project must be avoided.
The project plan should be clearly defined, and the costs associated should be truly quoted.
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There should be clearly spelled out objectives for the project.
The investors need to know what exactly the funds raised from the IPO will be invested in,
and it is only if the project details are very clear and reasonable, that investors would opt
for the IPO with confidence in its potential.
To The Securities and Exchange Board of India:
The Board must adhere to the time limits fixed for replies and observations in order to
enable the Investment Banker, Issuer Company and investors to plan in advance. The time
limits need to be maintained since the timing of the issue of the IPO depends to a great
extent upon the clearances and approvals received from SEBI.
To combat the influence that institutional buyers can have on the floor price and the
price band, the Board can:
Insist on a minimum number of institutional investors, their number should
proportionately increase with the size of the issue. This should check the unbridled
oversubscription from this section, as allotment will depend on the number of
institutional investors applying and not on the number of shares applied for.
If the issuer is unable to meet the quota of institutional investors, the issue should stand
devolved. This will ensure the entry of only quality issues.
SEBI should send the issuer back to rework the pricing if the issue is subscribed more
than two times. This will eliminate the extravagant premium at which most of the IPOs
have been getting listed and subsequently deflated
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3.9 BIBLIOGRAPHY
 BOOKS
 Dr. J.C. Verma, Manual of Investment Banking, 4th
ed., Bharat Law House, New Delhi,
1996.
 Dr. K.R. Chandtratre, Bipin Acharya, Dr. S.R. Israni, K. Sethuraman, Compendium on SEBI Capital Issues
and Listing, 4
th
ed., Bharat Publishing House, New Delhi, 1992.
 Manual of SEBI Guidelines on Capital Issues, Euro Issue, Investment Banking and Mutual Funds, 5
th
ed.,
Nabhi Publications, 1996.
JOURNALS
 The Economic Times
 The Hindu
WEBSITES
 www.capitalmarkets.com
 www.companylawinfo.com
 www.financialexpress.com
 www.hindubusinessline.com
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Initial Public Offers and Due Diligence

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