Ipo Final

15 Critical Disclosures of IPO

2

What is an IPO? Initial Public Offering, IPO, is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public

3

Different Kinds of Issues Issues

Public

Rights

Initial Public Offering

Fresh Issue

Offer For Sale

Preferential

Further Public Offering

Fresh Issue

Offer For Sale

4

Reasons to go public…  Raising funds to finance cap ex programs like expansion, diversification, modernization  Financing of increased working capital requirements  Debt refinancing  Financing acquisitions like a manufacturing unit, brand acquisition  Exit route for existing investors

5

Intermediaries  Merchant Bankers  Registrar and Share Transfer Agents  Bankers to the Issue  Underwriters  Stock Brokers and Sub Brokers  Depositories

6

Entry Norms Entry norm I (EN I) The company shall meet the following requirements: (a) Net Tangible Assets of at least Rs. 3 crore for 3 full years (b) Distributable profits in at least three years (c) Net worth of at least Rs. 1 crore in three years (d) If change in name, at least 50% revenue for preceding 1 year should be from the new activity (e) The issue size does not exceed 5 times the pre- issue net worth

7

Entry Norms (Contd.) Entry Norm II (EN II) (a) Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs)

(b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years

8

Entry Norms (Contd.) Entry Norm III (EN III) (a) The “project” is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s) (b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years (c) The company shall also satisfy the criteria of having at least 1000 prospective allotters in its issue

9

Pre-Issue Obligation  Appointment of merchant banker registered with SEBI  Appointment of other intermediaries 

Advisor



Lead manager



Co-manager

10

Pre-Issue Obligation  Registrar 

Category I and category II



Assists in selection of banker



Assists in devising application form



Collection of daily collection figure



Finalize the list of eligible allotters



Amount of shares outstanding in the market matches the amount of shares authorized by the company

11

Pre-Issue Obligation  Bankers 

Compulsory registration with SEBI



Share application money account



Issue of certificate of final collection figure



Acceptance of money payable on allotment and on calls



Refund of application money to unsuccessful applicants

12

Pre-Issue Obligation  Underwriters  Advertising Agency 

English National Daily with wide circulation



Hindi National newspaper



Regional language newspaper with wide circulation at the place of the registered office of the issuer



Shall be in the format and contain the minimum disclosure

13

Pre-Issue Obligation  Auditor 

Auditors’ report



Promoters contribution certificate

14

Promoter’s Contribution  Who is Promoter? 

Persons who are in overall control of the company



Instrumental in the formulation of a plan or programme pursuant to which the securities are offered to public



Persons named in the prospectus as promoters

15

Promoter’s Contribution  Unlisted company 

Minimum requirement: 20% of the post-issue capital

 Listed company 

Post-issue holding should be more than 20%

 Should bring in their contribution including premium fully before the issue

16

Promoter’s Contribution  Securities not eligible for computation 

Shares issued for consideration other than cash



Shares resulting from bonus issue out of revaluation reserves



Shares issued to promoter during preceding year, at a lower price



Shares issued to partners for capital brought in during last year

17

Lock-in  Indicates a freeze on the shares  For minimum contribution

3 years

 For excess contribution

1 year

 Lock in period starts from 

Date of allotment or



Date commencement of commercial production

Securities And Exchange Board Of India (Disclosure And Investor Protection Guidelines, 2000)

19

Issue Details (a)

Logo, name, previous name, if any, address, telephone number, fax number, contact person, website address and e-mail address of the issuer company

(b)

Nature, number, price and amount of instruments offered and issue size, as may be applicable

(c)

Risks in relation to first issue

(d)

General risk regarding investments in equity

(e)

Issuer's Absolute Responsibility clause

20

Issue Details Logo, names and addresses of all the Lead Merchant Bankers

(f)

with their titles who file the prospectus with the Board, along with their telephone numbers, fax numbers, website addresses and e-mail addresses (g)

Logo, names of the Registrar to the Issue, along with its

telephone number, fax number, website address and e-mail address (h)

Issue Schedule

(i)

IPO Grading, Credit Rating, if applicable

(j)

Names of the Stock Exchanges where listing is proposed along with details of in-principle approval

21

Table of Contents 2)Definitions And Abbreviations 3)Risk Factors

1) Other Regulatory And Statutory Disclosures

4)Introduction

2) Issue Information

5) About The Issuer Company

3) Main Provisions Of The

6)Financial Information

Articles Of Association Of

7) Legal And Other Information

The Company 4) Other Information

22

Definitions and Abbreviations  Conventional/ General terms  Offering-related Terms  Company/ Industry-related Terms  Abbreviations

23

Risk Factors 1. Forward-looking Statements and Market Data, if any (to be disclosed on voluntary basis). 2. Risk Factors iii.Risks envisaged by Management. iv.Proposals, if any, to address the risks. v.Notes to the risk factors.

24

Introduction 1. Summary ii. Summary of the industry and business of the issuer company iii. Offering details in brief iv. Summary Consolidated Financial, Operating and Other Data

6. General Information vii.Name, address of registered office and the registration number of the issuer company, along with the address of the Registrar of Companies where the issuer company is registered viii.Board of Directors of the issuer company ix. Brief details of the Chairman, Managing Director, Whole Time Director, etc x. Names, addresses, telephone numbers, fax numbers and e-mail addresses of the Company Secretary, Legal Advisor and Bankers to the Company xi. Name, address, telephone number, fax number and e-mail address of the Compliance Officer

25 i.

Names, addresses, telephone numbers, fax numbers, contact person, website addresses and e-mail addresses of the Merchant Bankers, Co-Managers, Registrars to the Issue, Bankers to the Issue, Brokers to the Issue, Syndicate members, Self Certified Syndicate Banks, etc.

ii.

Names, addresses, telephone numbers, fax numbers and e-mail addresses of the auditors of the issuer company.

iii. Statement of inter se allocation of responsibilities among Lead Managers. iv. Credit Rating (in case of debenture issue) / IPO Grading. v.

Names, addresses, telephone numbers, fax numbers, website addresses and e-mail addresses of the trustees under debenture trust deed (in case of debenture issue).

vi. Name of the monitoring agency, if applicable. vii. Where the project is being appraised, name, address, telephone number and e-mail address of the appraising entity. viii. Book Building Process in brief. ix. Details of Underwriting, if any.

26

3. Capital Structure

4. Objects of the Offering

ii. Capital structure

ii. Funds Requirement

iii. Classes of shares, if applicable

iii. Funding Plan (Means of Finance)

iv. Notes to capital structure

iv. Appraisal v. Schedule of Implementation vi. Funds Deployed vii.Sources of Financing of Funds already deployed viii.Details of Balance Fund Requirement ix. Interim Use of Funds x. Basic Terms of Issue xi. Basis for issue price xii.Tax Benefits

27

About the Issuer Company 1. Industry overview 2. Business overview

i.

Business strategy

b)

Brief statement about business strategy.

c)

Brief statement about future prospects,

iii. Details of the business of the issuer

including capacity & capacity utilization and projections.

company d) Location of the project.

iv.

e) Plant, machinery, technology, process, etc.

disclosed on a voluntary basis).

f) Collaborations, any performance guarantee or assistance in marketing by the collaborators.

v.

g) Infrastructure facilities for raw materials and

Insurance (to be disclosed on a voluntary basis).

utilities like water, electricity, etc. h) Products/ services of the company.

Competitive strengths (to be

vi.

Property.

vii.

Purchase of property.

28

3. Key Industry-Regulation (if applicable)

4. History and Corporate Structure of the issuer company: (i) History and Major Events. (ii) Main objects. (iii) Subsidiaries of the issuer company, if any and their businesses. (iv) Shareholders agreements. (v) Other agreements. (vi) Strategic partners. (vii) Financial partners.

29

5. Management ii.

Board of Directors.

iii.

Compensation of Managing Directors/ Whole time Directors.

iv.

Compliance with Corporate Governance requirements.

v.

Shareholding of Directors, including details of qualification shares held by them.

vi.

Interest of the Directors.

vii. Change, if any, in the directors in last three years and reasons thereof, wherever applicable. viii. Management Organisation Structure. ix.

Details regarding Key Management Personnel.

x.

Employees.

xi.

Disclosures regarding employees stock option scheme/ employees stock purchase scheme of the issuer company, if any, as required by the Guidelines or Regulations of the Board relating to Employee Stock Option Scheme and Employee Stock Purchase Scheme.

xii. Payment or Benefit to Officers of the Company (non-salary related).

30

6. Promoters/ Principal Shareholders: ii. Details about promoters who are individuals iii. Details about promoters which are companies iv. Common pursuits v. Interest of promoters vi. Payment or benefit to promoters of the issuer company vii.Related party transactions as per the Financial Statements

7. Exchange rates (to be disclosed on voluntary basis) 8. Currency of presentation 9. Dividend policy

31

Financial Statements 1.

Selected Consolidated Financial and Operating data.

2. Financial information of the issuer company. 3. Financial information of group companies. 4. Changes in Accounting Policies in the last three years. 5.

Management’s Discussion and Analysis of Financial Condition and Results of Operations as Reflected in the Financial Statements: i.

Overview of the business of the issuer company.

ii.

Significant developments subsequent to the last financial year.

iii.

Factors that may affect Results of the Operations.

32

Financial Statements (Contd.) i.

Discussion on Results of Operations.

ii. Comparison of recent financial year with the previous financial years (last three years) on the major heads of the Profit & Los Statement. iii. Liquidity and Capital Resources (to be disclosed on voluntary basis). iv. Capital Expenditure (to be disclosed on voluntary basis). v. Foreign Exchange Risk (to be disclosed on voluntary basis). vi. Interest rate Risk (to be disclosed on voluntary basis). vii. Recent accounting pronouncements (to be disclosed on voluntary basis).

33

Legal Other Information 1. Outstanding litigations and Material Developments i.

Outstanding litigations involving the issuer company.

ii.

Outstanding litigations against the issuer company’s subsidiaries (if applicable).

iii.

Outstanding litigations involving the promoter and group companies.

iv.

Material developments since the last balance sheet date.

3. Government approvals/ Licensing Arrangements i.

Investment approvals (FIPB/ RBI, etc.).

ii.

All government and other approvals.

iii.

Technical approvals.

iv.

Letter of intent/ industrial license and declaration of the Central Government/ RBI about non responsibility for financial soundness or correctness of statements.

34

Other Regulatory and Statutory Disclosures 1. Authority for the issue and details of the resolution passed for the issue. 2. Prohibition by SEBI. 3. Eligibility of the Issuer Company to enter the Capital market. 4. Disclaimer clause. 5. Caution. 6. Disclaimer in respect of jurisdiction. 7. Disclaimer clause of the stock Exchanges. 8. Disclaimer clause of the Reserve Bank of India (if applicable). Filing of prospectus with the Board and the Registrar of Companies.

1. 2. 3. 4. 5. 6. 7.

Listing. Impersonation. Consents. Expert opinion obtained, if any. Expenses of the issue. Details of fees payable. Underwriting commission, brokerage and selling commission. 8. Previous rights and public issues if any (during the last five years). 9. Capitalisation of reserves or profits (during last five years). 10. Revaluation of assets, if any (during last five years).

35

Offering Information 1. Terms of the issue ii. Ranking of equity shares. (Details of Applications Supported by Blocked Amount Process) iii. Mode of payment of dividend. iv. Face value and issue price/ floor price/ price band. v. Rights of the equity shareholder. vi. Market lot. vii.Nomination facility to investor. viii.Minimum subscription. ix. Arrangements for Disposal of Odd Lots. x. Restrictions, if any, on transfer and transmission of shares/debentures and on their consolidation/ splitting.

36

2. Issue procedure: ii. Fixed price issue or book building procedure as may be applicable, including details regarding bid form / application form, who can bid/apply, maximum and minimum bid/application size, bidding process, bidding, bids at different price levels, etc. iii. Option to subscribe in the issue. iv. How to apply - availability of forms, prospectus and mode of payment. v. Escrow mechanism: (a) Escrow A/c. of the company. (b) Escrow A/c. of the syndicate member.

vi. Terms of payment and payment into the Escrow Collection Account. vii.Electronic registration of bids. viii.Build up of the book and revision of bids. ix. Price discovery and allocation. x. Signing of underwriting agreement.

37 i.

Filing of prospectus with the Registrar of Companies.

ii.

Announcement of pre-issue Advertisement.

iii. Issuance of Confirmation of Allocation note (“CAN”) and Allotment in the Issue. iv. Designated date. v.

Other instructions: (a) Joint bids in the case of individuals. (b) Multiple bids. (c) Permanent Account Number (d) Rejection of Bids (e) Equity shares in de-mat form with NSDL or CDSL. (f) Investor’s attention invited to contact the compliance officer in case of any pre-issue/ postissue related problems.

vi. Disposal of application and Application moneys. vii. Provisions of sub-section (1) of section 68A of the Companies Act, 1956 relating to punishment for fictitious applications.

38

i.

Interest on refund of excess bid amount.

ii.

Basis of allotment or allocation.

iii.

Procedure and time of schedule for allotment and issue of certificates.

iv.

Method of proportionate allotment.

v.

Letters of allotment or refund orders

vi.

Restrictions on foreign ownership of Indian securities, if any. (a) Investment by NRIs . (b) Investment by FIIs.

39

Red Herring Prospectus  It is a prospectus which does not have details of either price or number of shares being offered or the amount of issue.  Therefore, in case the price is not disclosed, the number of shares and the upper and lower price bands have to be disclosed.

40

Red Herring Prospectus (Contd.) 

On the other hand, an issuer can state the issue size and the number of shares are determined later.



In the case of book-built issues it is a process of price discovery, hence, only on completion of the bidding process, the details of the final price are included in the offer document.

41

SEBI’s Role in an Issue 

Submission of offer document to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI



SEBI does not recommend any issue nor does take any responsibility either for the financial soundness of any scheme or the project for which the issue is proposed to be made

42

Difference between…  Offer document 

Covers all the relevant information to help an investor to make his/her investment decision

 Draft Offer document 

Offer document in draft stage



Are filed with SEBI, at least 21 days prior to the filing of the Offer Document with the RoC

 Abridged Prospectus 

Contains all the salient features of a prospectus



Accompanies the application form of public issues

43

What is 'IPO Grading'?  Aimed at facilitating the assessment of equity

issues offered to public  An assessment of the ‘fundamentals’ of that issue in relation to the universe of other listed equity securities in India

44

IPO Grading Parameters     

Financial risks Accounting quality Corporate governance Management quality Earnings per share

45

Advantages of IPO Grading  Is likely to help SEBI regulate the IPO market by helping

it protect the investors from cases of vanishing companies  Retail investors, stand to benefit the most on account of the professional perspective of the company's fundamentals  Neutral agencies can be more objective in their evaluation of a public offer compared to other market participants

46

Disadvantages of IPO Grading  The rating agencies will not talk about “what price” and

“what time” aspects of the offer  Rating agencies (experienced in debt rating) could face trouble with rating the equities, which, unlike debt rating, is more dynamic and cannot be standardized  Investors may get deluded by a low-graded IPO, which could become a `missed opportunity' in the future

47

Pricing  No price formula stipulated by SEBI  Issuer in consultation with the merchant banker determines the price as well as the price band  SEBI plays no role in price fixation  Full disclosure of parameters used for pricing to SEBI

48

Factors Influencing Pricing QUALITATIVE     

Past Records Experience of Promoters Unique Selling Proposition Industry Scenario Credit Rating

QUANTITIVE  Current Market Price & High Low of last 3 yrs  P/E Multiple compared to Industry  Growth Rate in PAT & EPS  Book Value of Shares  RONW & ROCE

49

Fixed Price V/S Book Building  Offer / Allotment Price is known by the investor in advance.  Demand

 Only indicative Price Range is known to the Investor.  Demand

for

the

securities

offered is known only after the closure of the issue  Payment can be made at the time of subscription wherein refund is given after allocation

for

the

securities

offered can be known everyday as the book is built.  Payment only after allocation

50

Process of Book Building  Appointment of BRLM by the issuer Company  Draft prospectus  Filing the draft prospectus with SEBI  Bid period is decided on  Appointment of a SEBI registered syndicate member as the underwriter by BRLM

51

Process of Book Building  Circulation of copy of draft prospectus to institutional investors and syndicate member  Syndicate members create demand  BRLM receives feedback from syndicate members  BRLM has to build up an order book

52

Process of Book Building  Syndicate members to maintain record book  Issue Price is determined  Order book is closed and issue size for placement portion and the public issue portion determined  Final price is determined and allocation is made  Filing Final Prospectus with Registrar of Companies  Different accounts for collection of application money

53

Reservations  Retail Investors 35%  Non Institutional Investors 15%  Qualified Institutional Investors 50%

54

Post Issue Obligations  Role of Registrar  Determines the no. of successful applicants  Scrutinizes all applications  Grouping the applications and segregating them  In case of oversubscription , allotment finalized by consulting Regional Stock Exchange  Dispatching Certificate of allotment/refund order

55

Post Issue Obligations (Contd.)  Role of underwriters  If issue not subscribed up to 90% they should bring in shortfall amount  Honor commitments within 60 days of closure of issue  If an issue is not subscribed to 100%, the underwriters are obligated to take-up the unsubscribed portion

56

Allotment  Applicants categorized according to no. of shares applied  The total number of shares to be allotted to each category as a whole shall be arrived at on a proportionate basis (number of applicants in the category x number of shares applied for) multiplied by the inverse of the oversubscription ratio

57

Illustration Total number of applicants in category of 100s Total number of shares applied for Number of times over-subscribed Therefore, Proportionate allotment to category

1,500 1,50,000 3 1,50,000 x 1/3 50,000

58

Illustration Number of the shares to be allotted to the successful allotters shall be arrived at on a proportionate basis E.g.: No. of shares applied by each applicant No. of times oversubscribed Proportionate allotment to each successful applicant (to be rounded off to 100)

100 3 100 x 1/3 33

59

Post Issue Obligations (Contd…) All the applications where the proportionate allotment works out to less than 100 shares per applicant, the allotment shall be made as follows:  Each successful applicant shall be allotted a minimum of 100 securities  The successful applicants out of the total applicants shall be determined by withdrawal of lots.

60

Post Issue Obligations (Contd...) If the proportionate allotment to an applicant is more than 100 but is not a multiple of 100, the number in excess of the multiple of 100 shall be rounded off to the higher multiple of 100 if that number is 50 or higher.

Illustration: If the proportionate allotment works out to 250, the applicant would be allotted 300 shares. If however the proportionate allotment works out to 240, the applicant shall be allotted 200 shares.

61

Green Shoe Option 

Also known by its legal title as an "over-allotment option" (the only way it can be referred to in a prospectus), gives underwriters the right to sell additional shares in a registered securities offering if demand for the securities is in excess of the original amount offered



An issuer company making a public offer of equity shares can avail of the Green Shoe Option (GSO) for stabilizing the post listing price of its shares

62

Glossary Offer for sale A public invitation by a sponsoring intermediary, such as an investment or merchant bank, of existing securities

Further Public Offering Public offer by a listed company through issue of shares

63

Glossary 

Fresh Issue Initial public offer through issue of new shares



Rights Issue Existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time

64

Glossary 

Market Making A broker-dealer firm accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading and liquidity in that security by displaying buy and sell quotations for a guaranteed number of shares. The lead manager is supposed to be the market maker or appoint one

65

Glossary 

Qualified Institutional Buyers Institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets



Lead Managers The commercial or investment bank which has primary responsibility for organizing a given credit or bond issuance. This bank will find other lending organizations or underwriters to create the syndicate, negotiate terms with the issuer, and assess market conditions. Also called syndicate manager, managing underwriter or lead underwriter

66

Glossary  Registrar They play an administrative role in conducting a public issue. They are responsible for collecting information from the collecting banks and report to the companies and lead managers about the issue collections. They advise the company regarding the closure or extension of closing date of the issue.

67

Glossary  Underwriter Financial intermediaries that buy stock or bonds from an issuer and then sell these securities to the public

68

Glossary  Grey Market Grey market is the unofficial trading in a company’s share before it starts trading on the stock exchange after an IPO.

69

Guidelines on advertisement  Truthful, clear, concise matter and understandable language  Statements considered misleading  Should not use celebrities, models, fictional characters, landmarks  In case of Television ads risk factors should not be scrolled and advise to refer to Red Herring Prospectus

70

Guidelines on advertisement contd.. Financial data for past three years Print size not to be less than 7 points Compulsory mention of risk factors No advertisement regarding subscription status during period of subscription  No corporate advertisement of issuer company shall be issued after 21 days of the filing of the offer document with the Board till the closure of the issue    

71

Description of Equity Shares and Terms of the Articles of Association 1. Rights of members regarding voting, dividend, lien on shares and the process for modification of such rights and forfeiture of shares. 2. Main provisions of the Articles of Association.

72

Listing Procedure (NSE) •

Approval of Memorandum and Articles of Association

•

Approval of draft prospectus

•

Submission of Application

73

Approval of Memorandum and Articles of Association Provisions Needed 

There shall be no forfeiture of unclaimed dividends before the claim becomes barred by law



Fully paid shares shall be free from all lien and that in the case of partly paid shares the Issuer's lien shall be restricted to moneys called or payable at a fixed time in respect of such shares



Any amount paid up in advance of calls on any share may carry interest but shall not in respect thereof confer a right to dividend or to participate in profits



Option or right to call of shares shall not be given to any person except with the sanction of the Issuer in general meetings. Permission for Sub-Division/Consolidation of Share Certificate.



74

Approval of draft prospectus Issuer shall file draft prospectus with the NSE. In case NSE is no the regional stock exchange, then the draft prospectus should be filed simultaneously with the NSE, when the same is filed with the Regional Stock Exchange pertaining to the issue, for perusal of NSE

75

Listing Procedure (BSE)  Minimum Listing Requirements for New Companies Companies have been classified as large cap companies and small cap companies. A large cap company is a company with a minimum issue size of Rs. 10 crore and market capitalization of not less than Rs. 25 crore. A small cap company is a company other than a large cap company

 In respect of Large Cap Companies  The minimum post-issue paid-up capital of the applicant company (hereinafter referred to as "the Company") shall be Rs. 3 crore  The minimum issue size shall be Rs. 10 crore  The minimum market capitalization of the Company shall be Rs. 25 crore (market capitalization shall be calculated by multiplying the post-issue paid-up

number

of

equity

shares

with

the

issue

price)

76

Listing Fees (BSE) Particulars Initial Listing fees

Amount (Rs) 7500

Annual listing fees companies with paid capital Of Rs 1 crore

4200

Above 1crore upto 5 crore

8400

Above 5crore upto 10 crore

14000

Above 10 crore upto 20 crore

28000

Above 20 crore upto 50 crore

42000

Above 50 crore

70000

77

 In respect of Small Cap Companies  The minimum post-issue paid-up capital of the Company shall be Rs. 3 crore  The minimum issue size shall be Rs. 3 crore  The minimum market capitalization of the Company shall be Rs. 5 crore (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price); and  The minimum income/turnover of the Company shall be Rs. 3 crore in each of the preceding three 12-months period  The minimum number of public shareholders after the issue shall be 1000.  A due diligence study may be conducted by an independent team of Chartered Accountants or Merchant Bankers appointed by BSE, the cost of which will be borne by the company. The requirement of a due diligence study may be waived if a financial institution or a scheduled commercial bank has appraised the project in the preceding 12 months

78

Permission to Use the Name of BSE in an Issuer Company's Prospectus Companies desiring to list their securities offered through a public issue are required to obtain prior permission of BSE to use the name of BSE in their prospectus or offer for sale documents before filing the same with the concerned office of the Registrar of Companies.

BSE has a Listing Committee , comprising of market experts, which decides upon the matter of granting permission to companies to use the name of BSE in their prospectus/offer documents. This Committee evaluates the promoters, company, project , financials, risk factors and several other aspects before taking a decision in this regard.

Decision with regard to some types/sizes of companies has been delegated to the Internal Committee of BSE.

79

Submission of Letter of Application  As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities on BSE is required to submit a Letter of Application to all the stock exchanges where it proposes to have its securities listed before filing the prospectus with the Registrar of Companies.  Companies making public/rights issues are required to deposit 1% of the issue amount with the Designated Stock Exchange before the issue opens. This amount is liable to be forfeited in the event of the company not resolving the complaints of investors regarding delay in sending refund orders/share certificates, non-payment of commission to underwriters, brokers, etc.

80

Payment of Listing fees (NSE) Particulars Initial Listing Fees

Amount (Rs) 20,000.00

Annual Listing Fees i) Companies with listed capital* upto Rs. 5 crores

10,000.00

(ii) Above Rs. 5 crore and upto Rs. 10 crores

15,000.00

(iii)Above Rs. 10 crore and upto Rs. 20 crore

30,000.00

Companies which have a listed capital* of more than Rs. 20 crore are required to pay an additional fee @ Rs. 750 for every additional Rs. 1 crore or part thereof.

Aishwarya Telecom Limited

82

Risk Factors • An investment in the company’s Equity Shares involves a high degree of risk. One should carefully consider all of the information in this Prospectus, including the risks and uncertainties described below, before making an investment decision. Risks have been quantified, wherever possible. If any of the following risks actually occur, the business, financial condition and results of operations could suffer, the trading price of the Equity Shares may decline and you may lose all or part of your investment.

83

Risk Factors

contd…

• A. INTERNAL TO THE COMPANY ▫ Dependence on Technology ▫ Variations in the revenues of these telecom operators ▫ Decrease in Govt. spending in telecom sector ▫ Unable to qualify the tender ▫ Availability & retention of skilled & trained personnel ▫ Increase presence of foreign T&M manufacturers in India ▫ Cancellation / non-renewance of tie-ups with foreign distributors ▫ Recruitment for new unit ▫ Company’s proposed expansion plans are subject to the risk of cost and time overruns

84

Risk Factors

contd…

▫ Contingent Liabilities As on December 31, 2007, the contingent liabilities

are as follows:

Particulars Counter Guarantees given for obtaining Bank Guarantees from various Banks Counter Guarantees given for obtaining Letter of Credit from various Banks Disputed Income Tax Liabilities Disputed Sales Tax Liabilities Total

Rs. in Lakhs 116.89 46.70 4.02 53.14 220.75

85

Risk Factors

contd…

• B. EXTERNAL TO THE COMPANY ▫ Change in Import Duty Structure ▫ Exposure to Foreign Currency Risk ▫ Adverse changes in tax policies of Government of India and other state Governments ▫ Economic downturn ▫ Effect of Natural Calamities, Terrorism and Violence ▫ Disruption of Utility Services ▫ Downgrading of India’s debt rating by a domestic or international rating agency

86

Introduction • Summary

1. Industry Overview Progressive reforms Telecommunication sector in the forefront of reforms Invited private participation Telecom density was just 2% prior to telecom reforms Quite low compared to other developed countries having telecom density of 70-80% Overall teledensity is 23.89% at the end of December 2007 T&M instruments sector is playing a vital role in instrument operations The Indian market for T&M instruments was estimated at Rs. 602 crore for the year 2006-07 Imported instruments’ sales estimates were at Rs. 552 crore

87

Introduction

contd…

1. Business Overview ATL deals in hi-tech test & measuring equipments The Company has its manufacturing facilities situated at two production units ATL is ISO 9001:2000 Certified Company manufacturing Fibre Optic Test Equipments & Cable Fault Locators Currently, ATL manufactures products for Telephone Service Providers, Defence Sector, Railways, Telecom equipment manufacturing companies and Cable TV Operators ATL is planning to expand in to designing products for Defence Sector and Educational Sector also

88 Equity Shares offered: Fresh Issue

40,00,000 Equity Shares of Rs. 10 each

Comprising of Employee Reservation Portion

1,00,000 Equity Shares of Rs. 10 each

Net Issue to Public

39,00,000 Equity Shares of Rs. 10 each

Of Which Qualified Institutional Buyer portion of which

Upto 19,50,000 Equity Shares of Rs. 10 each (Available for Allocation on a proportionate basis)

Available for allocation to Mutual Funds

Upto 97,500 Equity Shares of Rs. 10 each (Available for Allocation on a proportionate basis)

Balance for all QIBs including Mutual Funds

18,52,500 Equity Shares of Rs. 10 each (Available for Allocation on a proportionate basis)

Non Institutional Portion

Not less than 5,85,000 Equity Shares of Rs. 10 each (Available for Allocation on a proportionate basis)

Retail portion

Not less than 13,65,000 Equity Shares of Rs.10 each (Available for Allocation on a proportionate basis)

Equity Shares outstanding prior to the Issue

66,59,400 Equity Shares of Rs. 10 each

Objects of the Issue

The Company intends to deploy the net proceeds of the fresh issue for partfinancing its proposed project

89

Introduction contd… ▫

SUMMARY OF FINANCIAL AND OPERATING INFORMATION

Summary of Assets & Liabilities is required Summary Statement of Profits & Losses is required

90

General Information AISHWARYA TELECOM LIMITED • INCORPORATION ▫ The Company was incorporated as Aishwarya Telecom Private Limited on June 2, 1995 with the Registrar of Companies, Andhra Pradesh, Hyderabad and took over the business of the partnership firm named ‘Advanced Electronics & Communications System’. Subsequently, it was converted into a Public Limited Company on July 12, 2005 and the name of the company was changed Aishwarya Telecom Limited vide a fresh Certificate of Incorporation obtained from the Registrar of Companies, Andhra Pradesh, Hyderabad.

• REGISTERED OFFICE Aishwarya Telecom Limited 3-C, Samrat Commercial Complex Opp A G Office Saifabad, Khairatabad Hyderabad - 500 004 Andhra Pradesh, India Tel.: +91 40 2323 6019, 2323 5439 Fax: +91 40 2329 6282 E-mail: [email protected] Website: www.aishwaryatelecom.com

91

• Company Registration No.: 01-20569 • Corporate Identification Number (CIN): U64204AP1995PLC020569

• REGISTRAR OF COMPANIES ▫

Registrar of Companies, Andhra Pradesh 2nd Floor, CPWD Building Kendriya Sadan, Sultan Bazar, Koti Hyderabad – 500 195

• BOARD OF DIRECTORS Name of the Director

Designation

Mr. G Rama Krishna Reddy

Chairman (Non-Executive and NonIndependent)

Mr. G Rama Manohar Reddy

Managing Director

Mrs. G Amulya Reddy

Whole-Time Director

Mr. D Venkata Subbiah

Director (Independent)

Mr. K Hari Krishna Reddy

Director (Independent)

Mr. Venkataraman Krishnan

Director (Independent)

92

General Information

contd…

• CREDIT RATING ▫ As the present Issue is of Equity Shares, credit rating is not required • IPO GRADING ▫ CARE has assigned “IPO Grade 2 out of 5” to the proposed Public Issue of the Company indicating ‘below average fundamentals’, vide its letter dated August 30, 2007 and the Grading has been subsequently revalidated vide its letter dated January 29, 2008 for a further period of three months from the date of revalidation

93

Projects • ATL has planned various expansion projects as detailed below. (Rs in Lakhs)

Project

Cost

Capital expenditure for R&D of Optical Time Domain Reflectometer

80.39

Capital expenditure for R&D of Ethernet Traffic Analyzer

64.17

Cost of package for GSM/CDMA/GPRS analyzers for providing technical audit services to mobile operators

700.13

Land and construction of building for a new production unit at Hyderabad

272.31

Land and construction of new corporate, marketing, R&D office at Hyderabad

332.40

Additional working capital requirements

700.00

Public issue expenses

250.60

Total

2400.00

94

CAPITAL STRUCTURE OF THE COMPANY Share Capital A. Authorised Capital 1,20,00,000 Equity shares of Rs. 10 each

Nominal Value Aggregate Value 12,00,00,000

B. Issued, Subscribed and Paid Up Capital Before the Issue 66,59,400 Equity Shares of Rs. 10 each fully paid up

6,65,94,000

C. Present Issue through this Prospectus Fresh Issue of: 40,00,000 Equity Shares of Rs. 10 each

4,00,00,000

14,00,00,000

10,00,000

35,00,000

Of which D. Employee Reservation Portion 1,00,000 Equity Shares of Rs. 10 each are reserved for allotment to eligible employees of the Company

95

CAPITAL STRUCTURE

contd..

E. Net Issue to the Public 39,00,000 Equity Shares of Rs. 10 each

3,90,00,000

13,65,00,000

F. Paid Up Share Capital After the Issue 1,06,59,400 Equity Shares of Rs. 10 each

10,65,94,000

24,53,14,000

G. Share Premium Account Before the Issue After the Issue

3,87,20,000 13,87,20,000

96

OBJECTS OF THE ISSUE • To fund the Capital Expenditure for Research & Development of Main Frame Optical Time Domain Reflectometer (OTDR) in collaboration with IIT, Chennai • To fund the Capital Expenditure for Research & Development of Ethernet Traffic Analyzers • To fund the cost of Global System for Mobile Communication (GSM)/ General Packet for Radio Service (GPRS)/Code Division Multiple Access (CDMA) Analyzers for providing Technical Audit Services to the Mobile Operators • To purchase land & construct building for new corporate, marketing, administrative and R&D office at Hyderabad • To purchase land & construction of building for a new production unit at Hyderabad; • To meet additional working capital requirements for its operations • To meet the expenses of this Issue

97

FUNDS REQUIREMENT Sr. No.

Particulars

Amt.

1

Capital Expenditure for Research & Development of Main 80.39 Frame Optical Time Domain Reflecto Meter (OTDR)

2

Capital Expenditure for Research & Development of Ethernet Traffic Analyzers

64.17

3

Cost of GSM/GPRS/CDMA Analyzers for providing Technical Audit Services to the Mobile Operators

700.13

4

Cost of land & construction of building for a new production unit at Hyderabad

272.31

5

Cost of land & construction of building for new corporate, 332.40 marketing, administrative and R&D office at Hyderabad

6

Additional working capital requirements

700.00

7

Issue Expenses

138.00

Total

2287.40

98

MEANS OF FINANCE Sr. No.

Particulars

Amount

1

Public Issue of Equity Shares

1400.00

2

Internal Accruals

58.90

3

Term Loan from SBH

360.00

4

Pre-IPO Placement

468.50

Total

2287.40

99

About ATL • Location of the Project ▫ Existing Project: The Company has its manufacturing facilities situated at two production units 1) 2-330, Thota Street 2) Industrial Plot No. F-102 Yanam – 533 464 UPSIDC Industrial Area, Pondicherry Selaqui Dehradun, Uttarakhand

• Technology ▫ The Company deals in Test & Measuring equipments (T&M). T&M Equipments are used to qualify, trouble shoot and to maintain the telecom optical, copper and wireless networks. ▫ The products (Test and Measuring Equipments) of the Company are mainly classified into three categories 1. Fiber Optic Cable Testing Equipments 2. Data Network Testers 3. Copper Cable Testing Equipments

100

Legal and other Information • Litigation involving the Company ▫ There are no outstanding litigations, defaults etc pertaining to matter likely to affect operations and finances of the Company including prosecution under any enactment in respect of Schedule XIII of the Companies Act, 1956 (1 of 1956). • Against the company ▫ The Company received a legal notice dated 07.03.07 from M/s. ELTronics, Jaipur (ET) wherein ET demanded payment of expenses/interest/penalties/damages for deficiency of service/loss of goodwill amounting to Rs. 5,70,600/- and for delay in delivery of certain equipments by ATL ▫ Subsequently, ET filed a complaint before the District Forum (Hyderabad) praying for relief of Rs. 7,19,100/- along with compensation of Rs. 1,00,000/-, which was dismissed by the forum ▫ ET has then preferred an appeal before State Forum (AP) against the order of the District Forum

101

Legal and other Information

contd..

• By the company ▫ The Company is party to certain legal proceedings, incidental to its business and operations, which if not determined in its favour, could have a material adverse impact on the business, results of operations and/or financial condition of the Company.

Type of Litigation

Amt. involved

Present Status

Income Tax

8,52,415 ACIT demanding additional IT for the AY 2004-05, the co. preferred an appeal before the Commissioner of IT (Appeals) - II

Sales Tax

5,83,611 DC of Sales Tax , in 2001-02, assessed the products manufactured by the co. under a different category which attracts higher rate of ST; the High Court granted the stay appealed by the co., till the disposal of the appeal

102 Type of Litigation

Amt. involved

Present Status

Sales Tax

23,01,489 The Commercial Tax Officer, while assessing the APGST Sales Tax Return of the Company for the year 2003-04, disallowed certain exemptions and also enhanced the taxable turnover; the Appellate Deputy Commissioner passed an order, in reply to the company’s appeal, wherein it had partly allowed the appeal and partly remanded the matter to the assessing authority

Sales Tax

33,79,692 The Commercial Tax Officer, while assessing the CST Sales Tax Return of the Company for the year 2003-04, disallowed certain exemptions and also enhanced the taxable turnover; the Appellate Deputy Commissioner passed an order, in reply to the company’s appeal, wherein it had partly allowed and partly dismissed the appeal

Criminal

8,95,000 The Company has filed a criminal case under Section 138 of the Negotiable Instruments Act, against one of its customers for non-payment of the amount due towards sale of goods and consequent dishonour of cheque received from the said customer.

103

Legal and other Information

contd..

• Litigations of companies/firms promoted by the promoters/directors of ATL ▫ There is no company/firm promoted by the promoters/directors of Aishwarya Telecom Limited

• Litigations Of Subsidiary Company(ies) ▫ The Issuer Company does not have any subsidiary company

• Against or By the Directors ▫ There are no cases / litigations filed by or against the directors of the Company

• Against or by the promoters ▫ There are no cases / litigations filed by or against the promoters (i.e., Mr G Rama Krishna Reddy, Mr G Rama Manohar Reddy and Mrs G Amulya Reddy)

104

Other Regulatory And Statutory Disclosures • Authority for the present issue ▫ The issue of Equity Shares by the Company has been authorised by the resolution of the Board of Directors passed at their meeting held on January 9, 2007, and subsequently authorised by the shareholders passed at the Extraordinary General Meeting of the Company held on February 15, 2007.

• Prohibition by sebi/any other authority ▫ There is no prohibition against The Company, its Directors, its Promoters, Promoter Group, the Group Companies, other companies with which the promoters/directors are associated

• Eligibility for the issue ▫ The Company is eligible for the issue as per Clause 2.2.1 of the SEBI (DIP) Guidelines as confirmed by the Auditors of the Company The Company has net tangible assets of at least Rs. 3 crores in each of the preceding three full years (of 12 months each), of which not more than 50% is held in monetary assets;

105

Other Regulatory And Statutory Disclosures contd… The Company has had a track record of distributable profits as per Section 205 of Companies Act, 1956 for at least three out of the immediately preceding five years; The Company has had a pre-Issue net worth of more than Rs. 1 crore in each of the preceding three full years; The name of the Company has not been changed in last one year; The proposed Issue size would not exceed five times the pre-Issue net worth as per the audited accounts for the year ended March 31, 2007.

• Filing of red herring prospectus with the board and the registrar of companies ▫ A copy of the Draft Red Herring Prospectus, alongwith the documents required, has been filed with Corporation Finance Department of SEBI at SEBI Bhawan, Bandra Kurla Complex, Bandra (East), Mumbai - 400051.

106

Other Regulatory And Statutory Disclosures contd… ▫ A copy of the Red Herring Prospectus, alongwith the material contracts and documents required to be filed under Section 60B of the Companies Act, 1956 has been delivered for registration to the Registrar of Companies, Andhra Pradesh located at 2nd Floor, CPWD Building, Kendriya Sadan, Sultan Bazar, Koti, Hyderabad – 500195. ▫ A copy of the Prospectus, along with the documents required to be filed under Section 60 of the Companies Act, have been delivered for registration to the Registrar of the Companies, Andhra Pradesh located at 2nd Floor, CPWD Building, Kendriya Sadan, Sultan Bazar, Koti, Hyderabad – 500195. ▫ The Issuer and the Book Running Lead Managers confirm compliance of all legal requirements applicable till the filing of the Prospectus with RoC.

Birla Cotsyn (India) Limited

108

RISK FACTORS  Business related risks  Outstanding legal proceedings against Company  Demand Notice for Rs 886.14 lakhs from Income Tax Department for the assessment year 2005-06  One of directors Shri Y.P. Trivedi was in RBI’s defaulters list.  Negative cash flows in the recent five years period

109

RISK FACTORS (Contd.)  RISK FACTORS RELATED TO GROUP COMPANIES  Birla Bombay Pvt. Ltd appears in the RBI Defaulters List  Show cause notice issued to Birla Leasing & Infrastructure Limited  Show cause notice issued to Dagger Forst Tools Ltd.  Losses by promoter / group / associate company

110

RISK FACTORS (Contd.)  RISKS RELATING TO THE ISSUE  Equity shares will not be able to sell immediately  An active market may cause the price to fall  Future sales of Equity Shares may adversely affect the market price  Post-issue volatility in prices of the scrip

111

RISK FACTORS (Contd.)  EXTERNAL RISK FACTORS  Changes in regulations or applicable government incentives  Emergence of competition from other manufacturing countries  Financial instability in countries  Increase in the cost of raw material  Globally competitive environment  Instability of economic policies and the political situation  Terrorist attack, war, natural disaster or other catastrophic events

112

Capital structure

113

Basic Terms of the Issue  Terms of the Issue  Subject to the provisions of the Companies Act, Memorandum and Articles of Association, Prospectus, etc.  Subject to laws as applicable, guidelines, notifications and regulations

 Terms of Payment  Applications should be for a minimum of 350 equity shares  Price of the equity shares of Rs. 14 /- per share is payable on application

114

Basic Terms of the Issue (Contd.)  Authority for the Issue  Issue of equity shares via Special Resolution passed at Extra Ordinary General Meeting of Company held on December 18, 2006

115

OBJECTS OF THE ISSUE  Expansion of integrated textile project at Khamgoan and Malkapur  To set up a garment manufacturing plant  To establish retail outlets  To achieve the benefits of listing company’s shares on BSE and NSE

116

Means of Finance Sr. No.

Particulars

Amount (Rs. in Lakhs)

1.

Term Loan

15,459.00

2.

Equity Public / Promoters Contribution

16,353.00

3.

Subsidy TOTAL

208.00 32,020.00

117

COST OF THE PROJECT AS PER THE APPRAISAL REPORT Sr. No.

Particulars

Amount (Rs. In Lakhs)

1.

Land & Site Development

327

2.

Building & Civil construction cost

4888

3.

Plant & Machinery (Domestic)

7524

4.

Plant & Machinery (Imported)

4823

5.

Stores & Misc Fixed Assets

3957

6.

Acquisition cost

717

7.

Contingency

1102

8.

Preliminary & Pre-operative expenses

1812

9.

Working Capital Margin

3169

10.

Interest During Construction

476

11.

Upfront fees

124

TOTAL COST

28919

118

Business of the Company  Company was earlier engaged in Cotton Ginning, Pressing and Oil expelling  Cotton spindle yarn manufacturing  Manufacture of Open End rotor based Cotton yarn  Manufacture of finished cloth

119

Promoters & Promoter Group  INDIVIDUALS  Mr P.B.Bharadwaj  Mr Yashovardhan Birla

 COMPANIES/TRUSTS/SOCIETIES  Polytex Limited  Nirved Traders Private Limited  Shearson Investment & Trading Company Private Limited  Yah Society  Birla Industries Group Charity Trust ( Medical Institution)  Sunanda Medical Institute

120

Management  BOARD OF DIRECTORS  Mr. P.B. Bhardwaj  Mr. Yashovardhan Birla  Mr. P.V.R .Murthy  Mr. Sanjay K. Agarwal  Mr. Y. P. Trivedi  Mr. Mohan Jayakar  Mr. Mohandas Shenoy Adige  Mr. Navinchandra Chhaganlal Shah  Mr. Alok Bhardwaj

121

BIRLA COTSYN IPO Price Band  IPO price band was reduced to Rs 12-14 from Rs 15-18 per equity share  Issue was supposed to close on July 4 but that also got extended to July 9, 2008.  Public issue got subscribed just 0.51 times, till 3rd July 2008  The issue had been subscribed 1.46 times by non-institutional investors, 0.90 times by retail individual investors, or RIIs, and 0.016 times by qualified institutional buyers till 4th July 2008

122

BIRLA COTSYN IPO Price Band (Contd.)  IPO on June 30, 2008 to raise around Rs 96.12-112.14 crore at revised price band  Price change had been marginal with the trend and mood of the market  It was because of the marginal shortfall in RII (Retail Institutional Investors) subscription that the issue was extended. Under SEBI guidelines, subscription by qualified institutions is not mandatory

123

References  http://www.reliancemoney.com  http://en.wikipedia.org  http://finance.indiamart.com/india_business_information/sebi_investors_kno whow.html  http://www.hinduonnet.com/2003/03/26/stories/2003032604291800.htm  http://demataccount.com/2008/01/15/learning-basic-concepts-of-ipo-india/  http://www.sebi.gov.in

124

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