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What is the guarantee that I will earn Profit when I sell the shares or get dividend in future?

1. What is an IPO?:

IPO is a short name for the phrase Initial Public Offer.  There are following types of Public Offers.

1. Initial Public Offer (IPO)
2. Follow-on Public Offer (FPO)
3. Offer for Sale (OFS)

1.1 Initial Public Offer.  (IPO):

The first Public Offer of Shares is Initial Public Offer.  All Initial Public Offers are necessarily through Book Built Issue.  It’s a price discovery mechanism, where the issue price is discovered, by receiving price bids from investors.  The investors through this process decide the Issue Price.  Before the Issue Opens only the Price Band is decided.  The entire Pre-Issue Share Capital of the Company is locked in for minimum period of one year from the date of allotment.                                                                                                                                                Go Top

1.2 What is Book Building?:

There are two types of book built Issues.

1. 100% Book Built.  Where all categories of buyers bid during the time issue is open.

2. 75% Book Built.  Where only QIBs and NIBs bid during the first phase the issue is open.  After the price discovery, the remaining 25% issue size is open as a fixed price issue for 3 more working days for retail investors.

There are mainly 3 types of investors besides reserved categories and the allotment ratio is devised separately for each such category.

i. Qualified Institutional Buyer (QIB)

It means:

a. public financial institution as defined in section 4A of the Companies Act 1956.

b. scheduled commercial banks;

            c. mutual funds;

d. foreign institutional investor registered with SEBI;

e. multilateral and bilateral development financial institutions;

f. venture capital funds registered with SEBI;

g. foreign venture capital investors registered with SEBI;

h. state industrial development corporations;

i. insurance companies registered with the Insurance Regulatory and

Development Authority (IRDA);

j. provident funds with minimum corpus of Rs. 25 Crores;

k. pension funds with minimum corpus of Rs. 25 Crores).

Generally 50% of the Issue Size is allocated to QIBs and are not allowed to bid at Cutoff Price, as they are mainly responsible for Price Discovery.

Note: The Allotment to the QIBs is done proportionately.  The subscription ratio in the category is applied for the allotment. (See Page 299 of DIP Guidelines November 2007)

ii. Non-Institutional Buyers (NIB / HNI)

Those investors who bid for greater than Rs.1,00,000 in amount are in this Category.

Generally 15% of the Issue Size is allocated to NIBs and are not allowed to bid at Cutoff Price, as they are mainly responsible for Price Discovery.

iii. Retail Buyers

Those Investors who bid for Rs.1,00,000/- or less in amount are in this category

Generally 35% of the Issue Size is allocated to Retail Investors.  They are allowed to bid at Cut-Off Price.

Note: For Procedure of Allotment to Categories other than QIBs See Page no. 294 of DIP Guidelines November 2007.                                                                                                                                                      Go Top

1.3 What is a Price Band and what is Bid Lot ?:

A price band is a range of price given for bidding.  It consists of lowest price for bidding (Floor Price) and the highest price (Upper Price).  The price band is decided by the issuer envisaging the demand for the Company’s shares in the market in consultation with the BRLM (Book Running Lead Manager to the Issue) and the investors have to bid to this issue through the syndicate members within this price band.  The Syndicate Members update their bid on-line on the BSE/NSE terminals. 

In this issue a book is built by public bidding. The price band may be decided by the issuer in consultation with the BRLM minimum two days before the issue opens.  The investors bid for a price within the price band decided.  The issue price is discovered as the price on which the book cuts off the Issue Size in Shares.

Bid Lot is the minimum number of shares an applicant has to apply for.  If more shares than the bid lot to     be     applied then the applicant has to apply in the multiples of bid lot.  The Bid lot is also the smallest denomination of allocation unit of shares .                            Go Top

1.4. Are the Investors allowed to Bid outside the Price Band?:

No. The bids update mechanism on the BSE / NSE terminal does not allow bids outside the band.

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1.5  What is the Issue Duration and revision of Price Band?:

The Issue is Open for bidding for 3 to 7 working days (SEBI Working days).  In case when the book is not built satisfactorily, indicating investor dissatisfaction for the price band, the Issuer and the Lead Managers may decide to revise the price band, that is decrease the floor and upper price to encourage bidders.  In case of revision, the issue remains open for another 3 working days for new bidding and the earlier bidding is considered erased.

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1.6 What is the revision of Bid?:

The bidder may revise the price at which he/she has bidded earlier.  The price revision has to be done before the Issue closes.  In the application, there are revision-forms included with the same application number.  The bidder is at the liberty to revise the price upwards, than bidded earlier.  The downward revision is not allowed. 

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1.7 What are Book Runners?:

In an application, the list of city wise book runners with their complete address and Tel nos is printed on 2^nd page and last but one page of the application..  These book runners accept the applications from the investors and update the bids on-line.                                                                                                                                       Go Top

1.8 What are the Mandatory Collection Centers?:

All the cities where Stock Exchanges are located will have to be included in the collection centers for all issues.  There are 3 exchanges in Mumbai; all other cities given below have at least one exchange. The following 20 cities are Mandatory Collection Centers.

 

MANDATORY COLLECTION CENTRES
S. No.	Exchange Name	City
A.	NORTHERN REGION
1	Ludhiana Stock Exchange	Ludhiana
2	Delhi Stock Exchange	Delhi
3	Jaipur Stock Exchange	Jaipur
4	U.P. Stock Exchange	Kanpur
B.	SOUTHERN REGION
1	Hyderabad Exchange	Hyderabad
2	Bangalore Stock Exchange	Bangalore
3	Coimbatore Stock Exchange	Coimbatore
4	Cochin Stock Exchange	Cochin
5	Madras Stock Exchange	Chennai
6	Mangalore Stock Exchange	Mangalore
C.	EASTERN REGION
1	Calcutta Stock Exchange	Calcutta
2	Gauhati Stock Exchange	Gauhati
3	Magadh Stock Exchange	Patna
4	Bhubaneswar Stock Exchange	Bhubaneswar
D.	WESTERN REGION
1	Bombay Stock Exchange	Mumbai
2	National Stock Exchange	Mumbai
3	OTC Exchange of India	Mumbai
4	Pune Stock Exchange	Pune
5	M P Stock Exchange	Indore
6	Vadodara Stock Exchange	Vadodara
7	Ahmedabad Stock Exchange	Ahmedabad
8	Saurashtra Kutch Stock Exchange	Rajkot
Total	20	Cities

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1.9 How is Issue Price Discovered?:

The price for which maximum percent of shares, (at or over the issue size), is received is the price discovered and is decided as the Issue Price.  The allocation of shares is priced by this Issue Price.

 1.9.1         Illustration of Book Building and Price Discovery Process (Investors should note that the following is solely for the purpose of illustration and is not specific to any Issue)The Bidders can bid at any price within the Price Band. For instance, assume a Price Band of Rs. 60/- to Rs. 72/- per Equity Share, Issue size of 5,400 Equity Shares and receipt of five Bids from the Bidders. A graphical representation of the consolidated demand and price will be made available at the websites of the BSE (www.bseindia.com) and the NSE (www.nseindia.com) during the Bidding/Issue Period. The illustrative book as set forth below shows the demand for the Equity Shares of the Company at various prices and is collated from Bids from various investors. 

Bid Quantity       Bid Price (Rs.)            Cumulative Quantity       Cumulative Subscription

           1,500                72                                     1,500                                  27.78%

           3,000                69                                     4,500                                  83.33%

           4,500                66                                     9,000                                166.67%

           6,000                63                                   15,000                                277.78%

           7,500                60                                   22,500                                416.67% 

The price discovery is a function of demand at various prices. The highest price at which the Company is able to issue the desired quantity of Equity Shares is the price at which the book cuts off, i.e., Rs.66 in the above example. The Company in consultation with the BRLMs, will finalize the Issue Price at or below such cut off price, i.e., at or below Rs.66. All Bids at or above this Issue Price and cut-off Bids by Retail Investors are valid Bids and are considered for allocation after the exclusion of Technical Rejections, in the respective category.            Go Top

1.10 What are Technical Rejections?:

The application is excluded from the allotment process, if certain technical defects are found in the applications received.  The Technical Rejections commonly used are listed below.

Depending on Subscription Status and in consultation with Issuer and BRLM, the registrar chooses the technical rejections applicable for the issue.  Such rejected applications get a full refund if the cheque with the application is not Retuned Unpaid.                                                                                                                                      Go Top

2. What is the general Time Line for completion of Public Offer?:

The time line for the IPO is 15 days.  In these 15 days the registrar, Issuer and the Lead Managers to the Issue have to ensure allotment, Crediting of Shares to the Share Holders’ demat Accounts and dispatch of all refund.

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3. When the shares are listed for trading?:

The listing on Stock Exchange for trading will have to be done within 7 working days after the allotment.  Within two days of allotment, the Company applies for listing and trading permission.

In case of FPO, the in-principal listing permission is acquired before the shares are allowed to be credited to the share holders’ demat account by the depositories.  This precaution is taken since the shares for the same co. and for the same ISIN are already being traded on the stock exchange and the new shares being of the same ISIN can be traded if credited to the demat accounts, even if the trading permission is delayed.

In case of IPO, the listing permission is given only after the stock exchange ensures, that the shares are credited to the share holders’ demat account.  Till the trading permission is given the shares are frozen and can not be traded.

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3.1 Follow-on Public Offer ( FPO ):

When the Co. has already been formed through an IPO for part of the total Authorised share Capital and wants to come up with another Public Offer for balance shares out of the Authorised Capital or Additional Authorised Capital i.e. New Shares for a new Project, the Company launches FPO 

The FPO can be launched in two ways i.e. Book Built way or Fixed Price Issue.                                      Go Top

3.2 Offer for Sale (OFS):

When some of the promoters want to offer part of their shares to public, they offer these shares to Public by way of either bidding for price discovery or by fixed price issue.  The issue is just like any other Issue, only the amount so collected is paid to the Promoters/ Directors, whose shares are offered for sale, i.e. there is no project involved and the shares are not new shares.                                                                                                                  Go Top

3.3 Composite Public Offer (CPO):

An Issuer my decide to offer shares to the existing share holders for a price lower than envisaged issue price or price band.  For this purpose, the Issuer will launch a Composite Issue i.e. a combination of Right and Public Issue.  The Right Issue will precede the Public Issue by 30 days, i.e the minimum time a Right Issue is Open.  It is mandatory to allot shares for the composite issue together and finish all activities in the time line provided for the Public Issue.  In case of Under Subscription in any of the component of the Composite issue i.e. Right or Public, the balance shares in the offer will spill over to other oversubscribed component unless specifically mentioned in the offer letter.                                                                                                                                                       Go Top

4. What is a Fixed Price Issue?:

When the Issue Price is fixed before the Issue Opens, it is called Fixed Price Issue.  Unlike Bidding, the applications are accepted by the bank branches designated for collection.  The Issue is open for 3 to 7 days and all the activities up to dispatch or Refund are completed within 30 days from the date the Issue closes.                              Go Top

5. What is the use of IPO for a common Investor?:

It is the chance to get the shares for a new company for an initial price.  In future, if Co. performs, the share price might be too high for a common investor.                                                                                                 Go Top

6. What shall I do to get the shares in my demat account quickly and prompt Refund? Also how can I  increase my chances of allotment of shares?:

When applying for a Public Issue, the investor needs to take following precautions.

Your Demat Account should be Existing and active to receive Credit and should be updated with following.

i.                     Correct and current Address.

ii.                  Correct and Currently used Bank Account Number, Name of the Bank and Branch is updated in the Demat Account

iii.                 The 9 digit MICR Code of the bank branch.  This Code can be seen on the bank’s latest cheque leaf, after the cheque No. Using this code, the refund banker can transfer refund amount to the receiver’s bank account, eliminating the postal delays and loss of refund order in transit.  The transfer of funds is done through ECS Credit Service (See ECS FAQ) and is applicable only for the 15 cities where RBI has offices.  The Cities are as follows. 

In case of high amount refund, it would be better to find and write the currently used IFSC code of the bank branch in the application.  IFSC: Indian Financial System Code (IFSC) is an alpha-numeric code designed to uniquely identify bank branches in India. This is an 11 -digit code with the first four digits are characters representing the bank code, e.g. Bank Of Baroda may be coded as “BARB”, the fifth digit is a control character, and the last 6 digits is a number which identifies the branch.)

By using this code, the refund banker can transfer high amounts directly to the receivers bank account within one hour through RTGS i.e. Real Time Gross Settlement.(See RTGS FAQ) 

iv.         The names in the application are same as in the demat account no. written on the application.  Also they are in same order in case of joint names.

 Additional Precautions:

v.                 The address and bank details should be written on application also if space provided for additional information.

vi.