100510165 21050379-ipo-project-report

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INITIAL

PUBLIC

OFFER

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Topics Covered

 Executive Summary -----------------------------------------------------
3

 Introduction
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 What Is An IPO
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 Why Go Public
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 Getting In An IPO
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 IPO  Advantages & Disadvantages ---------------------- 11

 Parameters To Judge An IPO ----------------------------------- 14

 Understanding The Role Of Intermediaries -- 16

 Registration Process ----------------------------------------------- 18

 IPO Scams
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 Salient Features Of IPO Scams ------------------------------ 26

 Operational Deficiencies --------------------------------------- 27

 Measures To Prevent Scams ---------------------------------- 28

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 Recent IPO’s
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 DEFINITIONS AND ABBREVIATIONS ---------------------------
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 Bibliography ---------------------------------------------------------------
34

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EXECUTIVE SUMMARY

As we all know IPO – INITIAL PUBLIC OFFERING is the
hottest topic in the current industry, mainly because of India being a
developing country and lot of growth in various sectors which leads a
country to ultimate success. And when we talk about country’s growth
which is dependent on the kind of work and how much importance to
which sector is given. And when we say or talk about industries growth
which leads the economy of country has to be balanced and given proper
finance so as to reach the levels to fulfill the needs of the society. And
industries which have massive outflow of work and a big portfolio then
its very difficult for any company to work with limited finance and this is
where IPO plays an important role.

This report talks about how IPO helps in raising fund for the
companies going public, what are its pros and cons, and also it gives us
detailed idea why companies go public. How and what are the steps
taken by the companies before going for any IPO and also the role of
(SEBI) Securities and Exchange Board of India the BSE and NSE , what
are primary and secondary markets and also the important terms related
to IPO. It gives us idea of how IPO is driven in the market and what are
various factors taken into consideration before going for an IPO. And it
also tells us how we can more or less judge a good IPO. Then we all know
that scams have always been a part of any sector you go in for which are
covered in it and also few recommendations are given for the same. It
also gives us some idea about what are the expenses that a company
undertakes during an IPO.

IPO has been one of the most important generators of funds
for the small companies making them big and given a new vision in past
and it is still continuing its work and also for many coming years.

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INTRODUCTION

IPO stands for Initial Public Offering and means the new
offer of shares from a company which was previously unlisted. This is
done by offering those shares to the public, which were held by the
promoters or the private investors prior to the IPO. In the case when
other investors or Promoter held the shares the stake holding comes
down to the extent their shares are offered to the public. In other cases
new shares are issued to the public and the shares, which are with the
promoters stay with them. In both cases the share of the promoters in
the total capital comes down.

For example say there are 100 shares in a company and 50
of these are offered to the public in an IPO then in such a case the
promoter’s stake in the company comes down from 100% to 50%. In
another case the company issues 50 additional shares to the public and
the stake of the promoter comes down from 100% to 67%.

Normally in an IPO the shares are issued at a discount to
what is considered their intrinsic value and that’s why investors keenly
await IPOs and make money on most of them. IPO are generally priced at
a discount, which means that if the intrinsic value of a share is perceived
to be Rs.100 the shares will be offered at a price, which is lesser than
Rs.100 say Rs.80 during the IPO. When the stock actually lists in the
market it will list closer to Rs.100. The difference between the two prices
is known as Listing Gains, which an investor makes when investing in
IPO and making money at the listing of the IPO. A Bullish Market gives
IPO investors a clear opportunity to achieve long term targets in a short
term phase.

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What is an IPO

An IPO is the first sale of stock by a company to the public.
A company can raise money by issuing either debt or equity. If the
company has never issued equity to the public, it's known as an IPO.

Companies fall into two broad categories: private and public.

A privately held company has fewer shareholders and its owners don't
have to disclose much information about the company. Anybody can go
out and incorporate a company: just put in some money, file the right
legal documents and follow the reporting rules of your jurisdiction. Most
small businesses are privately held. But large companies can be private
too. Did you know that IKEA, Domino's Pizza and Hallmark Cards are all
privately held?

It usually isn't possible to buy shares in a private company.
You can approach the owners about investing, but they're not obligated
to sell you anything. Public companies, on the other hand, have sold at
least a portion of themselves to the public and trade on a stock
exchange. This is why doing an IPO is also referred to as "going public."

Public companies have thousands of shareholders and are
subject to strict rules and regulations. They must have a board of
directors and they must report financial information every quarter. In the
United States, public companies report to the Securities and Exchange
Commission (SEC). In other countries, public companies are overseen by
governing bodies similar to the SEC. From an investor's standpoint, the
most exciting thing about a public company is that the stock is traded in
the open market, like any other commodity. If you have the cash, you
can invest. The CEO could hate your guts, but there's nothing he or she
could do to stop you from buying stock.

The first sale of stock by a private company to the public,
IPO’s are often issued by smaller, younger companies seeking capital to
expand, but can also be done by large privately-owned companies
looking to become publicly traded. In an IPO, the issuer obtains the
assistance of an underwriting firm, which helps it determine what type of
security to issue (common or preferred), best offering price and time to
bring it to market. IPO’s can be a risky investment. For the individual
investor, it is tough to predict what the stock will do on its initial day of
trading and in the near future since there is often little historical data
with which to analyze the company. Also, most IPO’s are of

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companies going through a transitory growth period, and they are
therefore subject to additional uncertainty regarding their future value.
Primary and Secondary markets
In the primary market securities are issued to the public and
the proceeds go to the issuing company. Secondary market is term used
for stock exchanges, where stocks are bought and sold after they are
issued to the public.

PRIMARY MARKET

The first time that a company’s shares are issued to the
public, it is by a process called the initial public offering (IPO). In an IPO
the company offloads a certain percentage of its total shares to the public
at a certain price.

Most IPO’S these days do not have a fixed offer price. Instead
they follow a method called BOOK BUILDIN PROCESS, where the offer
price is placed in a band or a range with the highest and the lowest value
(refer to the newspaper clipping on the page). The public can bid for the
shares at any price in the band specified. Once the bids come in, the
company evaluates all the bids and decides on an offer price in that
range. After the offer price is fixed, the company allots its shares to the
people who had applied for its shares or returns them their money.

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SECONDRY MARKET

Once the offer price is fixed and the shares are issued to the
people, stock exchanges facilitate the trading of shares for the general
public. Once a stock is listed on an exchange, people can start trading in
its shares. In a stock exchange the existing shareholders sell their shares
to anyone who is willing to buy them at a price agreeable to both parties.
Individuals cannot buy or sell shares in a stock exchange directly; they
have to execute their transaction through authorized members of the
stock exchange who are also called STOCK BROKERS.

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Why Go Public?
Basically, going public (or participating in an "initial public
offering" or IPO) is the process in which a business owned by one or
several individuals is converted into a business owned by many. It
involves the offering of part ownership of the company to the public
through the sale of debt or more commonly, equity securities (stock).

Going public raises cash and usually a lot of it. Being
publicly traded also opens many financial doors:

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 Because of the increased scrutiny, public companies can usually
get better rates when they issue debt.

 As long as there is market demand, a public company can always
issue more stock. Thus, mergers and acquisitions are easier to do
because stock can be issued as part of the deal.

 Trading in the open markets means liquidity. This makes it
possible to implement things like employee stock ownership plans,
which help to attract top talent.

Being on a major stock exchange carries a considerable
amount of prestige. In the past, only private companies with strong
fundamentals could qualify for an IPO and it wasn't easy to get listed.

The internet boom changed all this. Firms no longer needed
strong financials and a solid history to go public. Instead, IPOs were
done by smaller startups seeking to expand their businesses. There's
nothing wrong with wanting to expand, but most of these firms had
never made a profit and didn't plan on being profitable any time soon.
Founded on venture capital funding, they spent like Texans trying to
generate enough excitement to make it to the market before burning
through all their cash. In cases like this, companies might be suspected
of doing an IPO just to make the founders rich. This is known as an exit
strategy, implying that there's no desire to stick around and create value
for shareholders. The IPO then becomes the end of the road rather than
the beginning.

How can this happen? Remember: an IPO is just selling
stock. It's all about the sales job. If you can convince people to buy stock
in your company, you can raise a lot of money.

Getting In On an IPO
The Underwriting Process

Getting a piece of a hot IPO is very difficult, if not impossible.
To understand why, we need to know how an IPO is done, a process
known as underwriting.

When a company wants to go public, the first thing it does is
hire an investment bank. A company could theoretically sell its shares on

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its own, but realistically, an investment bank is required - it's just the
way Wall Street works. Underwriting is the process of raising money by
either debt or equity (in this case we are referring to equity). You can
think of underwriters as middlemen between companies and the
investing public. The biggest underwriters are Goldman Sachs, Merrill
Lynch, Credit Suisse First Boston, Lehman Brothers and Morgan
Stanley.

The company and the investment bank will first meet to
negotiate the deal. Items usually discussed include the amount of money
a company will raise, the type of securities to be issued and all the
details in the underwriting agreement. The deal can be structured in a
variety of ways. For example, in a firm commitment, the underwriter
guarantees that a certain amount will be raised by buying the entire offer
and then reselling to the public. In a best efforts agreement, however, the
underwriter sells securities for the company but doesn't guarantee the
amount raised. Also, investment banks are hesitant to shoulder all the
risk of an offering. Instead, they form a syndicate of underwriters. One
underwriter leads the syndicate and the others sell a part of the issue.

Once all sides agree to a deal, the investment bank puts
together a registration statement to be filed with the SEC. This document
contains information about the offering as well as company info such as
financial statements, management background, any legal problems,
where the money is to be used and insider holdings. The SEC then
requires a cooling off period, in which they investigate and make sure all
material information has been disclosed. Once the SEC approves the
offering, a date (the effective date) is set when the stock will be offered to
the public.

During the cooling off period the underwriter puts together
what is known as the red herring. This is an initial prospectus containing
all the information about the company except for the offer price and the
effective date, which aren't known at that time. With the red herring in
hand, the underwriter and company attempt to hype and build up
interest for the issue. They go on a road show - also known as the "dog
and pony show" - where the big institutional investors are courted.

As the effective date approaches, the underwriter and
company sit down and decide on the price. This isn't an easy decision: it
depends on the company, the success of the road show and, most
importantly, current market conditions. Of course, it's in both parties'
interest to get as much as possible.

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Finally, the securities are sold on the stock market and the
money is collected from investors.

As you can see, the road to an IPO is a long and complicated
one. You may have noticed that individual investors aren't involved until
the very end. This is because small investors aren't the target market.
They don't have the cash and, therefore, hold little interest for the
underwriters. If underwriters think an IPO will be successful, they'll
usually pad the pockets of their favorite institutional client with shares
at the IPO price. The only way for you to get shares (known as an IPO
allocation) is to have an account with one of the investment banks that is
part of the underwriting syndicate. But don't expect to open an account
with $1,000 and be showered with an allocation. You need to be a
frequently trading client with a large account to get in on a hot IPO.

Bottom line, your chances of getting early shares in an IPO are slim to
none unless you're on the inside. If you do get shares, it's probably because nobody else
wants them. Granted, there are exceptions to every rule and it would be incorrect for us to
say that it's impossible. Just keep in mind that the probability isn't high if you are a small
investor.

IPO – ADVANTAGES AND
DISADVANTAGES
The decision to take a company public in the form of an
initial public offering (IPO) should not be considered lightly. There are
several advantages and disadvantages to being a public company, which
should thoroughly be considered. This memorandum will discuss the
advantages and disadvantages of conducting an IPO and will briefly

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discuss the steps to be taken to register an offering for sale to the public.
The purpose of this memorandum is to provide a thumbnail sketch of the
process. The reader should understand that the process is very time
consuming and complicated and companies should undertake this
process only after serious consideration of the advantages and
disadvantages and discussions with qualified advisors.

Advantages of going public

 Increased Capital

A public offering will allow a company to raise capital to use for
various corporate purposes such as working capital, acquisitions,
research and development, marketing, and expanding plant and
equipment.

 Liquidity

Once shares of a company are traded on a public exchange, those
shares have a market value and can be resold. This allows a
company to attract and retain employees by offering stock
incentive packages to those employees. Moreover, it also provides
investors in the company the option to trade their shares thus
enhancing investor confidence.

 Increased Prestige

Public companies often are better known and more visible than
private companies, this enables them to obtain a larger market for
their goods or services. Public companies are able to have access to
larger pools of capital as well as different types of capital.

 Valuation

Public trading of a company's shares sets a value for the company
that is set by the public market and not through more subjective
standards set by a private valuator. This is helpful for a company
that is looking for a merger or acquisition. It also allows the
shareholders to know the value of the shares.

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 Increased wealth

The founders of the company often have the sense of increased
wealth as a result of the IPO. Prior to the IPO these shares were
illiquid and had a more subjective price. These shares now have an
ascertainable price and after any lockup period these shares may
be sold to the public, subject to limitations of federal and state
securities laws.

Disadvantages of going Public

 Time and Expense

Conducting an IPO is time consuming and expensive. A successful
IPO can take up to a year or more to complete and a company can
expect to spend several hundreds of thousands of dollars on
attorneys, accountants, and printers. In addition, the underwriter's
fees can range from 3% to 10% of the value of the offering. Due to
the time and expense of preparation of the IPO, many companies
simply cannot afford the time or spare the expense of preparing the
IPO.

 Disclosure

The SEC disclosure rules are very extensive. Once a company is a
reporting company it must provide information regarding
compensation of senior management, transactions with parties
related to the company, conflicts of interest, competitive positions,
how the company intends to develop future products, material
contracts, and lawsuits. In addition, once the offering statement is
effective, a company will be required to make financial disclosures
required by the Securities and Exchange Act of 1934. The 1934 Act
requires public companies to file quarterly statements containing
unaudited financial statements and audited financial statements
annually. These statements must also contain updated information
regarding nonfinancial matters similar to information provided in
the initial registration statement. This usually entails retaining
lawyers and auditors to prepare these quarterly and annual
statements. In addition, a company must report certain material
events as they arise. This information is available to investors,
employees, and competitors.

 Decisions based upon Stock Price

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Management's decisions may be effected by the market price of the
shares and the feeling that they must get market recognition for
the company's stock.

 Regulatory Review

The Company will be open to review by the SEC to ensure that the
company is making the appropriate filings with all relevant
disclosures.

 Falling Stock Price

If the shares of the company's stock fall, the company may lose
market confidence, decreased valuation of the company may effect
lines of credits, secondary offering pricing, the company's ability to
maintain employees, and the personal wealth of insiders and
investors.

 Vulnerability

If a large portion of the company's shares are sold to the public,
the company may become a target for a takeover, causing insiders
to lose control. A takeover bid may be the result of shareholders
being upset with management or corporate raiders looking for an
opportunity. Defending a hostile bid can be both expensive and
time consuming. Once a company has weighed the advantages and
disadvantages of being a public company, if it decides that it would
like to conduct an IPO it will have to retain a lead

Parameters to judge an IPO
Good investing principles demand that you study the
minutes of details prior to investing in an IPO. Here are some parameters
you should evaluate:-

 Promoters

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Is the company a family run business or is it professionally
owned? Even with a family run business what are the credibility and
professional qualifications of those managing the company? Do the top
level managers have enough experience (of at least 5 years) in the specific
type of business?

 Industry Outlook
The products or services of the company should have a good
demand and scope for profit.

 Business Plans
Check the progress made in terms of land acquisition,
clearances from various departments, purchase of machinery, letter of
credits etc. A higher initial investment from the promoters will lead to a
higher faith in the organization.

 Financials
Why does the company require the money? Is the company
floating more equity than required? What is the debt component? Keep a
track on the profits, growth and margins of the previous years. A steady
growth rate is the quality of a fundamentally sound company. Check the
assumptions the promoters are making and whether these assumptions
or expectations sound feasible.

 Risk Factors
The offer documents will list our specific risk factors such as
the company’s liabilities, court cases or other litigations. Examine how
these factors will affect the operations of the company.

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 Key Names
Every IPO will have lead managers and merchant bankers.
You can figure out the track record of the merchant banker through the
SEBI website.

 Pricing
Compare the company’s PER with that of similar companies.
With this you can find out the P/E Growth ratio and examine whether its
earning projections seem viable.

 Listing
You should have access to the brokers of the stock
exchanges where the company will be listing itself.

Understanding the role of intermediaries

 Who are the intermediaries in an issue?

Merchant Bankers to the issue or Book Running Lead
Managers (BRLM), syndicate members, Registrars to the issue, Bankers
to the issue, Auditors of the company, Underwriters to the issue,
Solicitors, etc. are the intermediaries to an issue. The issuer discloses
the addresses, telephone/fax numbers and email addresses of these

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intermediaries. In addition to this, the issuer also discloses the details of
the compliance officer appointed by the company for the purpose of the
issue.

 Who is eligible to be a BRLM?

A Merchant banker possessing a valid SEBI registration in
accordance with the SEBI (Merchant Bankers) Regulations, 1992 is
eligible to act as a Book Running Lead Manager to an issue.

 What is the role of a Lead Manager? (pre and post issue)

In the pre-issue process, the Lead Manager (LM) takes up
the due diligence of company’s operations/ management/ business
plans/ legal etc. Other activities of the LM include drafting and design of
Offer documents, Prospectus, statutory advertisements and
memorandum containing salient features of the Prospectus. The BRLMs
shall ensure compliance with stipulated requirements and completion of
prescribed formalities with the Stock Exchanges, RoC and SEBI
including finalization of Prospectus and RoC filing. Appointment of other
intermediaries viz., Registrar(s), Printers, Advertising Agency and
Bankers to the Offer is also included in the pre-issue processes. The LM
also draws up the various marketing strategies for the issue.
The post issue activities including management of escrow
accounts, co-ordinate non-institutional allocation, intimation of
allocation and dispatch of refunds to bidders etc are performed by the
LM. The post Offer activities for the Offer will involve essential follow-up
steps, which include the finalization of trading and dealing of
instruments and dispatch of certificates and demat of delivery of shares,
with the various agencies connected with the work such as the
Registrar(s) to the Offer and Bankers to the Offer and the bank handling
refund business. The merchant banker shall be responsible for ensuring
that these agencies fulfill their functions and enable it to discharge this
responsibility through suitable agreements with the Company.

 What is the role of a registrar?

The Registrar finalizes the list of eligible allottees after
deleting the invalid applications and ensures that the corporate action
for crediting of shares to the demat accounts of the applicants is done
and the dispatch of refund orders to those applicable are sent. The Lead

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manager co-ordinates with the Registrar to ensure follow up so that that
the flow of applications from collecting bank branches, processing of the
applications and other matters till the basis of allotment is finalized,
dispatch security certificates and refund orders completed and securities
listed.

 What is the role of bankers to the issue?

Bankers to the issue, as the name suggests, carries out all
the activities of ensuring that the funds are collected and transferred to
the Escrow accounts. The Lead Merchant Banker shall ensure that
Bankers to the Issue are appointed in all the mandatory collection
centers as specified in DIP Guidelines. The LM also ensures follow-up
with bankers to the issue to get quick estimates of collection and
advising the issuer about closure of the issue, based on the correct
figures.

 Question on Due diligence

The Lead Managers state that they have examined various
documents including those relating to litigation like commercial disputes,
patent disputes, disputes with collaborators etc. and other materials in
connection with the finalization of the offer document pertaining to the
said issue; and on the basis of such examination and the discussions
with the Company, its Directors and other officers, other agencies,
independent verification of the statements concerning the objects of the
issue, projected profitability, price justification, etc., they state that they
have ensured that they are in compliance with SEBI, the Government
and any other competent authority in this behalf.

What is the Registration Process?
Going public requires a Registration Statement which is a
carefully crafted document that is prepared by your attorneys and
accountants. It requires detailed discussions on information pertaining
to:
 Business product/service/markets

 Company Information

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 Risk Factors
 Proceeds Use (How are you going to use the money)
 Officers and Directors
 Related party transactions
 Identification of your principal shareholders
 Audited financials

After your registration statement is prepared, it is submitted
to the Securities and Exchange Commission and various other regulatory
bodies for their detailed review. When this process is completed, you and
your management team will do a "road show" to present your company to
the stock brokers who will then sell your stock to the public investors.
Assuming they can successfully sell your issue, you’ll receive your
money. Then it's simple, all you have to do is make a lot more money
with the proceeds so as to increase the value of your, your teams and the
public investors stock.

IPO SCAMS
YES BANK Ltd. CASE
The modus operandi adopted in manipulating the YES Bank
Ltd (YBL)'s initial public offering (IPO) allotment involved opening of over
7,500 benami dematerialised accounts.

These accounts were with the National Securities Depository
Ltd (NSDL) through Karvy Stockbroking Ltd (Karvy-DP). Of the 13 erring
entities, the chief culprits identified by SEBI were Ms Roopalben Panchal
and Sugandh Estates and Investments Pvt Ltd.

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While Ms Panchal opened 6,315 benami DP accounts,
another entity Sugandh opened 1,315 benami accounts. Each of these
accounts applications were made for 1,050 shares, paying application
money of Rs 47,250 each. By applying for small lots (1,050 shares
through each accounts), they misused the retail allotment quota
stipulated for IPOs. The shares allotted in IPO to the benamis of Ms
Panchal and Sugandh would have otherwise gone to genuine retail
applicants.

The IPO of YBL opened on June 15, 2005 and its shares
were listed on the BSE and the NSE on July 12, 2005.

It was observed that Ms Panchal had transferred 9,31,600
shares to various entities in seven off-market transactions on July 11 - a
day prior to the listing and commencement of trading on the stock
exchanges. In order to get an allotment of 9,31,600 shares, Ms Panchal
would have had to apply for crores of shares involving many crores of
rupees in application money.

However, Ms Panchal's name did not appear in the list of top
100 public issue allottees. Thus, it was suspected that Ms Panchal must
have made multiple applications or that other applicants were acting as
a front for her.

Ms Panchal had applied for only 1,050 shares in the YES
Bank IPO, paying the application money of Rs 47,250. And she did not
receive any allotment in the IPO. On July 6, Ms Panchal received 150
shares each from 6,315 allottees through off-market transactions
aggregating 9,47,250 YBL shares.

Curiously, as per the dematerialised account data furnished
by NSDL, of the above 6,315 entities as many as 6,221 entities have a
same address in Ahmedabad. There are three more addresses of
locations in Ahmedabad, which have been linked to Ms Panchal. All the
6,315 entities have their bank accounts with Bharat Overseas Bank and
demat accounts with Karvy-DP.

By applying for the maximum possible number of shares per
applicant while being categorised as retail applicant and by putting in
large number of applications in the lot of 1,050 shares, Ms Panchal and

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her associates (real or fictitious) have attempted to corner the maximum
possible number of shares in the IPO allotment.

This tantamounts to an abuse of IPO allotment process, the
SEBI order said.

A similar modus operandi was adopted by Sugandh, which
received 150 shares each from 1,315 dematerialised accounts
aggregating 1,97,250 shares in off market transactions.

According to SEBI findings, Ms Panchal and others booked
profits to the tune of about Rs 1.70 crore on the day of the listing of YES
Bank shares.

SEBI unearths another IPO scam in IDFC
SEBI on Thursday 12th Jan 06 unearthed yet another abuse
of IPO norms in the IDFC's initial public offering (IPO) where a few
investors opened over 14,000 dematerialised accounts to corner large
number of shares of the company. This is the second such incident, after
a similar such violations were detected in the YES Bank's IPO.

SEBI said in IDFC's IPO too four investors opened as many
as 14,807 dematerialized accounts with Karvy-DP and "strangely", all
these account holders have their bank accounts with Bharat Overseas
Bank Ltd, Ahmedabad. SEBI order said: "further probe is required for
examining the systemic fault, if any, of the registrar Karvy-RTI i.e. Karvy
Computer Shares P Ltd, and the lead managers Kotak Mahindra Capital
Company Ltd, DSP Merrill Lynch Ltd and SBI Capital Markets Ltd in
identifying and weeding out the benami applications."

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Reference is being made to the RBI to examine the role of
BhOB, HDFC Bank, Indian Overseas Bank, ING Vysya Bank and Vijaya
Bank in opening the bank accounts of these benami entities and
apparently funding them.

According to SEBI, Karvy-DP, which was also named in the
YES Bank IPO case, has not adhered to `Know-your-Client' norms, as per
the reports of inspection submitted by NSDL and CDSL on the DP. Also,
some of the documents collected by CDSL during the course of
inspection show that Karvy-DP has obtained letters purportedly issued
by the banks' concerned such as BhOB as proof of identity and proof of
address of the person for the purpose of opening dematerialised
accounts.

"It is seen that one branch manager has on the same date
signed as authorized signatory of different branches of the bank. This
raises a doubt as to the authenticity of the bank documents obtained by
Karvy-DP for opening dematerialised accounts," the SEBI order by its
Whole-time Director Mr G. Anantharaman said. SEBI also banned four
investors (in whose names the multiple accounts were opened) viz., Ms
Roopalben Nareshbhai Panchal (who was also named in the YES Bank
IPO scam), Sugandh Estates & Investments P Ltd, Mr Purshottam
Ghanshyam Budhwani and Mr Manojdev Seksaria from doing any kind
of transactions in the securities market, till further directions.

Another 35 firms were also barred from participating in the IPOs in the
future, till further orders, the SEBI order said.

MARUTI Case

Fictitious Demat A/c’s opened in 2003 itself

`First IPO in which key players took part was Maruti'

The Charges

DPs have been accused by SEBI of not fully implementing
the `maker-checker' concept, data entry errors, scanning of officials'
signatures, and appointing themselves as the second holder.

Description

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Some of the demat accounts that were used to manipulate
allotments in the initial public offer of Yes Bank and IDFC were opened
during 2003, and not in the last year as was earlier believed. The first
IPO in which the key operators have participated was that of Maruti
Udyog Ltd, in June 2003, though the numbers of fictitious demat
accounts were not very high then, the interim order from Securities and
Exchange Board of India has said.

SEBI's investigations have now pegged that a "total of 24 key
operators have indulged in abusive practices in respect of 21 IPOs".

The evidence against Karvy DP has stemmed from the fact
that almost all the demat accounts which served as conduits for these
master account holders were held with Karvy DP, according to the order.
These 24 operators have 34 demat accounts; of which 16 demat
accounts are held with Karvy DP.

Due Diligence Not Taken

The market regulator's investigations have pointed out that,
while opening demat accounts the depository participants were not
exercising due diligence. Persons involved in the scam have collected
proofs of identity and addresses from groups of persons and used this to
open bogus bank accounts.

Inter-linkages

The master account holders were found to have made off-
market transfer of the IPO shares to various common groups of entities
who appear to be their principals. It is seen that some of the master
account holders have also made off-market transfers amongst
themselves. This shows that there are inter-linkages amongst the master
account holders as well as between groups of master account holders
and their principals, the order said.

Depository participants have been accused by SEBI of not
fully implementing the `maker-checker' concept, data entry errors,
scanning of officials' signatures, and appointing themselves as the
second holder.

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With some of the DPs also acting as brokers, stock
exchanges have been advised to examine the role and involvement of
brokers and sub-brokers by way of participation in IPOs either directly or
indirectly and their dealings in the shares subsequent to listing.
Exchanges are to submit a report on this within a month.

SEBI bars Karvy, 23 other entities
Alleged involvement in IPO allotment scam

In the dock

Ban on several entities including HDFC Bank, IDBI Bank,
ING Vysya Bank and Motilal Oswal Securities from opening fresh demat
accounts.
The regulator also pulled up NSDL and CDSL for `grave management
lapses'.

Description

SEBI on Thursday 27th April 2006 came down heavily on
stock market intermediaries by banning several entities including Karvy
group of companies, Pratik DP and Indiabulls Securities, for their alleged
involvement in the IPO allotment scam. SEBI has also barred several
entities including HDFC Bank, IDBI Bank, ING Vysya Bank and Motilal
Oswal Securities from opening fresh demat accounts.

In an interim order issued today after the second round of
investigations, the capital market regulator has banned 24 entities from
buying and selling securities till further orders.

Common address

SEBI also said 15 Depository Participants at National
Securities Depository Ltd (NSDL) including Kotak Securities, Citibank,
ICICI Bank, Bank Paribas and IndusInd Bank had more than 500 demat
account holders sharing the common address.

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It asked NSDL to conduct inspection on whether all the
demat account holders are genuine. NSDL has also been asked to check
whether the Know Your Customer norms of SEBI have been duly
complied with and take action against suspect accounts on verification.

Analysts felt the SEBI order was akin to capital punishment
for the entities involved in the securities market scam.

"In view of the detailed findings, Karvy DP and Pratik DP
prima facie do not appear to be fit to deal in securities market as SEBI-
registered intermediaries. Appropriate quasi-judicial proceedings are
being initiated against the two DPs," the 252-page order issued late in
the evening said.

SEBI said the other business groups of Karvy appear to have
acted in concert in the gamut of IPO manipulations. "I further direct
Karvy Stock Broking Ld, Karvy Computer Share PVT Ltd, Karvy Investor
Services and Karvy Consultants not to undertake fresh business as
registrar to the issue and share transfer agent," Mr G Anantharaman,
Whole-Time Member, SEBI, said.

NSDL, CDSL pulled up

The regulator also pulled up NSDL and CDSL for `grave
management lapses'. The findings revealed "contributory negligence" on
the part of the depositories and their managements.

"The promoters of NSDL and CDSL are directed to take all
appropriate actions including revamping of management which clearly
has allowed matters to come to such a sorry pass," the order said.

The order, to be treated as a `show-cause notice', has given
15 days time to the parties named for filing objections.

IPO scam: HDFC Bank, 2 others fined
The Reserve Bank of India on Monday 27th Feb 2006 fined
HDFC Bank, IDBI and ING Vysya Bank for violation of Know Your

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Customer norms and other irregularities in relation to the recent IPO
scam.

HDFC Bank has been slapped with the highest penalty of Rs
25 lakh; ING Vysya Bank - Rs 10 lakh and IDBI Ltd Rs 5 lakh.

This is the second time HDFC Bank has been fined for
violation of KYC norms. In January, the bank was imposed a penalty of
Rs 5 lakh.

According to an RBI release, these banks have been fined,
"for violation of regulations on KYC norms, for breach of prudent banking
practices and for not adhering to its directives/guidelines relating to
loans against shares/ IPO."

Salient Features of IPO scam

Modus operandi
 Current account opened in the name of multiple companies on the
same date in the same branch of a bank

 Sole person authorized to operate all these accounts who was also
a Director in all the companies

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 Identity disguised by using different spelling for the same name in
different companies

 Multiple accounts opened in different banks by the same group of
joint account holders

 Huge funds transferred from companies accounts to the
individual’s account which was invested in IPO’s

 Loans/ overdrafts got sanctioned in multiple names to bypass limit
imposed by RBI

 Loans sanctioned to brokers violating guidelines

 Multiple DP accounts opened to facilitate investment in IPO

 Large number of cheques for the same value issued from a single
account on the same day

 Multiple large value credits received by way of transfer from other
banks

 Several accounts opened for funding the IPO on the request of
brokers, some were in fictitious names

 Refunds received got credited in brokers a/cs

 Margin money provided by brokers through single cheque

 Nexus between merchant banker, brokers and banks suspected

Operational deficiencies
Factors that facilitated the scam
 Photographs not obtained

 Proper introductions not obtained

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 Signatures not taken in the presence of bank official

 Failure to independently verify the identity and address of all joint
account holders

 Directors identity/ address not verified

 Customer Due Diligence done by a subsidiary

 Objective of large number of jt. account holders opening account
not ascertained

 Purpose of relationship not clearly established

 Customer profiling based on risk classification not done

 Poor monitoring and reporting system due to inadequate
appreciation of ML issues

 Absence of investigation about use and sources of funds

 Unsatisfactory training of personnel

 No system of fixing accountability of bank officials responsible for
opening of accounts and complying with KYC procedures

 Ineffective monitoring and control

Measures to prevent scams
 An analysis of IPO scam clearly brings out the laxity on the part of
banks to scrupulously implement the KYC/AML guidelines issued
from time to time. It also raises serious concerns about the
integrity of the systems & systemic risks.

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 While scams may still happen despite best of preventive
measures, it should not undermine the efforts being made to
insulate the financial sector from money laundering. It is going to
be a long fight with constant need to improve and innovate new
strategies.

 It is important to understand that the risks banks run as a result
of non-compliance with regulatory and statutory guidelines can
cause severe reputational and financial damage to individual
banks and the Indian banking system as a whole

 Need for comprehensive operational framework implementing
important aspects of KYC instructions e.g.

 Documentation procedure for opening of all types of customer
accounts;

 Clarity in understanding of risk classification of accounts and
proper customer profiling

 Ongoing monitoring of medium and high risk accounts

 Enhanced due diligence in respect of accounts with beneficial
ownership, non-face to face transactions, group companies, high
risk businesses and wire transfers etc.

 Prompt reporting of cash and suspicious transactions to Principal
Officer by branches

 An effective audit machinery

 Good understanding of regulatory and statutory prescriptions in
letter and spirit

 Clear demarcation of duties and responsibilities

 Violations to be dealt with sternly

Recent IPOs

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IPO Rating Offer Price Open Date Close Date

September
Richa Knits 30 13 Sep 2006 19 Sep 2006

Gwalior Chem 71-85 11 Sep 2006 14 Sep 2006

Usher Agro 15 05 Sep 2006 11 Sep 2006

Atlanta 150 01 Sep 2006 07 Sep 2006

HOV Services 200-240 04 Sep 2006 07 Sep 2006

Action Const 110-130 01 Sep 2006 07 Sep 2006

Deep Industries 36 29 Aug 2006 04 Sep 2006

KEW Industries 30 28 Aug 2006 01 Sep 2006

August
Voltamp Trans 345 24 Aug 2006 29 Aug 2006

Tech Mahindra 365 01 Aug 2006 04 Aug 2006

GMR Infra 210 31 Jul 2006 04 Aug 2006

July
Shirdi Ind 67-78 29 Jun 2006 08 Jul 2006

June
Vigneshwara 110-124 07 Jun 2006 16 Jun 2006

Bluplast Ind 32 05 Jun 2006 09 Jun 2006

Allcargo Global 675 01 Jun 2006 06 Jun 2006

Prime Focus 417 25 May 2006 03 Jun 2006

DEFINITIONS AND ABBREVIATIONS
I. CONVENTIONAL/ GENERAL TERMS

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Term
Description
AGM
Annual General Meeting of Pratibha Industries Limited
Articles / Articles of Articles of Association of Pratibha Industries Limited
Association / AOA
Companies Act / Act The Companies Act, 1956 as amended from time to time
Depository A Company formed and registered under the Companies Act, 1956
and which has been granted a certificate of registration under sub-
section (1A) of Section 12 of the Securities and Exchange Board of
India Act, 1992
Depositories Act The Depositories Act, 1996, as amended from time to time
Depository Participant A depository participant registered as such under sub-section (1A) of
Section 12 of the Securities and Exchange Board of India Act, 1992
FEMA Foreign Exchange Management Act, 1999, as amended from time to
time, and the regulations framed there under
FDI Foreign Direct Investment
FII Foreign Institutional Investor [as defined under FEMA (Transfer or
Issue of Security by a Person Resident Outside India) Regulations,
2000] registered with SEBI.
Financial year / Fiscal Period of twelve months ended March 31 of that particular year
year / FY
Indian GAAP Generally accepted accounting principles in India
I.T. Act The Income-Tax Act, 1961, as amended from time to time
Memorandum / MOA Memorandum of Association of Pratibha Industries Limited
NRI / Non-Resident A person resident outside India who is a citizen of India or is person
Indian of Indian origin as defined in Foreign Exchange Management
(Deposit) Regulations, 2000]
ROC Registrar of Companies, Maharashtra situated at 100, Everest
Building, Marine Lines, Mumbai 400002
RBI Reserve Bank of India
SCRR Securities Contracts (Regulation) Rules, 1957, as amended from
time to time.
SEBI The Securities and Exchange Board of India, constituted under the
SEBI Act, 1992
SEBI Act Securities and Exchange Board of India Act, 1992 as amended from
time to time
SEBI/(DIP) Guidelines SEBI (Disclosure and Investor Protection) Guidelines, 2000, as
amended, including instructions and clarifications issued by SEBI
from time to time

II.OFFERING RELATED TERMS

Allotment Issue of Equity Shares of the Company pursuant to the Public Issue
to the successful Bidders.

P a g e | 32


Allottee The successful Bidder to whom the Equity Shares are being issued.
Bankers to the Issue ICICI Bank Limited, Standard Chartered Bank, Deutsche Bank,
Kotak Mahindra Bank Limited
Bid An indication to make an offer made during the Bidding Period by a
prospective investor to subscribe to Equity Shares of the Company at
a price within the Price Band, including all revisions and
modifications thereto
Bid Price / Bid Amount The amount equal to highest value of the optional Bids indicated in
the Bid cum Application Form and payable by the Bidder on
submission of the Bid in the Issue
Bid Opening Dates / Issue The date on which the Syndicate Members shall start accepting Bids
Opening Date for the Issue, which shall be the date notified in a widely circulated
English national newspaper, a Hindi national newspaper and a
Marathi regional newspaper
Bid Closing Date / Issue The date after which the Syndicate Members will not accept any
Closing Date Bids for the Issue, which shall be notified in a widely circulated
English national newspaper, a Hindi national newspaper and a
Marathi regional newspaper
Bid cum Application The Form in terms of which the Bidder shall make an offer to
Form purchase the Equity Shares of the Company and which will be
considered as the application for allotment of the Equity Shares in
terms of this Red Herring Prospectus
Bidder Any prospective investor who makes a Bid pursuant to the terms of
this Red Herring Prospectus
Bidding Period / Issue The period between the Bid/Issue Opening Date and the Bid/Issue
Period Closing Date inclusive of both days and during which prospective
Bidders can submit their Bids
Book Building Process Book building route as provided under Chapter XI of the SEBI
Guidelines, in terms of which, this Issue is being made
BRLM Book Running Lead Manager to the Issue, in this case being Vivro
Financial Services Private Limited
CAN / Confirmation of The note or advice or intimation of allocation of Equity Shares sent
Allocation Note to the Bidders who have been allocated Equity Shares in accordance
with the Book Building Process
Cap Price The higher end of the Price Band, above which the Issue Price will
not be finalized and above which no bids will be accepted
Cut-off price Cut-off price refers to any price within the Price Band. A Bid
submitted at Cut-off is a valid Bid at all price levels within the Price
Band
Designated Stock Bombay Stock Exchange Limited
Exchange
Designated Date The date on which the funds are transferred from the Escrow
Account of the Company to the Public Issue Account after the
Prospectus is filed with the ROC, following which the Board of
Directors shall allot Equity Shares to successful bidders
Red Herring Prospectus This Red Herring Prospectus issued in accordance with Section
60B of the Companies Act, which does not have complete
particulars on the price at which the Equity Shares are offered and
size of the Issue. It carries the same obligations as are applicable in
case of a Prospectus and will be filed with ROC at least three days

P a g e | 33


before the bid/offer opening date. It will become a Prospectus after
filing with ROC after the pricing
Equity Shares Equity Shares of the Company of the face value Rs. 10 each, unless
otherwise specified in the context thereof
Escrow Account Account opened with the Escrow Collection Bank(s) and in whose
favour the Bidder will issue cheques or drafts in respect of the Bid
Amount and refunds (if any) of the amount collected to the Bidders
Escrow Agreement Agreement entered into amongst the Company, the Registrar, the
Escrow Collection Bank(s), the Syndicate Members and the BRLMs
for collection of the Bid Amounts and refunds (if any) of the
amounts collected to the Bidders
Escrow Collection ICICI Bank Limited, Standard Chartered Bank, Deutsche Bank,
Bank(s) Kotak Mahindra Bank Limited
First Bidder The Bidder whose name appears first in the Bid cum Application
Form or Revision Form
Floor Price The lower end of the Price Band, below which the Issue Price will
not be finalized and below which no Bids will be accepted
Fresh Issue / Issue / Public Issue of 42,85,000 new Equity Shares of Rs. 10/- each for
Public Issue / Offer cash at the Issue Price of Rs. [•] per equity share aggregating to Rs.
[•] Lakhs by the Company in terms of this Red Herring Prospectus
Issue Account Account opened with the Banker to the issue to receive monies from
the Escrow Accounts on the Designated Date
Issuer Pratibha Industries Limited
Issue Price The final price at which Equity Shares will be issued and allotted in
terms of this Red Herring Prospectus, as determined by the
Company in consultation with the BRLMs, on the Pricing Date
Margin Amount The amount paid by the Bidder at the time of submission of his/her
Bid, being 10% to 100% of the Bid Amount
Members of the Syndicate The BRLM and the Syndicate Members
Non-Institutional Bidders All Bidders that are not Qualified Institutional Buyers, or Retail
Individual Bidders and who have Bid for Equity shares for an
amount more than Rs.1,00,000.
Non-Institutional Portion The portion of the Issue being a minimum of 5,78,475 Equity Shares
of Rs. 10/- each available for allocation to Non-Institutional Bidders
Pay-in-date The last date specified in the CAN sent to the Bidders
Pay-in-Period This term means
(i) With respect to Bidders whose Margin Amount is 100% of the
Bid Amount, the period commencing on the Bid/issue Opening
Date and extending until the Bid/issue Closing Date, and
(ii) With respect to Bidders whose Margin Amount is less than
100% of the Bid Amount, the period commencing on the
Bid/issue Opening Date and extending until the closure of the
Pay-in-Date
Price Band The Price band of a minimum price (Floor Price) of Rs.100/- and the
maximum price (Cap Price) of Rs. 120/- and includes revision
thereof
Pricing Date The date on which the Company in consultation with the BRLM
finalizes the Issue Price
Promoters Mr. Ajit B. Kulkarni, Mrs. Usha B. Kulkarni, Mr. Datta B. Kulkarni,
Mr. Vinayak B. Kulkarni, Mr. Ramdas B. Kulkarni and Pratibha

P a g e | 34


Shareholding Private Limited
Prospectus The Prospectus filed with the ROC containing, inter alia, the Issue
Price that is determined at the end of the Book Building Process, the
size of the Issue and certain other information
Public Issue Account In accordance with Section 73 of the Companies Act, 1956, an
account opened with the Banker(s) to the Issue to receive monies
from the Escrow Account for the Issue on the Designated Date
QIB Portion The portion of the net issue being not less than mandatory 19,28,250
Equity Shares of Rs. 10 each at the Issue Price, available for
allocation to QIBs
Qualified Institutional Public Financial Institutions as specified in Section 4A of the
Buyers/ QIBs Companies Act, Scheduled Commercial Banks, Mutual Funds
registered with SEBI, Foreign Institutional Investors registered with
SEBI, Multilateral And Bilateral Development Financial Institutions,
Venture Capital Funds registered with SEBI, Foreign Venture
Capital Investors registered with SEBI, State Industrial Development
Corporations, Insurance Companies registered with the Insurance
Regulatory And Development Authority (IRDA), Provident Funds
with a minimum corpus of Rs.2500 Lakhs and Pension Funds with a
minimum corpus of Rs. 2500 Lakhs.
Retail Individual Bidders Individual Bidders (including HUFs and NRIs) who have not Bid for
an amount in excess of Rs.1,00,000/- in any of the bidding options in
the Issue.
Retail Portion The portion of the Net Issue being a minimum of 13,49,775 Equity
Shares of Rs.10 each available for allocation to Retail Individual
Bidder(s)
Registrar/ Registrars to Intime Spectrum Registry Limited
the Issue
Revision Form The Form used by the Bidders to modify the quantity of Equity
Shares or the Bid Price in any of their Bid cum Application Forms or
any previous Revision Form(s).
Syndicate Agreement The agreement to be entered into among the Company and the
members of the Syndicate in relation to the collection of Bids in this
Issue
Syndicate Members Intermediaries registered with SEBI and eligible to act as
underwriters. Syndicate Members are appointed by the BRLM and
include the BRLM
Syndicate The Syndicate Members collectively
TRS or Transaction The slip or document issued by the Syndicate Members to the
Registration Slip Bidder as proof of registration of the Bid
Underwriters The BRLM and Syndicate Members
Underwriting Agreement The Agreement among the BRLM, the Syndicate Members and the
Company to be entered into on or after the Pricing Date

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Bibliography

Web Based

 www.investopedia.com

 www.sebi.com

 www.vivro.net

 www.intimespectrum.com

 www.pratibhagroup.com

Book Based

 Share Market Book  By Tarun Shah
 IPO Decision  By Jason Draho

Industry Based

 PRATIBHA GROUP OF COMPANIES

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