Pocketful

Category: IPO

  • Why Invest in an IPO and its Benefits?

    Why Invest in an IPO and its Benefits?

    Initial Public Offering (IPO) has long been one of the ways companies raise funds from the general public, but recently, many IPOs have been receiving extraordinary interest from investors. The rising popularity of IPOs is due to the various benefits they offer to investors.

    In this blog, we will explore the reasons why companies launch an IPO and the various benefits of investing in an IPO.

    What is an IPO?

    A firm that intends to be listed as a public company must first raise money via an IPO or initial public offering. The funds raised can be used for growth, repayment of debts, acquisition, etc. There are also situations when shares offered in an IPO are sold by the early-stage investors or the firm’s promoters. After the IPO, the shares of the company are listed on the stock exchange and can be traded.

    Why Do Companies Offer IPO?

    Companies choose initial public offerings (IPOs) for the following reasons:

    1. To raise capital: Businesses typically seek to raise funds for business expansion since they can use the funds to expand their operations.

    2. Debt Repayment: With the money raised, the company may pay off its current debt and improve its debt ratios, making this another reason for raising capital.

    3. New Opportunities: Businesses can use the funds to establish operations in overseas markets by exporting their goods and services.

    4. Research: Companies can use the money raised from the initial public offerings (IPOs) to improve the quality of their goods and services by developing new technologies. 

    5. Liquidity for Current Investors: Founders, venture capitalists, and early investors occasionally sell their ownership stake through an initial public offering (IPO) process and look for other investment opportunities.

    6. Acquisitions: Funds raised in an IPO can be used by the company to acquire other businesses.

    7. Increase in Popularity: A successful initial public offering (IPO) increases the popularity of the company among investors and its customers, which can result in higher sales and profits.


    Why Should You Consider Investing in an IPO?

    The primary reasons to consider investing in an IPO are as follows- 

    • Listing Gains – In an IPO, if the shares trade at a price higher than the offer price on the listing date, then the investors can sell their shares and realize substantial listing gains. 
    • Investment Opportunity – An IPO offers individuals a chance to invest in companies in their early stages.
    • Portfolio Diversification — If the company is operating in a different sector than the ones you are currently invested in, individuals can invest in IPOs of such companies and minimize their overall portfolio risk.
    • Potential Long-Term Growth — Companies with strong historical performance tend to have longer-term growth potential. Investors can judge the past performance of the company by using the data provided in the Red Herring Prospectus (RHP).
    • Lower Pricing – Some initial public offerings (IPOs) are intentionally issued at a lower price to attract more investors, making them an excellent investing opportunity for traders or investors.
    • Transparency – The annual reports and other documents of companies launching an IPO are subject to strict regulations, which makes them more transparent.
    • Liquidity – Once a firm makes its shares public, its shares can be easily bought and sold on the stock exchange.

    Benefits of Investing in IPO

    The major benefits of investing in an IPO are as follows:

    1. Immediate Gains: If the company opens at a price higher than the offer price, investors can choose to exit by selling the shares received and realizing substantial listing gains. There were several instances in the recent past when the shares offered in an IPO increased substantially as the investors who didn’t get the allocation tried to purchase it on the listing date.

    2. Flexibility: Investors can purchase and sell shares at any time without incurring high transaction costs in the stock market, as the company is publicly listed.

    3. Fair Opportunity: SEBI has several regulations in place to ensure that small investors have an equal opportunity to receive shares in an initial public offering (IPO). In case of an oversubscribed issue, a lottery system is used to allot IPO shares to the general public. However, if the IPO is not fully subscribed, each IPO applicant receives the number of shares they have applied for.

    4. Compliances: SEBI has established strict regulations for companies launching an IPO to safeguard individual investors. To allow investors to make an informed choice, the company’s prospectus must include all necessary information, such as performance, financials, growth, risks, and plans. 

    5. Purchase at a Discount: Companies can choose to offer their shares at a reduced price when they go public to attract more investors. Due to the initial low price, the shares typically list at a premium, which creates a positive image of the company and results in listing day gains for the investors. 

    6. Ownership: Investors who are allotted shares in an IPO are regarded as shareholders of the business and can cast their votes at the annual general meetings.

    7. Early Stage Opportunity: An initial public offering (IPO) allows investors to purchase stock of a company during its early stages. Some of these companies can become a major success in the future and deliver multi-bagger returns to their investors.

    8. Consistent Income: Several companies distribute dividends to their shareholders. Therefore, investing in these dividend-paying businesses allows you to generate a steady income. 

    Conclusion

    On a concluding note, you may be considering investing in an IPO the next time an opportunity comes across by reading the advantages mentioned above. However, keep in mind that an IPO’s performance solely depends on the subscription data of a particular IPO. Market sentiment on the listing date and several other factors also affect listing gains. To make an informed investment decision, one must conduct a thorough financial analysis, which includes evaluating the company’s historical performance, growth prospects, and reasons for raising funds. Before making any investing decisions, you, as an investor, must speak with your investment advisor.

    Frequently Asked Questions (FAQs)

    1. Why does the company launch an IPO?

      A corporation launches an initial public offering (IPO) to raise funds, which it might utilize for debt repayment, business expansion, and other purposes. 

    2. Is an IPO a good option for short-term or long-term investments?

      Shares allotted in an IPO can be kept for the long term as well as the short term, depending on the future growth prospects of the company. The holding period also depends on the investor’s goal; some may seek listing gains, while others hold it for long-term potential growth.

    3. Can I apply for an IPO without a Demat Account?

      Investors cannot apply for an IPO if they do not have a Demat account.

    4. How are the IPO’s issue prices determined?

      In a fixed price issue, the company’s underwriter sets the price at which the investors can purchase shares. In a book-building issue, the company announces a price range, and the investor bids within that range to determine the issue price.

    5. Is it right to invest in every Initial Public Offering (IPO)?

      No, it is not wise to participate in every initial public offering (IPO) since there may be instances where the company may be aggressively priced, and the IPO’s issue price may be too high. Instead, it is advised to research the company’s fundamentals before investing.

  • What is NII in IPO?

    What is NII in IPO?

    An IPO is an opportunity for a company to raise capital by offering shares to the general public for the very first time. Companies use the funds raised to expand, pay off debts or acquire other companies. In the world of IPOs, the investors are classified into anchor investors, retail investors, qualified institutional buyers, and non-institutional investors, all of which play an imperative role in making an IPO successful. 

    In this blog, we are going to discuss what NIIs are, categories of investors in the NII category, rules and regulations, key features of the NII category, and how investors impact IPO success. This information will allow you to make informed decisions for investment in IPOs, whether you are an experienced investor or new to the stock market.

    What is NII?

    The NII full form is Non-Institutional Investors. A retail investor invests relatively smaller amounts in an IPO, whereas NIIs are high net worth individuals or entities with the ability to invest large amounts of money, often higher than the minimum amount defined under the market regulations. Any individual, company, trust, or other entity except retail and institutional investors can be referred to as an NII.

    For example, in India, a company applying for more than INR 2 lakh in an IPO is considered an NII. NII quota in an IPO is equal to 15%, i.e., 15% of the shares offered in the IPO are reserved for NIIs. NIIs are different from QIBs as they are not SEBI registered. NIIs compete for the allocation of IPO shares in their category based on demand and supply in the NII segment of the IPO.

    Since the NIIs are sophisticated investors, their participation in an IPO is an affirmation of the company’s potential and stability. High levels of NII participation increase the perceived value of an IPO and positively influence other investors, hence increasing the overall subscription.

    Categories of NII in IPO

    The NII category consists of several subtypes that have varying attributes and investment objectives. Below are some of the main categories under NIIs:

    • High-Net-Worth Individuals (HNIs): HNIs form a significant chunk of the NII category. Usually, HNIs are individuals with a high income and a net worth of at least INR 5 crore. HNIs could comprise entrepreneurs, high-income earners, experienced investors, etc., seeking sizable returns from IPO allocations.
    • Corporations and Trusts: The NII category often consists of applications from corporations, partnerships, and trusts, among others, that are not part of the retail segment. Corporations invest in IPOs to diversify their asset portfolios or to acquire stakes in companies that are perceived to have growth potential within their industries. Trusts may also seek IPO allocation for the management of wealth, among other growth strategies.
    • Family Offices: Family offices managing the wealth and assets of high-net-worth families are also a part of the NII category in IPOs. The investments are generally long-term growth plays, as they look to buy stakes in promising companies in their initial phase.

    NIIs Rules and Regulations

    The NII segment is highly regulated by rules and regulations, which are different from the regulations applicable to retail and QIB segments in IPOs. A few of the significant rules are as follows:

    • Quota Allocation: At least 15% of the total IPO issue size is reserved for NIIs. This percentage is known as the NII quota in the IPO. All the remaining shares are allotted to Retail Investors, QIB Investors, etc.
    • Minimum Investment: NIIs must apply for IPO shares worth more than INR 2 lakhs, with no upper limit to the investment amount. NIIs are further categorized into sNII and bNII. Investors with IPO application amounts between INR 2 lakhs to INR 10 lakhs are categorized as small NII or sNII. Meanwhile, those investing more than INR 10 lakhs fall under the bNII category.
    • Allotment Rules: In oversubscribed IPOs, each NII applicant is allotted shares worth minimum application size, i.e., INR 2 lakhs, subject to the availability of equity shares in the NII portion. The same is applicable for both sNII and bNII. 
    • IPO Application Modification and Cancellation: Once the IPO application is submitted, NIIs cannot cancel their bid. NIIs can modify their application and are allowed to increase the bid quantity or price.

    Features of an NII Category

    The features of the NII category specify the type of behavior that the investor adopts in the IPO market. Some of the basic features of NIIs include the following:

    • High Investment Threshold: NIIs are required to invest a minimum of INR 2 lakhs in IPO. In India, retail investors can invest a maximum of INR 2 lakhs in an IPO. High investment requirements clearly distinguish NIIs from retail investors.
    • Flexibility in Lot Size to Invest: The NIIs, on the other hand, are not subject to this maximum investment amount applicable to the retail investor.
    • High Risk and Reward: Given that NIIs invest more, a higher risk is associated with the participation of NIIs. However, often, this risk is balanced by the prospect of high returns when IPOs perform well post-listing.
    • Strategic and Informed Investment Approach: Unlike retail investors, NIIs typically do extensive research before applying. They rely on market analysts, financial advisors, or in-house teams to assess the company’s financials, management, industry position, and potential for future growth.
    • Tax Considerations: They also have to weigh the tax implications of their investment returns. NIIs can sell their shares on the listing date but need to be cautious of the taxes applicable to the returns realized.  

    Read Also: What Is An IPO Mutual Fund? Should You Invest?

    Conclusion

    In conclusion, NIIs play a crucial role in the success of an IPO, as they invest substantial amounts of funds and also affect the overall subscription levels. Investment flexibility, high net worth, and special quota reserved for them are some of the key features of the NII category. NIIs lend credibility and attract greater interest and participation from retail investors.

    Every high-net-worth investor, as well as a corporate body intending to invest in an IPO, should be aware of the nuances in the NII category, due to which only those with relevant experience and capital can participate in the NII segment in IPOs.

    Frequently Asked Questions 

    1. What is NII in IPO? 

      NII stands for Non-Institutional Investor. This refers to an individual or organization investing substantial amounts in an IPO, usually exceeding INR 2 lakh in India.

    2. How much is reserved for NII in an IPO? 

      NIIs have 15% of the IPO size reserved for them.

    3. Are NIIs required to be registered with SEBI?

      No, NIIs are not required to be registered with the SEBI.

    4. Do HNIs fall under the category of NII?

      High Net-Worth Individuals (HNIs) fall under the category of Non-Institutional Investors (NIIs).

    5. Can NIIs cancel their IPO bids?

      NIIs are not allowed to cancel their IPO bids but can modify them by increasing the quantity or price.

  • What is an IPO Subscription & How Does it Work?

    What is an IPO Subscription & How Does it Work?

    You may be interested in investing in an Initial Public Offering (IPO) as a new investor. Still, you may need to check IPO subscription status before investing to gauge the demand for IPO shares. Moreover, after applying for the shares, you might be curious about the status of your allocation. 

    In this blog, we will discuss the IPO subscription procedure and how to verify the IPO’s subscription and allotment status. 

    What is an IPO Subscription?

    The procedure by which an investor applies for the shares of a company when they are first made available to the public is known as an Initial Public Offering (IPO). The goal of such an issue varies from company to company; some may use the proceedings to pay off debt, while others may use them to expand their operations. IPO subscription is the process in which the investor applies for the shares offered in the IPO. The investors specify the quantity and the price in their IPO application to subscribe to the IPO. The corporation offers its stock or shares to the public to raise money, and investors subscribe to these shares. This process is known as an Initial Public Offering (IPO).  

    How Does an IPO Subscription Work?

    The steps which are involved in IPO subscription are as follows-

    1. Announcement – A prospectus that includes all of the firm’s information, such as its business model, financials, and the way the funds will be used, must be released when a company chooses to go public and seek money through an initial public offering (IPO). 

    2. Setting The Price – The company must set the price of the issue at which they want to offer their shares to the public in a fixed price issue. On the other hand, in a book-building issue, companies specify a price range within which investors can bid for the shares.

    3. Subscription Period of an IPO – The dates on which the investors can apply for an IPO must be announced. Generally, the IPO opens for 3 to 5 days.

    4. Categorization of Investors –  In an IPO, there are different categories of investors, subject to different rules for participating in an IPO. Different types of investors are mentioned below:

    • Retail Investors – These small investors can apply up to INR 2 Lakhs.
    • Non-Institutional Investors – These investors are considered HNI individuals or corporate houses and invest large amounts.
    • Qualified Institutional Buyers – This category includes banks, mutual fund houses, insurance companies, etc.
    • Anchor Investors – These include large institutions that apply for shares before the issue opens for subscription for the general public.

    5. Bidding – During this phase, the investors apply for the shares. They can specify the quantity and the price at which they wish to apply for IPO shares.

    6. Status of Subscription – Real-time tracking of IPO subscriptions is possible. If the IPO is popular and the investor’s demand for shares exceeds the number of shares offered, the offering is deemed oversubscribed.

    7. Allotment of Shares – The shares offered in an IPO are allotted to the investors in the following way:

    • Allotment to QIB: Shares are allocated to QIBs at the discretion of merchant bankers. But if the IPO is oversubscribed, shares are allotted proportionately.
    • Allotment to Retail Investors: If the IPO is undersubscribed or fully subscribed, retail investors receive the number of shares they applied for. On the other hand, if the IPO is oversubscribed, the investors will be allotted shares based on a lottery system.
    • Allotment to HNIs: In case of an oversubscription, shares are allotted to HNIs proportionately.

    8. Credit of Shares – The allotted shares will be credited to the investor’s demat account.

    9. Listing – Finally, the shares get listed on the stock exchange and become available for trading for investors.

    What is the IPO Process?

    The significant steps of the IPO process are as follows-

    1. Deciding the Issue Size – The first step would be deciding on the issue size or the amount of capital the company wants to raise.

    2. Appointment of Underwriter – The company must appoint an underwriter or investment bank to handle all the regulatory procedures, which includes setting the price range and other due diligence.

    3. Preparing DRHP – The next step would be preparing a Draft Red Herring Prospectus (DRHP), which contains all the company’s business details and financials.

    4. Submission of DRHP– The DRHP is filed with the Securities and Exchange Board of India to get regulatory approval.

    5. Investor Presentation – The company identifies potential investors to present their future plans for the company and tries to convince investors to invest.

    6. Pricing of the Issue – The issue price is set in a fixed price IPO, and in a book-building IPO, a price range is determined, and the issue price is set based on market demand.

    7. Subscription Period – Typically, an IPO opens for subscription for a period of 3 to 5 days, during which an investor can apply for the IPO.

    8. Allotment – Once the subscription period is over, the shares are allotted to the successful bidders and are credited to their demat account.

    9. Listing – The shares are listed on the exchange and become available for trading for the investors.

    How to Check IPO Subscription Status?

    The steps to check the IPO subscription status are as follows-

    1. Through Exchange – One can visit the websites of Indian stock exchanges, i.e. the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Select the Initial Public Offering (IPO) and review the subscription data for different investor categories.

    2. Registrar – Another choice is to go to the registrar’s website, which manages the IPO allocation procedure and offers real-time subscription information. An investor can check the allocation status on the website as soon as the shares are allocated. 

    How to Check IPO Allotment Status?

    The process to check the IPO allotment status on the registrar’s website by following the steps mentioned below –

    1. Registrar Website – Investors can visit the website of the relevant registrar and click on the IPO allotment status tab.

    2. Select IPO – An investor must select the IPO from the drop-down menu.

    3. Enter the Details – Enter the details such as PAN number, application number, or Demat account number.

    4. Status – Click on the submit button, and you can review the status of the IPO application, whether the shares are allotted to you or not.

    Conclusion

    To sum up, as an investor, you need to understand what an initial public offering (IPO) is and the associated procedures. One must know how to track the IPO subscription status, and once the subscription period ends, monitoring application status is also essential. IPO does not ensure a guaranteed return because sometimes IPO shares get listed on the stock exchanges at a discount. Therefore, before making any investment decisions, you should assess your risk tolerance and speak with your financial advisor.

    Frequently Asked Questions (FAQs)

    1. What will happen if an IPO is oversubscribed?

      If an IPO is oversubscribed, the allotment of shares will be based on a lottery system.

    2. Is an oversubscribed IPO good?

      Generally, investors view an oversubscribed IPO favorably since it shows positive market sentiment and faith in the company’s future growth strategy. Oversubscription, however, is not always a sign of a strong stock exchange listing.

    3. What is the meaning of ASBA?

      Application Supported by Blocked Amount, or ASBA, is a way to pay for IPO shares in which the amount required to apply for an IPO is blocked in the investor’s bank account.

    4. How long will it take to get the refund if shares are not allotted in an IPO?

      If shares are not allotted to the investor, the blocked amount is unblocked within three to seven days.

    5. Where can I check the IPO allotment status?

      You can check the IPO allotment status on the registrar’s website after entering the required details.

  • What is FPO: Meaning, Types, Benefits & How it Works?

    What is FPO: Meaning, Types, Benefits & How it Works?

    As an investor, you have probably heard that a firm is planning an Initial Public Offering (IPO), representing the company’s first attempt to raise money from the general public. But what if the business wishes to raise more money after already launching an IPO? There is a procedure called a “Follow-on Public Offer” whereby a company already listed on the stock exchange can raise money from the general public after the IPO. 

    In this blog, we will give information about the Follow-on Public Offer (FPO), 

    What is a Follow-on Public Offer (FPO)?

    A publicly traded corporation can raise money by issuing shares through follow-on public offerings. The corporation raises money to meet capital requirements, expand operations, pay off debt, and other goals. Since the procedure is comparable to an Initial Public Offering (IPO), it can be regarded as a fantastic choice for an established business with a solid track record. 

    How does a Follow-on Public Offer (FPO) work?

    The steps involved in a Follow-on Public Offer are as follows-

    1. Deciding for FPO – The company must first determine whether to raise money through a follow-on public offering. It must also determine the reason behind the FPO, which can be expansion, paying off debt, etc. 

    2. Preparing the Document – After determining the goal of the follow-on public offer, the corporation must prepare the document containing FPO’s details, including the number of shares, pricing, and usage of proceeds. 

    3. Filing the document with the Regulator – The prepared paperwork must be sent to the Securities and Exchange Board of India, the Indian capital market regulator. 

    4. Type of FPO – When developing its offering, the business must choose between a dilutive and a non-dilutive FPO. 

    5. Price Band– The price band within which the investors can bid for shares offered in the FPO must be decided. 

    6. Subscription – Investors can subscribe to the issue by submitting applications through their brokers. 

    7. Allocation of Shares – Following the subscription period, the shares are credited to the demat accounts of investors. 

    8. Listing of Shares – The latter stages involved listing the shares on the market and allowing the general public to trade them.

    Types of Follow-on Public Offers (FPOs)

    The two kinds of Follow-on Public Offer are –

    1. Diluted Follow-On Public Offers – The corporation issues new shares in a diluted follow-on public offer, increasing the overall number of free float shares in the market over time. As a result, existing investors’ shareholding is diluted, but the business gains from this since they can use the funds for debt reduction or expansion. 

    2. Non-Diluted FPO – As stated in the Non-diluted Follow-on Public Offer, current shareholders, including promoters and venture investors, sell a portion of their shareholding rather than the company issuing new shares. This signals that current shareholders are selling their stakes, which raises the market’s share count and liquidity. Investors must exercise caution when investing in such FPOs.

    Examples of Follow-on Public Offers

    Two of the most recent Follow-on Public Offers in India are given below-

    1. Ruchi Soya Limited launched its follow-on public offer of INR 4,300 crores in 2022 to raise capital to reduce its debt.

    2. Yes Bank launched an FPO in 2020 to raise INR 15,000 crores and it was a dilutive FPO.

    What are the Benefits of a Follow-on Public Offer?

    FPO offers various benefits for both companies and investors, as shown below.

    For Companies – The significant benefits of Follow-on Public Offer for companies are as follows-

    Capital – Companies can raise adequate funds through follow-on public offerings that can be used for various purposes.

    • Increased Liquidity – The company’s number of shares will increase after the IPO, which increases liquidity.
    • Reducing Debt – The debt of the company can be reduced through proceeds received from follow-on public offerings.
    • Attracts Investors –Investors usually want to invest in companies that are raising funds to fund their expansion projects.
    • Acquisition – With the raised capital, the company can acquire different companies and expand its business.
    • International Expansion – Through FPO, companies can raise capital and export their goods to other countries to expand their geographical reach.

    For Investors – The significant benefits of Follow-on Public Offer for investors are as follows-

    • Opportunities – The investors consider a follow-on public offer as an investment opportunity.
    • Proven Track Record – Established companies with proven track records issue follow-up public offers.
    • Discounted Prices – Follow-on public offers are typically offered at a discount compared to their market price.
    • Diversification – If the company has strong fundamentals, you can add it to your portfolio to diversify it.

    Why does a Company bring its Follow-on Public Offer?

    The major factors which make a company bring its Follow-on Public Offer are as follows-

    • Additional Capital – The company might require additional funds to expand its operations, acquire new companies, etc.
    • Debt Reduction – The companies can use the capital raised to reduce debt, which eventually reduces interest expense.
    • Improve Liquidity – When a company floats new shares in the market, the liquidity increases.
    • Opportunity to Raise Funds– When the company is performing well and the market sentiment is favorable, the companies can raise funds through follow-on public offers to leverage the investor’s high interest.
    • Compliance – Some companies are required to maintain a minimum of a certain percentage of public shareholding; therefore, a follow-on public offer can be a way to increase the number of shares available for trading in the market.
    • Mergers and Acquisitions – The company can use the funds raised through follow-on public offers to acquire new companies without taking any loans from banks.

    How to Apply for a Follow-on Public Offer?

    There are two ways to apply for a Follow-on Public Offer-

    Online Method

    1. Login – Through online mode, the first step is to log in to your broker account.

    2. Choosing Option – Then go to the section of FPO or IPO.

    3. Choosing the FPO – A table will list FPOs open for subscription, and you can choose the FPO you want to apply for.

    4. Details of Application– Enter the details, such as the quantity of the shares and the price at which you wish to apply.

    5. ASBA– ASBA stands for Application Supported by Blocked Amount, which is the method approved by SEBI to participate in an FPO. Ensure that the amount required to apply for an FPO is in the bank account.

    6. Submission – The last step would be submitting the application form.

    7. Approval of Mandate – The investors are requested to approve the mandate request received on their UPI application. This will block the amount in the investor’s account.

    Offline Method

    1. Getting the Form – You must visit your broker’s branch and ask about the FPO application form.

    2. Filling the Details – The form provided by the brokers requires various details, such as a Demat account number, PAN Card, quantity to be purchased, and bidding details.

    3. ASBA Form Submission: Visit your bank branch and fill out an Application Supported by Blocked Amount (ASBA) form with all the details related to the FPO application.

    4. Submission of Form – Submit the form to the broker with complete details.

    5. Confirmation – Then, your broker will process your application form and provide you with confirmation.

    Differences between an Initial Public Offer (IPO) and a Follow-on Public Offer (FPO)

    The significant differences between an Initial Public Offer (IPO) and a Follow-On Public Offer (FPO) are as follows-

    ParticularsIPOFPO
    MeaningAn initial public offering (IPO) is the first time a private firm issues shares before going public.It is a publicly listed company’s subsequent issuance of shares.
    Stage of CompanyA private limited firm that is going public for the first time launches an IPO.FPO is launched by a business that is already listed on the stock exchange.
    Price RangeThe company determines the IPO price depending on its valuation. A book-building process is used to make the decision.To attract investors, the shares in an FPO are often sold at a price lower than the current market price.
    ComplianceThe IPO is subject to strict regulations as the company is getting listed for the first time on the stock exchange.Regulations requirements for an FPO are less stringent as the company is already listed.
    Potential Returns IPOs usually offer higher chances of capital appreciation.FPOs usually have a lower potential for capital appreciation.
    RiskThese are considered more risky due to the unavailability of adequate data related to the company’s past financial performance.It is generally considered less risky because the company’s performance is already known to the investors.

    Conclusion

    To sum up, a follow-on public offering is a fantastic method for a publicly traded company to raise more money, which it may use to grow its operations or pay down its debt. Additionally, it offers investors a fantastic chance to invest in an already listed company at a discount, as FPO shares are usually offered at a price lower than the current market price. It is recommended that you speak with your financial advisor and consider the risks associated with investing in an FPO of a particular company.


    Frequently Asked Questions (FAQs)

    1. What is the difference between FPO and IPO?

      An FPO is issued by a company that has already gone public, while an IPO is a corporation’s initial sale of shares to the general public. This is the main distinction between the two. FPO is typically less risky for investors since the company’s stock has already been listed on a public exchange and offers a history of the business’s financial and operational performance. 

    2. Why do companies consider issuing FPO?

      To boost the liquidity of the company’s stock, companies might conduct follow-on public offers by issuing more shares if they want to obtain additional funds for expansions, acquisitions, and debt reduction. 

    3. How can an FPO impact the stock price?

      Share prices may drop in the short term in the event of a dilutive FPO, but in the case of a non-dilutive issue, the FPO issue has no effect on share prices, and if the firm does well, share prices will eventually rise in the long term. 

    4. How do you access the valuation of a follow-on public offer?

      One must assess several key financial aspects, such as historical performance, regulatory risks, reasons behind raising funds, etc., before applying for a follow-on public offer. 

    5. How can I subscribe for a follow-on public offer?

      An investor can subscribe for a follow-on public offer through their broker. The application process is similar to an IPO, and individuals can apply during the subscription period and may receive the allocation based on demand. 

  • Anchor Investors in IPOs – Meaning, Role & Benefits

    Anchor Investors in IPOs – Meaning, Role & Benefits

    Have you ever wondered who the influential investors are that step in to support a company’s initial public offering (IPO)? Known as anchor investors, these key players are essential for the success of any public offering.

    In this blog, we will give information about anchor investors in Initial Public Offerings (IPOs), examining how their participation impacts share pricing and demand. We will also highlight the advantages they offer to companies and the overall market.

    What is the meaning of Anchor Investor?

    An anchor investor is a qualified institutional buyer (QIB) who invests at least INR 10 crores or more in a mainboard IPO or INR 1 crore in an SME IPO. Securities and Exchange Board of India (SEBI) introduced the concept of Anchor investors in 2009.

    These investors boost credibility and attract interest in an IPO by investing a large amount early because anchor investors are well-established institutions like mutual funds, pension funds, etc. Their involvement can stabilise prices, boost demand, and lessen volatility.

    Why do companies need Anchor Investors?

    Companies require anchor investors for the following reasons:

    • Enhance Credibility and Confidence: As mentioned above, anchor investors consist of reputable financial institutions whose participation is a strong endorsement of the company. When these investors commit to buying shares, it instils confidence in other investors, making the IPO an attractive investment opportunity.
    • Create Demand & Price Stability: Anchor investors buying a large stake upfront helps establish a stable price floor for the stock. It lowers the risk of price volatility when the stock begins trading because these investors own a substantial portion of the shares.
    • Attract Retail Investors: Investments by anchor investors make the IPO popular, which encourages smaller retail investors to invest.
    • Reducing Underwriting Costs and Risks: Pre-allocating some shares makes it easier and cheaper for companies to sell the rest. Anchor investors reduce the risk of unsold shares, making the IPO process more efficient and cost-effective.
    • Ensuring Long-term Commitment: Anchor Investors commit to a lock-in period, during which they are prohibited from selling their shares for a specified duration following the IPO. This guarantees that a segment of shares stays with investors who are invested based on a long-term outlook, thus increasing stability during the crucial early post-listing phase.

    Importance of Anchor Investors

    Anchor investors are important for the financial market due to the following reasons:

    • Strong Financial Base: By investing substantial capital upfront, anchor investors create a financial cushion that enables companies to achieve their fundraising objectives.
    • Enhanced Reputation: Securing investments from esteemed investors enhances the company’s reputation in the market. Their involvement highlights the company’s growth potential, thus increasing its attractiveness among other investors.
    • Reduced Volatility Post-IPO: The commitment to a lock-in period effectively narrows price fluctuations in the initial trading phase, resulting in a more stable stock price.
    • Positive Market Perception: Anchor Investors boost positive sentiment for the IPO, often resulting in oversubscription. This optimistic outlook can ultimately benefit the stakeholders involved.

    How Do Anchor Investors Operate?

    The company issuing the IPO selects anchor investors based on their financial strength, reputation and compatibility with its vision. Anchor investors receive a significant allocation of IPO shares, generally around 30% of the total offering or 60% of the total QIB quota. These investors pledge substantial investments, providing a reliable financial foundation for the offering. Let’s understand how anchor investors operate.

    1. The company unveils a price range for the IPO, which is the basis for determining the final price.
    2. Anchor investors submit their bids at a fixed price, indicating the quantity of shares they wish to acquire and must pay the entire amount at the time of application. Anchor investors can place bids one day before the issue opens to the general public.
    3. Shares are allocated to anchor investors one day before the IPO opens for the general public. The final offer price is determined through the book-building process.
    4. They commit to staying invested for 30 days for 50% of the shares, and the rest of the shares must be held for 90 days after the allotment date. This period is often referred to as the lock-in period.
    5. The lock-in period decreases the chances of immediate sell-offs, fostering price stability for the stock during its initial post-IPO trading phase.

    Once the lock-in period is over, anchor investors can sell their shares either on the open market or through alternative methods.

    Things to know about Anchor Investors

    Some important facts about the Anchor investors are:

    1. For anchor investors, the minimum bid amount is INR 10 crore. 
    2. One-third of the Anchor Investor Portion will be reserved for domestic mutual funds, provided they submit valid bids at or above the valid price.
    3. Anchor Investors must submit their bids exclusively through one of the Book Running Lead Managers (BRLMs) associated with the offering.
    4. Bidders and applicants seeking information based on the allotment for Anchor Investors can review the RHP or the prospectus.
    5. The price at which equity shares are allocated to anchor investors will be decided by the company after consulting the BRLMs.

    Allocation to anchor investors is discretionary and subject to the following conditions:

    1. For allocation up to INR 10 crores, a maximum of two anchor investors is allowed.
    2. For allocations between INR 10 crores and INR 250 crores, a minimum of 2 and a maximum of 15 anchor investors are allowed, with a minimum investment of INR 5 crore per investor.

    Lock-in period for Anchor Investors

    In India, the lock-in period for anchor investors is structured as follows:

    1. Anchor Investors cannot sell 50% of the shares for 30 days starting from the date of allotment. 
    2. The remaining 50% of the shares will be locked in for 90 days starting from the date of allotment.

    Furthermore, the staggered lock-in period facilitates the gradual selling of shares, minimising the risk of volatile price fluctuations that could arise from large-scale sell-offs by anchor investors right after the listing date.

    Anchor Investor’s Reservation in IPO

    Additionally, anchor investors in an IPO represent a specific group of Qualified Institutional Buyers (QIBs) who are allocated a share of the total issue size during the IPO. These investors can reserve a maximum of 30% of the total IPO size and 60% of the QIBs’ quota. One-third of the allocation for anchor investors is designated for domestic investment funds.

    Read Also: What is an IPO Subscription & How Does it Work?

    Conclusion

    In summary, anchor investors play an important role in the IPO process. Their early commitment and reputation create a strong foundation for a successful IPO, reassuring investors about the company’s potential. Anchor investors help improve stock performance by driving demand, stabilising prices, and establishing credibility. In today’s evolving market, having trustworthy anchor investors is not merely beneficial; it is essential for companies aiming for a solid debut on the stock exchange.

    Frequently Asked Questions (FAQs)

    1. Can an individual become an anchor investor?

      An individual investor cannot become an anchor investor. To be classified as an anchor investor, the entity must be a qualified institutional buyer (QIB).

    2. Do anchor investors affect the IPO’s success?

      The participation of anchor investors often attracts more investors, which increases participation that can lead to a more robust stock performance on the listing date.

    3. Can anchor investors sell their shares immediately after listing?

      Anchor investors cannot sell their shares immediately after the listing date because of the lock-in period. This lock-in period helps stabilise the stock price during the early days of trading on the stock exchange.

    4. How do anchor investors impact IPO?

      By investing significant capital, anchor investors establish a solid base, which enables companies to secure a significant portion of their fundraising target quickly and enhances investor confidence in an IPO.

    5. What are the minimum investment requirements to qualify as an anchor investor?

      To be eligible as an anchor investor, the financial institution must invest at least INR 10 crores in a mainboard IPO and at least INR 1 crore in an SME IPO.

  • What is the Book-Building Process in an IPO?

    What is the Book-Building Process in an IPO?

    If you are a stock market investor, you have probably heard of the Initial Public Offering (IPO), which is the procedure by which a business makes its shares available to the general public for the first time. However, have you ever thought about how the share price is determined? A business determines the price of its share by using a procedure known as the Book Building Process.

    In this blog, we will describe the book-building process, its advantages and how it differs from the fixed price issues.

    What is the Book Building Process in an IPO?

    Businesses that want to go public and list their shares on the stock market use the book-building process as a price discovery technique. It is the most popular approach businesses use to set the price of the shares offered in an IPO, as it is the most effective and transparent way to determine the share price based on market demand. The Book Running Lead Manager is responsible for establishing the cut-off price by using a weighted average method. 

    Example:-

    Assume ABC Limited chooses to issue shares to the public to raise money. This is known as an initial public offering. To determine the issue price, they chose to use a book-building process and hired an underwriter. The corporation chose to issue 10,000 shares in total, with a price range of INR 100 to INR 110. Below is the tabular representation of investor bids:

    Investor NumberNumber of Shares AppliedBid Price
    Investor 11000100 INR
    Investor 22000105 INR
    Investor 35000108 INR
    Investor 47000104 INR

    The underwriter determines a weighted average price based on the above data, and we’ll assume that the corporation ultimately decides on a cut-off price of 105. Shares may be allotted to investors who bid on or above the cut-off price; investors who applied for the IPO with a bid below the cut-off price will not get any shares. Only Investors 2 and 3 are eligible to receive an allotment, whereas the IPO applications of Investors 1 and 4 will be rejected in the above scenario.  

    How does the Book Building Process Work?

    The steps which involve the book-building process are as follows-

    1. Investment Banks – The first step is to select an investment bank as an underwriter for the Initial Public Offering (IPO). They assist the company in determining the issue size and establishing the share price range.

    2. Price Band – The next stage would be to determine the minimum and maximum price of the shares offered in the IPO. 

    3. Drafting Prospectus – A prospectus is prepared by the underwriter and contains details about the financials, business model, the objective of the issue, the shareholding pattern of the company, etc.

    4. Approval of Prospectus – Once the prospectus is drafted, it will be sent to the Securities and Exchange Board of India. SEBI thoroughly analyzes and approves the document.

    5. Bidding – Investors can apply for the IPO during the bidding period specified by the company, which typically lasts for 3 days.

    6. Compiling Bids – Once all the bids are received, the lead manager compiles them and analyzes the quantity of shares applied by the investors at different price levels.

    7. Cut-Off Price – Based on the bidding data, the lead managers determine the cut-off price. The investors who have applied for shares at or above the cut-off price may receive shares, but those who have applied below the cut-off price will not get any shares.

    8. Allocation – Successful bidders will receive shares in their demat account.

    Types of Book Building

    There are generally two types of book-building process-

    1. Accelerated Book Building – Accelerated Book-Building process is used when businesses want to raise funds quickly. The process is completed within one to two days because the underwriters approach institutional investors due to their ability to invest large amounts quickly.

    2. Partial Book Building – In this process, the issuer reserves a limited number of shares for the Book-Building process, and the rest of the shares are offered at a fixed price.

    Why do Companies Opt for the Book Building Process?

    For several reasons listed below, the majority of Indian businesses choose to use a book-building process to determine the share price for their initial public offering.-

    1. Market Price – The price of the IPO share is decided by the market participants, which generally reflects the actual market value based on the sentiments of the investors.

    2. Increased Participation – Due to the market-driven pricing mechanism, investor confidence increases, which encourages more participation by the investors.

    3. Fair Value – The shares may be overpriced or underpriced if a company chooses to issue at a predetermined price; however, the fair value of the issue will be determined if the company chooses to use the book-building process to determine the issue price. 

    4. Regulations – The Securities and Exchange Board of India has issued certain guidelines for the book-building process, which ensures fairness and transparency in price discovery.

    5. Allocation of Shares – Determining price through a book-building process ensures a more efficient allocation of shares. 

    Advantages of Book Building in IPOs

    The major advantages of the building process in IPO are as follows-

    1. Flexibility – The book-building process allows the company to adjust the share price within the price range, which helps maximize investor participation. 

    2. Reflects Demand – Book-building issues help companies determine the demand for shares among investors.

    3. Maximizes Capital Raised– This method can help the company raise more capital as it determines the fair value of shares based on investor demand. 

    Difference between Fixed Price Issue and Book Building

    The major differences between fixed price and book-building issues are as follows-

    ParticularsFixed Price IssueBook Building
    MechanismIn this method, the price is determined by the underwriters.The price of the issue is determined by the investors through the bidding process.
    Price DiscoveryFixed Pricing doesn’t allow price discovery as the price is fixed by the company.Book-building process allows for price discovery with the help of investor bidding. 
    FlexibilityThe investor doesn’t have the flexibility to choose the price and must accept the price set by the company.Investors can place bids within the price range specified by the company.
    RiskThere might be some risk related to underpricing and overpricing of the share price.The pricing risk is much lower in the book-building issue.
    UsageThis method is generally used by smaller companies with smaller issue sizes.The book-building process is widely used by the company with large IPO issue sizes.

    Read Also: From Private to Public: Decoding the IPO Journey

    Conclusion

    Determining the share price of an IPO is an important task in the Initial Public Offering (IPO) process. The company may miss out on raising the maximum capital possible funding if the offer is underpriced. Conversely, investors may decide not to subscribe if the issue is overpriced. Therefore, before investing in any initial public offering (IPO), investors should determine whether the issue is reasonably priced and speak with their investment advisor. 

    Frequently Asked Questions (FAQs)

    1. Can I change my bid price after submitting an IPO application?

      No, investors cannot modify their bids after submitting an IPO application. However, investors can cancel the existing IPO application and apply again before the share allotment happens.

    2. What will happen if I submit the IPO application below the cut-off price?

      If you submit your IPO application’s bid price is below the cut-off price, you will not be eligible for any allotment.

    3. What is the meaning of the 100% book-built issue?

      The 100% book-built issue refers to the IPO in which all the shares are offered through bids or a book-building process.

    4. What is the floor price in an IPO?

      It is the minimum price at which investors can place bids in an IPO.

    5. What is the bid price in an IPO?

      It is the price at which an investor wishes to buy the securities that are being offered during the book-building process of IPO.

  • What is DRHP (Draft Red Herring Prospectus)?

    What is DRHP (Draft Red Herring Prospectus)?

    For any company seeking to go public, submitting a Draft Red Herring Prospectus represents a pivotal milestone in the Initial Public Offering (IPO) process. This document is submitted to regulators and offers an overview of the company’s operations, finances, management, and possible risks. DRHP offers investors comprehensive insights that determine their interest in an upcoming IPO. Understanding the intricacies of this document is essential for anyone looking to invest in an upcoming IPO.

    In this blog, we will discuss the Draft Red Herring Prospectus (DRHP), how it is prepared, its importance and the difference between RHP (Red Herring Prospectus) and DRHP.

    What is a Draft Red Herring Prospectus?

    A Draft Red Herring Prospectus is a preliminary document submitted to the Securities and Exchange Board of India (SEBI), a regulatory body in India when a company plans to launch an Initial Public Offering (IPO). It offers vital insights into the company’s business operations, financials, risks, and goals for raising capital. It does not specify the number of shares offered or the price, as these details are decided later.

    IPO stands for Initial Public Offering. It refers to the process a private company follows when it first sells its shares to the public on the stock exchange. This transforms the company from being privately owned to publicly owned.

    Launching an IPO and getting listed on the stock exchange can be a significant event for any company. However, this journey demands meticulous planning, due diligence and execution.

    How is a DRHP prepared?

    Preparing a DRHP is a lengthy process, starting with the company appointing merchant bankers to determine the IPO details and ensure everything complies with the regulatory needs. The legal advisors ensure that all disclosures and anything else mentioned by the company will not lead to any litigation.

    Significant due diligence is performed on the operations, financial statements, assets, liabilities, history of litigation, and dealing with the regulatory framework of the concerned company. Conducting due diligence is vital to ascertain that what is stated in the DRHP stands true for accuracy and comprehensiveness.

    This phase consists of assessing the company’s business model, sources of income, market placement, and competition against other players. The company presents its financial statements for the past three years, which are then audited by an independent auditor. This part of the DRHP contains profit and loss statements, balance sheets, cash flow statements, and financial ratios. 

    An essential element of the DRHP is the risk factors section, which details the various risks that could affect the company’s operations or stock performance. This includes market competition, regulatory challenges, operational uncertainties and external influences. The document also includes an analysis of the industry landscape, trends, growth prospects, and the company’s position.

    Legal advisors create documents to ensure the prospectus meets regulations and follows guidelines set by the regulatory authority. This involves preparing disclosures on shareholding patterns, promoter details, the board of directors, and corporate governance structure. The DRHP is usually available for the public on the regulatory authority’s website, allowing investors and analysts to review and analyze new IPOs.

    The draft document is subsequently submitted for review to regulatory authorities such as the SEBI in India or the SEC in the United States. Regulatory authorities verify the details mentioned in the DRHP and may request changes or clarifications. The company changes the document based on the feedback from the regulatory body.

    Once the regulatory body approves the DRHP, it is finalized into an RHP (Red Herring Prospectus). The RHP document includes information about the price range, issue size, etc. 

    Benefits and Importance of a Draft Red Herring Prospectus

    The benefits of a DRHP are:

    • Helps in Investment Decisions: The DRHP offers a detailed look at the company’s operations, finances, and risks, helping investors evaluate its financial health and make informed investment decisions.
    • Compliance with Regulatory Standards: Regulatory bodies like the SEBI in India require companies to submit a DRHP document to ensure that they meet disclosure requirements and that the IPO process stays transparent. It allows regulators to review company disclosures, reduce fraud risk and protect investors.
    • Establishing Credibility and Market Confidence: A well-prepared DRHP enhances the company’s credibility by demonstrating its commitment to transparency and regulatory compliance. This boosts investor confidence, attracting more interest in the IPO.
    • Opportunity to Showcase the Company’s Potential: The DRHP offers companies a chance to showcase their growth potential, strengths, competitive advantages, and unique position within the industry. It allows them to present a compelling narrative about their future prospects.
    • Gauging Investor Interest and Feedback: The DRHP is usually posted on the regulatory authority’s website for the public. This lets potential investors, analysts and market participants review the document and share the comments and concerns.
    • Legal Protection and Reduced Liability: By providing clear and complete information in the DRHP, the company reduces the risk of lawsuits and regulatory penalties for non-disclosure of important information. This protects the company and shows that it is acting in good faith by keeping the investors informed.

    DRHP Vs. RHP

    CriteriaDRHPRHP
    DefinitionThe DRHP is a document submitted to the SEBI by the company, which marks the first step in the IPO process.The RHP is the final document issued after the SEBI approves the DRHP.
    TimingDRHP is submitted to regulators for review and approval.After incorporating the feedback of the SEBI, the DRHP is approved and finalized into an RHP.
    PurposeDRHP is prepared to seek SEBI approval and public feedback.RHP incorporates all the changes recommended by the regulator and is released to announce IPO dates.
    ContentThe DRHP includes most of the details needed, such as the business overview, financials, risks, strengths etc.The RHP has the complete information, including the price range, total shares being offered, and the IPO dates. 

    Read Also: What is Face Value in an IPO?

    Conclusion

    Submitting DRHP to the regulator is an important event for companies and investors during the IPO process. For businesses, it guarantees transparency and adherence to regulations, allowing them to effectively showcase their strengths and future potential to investors. The DRHP helps companies maintain accountability and provides investors with tools to evaluate whether to invest in the IPO. The document increases market transparency and builds trust between companies and investors, paving the way for a successful IPO and long-term growth.

    Frequently Asked Questions (FAQs)

    1. Why is DRHP important?

      A Draft Red Herring Prospectus (DRHP) is important because it helps investors make informed investment decisions and ensures regulatory compliance for companies going public.

    2. Is a DRHP the same as a RHP?

      No, the DRHP is a preliminary document. After regulatory review and finalization, it becomes RHP with full IPO details.

    3. Who reviews the DRHP?

      Regulatory authorities, such as SEBI in India, review the DRHP to ensure compliance.

    4. What is the validity of DRHP?

      A DRHP is valid for 12 months from the date of receiving the SEBI’s Observation letter. SEBI reviews and issues an observation report within 30 days of submission of DRHP.

    5. How is a DRHP different from a shelf prospectus?

      A DRHP is a document related to IPOs, while a shelf prospectus is a document when a company wants to issue bonds. 

  • Bajaj Housing Finance IPO Case Study: Products, Financials, And SWOT Analysis

    Bajaj Housing Finance IPO Case Study: Products, Financials, And SWOT Analysis

    Owning a home is a significant achievement, especially for those with low incomes, and many businesses strive to make this dream a reality by offering various loans. Bajaj Housing Finance Limited, which is preparing for a substantial IPO of INR 7,000 crore, is one such company.

    In this blog, we will go deeply into the company’s finances, KPIs, and IPO details.  

    About Bajaj Housing Finance Ltd

    Bajaj Housing Finance Limited, established in 2008, is a wholly-owned subsidiary of Bajaj Finance Limited, which is one of the most diversified NBFCs in India. The company offers financing solutions to both individuals and corporates for purchasing and renovating homes or commercial spaces. Additionally, it provides loans against property for business or personal needs and working capital for business expansion.

    Bajaj Housing Finance Limited holds the highest credit ratings from CRISIL and India Ratings, with a AAA/Stable rating for its long-term debt and an A1+ rating for its short-term debt program.

    IPO of Bajaj Housing Finance Limited

    The Reserve Bank of India released a list of non-banking financial companies in 2022 with assets under management (AUM) totaling INR 50 thousand crores. Bajaj Housing Finance was on the list and is scheduled to go public on the stock exchange by September 2025, according to the guidelines established by the RBI. 

    On June 14, 2024, Bajaj Housing Finance Limited submitted the DRHP (Drafter Red Herring Prospectus) to the capital market regulator, i.e., SEBI.

    It is expected that the company is planning to raise INR 7,000 crore via IPO, of which INR 4,000 crore would be a fresh issue and INR 3,000 crore would be offered for sale by Bajaj Finance Limited, the company’s parent arm. 

    Bajaj Housing Finance Financial Highlights

    Let’s have a look at the financials of the company.

    Balance Sheet (INR crore)

    Particulars31st March 202431st March 202331st March 2022
    Non-Financial Asset215125134
    Financial Asset81,61264,52948,393
    Total Asset81,82764,65448,527
    Equity12,23410,5036,741
    Non-Financial Liabilities897544
    Financial Liabilities69,50554,07641,741
    Bajaj Housing Finance Limited Balance sheet

    Income Statement (INR crore)

    Particulars31st March 202431st March 202331st March 2022
    Revenue from operations7,6175,6653,767
    Total Income7,6185,6653,767
    Total Expenses5,4563,9652,807
    Profit before tax2,1611,700960
    Profit after tax1,7311,258710
    Bajaj Housing Finance Limited Income Statement

    Cash Flow Statement (INR crore)

    Particulars31st March 202431st March 202331st March 2022
    Net Cash flow from operating activities(15,428)(14,332)(12,481)
    Cash flow from investing activities273(611)2,197
    Cash flow from financing activities15,12514,63010,228
    Bajaj Housing Finance Limited Cash Flow Statement

    KPIs of Bajaj Housing Finance

    Let’s have a look at the key performance indicators of the company.

    Particulars31st March 202431st March 202331st March 2022
    NNPA Ratio (%)0.100.080.14
    Return on Net Worth (%)15.214.611.1
    Debt to Equity Ratio5.75.16.2
    Earnings Per Share2.61.91.5

    Based on the above table, the company’s earnings per share and debt-to-equity ratio are both rising when compared year over year.

    Read Also: Aadhar Housing Finance: IPO And Key Insights

    Product Portfolio of Bajaj Housing Finance

    Product Portfolio

    Customers can choose from a wide variety of products offered by Bajaj Housing Finance, all of which are tailored to satisfy the user’s demand. 

    1. Loan facility to purchase and construct a home. Also, loans to renovate and extend the home.

    2. Loans against property – residential and commercial property.

    3. Top-up and working capital loans.

    4. It also facilitates transferring loans from other financial institutions.

    Bajaj Housing Finance Business Model

    The Bajaj Housing Finance Limited offers a wide range of products to satisfy the financial demands of borrowers who want to buy, build, or renovate a home. In addition to offering financial support, they offer other services, including credit counseling and property insurance. By providing these services, the company hopes to give its customers a one-stop shop for housing finance solutions. 

    Bajaj Housing Finance SWOT Analysis

    SWOT Analysis

    Strengths

    • Because of its parent firm, Bajaj Housing Finance Limited has a reputed brand recognition in the financial industry. 
    • The company offers a wide range of products, such as loans against property, home development, etc. 
    • Its wide nationwide branch network makes the organization easily accessible to a wide range of clients. 

    Weakness

    • The company’s consumer base is restricted to India because of its exclusive India-only operations. 
    • The company faces tough competition from several banks and home finance providers. 
    • Since they rely more on borrowing money, changes in interest rates may affect their operations and reduce operating margins. 

    Opportunities

    • The growing demand for affordable housing and the increase in disposable income of Indians can further expand the growth prospects of the company. 
    • The company has the potential to expand its loan portfolio and enhance profitability by offering loans through an online platform.
    • The company can offer home loans in partnership with real estate developers. 

    Threats

    • Any economic downturn could hurt India’s real estate industry’s expansion which may hamper the profitability of the company. 
    • The company is operating in a highly regulated environment. Its operations and profitability may be impacted if the government makes unfavorable regulatory changes. 

    Read Also: Mukka Protein IPO: Business Model, Key Details, Financial Statements, and SWOT Analysis

    Conclusion

    In summation, Bajaj Housing Finance Limited is a major player in the housing financing industry, the business has a strong legacy from its parent firm, Bajaj Finance Limited. In addition to providing a wide choice of products to meet consumer needs, the company is also going through a digital transformation. 

    The company is planning an IPO to comply with RBI laws, and they have submitted DRHP to the regulator, i.e., SEBI. The price band and IPO dates are yet to be announced by the company. However, it is suggested to consult with your investment advisor before making any investment in the IPO. 

    Frequently Asked Questions (FAQs)

    1. What is the issue size of the Bajaj Housing Finance IPO?

      Bajaj Housing Finance proposes to come up with an issue of INR 7,000 crores, which includes 4,000 crores of fresh issue, and 3,000 crores of offer for sale.

    2. What does Bajaj Housing Finance Company do?

      The company offers finance facilities to individual and corporate entities to construct, renovate, and extend houses and commercial spaces.

    3. Who is the chairman of Bajaj Housing Finance Limited?

      As of June 2024, Sanjiv Bajaj is the chairman of Bajaj Housing Finance Limited.

    4. In which year was Bajaj Housing Finance established?

      The Bajaj Housing Finance Limited was established in June 2008.

    5. Is Bajaj Housing Finance a profitable company?

      Yes, Bajaj Housing Finance is a profitable company that has posted profits for the last 3 years.

  • Allied Blenders and Distillers IPO: IPO Key Details & Financial Statements

    Allied Blenders and Distillers IPO: IPO Key Details & Financial Statements

    On the weekends, you hang out and drink beer in a club with your buddies. Do you know you can invest in businesses that produce and sell alcohol? Indeed, a corporation is planning an initial public offering (IPO) to list on exchanges. The company is referred to as “Allied Blenders and Distillers.”

    In today’s blog, we will introduce you to Allied Blenders and Distillers, a new company planning to go public.

    Allied Blenders Company Overview

    One of the biggest companies in the alcoholic beverage sector is Allied Blenders and Distillers (ABD). Kishore Chhabria, formerly employed by Shaw Wallace, another Indian liquor producer, founded the business in 1988. The company initially aims to give Indians access to reasonably priced spirits. Launched in 1988, Officer’s Choice whiskey was the company’s initial product, and from 2016 to 2019, it was among the world’s best-selling whiskies in terms of yearly sales volume. As of December 2021, the company exported its goods to 22 nations, including North and South America, Africa, Asia, Europe, and the Middle East.

    The company owns a distillery that is 25,000 square feet in build-up size and spans 74.95 acres in the Telangana district of Rangpur. Thirty two bottling facilities are essential to the manufacturing industry; some are run by them directly, while others are contracted. The company’s headquarters are located in Mumbai.

    Product Portfolio

    The company has a wide range of product portfolios, a description of which is mentioned below-

    1. Whiskey – It features names like Srishti Premium Whiskey, Officers Choice, and famous white whiskey, among others.
    2. Brandy – The has a wide selection of brandy, including Sterling Reserve Premium Cellar Brandy and Kyron Premium Brandy.
    3. Rum – Jolly Roger rum is the product offered by the company.
    4. Vodka – It also offers various vodkas.

    Promotors

    Kishore Rajaram Chhabria and Bina Kishore Chhabria are the company’s promoters, and they own roughly 52.2% of the company’s shares. Resham Chhabria and Jeetenda Hemdev are the company’s other two largest shareholders, owning about 24.05% of the business.

    Read Also: Apply in IPO Through ASBA- IPO Application Method

    Details of Allied Blenders IPO Issue

    An initial public offering (IPO) by Allied Blenders and Distillers Limited would comprise a 500 crore offer for sale and a new 1000 crore issuance. The minimum lot size determined by the company is 53 shares, and the price range of the issuance is INR 267 to 281.

    Allied Blenders IPO Key Details

    Face Value of ShareINR 2
    Price BandINR 267 to INR 281
    Employee DiscountINR 26 per share
    Lot Size53 Shares
    Total Fresh Issue Size1000 Crores.
    Total offer for sale500 Crores.

    Allied Blenders IPO Timeline

    IPO Open Date25th June 2024
    IPO Close Date27th June 2024
    Basis of Allotment28th June 2024
    Initiation of Refund & Credit of shares into Demat account1st July 2024
    Listing Date2nd July 2024

    Allied Blenders Allotment Size

    ApplicantMarket LotShareAmount (INR)
    Retail (Min)153INR 14,893
    Retail (Max)13689INR 193,609
    High Net Worth Individual (Min)14742INR 208,502
    High Net Worth Individual (Max)673,551INR 997,831

    Read Also: Mukka Protein IPO: Business Model, Key Details, Financial Statements, and SWOT Analysis

    Allied Blenders IPO Objectives

    The issue’s proceeds will be used for both general corporate operations and the repayment of loans that the company has obtained.

    Allied Blenders IPO Reservation

    Investor CategoryShares Offered
    QIB Shares OfferedMaximum 50%
    NII SharesMinimum 15%
    Retail Shares OfferedMinimum 35%

    Allied Blenders Financial Statements

    Allied Blenders Balance Sheet

    Metric31st March 202331st March 202231st March 2021
    Current Asset1,7981,4571,410
    Non-Current Asset688790887
    Current Liabilities191616291685
    Non-Current Liabilities165214231
    Total Equity406404381
    (All above figures are in INR Crore unless stated otherwise)
    Allied Blenders Balance Sheet

    We may deduce from the above table that while non-current assets have been steadily declining over the last three financial years, current assets for the company are on the rise.

    Allied Blenders Income Statement

    Metric31st March 202331st March 202231st March 2021
    Total Income7,1167,2086,397
    Total Expenses6,9207,0006,184
    Profit before tax5.93.812.7
    Profit after tax1.61.42.5
    (All above figures are in INR Crore unless stated otherwise)
    Allied Blenders Income Statement

    The company’s total income is increasing each year while the expenses have reduced in 2023 as compared to 2022. Even though total income is increasing, but due to increase in expenses, there are hardly any profits.

    Allied Blenders Cash Flow Statement

    Metric31st March 202331st March 202231st March 2021
    CFO229178246
    CFI(18.3)32.13(59.3)
    CFF(202.8)(255.7)(216)
    (All above figures are in INR Crore unless stated otherwise)

    According to the above table, the company’s cash flow from operations has increased over the past fiscal year. Cash inflow due to investing activities has turned negative in 2023 and decrease in cash outflow was observed in financing activities in 2023 as compared to 2022.

    Allied Blenders Key Performance Indicators

    Particulars31st March 202331st March 202231st March 2021
    Return on Equity (%)0.390.370.66
    Current Ratio (x)0.940.890.84
    Inventory Turnover Ratio (Days)45.1342.0953.63
    Net Profit Ratio (%)0.050.050.11
    Debt to Equity Ratio (x)1.922.102.50
    Basic Earnings Per Share (EPS)0.070.060.10
     (Source – Company’s DRHP)

    Strengths of Allied Blenders

    1. Future growth in the Indian alcohol market is expected to be substantial due to rising disposable income levels among citizens.
    2. When comparing the fiscal year 2023 to the fiscal year 2022, the company’s earnings after taxes grew.
    3. The company can easily compete with the consumer because of its excellent brand recognition.
    4. It provides a large selection of products to meet the needs of different customers.

    Weaknesses of Allied Blenders

    1. Businesses may see a decline in market share due to increased competition from domestic and foreign competitors.
    2. Any economic downturn or a shift in consumer purchasing patterns could negatively impact sales and income.
    3. Since the alcohol beverage industry is heavily regulated, any significant changes to government regulations could hurt business performance.
    4. Consumer preferences may alter due to shifting health and lifestyle trends, which lowers the demand for alcoholic beverages.

    Read Also: What is the IPO Allotment Process?

    Conclusion

    Allied Distillers and Blenders offer a fantastic chance to be involved in the expanding alcohol industry. They have declared a profit for the last three fiscal years yet their cash flow from financing and investing activities is negative. The company’s broad selection of alcoholic beverages contributes to the growth of its brand value. However, as we usually advise, consult your financial advisor before making any investment.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1Hindustan Unilever Case Study
    2Case Study on Apple Marketing Strategy
    3Reliance Power Case Study
    4Burger King Case Study
    5D Mart Case Study

    Frequently Asked Questions (FAQs)

    1. When will Allied Blenders and Distillers IPO open?

      The IPO for Allied Blenders and Distillers will be open for applications from June 25 to June 27, 2024. Investors can apply within this time frame. 

    2. When were allied blenders and distillers established?

      The company was founded in 1988.

    3. Is Allied Blenders and Distillers a profit-making company?

      The business did report a profit for the preceding three years. It declared a profit of INR 1.601 crore for FY 2023, a YoY increase.

    4. What is the minimum lot size that retail investors can subscribe to?

      Retail investors must subscribe for at least 1 lot, or 53 shares, for 14893 INR.

    5. What is the name of the company that offers Officer Choice Whisky?

      The Mumbai-based Indian-made international liquor corporation Allied Blenders and Distillers owns Officers Choice, also referred to as OC.

  • Stanley Lifestyles IPO: Key Details, Financials & Business Model Case Study

    Stanley Lifestyles IPO: Key Details, Financials & Business Model Case Study

    Are you ready to see the latest innovative designs and invest in the future of design? Stanley Lifestyles, a leading name in super-premium and luxury furniture in India is about to make its highly-anticipated debut on the Indian stock exchanges. With its rich heritage spanning over three decades, the company is captivating discerning customers with its exquisite craftsmanship and timeless designs. As the company opens its doors to the investors, let us explore the key details of the IPO to learn the opportunities it will present.

    Stanley Lifestyles Limited Company Overview

    Stanley Lifestyles Limited is a top luxury furniture brand in India, known for its large-scale manufacturing and retail. Sunil Suresh and Shubha Sunil founded a partnership firm called ‘Stanley Seating’ in the year 2007. The company ranks fourth in home furniture revenue in India and uniquely covers super-premium, luxury, and ultra-luxury segments.

    ‘Stanley Seating’ was converted from a partnership firm to a public limited company in the name of ‘Stanley Lifestyles Limited’ in 2008.

    The company initially offered leather upholstery services for top car brands worldwide.

    Read Also: Platinum Industries IPO: Business Model, Key Details, KPIs, and SWOT Analysis

    Stanley Lifestyles IPO Details

    IPO DateJune 21, 2024 to June 25, 2024
    Listing DateFriday, June 28, 2024
    Price BandINR 351 to INR 369 per share
    Lot Size40 Shares
    Total Issue Size14,553,508 shares
    Issue TypeBook Built Issue IPO
    Basis of AllotmentWednesday, June 26, 2024
    Initiation of RefundsThursday, June 27, 2024

    The company offers to utilize the Net Proceeds towards the funding of the following objects:

    1. Expenditure for opening new stores under the formats of “Stanley Level Next”, “Stanley Boutique” and “Sofas & More by Stanley” (“New Stores”);
    2. Expenditure for opening anchor stores (“Anchor Stores”);
    3. Expenditure for the renovation of existing stores under the formats of “Stanley Level Next”, “Stanley Boutique” and “Sofas & More by Stanley” (“Existing Stores”);
    4. Funding the capital expenditure requirements for purchasing new machinery and equipment by the company and Material Subsidiary, SOSL; and
    5. General corporate purposes.

    Stanley Lifestyles Business Model

    The company makes and sells its products in our stores across India. The company holds 38 Company-owned and company-operated (COCO) and operates them in Bengaluru, Chennai, New Delhi, Mumbai, and Hyderabad. These stores are located in major cities. It also holds 24 ‘Franchise-Owned and Franchisee Operated (FOFO) stores that are owned and operated by franchisees in 21 cities spanning nine states and Union Territories in India. Product sales is the primary source of revenue.

    Stanley Lifestyles has three different types of stores to meet the preferences of premium customers.

    • Stanley Level Next, which is for customers looking for ultra-luxury home furnishings.
    • Stanley Boutique caters to the luxury furniture category.
    • Sofas & More by Stanley focuses on attracting customers who are interested in high-quality furniture.

    The company product categories include:-

    Seating: Stanley designs, produces, and sells customisable seating products like four-seater or three-seater sofas with different leg and upholstery options including Scandinavia Max, Euro Nappa / Tuscana Nova Cashmere / Poach Molba.

    Cased goods: These are made with a strong outer case, usually wood, which provides durability and beauty, offering storage solutions and a touch of elegance.

    Products under cased goods are coffee tables, dining tables, end tables, and consoles.

    Kitchen & Cabinetry: These include a wide range of materials, finishes, and styles for our kitchen and cabinetry products. These options are versatile and can accommodate various design preferences and lifestyle needs.

    The products include kitchens, wardrobes, laundry & utility, bar units, shoe racks, prayer units, and bedside tables.

    Mattresses and Beds: The company makes and sells beds and mattresses. Further, it also sells bedding and bedroom accessories like pillows

    Automotive and Others: Stanley designs and manufactures customisable footwear in different sizes, including half sizes, to meet customer needs and provide car seat upholstery services for top automotive brands worldwide.

    Additionally, the company imports and sells lighting and switches from other companies using their brand and sells carpets that are outsourced from other local manufacturers under private labels.

    Stanley Lifestyles Consolidated Financial Statements

    Stanley Lifestyles Balance Sheet

    Key MetricsFY 2023FY 2022FY 2021
    Total current assets227229209
    Total non-current assets231192137
    Total current liabilities10410276  
    Total non-current liabilities13011382
    Total equity223205187
    (All values are in INR Crore)
    Stanley Lifestyles Balance Sheet

    Stanley Lifestyles Income Statement

    Key MetricsFY 2023FY 2022FY 2021
    Total Revenue425297201
    Total Expenses379265195
    Profit for the year34231.9
    (All values are in INR Crore)
    Stanley Lifestyles Income Statement

    Stanley Lifestyles Cash Flow Statement

    Key MetricsFY 2023FY 2022FY 2021
    Net cash flow from operating activities672832
    Net cash used in investing activities(27)(11)(3)
    Net cash used in financing activities(41)(18)(23)
    Cash and cash equivalents at the end of the year91012
    (All values are in INR Crore)
    Stanley Lifestyles Cash Flow Statement

    Stanley Lifestyles Key Performance Indicators

    KPIsFY 2023FY 2022FY 2021
    EBITDA Margin (%)19.7420.1915.21
    PAT Margin (%)8.357.950.98
    Return on Equity (%)16.2911.811.03
    Return on Capital Employed (%)16.6312.905.52

    Competitive Strengths 

    1. The brand is the largest and fastest growing in the luxury furniture market.
    2. It offers a wide range of home solutions at different prices.
    3. The company has stores all over India which focuses on innovative designs and manufactures its products.
    4. The company has a successful business model and an experienced management team.

    Risks Involved

    1. The company does not own the brand name ‘Stanley’, and is registered in the name of one of its promoters, Sunil Suresh. Although Stanley has already entered into the assignment deeds with Sunil Suresh, the trademarks have yet to be registered in our name.
    2. Not having the necessary approvals, licenses, or permits for the business could harm the company’s financial performance.
    3. Any shortage of leather and wood, which the company needs to make its products, could affect the cash flows of the business since Stanley depends on limited suppliers for the supply of leather, one of its primary raw materials.
    4. The company’s growth strategy involves opening new stores, new stores but managing a large retail network can be complex and may cause issues with store location, staffing, or marketing, impacting profitability.

    Read Also: AWFIS Space Solutions Limited: IPO Analysis and Case Study

    Conclusion

    To sum it up, Stanley Lifestyles Limited has established itself as a leader in the Indian furniture market. A vertically integrated model enables them to have full control over the design, production, and quality of super-premium, luxury, and ultra-luxury furniture. The company’s future relies on managing risks, leveraging strengths, and establishing itself as a top luxury furniture brand in India.

    Frequently Asked Questions (FAQs)

    1. What does Stanley Lifestyles do?

      Designs, manufactures, and retails super-premium, luxury furniture for homes in India.

    2. Do they only sell goods associated with their brand?

      No, Standley also sells products sourced locally from the manufacturers.

    3. Is Stanley Lifestyles a good investment?

      This depends on your investment goals and risk tolerance. Carefully consider the company’s financials and the risks, before making a decision.

    4. How much amount do I need to apply for the IPO?

      If you are a retail investor, the minimum amount is INR 14,760 for 1 lot and a maximum of INR 191,880 for 13 lots.

    5. What is the expected listing date for Stanley Lifestyle?

      The listing date for the company is June 28, 2024.

    • Open Free Demat Account

    Join Pocketful Now

    You have successfully subscribed to the newsletter

    There was an error while trying to send your request. Please try again.

    Pocketful blog will use the information you provide on this form to be in touch with you and to provide updates and marketing.