A follow-on public offering often called secondary offering or seasoned equity

offering is an issuance of stock subsequent to the company's Initial public offering. FPOs are
popular methods for companies to raise additional equity capital in the capital markets
through a stock issue. Public companies can also take advantage of an FPO issuing an offer
for sale to investors, which are made through an offer document. FPOs should not be confused
with IPOs, as IPOs are the initial public offering of equity to the public while FPOs are
supplementary issues made after a company has been established on an exchange.

The basic difference between Initial Public Offer (IPO) and Follow on Public Offer
(FPO) is as the names suggest IPO is for the companies which have not listed on an exchange
and FPO is for the companies which have already listed on exchange but want to raise funds
by issuing some more equity shares.

Companies usually go to debt market for raising their short term needs. Either they
issue bonds or get loans. But if they have massive expansion plans they may not raise
sufficient funds in the debt market and even if they could it costs more. Companies come with
follow on offer to restructure the business or to raise funds for new business or to expand the
existing business.

Similar to an IPO a price band is fixed (usually with the help of Investment banks) for
the issue and interested investors can apply for it. Unlike the corporate actions such as bonus,
rights issue; they are applicable only to the existing stake holders. FPO is open to all investors.
The price band for the FPO depends on the market value of the existing company shares and
the reason for raising funds.

A follow-on offering can be either of two types (or a mixture of both): dilutive and
non-dilutive. A follow-on offering is an offering of securities by a shareholder of the company
(as opposed to the company itself, which is a primary offering). A follow on offering is
preceded by release of prospectus similar to IPO.

In the case of the dilutive offering, the company's board of directors agrees to increase
the share float for the purpose of selling more equity in the company. This new inflow of cash
might be used to pay off some debt or used for needed company expansion. When new shares

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are created and then sold by the company, the number of shares outstanding increases and this
causes dilution of earnings on a per share basis. Usually the gain of cash inflow from the sale
is strategic and is considered positive for the longer term goals of the company and its
shareholders. Some owners of the stock however may not view the event as favorably over a
more short term valuation horizon.

The non-dilutive type of follow-on public offering is when privately held shares are
offered for sale by company directors or other insiders (such as venture capitalists) who may
be looking to diversify their holdings. Because no new shares are created, the offering is not
dilutive to existing shareholders, but the proceeds from the sale do not benefit the company in
any way. Usually however, the increase in available shares allows more institutions to take
non-trivial positions in the company.

A Follow-on public offering referred to simply as an "offering" or "flotation," is when

a company issues common stock or shares to the public for the subsequent to an IPO. They are
often issued by smaller, younger companies seeking capital to expand, but can also be done by
large privately-owned companies. In an FPO the issuer may obtain 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.

An FPO can be a risky investment. For the individual investor, it is tough to predict
what the stock or shares 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 FPOs are of
companies going through a transitory growth period, and they are therefore subject to
additional uncertainty regarding their future value.

A milestone for any company is the issuance of publicly traded stock. While the
motivations for a follow-on public offering are straight forward; the mechanism for doing so
is complex. This desertation outlines the process by which companies are brought to market in
an initial public offering. When a company wishes to make a public offering, its first step is to
select an investment bank to advise it and to perform underwriting functions in connection

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with the issue. The selection process relies on the investment banker’s general reputation and
expertise as well as on the quality of its research coverage in the company’s specific industry.
The selection also depends on whether the issuer would like to see its securities held
more by individuals or by institutional investors. Prior banking relationships the issuer and
members of its board have with specific firms in the investment banking community also
influence the selection outcome. Often, the selection process is a two-way affair, with the
reputable investment banker choosing its clients at least as carefully as the company should
choose the investment banker.
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. However large companies can be private too. It isn't possible to
buy shares in a private company. One can approach the owners about investing, but they are
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.
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 India, public companies report to the Securities and Exchange Board of
India (SEBI). In other countries, public companies are overseen by governing bodies similar
to the SEBI. 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 one has the cash, he
can invest. The CEO could hate guts, but there's nothing he or she could do to stop one from
buying stock.
When a company lists its shares on a public exchange, it will almost invariably look to
issue additional new shares in order at the same time. The money paid by investors for the
newly-issued shares goes directly to the company, in contrast to a later trade of shares on the
exchange, where the money passes between investors. An FPO, therefore, allows a company
to tap a wide pool of stock market investors to provide it with large volumes of capital for
future growth. The company is never required to repay the capital, but instead the new

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shareholders have a right to future profits distributed by the company and the right to a capital
distribution in case of dissolution.
Going public will raises cash, and usually a lot of it. Being publicly traded also opens
many financial doors:
 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.

An additional motive for going public is to reduce debt. Firms that go public generally
use a substantial portion of the FPO proceeds to pay off obligations. By reducing the leverage,
the firm’s original owners reduce the risk of their private portfolios even if they do not sell
their shares in the FPO.
This study evaluates the performance of FPOs based on the listing returns, first day
return and long run return of the share. As we all know, the main purpose of listing company
shares in the stock exchange is to facilitate secondary market for the shares. It is one of the
main sources of raising funds for the companies. Once the shares are listed on the stock
exchanges, it also involves the investor to take part in the company activities indirectly by
their investment. Investors will show interest on those shares which would fetch them a high
return. Company performance can be measured by considering the returns on the shares. In
order to evaluate the performance this study considers the returns obtained on Listing Price,
First Day Trading Returns as well as Long Term Returns earned by those companies.
This study analyses the performance of FPO issued in India. The reason behind the
selection of this topic is, there has been a pool of companies making public offers at present,
and investors have the wide choice of selecting their portfolios, the ultimate success of these
FPO companies are depends on the returns they provide to the shareholders. The purpose of
this study is to know the performance of FPOs in short run as well as long run.

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Objectives of the Study
Every task we are doing is for a specific objective. Following objectives are designed
for this study.
 To understand the business logic behind the issue of follow-on Public Offering.
 To study the share price movements in short run as well in long run.
 To analyze the differences in the returns of the FPO on the day of listing, to those who
invested in secondary market and to those who invested through primary market.
 To find out the performance of the FPOs after their public offer.
 To assess the recent trends in the Indian FPO market.

Nature and Scope of the Study

This study analyses returns associated with the FPO issued by the Indian Companies.
The tenure of data collection has been 1st January 2001 to 10th April 2010 and includes
analysis of 8 companies. Individual analysis of the companies will facilitate to have a clear
picture of the actual synergies to the investors in the organization. Every organization is
aiming at providing sufficient returns to their investors, so that the organization can able to
maintain a good image among the investors, which will increase the value of the company.
This study is particularly made for the sole purpose of academic interest. So, it is having a
narrow scope and the nature of study is limited to certain boundaries.

Methodology
The study is done on secondary data collected from prowess, newspapers and different
websites. The initial sample consists of all the companies which have made Follow-on Public
Offering. The final sample has been selected based on the availability of data. The practical
analysis has been restricted to sample of 8 companies which made Follow-on Public Offering
from 2006-2010.

 The first step consists of Follow-on Public Offering Companies list from Prowess
database, chittorgarh website.
 In the second step, gathered the daily share prices, issue prices and listing price of
all those companies from the date of their issue till 10th April 2010.
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 In the next step, from the Yahoo Finance, India IPO, NSE, BSE websites, collected
listing prices, first day closing prices and current prices of all those companies for
the calculation.
 After collecting required data, Listing Returns, First day Returns, First day Trading
Returns in BSE and NSE are calculated, and Long Term returns for all those
companies in BSE.

The following methodology is used to analyze the listing returns and first day
returns.

Return = Today’s closing - Previous day’s closing

Previous day’s closing

 In the next step, daily stock price of companies are matched with BSE 200 index by
using Microsoft Access.

 After matching the data, the Security returns (Ri) and Market returns
(Rm) are calculated with the help of following Formula.

Where,

RI =Return on security

Rm =Return on Market index

Pt=Present day closing share price

Pt-1=Previous day closing share price

Pi= Present day closing index

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 Pi-1=Previous day closing index

 In the next stage, average, Beta, Alpha and required returns (Re) are
calculated.

Re= α + β (Rm)

Where,

Re=the return required on the investment

α = the security alpha

Rm=the return on the market index

β =the security beta

 After calculating all these statistical items, t-test is done by taking year
wise average of individual companies.

 And at last final sheet of all those calculated results are made for the
analysis and interpretation purpose.

Sources of Data

The one of the sources of the study is Prowess database. Other sources include data
collected from BSE India, India IPO, Chittorgarh, Rediff Money, Yahoo Finance websites.
Business line news paper, journal are the other sources.

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Limitations of the study

Every study will have one or the other limitation. Following are some of the limitations of
this study:

 The study is based on the data extracted from the PROWESS database. The data base
has its own limitation.
 The information collected from the internet also has its own constraints.
 The detailed financial analysis could not be made due to the time constraint.
 The statistical tools used for the calculations also have their own limitations.

Chapter Scheme

This project is presented in 5 chapters. A brief description of these chapters is given

below.

Chapter 1: First chapter is introduction which gives basic idea about the topic and discusses
the objectives, data, methodology and scope of the study.

Chapter 2: Second chapter discusses about FPO in detail. It includes process of FPO,
managing the FPO, advantages of going public and its drawbacks etc.

Chapter 3: Third chapter discusses the SEBI guidelines for issuing FPO, its requirements for
listing in stock exchanges and the qualifications required for FPO.

Chapter 4: Fourth chapter is exclusively for analyzing the performance of FPOs based
on listing returns, first day returns, long-term returns and year wise returns.

Chapter 5: This chapter gives findings and conclusion of the overall study of this
project.

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 A follow on public offering is when an already listed company makes either a fresh
issue of securities to the public or an offer for sale to the public, through an offer document.
An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous
listing obligations. Usually these kinds of public offerings are made by companies wishing to
refinance, or raise capital for growth. Money raised from these kinds of secondary offerings
goes to the company, through the investment bank that underwrites the offering. Investment
banks are issued an allotment, and possibly an overallotment which they may choose to
exercise if there is a strong possibility of making money on the spread between the allotment
price and the selling price of the securities.
This sort of follow-on public offering is a way for a company to increase outstanding
stock and spread market capitalization or the company's value over a greater number of
shares. Secondary offerings in which new shares are underwritten and sold dilute the
ownership position of stockholders who own shares that were issued in the IPO. Typically,
such an offering occurs when the founders of a business and perhaps some of the original
financial backers, determine that they would like to decrease their positions in the company.
This kind of follow-on offering is common in the years following an IPO, after the
termination of the lock-up period. Owners of closely held companies sell shares to loosen
their position - usually gradually, so that the company's share price doesn't plummet as a result
of high selling volume. This kind of offering does not increase the number of shares of stock

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on the market, and it is most commonly performed in the case of a company that is very thinly
traded. Follow-on offerings of this sort do not dilute owners' holdings, and no new shares are
released. There is no "new" underwriting process in this kind of offering.

Follow-on Public Offering (FPO) in India

Follow-on Public Offering in India means issuance of stock to the public in the
country's capital markets subsequent to the company's Initial public offering. This is done by
giving to the public, shares that are either owned by the promoters of the company or by
issuing new shares.

During a Follow-on Public Offer the shares are given to the public at a discount on the
intrinsic value of the shares and this is the reason that the investors buy shares during the
follow-on Public Offering in order to make profits for themselves.

During the company's Follow-on Public Offering in India, an electronic book is

opened for at least five days. During this period of time, bidding takes place which means
that people who are interested in buying the shares of the company make an offer within the
fixed price band. Once the book building is closed then the issuer as well as the book runner
of the follow-on Public Offering evaluate the offers and then determine a fixed price. The
offers for shares that fall below the fixed price are rejected. The successful bidders are then
allotted the shares.

Decision to go for FPO

Usually an FPO is part of a business' financing strategy. A well-planned and executed

business startup will have specific goals for growth and revenue accompanied by financing
needs and options to achieve each step of the path. The typical pattern is to start the business
with an initial investment from own pocket, friends and family, supplemented by loans. Then,
when an actual product exists, find an angel or venture capital firm to invest in getting the
company growing at a rate that will justify an FPO. The rule of thumb for being ready to FPO
is that the company is growing, has a definite need for much larger funding, it has a good
story, and this is a good time in the market for that type of company. Each industry has

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different criteria for growth and revenue in going public; therefore, it is important to research
publicly traded companies of similar size in the industry to see how much revenue they were
making when they went public.

One of the most important factors considered in deciding whether a company is ready
to FPO is its growth rate. The company should not only have three years history that shows
growth, but growth at an accelerating rate. Usual growth rates considered optimal are 40
percent for technology companies and 20-30 percent for manufacturing and service. The
"ideal" is considered to be what bankers call "40/40": 40 percent growth rate and 40 percent
rate of return. Few companies are this dynamic, but potential growth and revenue are critical
to how a company will be valued and how much money can be raised by an FPO.

Managing an FPO

Managing an FPO is the integral part of the entire FPO story. The following are the main
issues in managing an FPO.

 Complete Business Plan

It is a detailed document supporting the corporate profile. Firm has to fully disclose all
aspects of the business including debt, the use of proceeds, critical processes, and any
other factor that may be important in the success of the business. It is important to
show that firm has considered a wide variety of factors and have a plan of how to deal
with them.

 Corporate Profile

It is a document describing a company's financials, business, their backgrounds, and a

description of the market for their product or service. The corporate profile is
presented to potential underwriters or investment bankers to interest them in
participating in the FPO.

 Economic Analysis

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 It involves providing information for potential investors on the economic viability of
the business. Absolute necessities are rate of growth and net profit margins. Other
financial ratio analysis and market analysis are useful.

 Financial Reporting

Quarterly, audited financial statements for the past three years must be prepared by a
professional, accredited accounting firm.

 Management Team

An organizational chart with key players that have strong background and experience
that fit with projected plans.

 Money

The FPO process is costly and it can't all be financed by the FPO itself. In addition to
internal staff needed to prepare the FPO, there are the external audits, legal and
investment banker's fees.

 Underwriters

A good investment banker is critical for the FPO. They draft prospectus, assist with the
filing, solicit investors, determine the offering price and sell the stock. Their
compensation is usually a percentage of the offering plus options on buying a certain
number of shares of stock in the future. Conducting due diligence on a number of
firms to assess which one is the right one for the particular business. Underwriters

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 usually specialize in different types of businesses or industries and finding the right
match makes the whole process smoother and more profitable.

Process of FPO

FPOs are among the riskiest equity investments in the stock market. The firm
generally has only a short earnings history and no history in public valuation. Here discussed
the process by which a firm goes public with its equity. Though the actual offering of shares
to the public generally occurs on a single day, the overall process of going public extends for
few months and entails a variety of cost.

 Employing an Underwriter

Firms that choose to go public generally hire an investment-banking firm to underwrite

the offering. The underwriter assists the firm in all legal procedures, and negotiates the
potential public investors regarding the offer price. The underwriters mitigate
principal-agent problems by structuring the deal and recommending certain financial
structures within the firm. An investment bank can also be effective in mitigating
information asymmetry problems associated with an FPO because; it becomes well
informed about the operations and prospects of the issuer, and, has expertise in
determining a fair price for the issue.

 Bearing the Costs of Going Public

The FPO firm has to bear three categories of costs in the process of going public. They
are, firstly, Compensation paid to the underwriters. For their services underwriter
charges a fee, called the underwriter spread, generally expressed as a percentage of the

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 proceeds of the offering. Secondly, additional expenses like legal services, printing
and auditing, and thirdly, Management’s efforts to market the offering. An FPO
imposes substantial administrative burden on the focal firm’s management.

 Projection of the Firm

Before a firm can make its FPO, it must provide pro forma projections of the asset,
operational, ownership, management, governance and capital structures that the
company will exhibit the offering. Many firms go public to raise funds for capital
expenditures, acquisitions, or working capital. An FPO often results in substantial
changes in the firm’s ownership structures, management and capital structures. All
these changes must be projected before the FPO is made.

 Price Discovery

The process by which the underwriter determines the price of an FPO is called price
discovery, which typically involves two steps. First, the underwriter establishes a
reasonable range of potential offer prices; secondly, the underwriter identifies number
of investors who may be interested in purchasing the firm’s shares. Finally, the
underwriter determines the offer price as the intersection of aggregate demand and
supply.

 Selecting the Offering Methods

An FPO firm has a choice of two methods of selling shares. In the Firm Commitment
method, the underwriter agrees to purchase all shares offered at a fixed price, and then
takes the risk of reselling the shares to the public. In the Best Efforts method, the
underwriter makes no guarantee about the price. Instead, the underwriter only agrees
to conduct a search for interested buyers. Thus, in a Firm Commitment contract the
underwriter acts as a Dealer, whereas in a Best Efforts contract the underwriter acts as
a Broker. In the firm commitment method the underwriter assumes price risk, but in
the best efforts method the issuing firm assumes price risk.

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FPO Process Time table

For private companies, the subsequent issue of securities to the public is referred to as
a follow-on Public Offering. FPO's are extremely speculative and rarely do they result in large
gains for investors. However, since capital is often needed to grow a private company and
values of companies are best determined in the marketplace, FPO's continue to be used as a
way for growing private companies.

FPO's are often one of the hottest topics in financial management. Behind the glamour and the
glitz of Follow-on Public Offerings there is a tremendous amount of hard work and personal
sacrifice. FPO's require a core group of highly skilled professionals who must literally work
around-the-clock for one year. Therefore, one of the first steps to a successful FPO is the
formation of a seasoned, experienced team of professionals who will make the FPO happen.
Once an FPO team (Investment Banker, Legal Council, SEBI Expert, Outside Auditor, etc.)
has been formed, and then can establish a plan for the FPO Process.

Before the FPO Process is complete, it is essential to implement all of the necessary
controls, procedures, and systems that will now be required within "public life." Staff changes
must be made, new financial systems tested, functions like human resources must be
managed, etc. The entire FPO process is much more involved than most people realize. A
great FPO team and proper planning is the key to a smooth FPO process.

Procedure of FPO

FPOs generally involve one or more investment banks as "underwriters." The

company offering its shares, called the "issuer," enters a contract with a lead underwriter to
sell its shares to the public. The underwriter then approaches investors with offers to sell these
shares. A large FPO is usually underwritten by a "syndicate" of investment banks led by one
or more major investment banks or lead underwriter.

Upon selling the shares, the underwriters keep a commission based on a percentage of
the value of the shares sold called the gross spread. Usually, the lead underwriters, i.e. the

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underwriters selling the largest proportions of the FPO, take the highest commissions - up to
8% in some cases.

Multinational FPOs may have as many as three syndicates to deal with differing legal
requirements in both the issuer's domestic market and other regions. For example, an issuer
based in India may be represented by the main selling syndicate in the domestic market, in
addition to separate syndicates or selling groups for USA or Canada and for Asia. Usually, the
lead underwriter in the main selling group is also the lead bank in the other selling groups.

Public offerings are primarily sold to institutional investors, but some shares are also
allocated to the underwriters' retail investors. A broker selling shares of a public offering to
his clients is paid through a sales credit instead of a commission. The client pays no
commission to purchase the shares of a public offering; the purchase price simply includes the
built-in sales credit.

The issuer usually allows the underwriters an option to increase the size of the offering
by up to 15% under certain circumstance known as the green shoe or overallotment option.

Pricing the Follow-on Public Offering

The determination of Follow-on Public Offering price depends heavily upon the
company and market conditions. It is the price at which the underwriter offers the issues to
public. The underwriters keep several factors in their mind while setting the public offering
price. These are financial statements of the company, that is, if or not it is profitable,
company's growth rates, public trends, current market conditions, investor confidence.

Sometimes the underwriters go for a road shows, widely recognized as the "dog and
pony show", to create a hype about their issues. The determination of Follow-on public
offering price also depends on the success of those road shows.

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Process of Fixing the Price

Follow-on Public Offering Price is determined through several phases. These are
discussed below.

 Firstly, the company and its underwriters determine a price range within which they
are going to set their stock's price.

 Then the underwriter puts together a prospectus which comprises the price range. That
prospectus is submitted to the Securities and Exchange Board of India (SEBI).

 The next phase of pricing starts just before the day of offering. In this phase the
company and its underwriter fix the final price at which the public can buy the issue.

Finally the phase of observation, that is, the company will observe its value assessment by
the market after the issue starts trading.

Issue Price

A company that is planning an FPO appoints lead managers to help it decide on an

appropriate price at which the shares should be issued. There are two ways in which the price
of an FPO can be determined: either the company, with the help of its lead managers, fixes a
price or the price is arrived at through the process of book building.

Quiet Period

There are two time windows commonly referred to as "quiet periods" during an FPO's
history. The first and the one linked above is the period of time following the filing of the
company's S-1 but before SEBI staff declares the registration statement effective. During this
time, issuers, company insiders, analysts, and other parties are legally restricted in their ability
to discuss or promote the upcoming FPO.

The other "quiet period" refers to a period of 40 calendar days following an FPO's first
day of public trading. During this time, insiders and any underwriters involved in the FPO are
restricted from issuing any earnings forecasts or research reports for the company. Regulatory
changes enacted by the SEBI as part of the Global Settlement enlarged the "quiet period" from

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25 days to 40 days. When the quiet period is over, generally the lead underwriters will initiate
research coverage on the firm.

Major advantages of FPO can be listed as under

 The increase in the capital

An FPO allows a company to raise funds for utilizing in various corporate operational
purposes like acquisitions, mergers, working capital, research and development,
expanding plant and equipment and marketing.

 Liquidity

The shares once traded have an assigned market value and can be resold. This is
extremely helpful as the company provides the employees with stock incentive
packages and the investors are provided with the option of trading their shares for a
price.

 Valuation

The public trading of the shares determines a value for the company and sets a
standard. This works in favor of the company as it is helpful in case the company is
looking for acquisition or merger. It also provides the share holders of the company
with the present value of the shares.

 Increased wealth

The founders of the companies have an affinity towards FPO as it can increase the
wealth of the company, without dividing the authority as in case of partnership

General Benefits of Listing

Benefits of Listing are summarized as under.

 Listing provides an opportunity to the corporate or entrepreneurs to raise capital to

fund new projects or undertake expansions or diversifications and for acquisitions.

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  Listing also provides an exit route to private equity investors as well as liquidity to the
ESOP-holding employees.
 Listing also helps generate an independent valuation of the company by the market.
 Listing raises a company's public profile with customers, suppliers, investors, financial
institutions and the media. A listed company is typically covered in analyst reports and
may also be included in one or more of indices of the stock exchanges.
 Listing increases a company's ability to raise further capital through various routes like
preferential issue, rights issue, Qualified Institutional Placements and
ADRs/GDRs/FCCBs, and in the process attract a wide and varied body of institutional
and professional investors.
 Listing leads to better and timely disclosures and thus also protects the interest of the
investors.
 Listing on BSE provides a continuing liquidity to the shareholders of the listed entity.
This in turn helps broaden the shareholder base.

Companies listed in Stock Exchanges generally find that the market perception of their
financial and business strength is enhanced.

Costs or Drawbacks of Going Public

A firm’s management and investors must weigh the above benefits of going public against
several costs, including the following.

 Under pricing

FPOs appear to be substantially underpriced for various reasons, which create

problems to the issuing firm.

 Issuance Cost

Normally underwriter will charge up to 8 percent of offering proceeds for an FPO as

underwriter spread. There are also other costs include management’s time in preparing
for the offering.

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  Loss of Control

New equity holders may press the firm to change its investment, financing, or dividend
policies, and may also attempt to replace the firm’s management team, including the
original entrepreneurs.

 Agency Costs of Managerial Discretion

Separating ownership and control leads to such costs, though they can be mitigated
with monitoring and incentive contracting.

 Performance Pressure

Management will face pressure for performance from investors, the financial press,
equity research analysts, and bond rating agencies.

FPO Grading

FPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to
the follow-on public offering of equity shares or any other security which may be converted
into or exchanged with equity shares at a later date. The grade represents a relative assessment
of the fundamentals of that issue in relation to the other listed equity securities in India.
All FPOs that come out in India need a mandatory FPO grading. This grading is
assigned by a credit agency and is in a scale of 1 to 5.
The number indicates the following:

 1: Poor fundamentals

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  2: Below average fundamentals

 3: Average fundamentals

 4: Above average fundamentals

 5: Strong fundamentals.

The most important thing about FPO Grading is that it doesn’t consider price. This is
an important aspect because everything is relative to price. Most companies that come out
with FPOs these days are not leaving anything on the table for investors, so that makes the
price aspect even more important.

That means one can’t take a look at the FPO grading, and make a decision to buy. If
the company has poor fundamentals or below average fundamentals, then one can decide not
to participate in the FPO, but one can’t take a decision to buy based on the grading alone.

A company rated 5 has strong fundamentals, but The FPO grading doesn’t tells how
they stack up relative to the price. It doesn’t tell whether the company has left anything on the
table for the investors or not, and therefore one don’t know whether the issue is worth
subscribing or not.

FPO grading takes into account the prospects of the company, industry it operates in,
financials, management strength, corporate governance, litigation history and the prospects of
its new projects.

A company which takes out an FPO needs to get their issue graded, and doesn’t have
an option to reject the grading. If they don’t like the grading, they can get a second opinion,
but have to disclose everything that they got in the offer document. The company does pay the
rating agency for the grading, so there is a conflict of interest, which is characteristic of this
industry.

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 FPO grading was introduced to help investors with one more data point, and enable
them to make a better decision. It is a useful thing to know about, but without including price
in the score, it lacks a serious element needed to make a decision.

FPO grading can be done either before filing the draft offer documents with SEBI or
thereafter. However, the Prospectus, as the case may be, must contain the grades given to the
FPO by all Credit Rating Agencies (CRA) approached by the company for grading such FPO.

FPO grading is mandatory. A company which has filed the draft offer document for its
FPO with SEBI, on or after 1st May, 2007, is required to obtain a grade for the FPO from at
least one CRA.

Factors Considered for Grading FPO

The FPO grading process is expected to take into account the prospects of the industry
in which the company operates, the competitive strengths of the company that would allow it
to address the risks inherent in the business and capitalise on the opportunities available, as
well as the company’s financial position.

While the actual factors considered for grading may not be identical or limited to the
following, the areas listed below are generally looked into by the rating agencies, while
arriving at an FPO grade.

 Business Prospects and Competitive Position

• Industry Prospects
• Company Prospects

 Financial Position
 Management Quality
 Corporate Governance Practices
 Compliance and Litigation History

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  New Projects—Risks and Prospects

It may be noted that the above is only indicative of some of the factors considered in
the FPO grading process and may vary on a case to case basis.

The major FPO grading agencies in India are, CRISIL Limited, Fitch Ratings India
Private Ltd., ICRA Ltd, and Credit Analysis & Research Ltd. (CARE)

Reasons for under pricing of FPO

There is the possibility of FPOs being underpriced. There are a number of reasons for the
under pricing of FPOs and here are some of the important reasons.

 Litigation Risk

The underwriter is an intermediary between the issuer and the capital market and
makes pricing decisions that maximize his own welfare. The underwriter sets the issue
price knowing that he will be sued in the future if there is evidence that the courts will
judge as indicative of overpricing. There is under pricing on average, and there exists a
positive probability of successful litigation against the underwriter.

 The winner’s Curse

The existence of both informed and uninformed traders and shows that under pricing
emerges to encourage participation by uninformed traders who would otherwise suffer
the ‘winner’s curse’ in trading with the informed. That is, uninformed investors realize
that they tend to be more successful in obtaining shares of overpriced FPOs. To get
them to participate, all FPOs must be discounted.

 Signaling Models

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 In these models, the intrinsically higher valued firms strategically underprice their
stock in order to deter mimicking by lower valued competitors. High valued firms are
underpriced in order to encourage information production by investors that will then
be revealed in the secondary market price. An economic role for the underwriter as an
intermediary also emerges in that risk-averse issuing firms may underprice in order to
induce some investors to reveal information about market conditions.

Book Building

Book building refers to the process of generating, capturing, and recording investor
demand for shares during an FPO (or other securities during their issuance process) in order to
support efficient price discovery. Usually, the issuer appoints a major investment bank to act
as a major securities underwriter or book runner. The “book” is the off-market collation of
investor demand by the book runner and is confidential to the book runner, issuer, and
underwriter. Where shares are acquired, or transferred via a book build, the transfer occurs
off-market and the transfer is not guaranteed by an exchange’s clearing house. Where an
underwriter has been appointed, the underwriter bears the risk of non-payment by an acquirer
or non-delivery by the seller.

Book building is a common practice in developed countries and has recently been making
inroads into emerging markets as well. Bids may be submitted on-line, but the book is
maintained off-market by the book runner and bids are confidential to the book runner. The
price at which new shares are issued is determined after the book is closed at the discretion of
the book runner in consultation with the issuer. Generally, bidding is by invitation only to
clients of the book runner and, if any, lead manager, or co-manager. Generally, securities laws
require additional disclosure requirements to be met if the issue is to be offered to all
investors. Consequently, participation in a book build may be limited to certain classes of
investors. If retail clients are invited to bid, retail bidders are generally required to bid at the
final price, which is unknown at the time of the bid, due to the impracticability of collecting
multiple price point bids from each retail client. Although bidding is by invitation, the issuer
and book runner retain discretion to give some bidders a greater allocation of their bids than
other investors. Typically, large institutional bidders receive preference over smaller retail
bidders, by receiving a greater allocation as a proportion of their initial bid. All book building

24 | P a g e
is conducted ‘off-market’ and most stock exchanges have rules that require on-market trading
be halted during the book building process.

The key differences between acquiring shares via a book build (conducted off-market)
and trading (conducted on-market) are:

 Bids into the book are confidential vs transparent bid and ask prices on a stock
exchange;

 Bidding is by invitation only. It means only clients of the book runner and any co-
managers may bid;

 The book runner and the issuer determine the price of the shares to be issued and the
allocations of shares between bidders in their absolute discretion.

Book Building is essentially a process used by companies raising capital through

Public Offerings-both Initial Public Offers and Follow-on Public Offers (FPOs) to aid price
and demand discovery. It is a mechanism where, during the period for which the book for the
offer is open, the bids are collected from investors at various prices, which are within the price
band specified by the issuer. The process is directed towards both the institutional as well as
the retail investors. The issue price is determined after the bid closure based on the demand
generated in the process.

The Process:

• The Issuer who is planning an offer nominates lead merchant bankers as 'book
runners'.
• The Issuer specifies the number of securities to be issued and the price band for the
bids.
• The Issuer also appoints syndicate members with whom orders are to be placed by the
investors.
• The syndicate members input the orders into an 'electronic book'. This process is
called 'bidding' and is similar to open auction.
• The book normally remains open for a period of 5 days.
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 • Bids have to be entered within the specified price band.
• Bids can be revised by the bidders before the book closes.
• On the close of the book building period, the book runners evaluate the bids on the
basis of the demand at various price levels.
• The book runners and the Issuer decide the final price at which the securities shall be
issued.
• Generally, the number of shares is fixed; the issue size gets frozen based on the final
price per share.
• Allocation of securities is made to the successful bidders. The rest get refund orders.

BSE's Book Building System

• BSE offers a book building platform through the Book Building software that runs on
the BSE Private network.
• This system is one of the largest electronic book building networks in the world,
spanning over 350 Indian cities through over 7000 Trader Work Stations via leased
lines, VSATs and Campus LANS.
• The software is operated by book-runners of the issue and by the syndicate members,
for electronically placing the bids on line real-time for the entire bidding period.

In order to provide transparency, the system provides visual graphs displaying price v/s
quantity on the BSE website as well as all BSE terminals.

Underwriting

Underwriting refers to the process that a large financial service provider like bank,
insurer or investment house uses to assess the eligibility of a customer to receive their
products such as equity capital, insurance, mortgage, or credit. The name derives from
the Lloyd's of London insurance market. Financial bankers, who would accept some of the
risk on a given venture in exchange for a premium, would literally write their names under the
risk information that was written on a Lloyd's slip created for this purpose.

The Underwriting Process in FPO

26 | P a g e
 The underwriting process begins with the decision of what type of offering the
company needs. The company usually consults with an investment banker to determine how
best to structure the offering and how it should be distributed.

Securities are usually offered in either the new issue, or the additional issue market.
Initial Public Offerings are issues from companies’ first going public, while additional issues
are from companies that are already publicly traded.

In addition to the IPO and additional issue offerings, offerings may be further classified
as:

• Primary Offerings - proceeds go to the issuing corporation.

• Secondary Offerings - proceeds go to a major stockholder who is selling all or part of
his/her equity in the corporation.
• Split Offerings - a combination of primary and secondary offerings.

The next step in the underwriting process is to form the syndicate. Because most new
issues are too large for one underwriter to effectively manage, the investment banker, also
known as the underwriting manager, invites other investment bankers to participate in a joint
distribution of the offering. The group of investment bankers is known as the syndicate.
Members of the syndicate usually make a firm commitment to distribute a certain percentage
of the entire offering and are held financially responsible for any unsold portions.

Under the most common type of underwriting, firm commitment, the managing
underwriter makes a commitment to the issuing corporation to purchase all shares being
offered. If part of the new issue goes unsold, any losses are distributed among the members of
the syndicate. Whenever new shares are issued, there is a spread between what the
underwriters buy the stock from the issuing corporation for and the price at which the shares
are offered to the public. The price paid to the issuer is known as the underwriting proceeds.
The spread of the underwriting proceeds is split into the following components:

• Manager's Fee - goes to the managing underwriter for negotiating and managing the
offering.

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 • Underwriting Fee - goes to the managing underwriter and syndicate members for
assuming the risk of buying the securities from the issuing corporation.
• Selling Concession - goes to the managing underwriter, the syndicate members, and to
selling group members for placing the securities with investors.

In most underwritings, the underwriting manager agrees to maintain a secondary

market for the newly issued securities. In the case of hot issue there is already a demand in the
secondary market and no stabilization of the stock price is needed. However many times the
managing underwriter will need to stabilize the price to keep it from falling too far below. The
managing underwriter may offers to buy at prices that bear little or no relationship to actual
supply and demand. In addition, the underwriter may not enter a stabilizing bid higher than
the highest bid of an independent market maker, nor may the underwriter buy stock ahead of
an independent market maker.

Guidelines for Underwriting FPO

 Finding out about the planned FPO - Typically, a company interested in going public
subsequently will contact financial institutions about underwriting its FPO. Institution
may want to establish relationships with the local businesses so that they will need an
underwriter.

 Negotiating the details with the company – Underwriter has to find out as much as
possible about this company both financially and personally and need to know how
many shares the FPO will consist of, the price per share and the type of FPO, as well
as the views of the company's owners.

 Devising a financial strategy to sell the shares - If the issuing institution has
confidence in its ability to sell the shares, underwriter may want to purchase them
upfront from the company. In this case, they will buy the shares at a discount and
resell them at a higher price to make a profit.

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  Considering other options for selling the shares - Underwriter can also auction off
shares, commit to sell a certain number without paying upfront or commit to do your
best to sell shares without making any specific commitment.

 Getting copies of the company prospectus - This legal document provides an outline of
both the company and the FPO shares plan. Underwriter need to provide a copy of this
document to all potential shareholders so they can learn more about the company and
the responsibilities of shareholders.

 Calling the clients with large account balances within the institution - Underwriters
generally offer FPO's to their preferred investors, since an investor with more money
can buy a larger percentage of FPO shares if interested.

 Keeping in touch with the company - The Company should know how the sale of FPO
shares is going based on internal record keeping, but underwriter should also maintain
an independent system of checks and balances. If the underwrite sales goes poorly, the
company may cancel the FPO campaign.

FPO Scams

FPO Scams are well structured game played by the absolute opportunists consisting of
intermediaries, financiers and bank employees, who make a lot of money by controlling
shares meant for retail investors in Follow-on Public Offer (FPO), as the per the statement of
the Securities Exchange Board of India. In the last few years, the capital market in India went
through a rapid transformation. The increased use of information technology and the
integration of financial markets have stepped up the risk profile of the capital market.

FPO Scams - Causes

 Two of the most common factors of the major FPO scams in India were the tacit
consent of the banks and the poor surveillance techniques.

 The Depository Participants must be provided the proof of identity and proof of
address as a routine check for the opening Demat accounts. This was not followed.

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  Numerous dematerialized accounts and bank accounts had been opened under false
names and the FPO applications were made in non existing names.

FPO Scams - How it was done?

 At first bank accounts were opened up in fictitious or "benami" names, which allowed
these fictitious account holders to open demat accounts.

 The master account holders, the person who had executed the planning acts as an
intermediary on behalf of the financiers.

 The shares acquired at the FPOs were disposed on the date of listing at a premium to
get more than the amount of money invested.

 The banks played an important part by means of opening bank accounts and giving
loans to the fictitious entities for the purpose of earning fee incomes.

Listing means admission of securities to dealings on a recognized stock exchange. The

securities may be of any public limited company, Central or State Government, quasi
governmental and other financial institutions/corporations, municipalities, etc.

The objectives of listing are mainly to:

• provide liquidity to securities;

• mobilize savings for economic development;
• Protect interest of investors by ensuring full disclosures.

The Bombay Stock Exchange (BSE) has a dedicated Listing Department to grant
approval for listing of securities of companies in accordance with the provisions of the
Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957,
Companies Act, 1956, Guidelines issued by SEBI and Rules, Bye-laws and Regulations of
BSE.

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 BSE has set various guidelines and forms that need to be adhered to and submitted by
the companies. These guidelines will help companies to expedite the fulfillment of the various
formalities and disclosure requirements that are required at various stages of

• Public Issues
 Initial Public Offering
 Follow-on Public Offering
• Preferential Issues
• Indian Depository Receipts
• Amalgamation
• Qualified Institutions Placements

Follow-on Public Offering comes under the authority of Securities and Exchange
Board of India (SEBI). SEBI has posted certain guidelines for issue of FPO. Here are the
guidelines for FPO in brief.

 FPOs of small companies

Public issue of less than five crores has to be through OTCEI and separate guidelines
apply for floating and listing of these issues.
If the companies Post Issued Paid-Up Capital is up to Rs.5 crores then they are
considered as small companies and they have separate guidelines for issue of FPO.
Public issues of small ventures which are in operation for not more than two years and
whose paid up capital after the issue is greater than 3 crores but less than 5 crores the
following guidelines apply:

 Can list their securities only in exchanges where trading of securities is

screen based
 If the paid up capital is less than 3 crores then they can only be listed on the
Over the Counter Exchange of India (OTCEI)

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  Appointment of market makers mandatory on all the stock exchanges
where the securities are proposed to be listed

The appointment of market makers shall be subject to the following:-

 Each market maker should offer a continuous two-way quote for a

minimum period of 18 months from the date on which the securities are
admitted for dealing.
 Buy and sell quotes offered by the market maker shall be with a minimum
depth of 3 marketable lots;
 Bid-ask spread (difference between quotations for sale and purchase) shall
not at any time exceed 10%;
 Market maker should have at least 5% of the post-issued capital of the
company as inventory.

 Size of the Public Issue

Issue of shares to general public cannot be less than 25% of the total issue, in case of
information technology, media and telecommunication sectors this stipulation is
reduced subject to the conditions that:

 Offer to the public is not less than 10% of the securities issued.
 A minimum number of 20 lakh securities is offered to the public, and
 Size of the net offer to the public is not less than Rs. 30 crores.

 Promoter Contribution

 Promoters should bring in their contribution including premium fully before

the issue
 Minimum Promoters contribution is 20-25% of the public issue.

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  Minimum Lock in period for promoters contribution is five years
 Minimum lock in period for firm allotments is three years.

 Collection centers for receiving applications

 There should be at least 30 mandatory collection centers, which should include

invariably the places where stock exchanges have been established.
 For issues not exceeding Rs.10 crores (including premium, if any), the
collection centers shall be situated at:-
• The four metropolitan centers viz. Bombay, Delhi, Calcutta, Madras;
and,
• At all such centers where stock exchanges are located in the region in
which the registered office of the company is situated.

 Regarding allotment of shares

 Net Offer to the General Public has to be at least 25% of the Total Issue Size
for listing on a Stock exchange.
 It is mandatory for a company to get its shares listed at the regional stock
exchange where the registered office of the issuer is located.
 In an Issue of more than Rs. 25 crores the issuer is allowed to place the whole
issue by book-building
 Minimum of 50% of the Net offer to the Public has to be reserved for Investors
applying for less than 1000 shares.
 There should be at least 5 investors for every 1 lakh of equity offered (not
applicable to infrastructure companies).
 Quoting of Permanent Account Number or GIR No. in application for
allotment of securities is compulsory where monetary value of Investment is
Rs.50,000/- or above.
 Indian development financial institutions and Mutual Fund can be allotted
securities up to 75% of the Issue Amount.
 A Venture Capital Fund shall not be entitled to get its securities listed on any
stock exchange till the expiry of 3 years from the date of issuance of securities.

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  Allotment to categories of FIIs and NRIs/OCBs is up to a maximum of 24%,
which can be further extended to 30% by an application to the RBI - supported
by a resolution passed in the General Meeting.

 Timeframes for the Issue and Post- Issue formalities

 The minimum period for which a public issue has to be kept open is 3 working
days and the maximum for which it can be kept open is 10 working days. The
minimum period for a rights issue is 15 working days and the maximum is 60
working days.
 A public issue is affected if the issue is able to procure 90% of the Total issue
size within 60 days from the date of earliest closure of the Public Issue. In case
of over-subscription the company may have the right to retain the excess
application money and allot shares more than the proposed issue, which is
referred to as the ‘green-shoe’ option.
 A rights issue has to procure 90% subscription in 60 days of the opening of the
issue.
 Allotment has to be made within 30 days of the closure of the Public Issue and
42 days in case of a Rights issue.
 All the listing formalities for a public Issue has to be completed within 70 days
from the date of closure of the subscription list.

 Dispatch of Refund Orders

 Refund orders have to be dispatched within 30 days of the closure of the Public
Issue.
 Refunds of excess application money i.e. for un-allotted shares have to be
made within 30 days of the closure of the Public Issue.
 Other regulations pertaining to FPO
 Underwriting is not mandatory but 90% subscription is mandatory for each
issue of capital to public unless it is disinvestment in which case it is not
applicable.

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  If the issue size is more than Rs. 500 crores voluntary disclosures should be
made regarding the deployment of the funds and an adequate monitoring
mechanism to be put in place to ensure compliance.
 There should not be any outstanding warrants or financial instruments of any
other nature, at the time of initial public offer.
 Code of advertisement specified by SEBI should be adhered to.
 Draft prospectus submitted to SEBI should also be submitted simultaneously to
all stock exchanges where it is proposed to be listed.

 Restrictions on other allotments

 Firm allotments to mutual funds, FIIs and employees not subject to any lock-in
period.
 Within twelve months of the public/rights issue no bonus issue should be
made.
 Maximum percentage of shares, which can be distributed to employees, cannot
be more than 5% and maximum shares to be allotted to each employee cannot
be more than 200.

 Auction Method for more disclosures from companies

The pure auction method of book building in share sales to prevent delayed shocks in
the form of holes in the books of accounts, in which institutional bidders could bid at
any price above the floor price instead of restricting them to bid in a band fixed by
investment bankers. Allotment of shares would be done to those whose bids are at top
prices, starting from the highest bidder.

 Relaxations to public issues by infrastructure companies

These relaxations would be applicable to Infrastructure Companies as defined under

Section 10(23G) of the Income Tax Act, 1961, provided their projects are appraised by

35 | P a g e
 any Developmental Financial Institution (DFI) or IDFC or IL&FS. The projects must
also have a participation of at least 5% of the project cost (in debt and/or equity) by the
appraising institution.

 The infrastructure companies will be exempted from the requirement of

making a minimum public offer of 25 per cent of its securities.
 The requirement of 5 shareholders per Rs. 1 lakh of offer is also waived in case
of offerings by infrastructure companies.
 For public issues by infrastructure companies, minimum subscription of 90%
would no longer be mandatory provided disclosure is made about the alternate
source of funding which the company has considered, in the event of under
subscription in the public issue.
 Infrastructure companies are permitted to freely price the offerings in the
domestic market provided that the promoter companies along with Equipment
Suppliers and other strategic investors subscribe to 50% of the equity at the
same or a higher price than what is being offered to the public. Adequate
disclosures about the justification for the pricing will be required to be made in
the offer documents.
 The Infrastructure Companies would be allowed to keep their issues open for
21 days. The relaxation would give infrastructure companies sufficient time to
mobilize funds for their issues.
 Infrastructure Companies would not be required to create and maintain a
Debenture Redemption Reserve (DRR) in case of Debenture Issues.

 Schedule to commence Trading

In consultation with market intermediaries, listing with stock exchanges to be made

within 12 days of closure of public issue with effect from 1st may 2010.

Requirements with respect to the listing of securities on a recognized stock

exchange

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 The following revised eligibility criteria for listing of companies on the Exchange,
through Initial Public Offerings (IPOs) & Follow-on Public Offerings (FPOs), effective from
August 1, 2006.

Eligibility Criteria for IPOs/FPOs

 Companies have been classified as large cap companies and small cap companies. A
large cap company is a company with a minimum issue size of Rs. 10crores and
market capitalization of not less than Rs. 25crores. A small cap company is a company
other than a large cap company.

 In respect of Large Cap Companies

• The minimum post-issue paid-up capital of the applicant company

(hereinafter referred to as "the Company") shall be Rs. 3crores; and
• The minimum issue size shall be Rs. 10crores; and
• The minimum market capitalization of the Company shall be Rs.
25crores (market capitalization shall be calculated by multiplying the
post-issue paid-up number of equity shares with the issue price).

 In respect of Small Cap Companies

• The minimum post-issue paid-up capital of the Company shall be Rs.

3crores; and
• The minimum issue size shall be Rs. 3crores; and
• The minimum market capitalization of the Company shall be Rs.
5crores (market capitalization shall be calculated by multiplying the
post-issue paid-up number of equity shares with the issue price); and
• The minimum income/turnover of the Company should be Rs. 3crores
in each of the preceding three 12-months period; and

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 • The minimum number of public shareholders after the issue shall be
1000.
• A due diligence study may be conducted by an independent team of
Chartered Accountants or Merchant Bankers appointed by the
Exchange, the cost of which will be borne by the company. The
requirement of a due diligence study may be waived if a financial
institution or a scheduled commercial bank has appraised the project in
the preceding 12 months.

 For all companies :

• In respect of the requirement of paid-up capital and market

capitalisation, the issuers shall be required to include in the disclaimer
clause forming a part of the offer document that in the event of the
market capitalisation (product of issue price and the post issue number
of shares) requirement of the Exchange not being met, the securities of
the issuer would not be listed on the Exchange.
• The applicant, promoters and/or group companies, should not be in
default in compliance of the listing agreement.
• The above eligibility criteria would be in addition to the conditions
prescribed under SEBI (Disclosure and Investor Protection) Guidelines,
2000.

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 Performance of FPOs is analyzed using the returns obtained by those FPOs. There are
several kinds of returns which are taken to analyze the performance; they are Listing Returns,
First day Trading Returns to those investors who invested during the issue, First day Trading
Returns to those investors who invested on the day of listing and Long Term Returns of those
FPOs in BSE.

From 2006 to 2010 there were 8 companies on which the study has been conducted.
Performance of FPOs is analyzed on the basis of actual return and expected return of
individual company’s stock.

Table No: 4.01

The table showing the number of FPOs which are taken into consideration for
calculation in each year.

year No. of FPOs

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 2006 3
2007 1
2008 0
2009 0
2010 4

Listing Returns

Listing of security is a common practice after FPO in all capital markets throughout the world.
Listing price of the FPO is generally higher than the FPO issue price; hence most of the time
investor gains on listing. Listing returns are calculated on the basis of issue price and listing
price on the day of listing.

Table No: 4.02

The table showing company wise Listing Returns on FPOs.

Company Name BSE NSE

NMDC 0 0
NTPC 0 0
RURAL ELECTRIFICATION
CORPORATION 0 0
BIRLA SHLOKA EDUTECH 0
BEML 0 0

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 ICICI BANK 0 0
ANDHRA BANK 0.071666667 0.07166667
BIRLA POWER SOLUTIONS 0.176190476 0.17619048
Average 0.030982143 0.03540816

Listing of security is a common practice after FPO in all capital markets throughout
the world. Listing price of the FPO is generally higher than the FPO issue price; hence most of
the time investor gains on listing. Listing returns are calculated on the basis of issue price and
listing price on the day of listing. The finding of the study reveals that only Andhra bank and
Birla power solutions gained on the listing Price. In case of remaining companies, listing price
and issue prices were same. So there were no returns. Compared to Andhra bank, Birla power
solutions earned more returns on listing price. And Birla Shloka Edutech Company is not
listed on NSE, so data is not available. When average is taken into consideration, return on
listing price was more in case of NSE compared to that of BSE.

First day Return on Issue Price

After deciding to go for public for a subsequent to the IPO, the company keeps issue
period for applying for FPOs to the investors. Investors normally expect the company share
prices to close higher at the end of the first day of the trading. It means investors will gain if
the closing price of the FPO ends higher than issue price at the end of its first day trading.
The following table and chart presents the first day return of FPO in Indian market to those
investors who invested during the issue of the FPO.

Table No: 4.03

The Table showing company wise First Day Return on Issue Price

Company Name BSE NSE

NMDC 0.026 0.02416667
NTPC 0.009950249 0.02039801
RURAL ELECTRIFICATION
CORPORATION 0.19137931 0.18940887
BIRLA SHLOKA EDUTECH 0
BEML 0.138372093 0.13767442

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 ICICI BANK 0.091573034 0.09269663
Andhra Bank -0.054777778 0.07222222
BIRLA POWER SOLUTIONS 0.263095238 0.26190476
Average 0.083199018 0.11406737

Chart No: 4.01

The following Chart shows company wise First Day Returns on Issue Price

The finding of the study reveals that, Birla Power Solutions has yielded maximum first
day returns to the investors who invested during the FPO in both BSE and NSE. But there was
no return in the case of company Birla Shloka Edutech, because issue price and closing prices

42 | P a g e
of the first day were same. In the case of Andhra Bank there was a negative return because
closing price was less than the issue price. When average is taken into consideration return
was more in NSE compared to that of BSE.

First day Returns on Listing Price

There are investors, who really waiting for the FPO shares to be listed in the stock
exchange and they are not investing during the issue period. Investors will invest in shares
soon after listing those shares in stock exchange on the first day and expect the share price to
increase at the end of the day. If the share prices are closed higher than the listing price at the
end of first trading day, the investors are tend to gain. The following table and chart presents
the first day return of FPO in Indian market to those investors who invested after listing in
stock exchange.

Table No: 4.04

Table showing company wise First day Returns on Listing Price

Company Name BSE NSE

NMDC 0.026 0.024166667
0.0099502
NTPC 5 0.02039801
RURAL ELECTRIFICATION 0.1913793
CORPORATION 1 0.189408867
BIRLA SHLOKA EDUTECH 0
0.1383720
BEML 9 0.137674419

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 0.0915730
ICICI BANK 3 0.092696629
ANDHRA BANK -0.1179886 0.000518403
0.0738866
BIRLA POWER SOLUTIONS 4 0.072874494
0.0516465
Average 9 0.076819641

Chart No: 4.02

Chart showing company wise First Day Returns on Listing Price

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 The study reveals that the first day return to the investors who invested after the shares
listed in the stock exchange are higher in the case of Rural Electrification Corporation in both
BSE and NSE. Whereas the lowest return on first day trading is in the case of Andhra Bank in
NSE and that is negative return in the case of BSE. In the case of Birla Shloka Edutech there
was no return for first day because listing price and closing prices were same. Also averages
are taken into consideration, it founds that return is more in the case of NSE compared to that
of BSE.

Long term Returns

The consistency of the shares price is better analyzed by considering the long term
returns. In the case of these FPOs, the better analyzing tool for the consistency of the
performance is long term returns. We know most of the times investors are benefitted by
investing for longer period. It avoids the risk of short term or daily fluctuations and in long
run it set rights short term losses. So the investors are aiming at higher return in the long run
rather than in the short run. In fact short term investment consists of risk and requires
accuracy in trading. Long term returns are calculated by taking the averages of daily returns
over the period of time since the shares are listed in the stock exchanges. Normally long term
returns are taken as the best measure for analyzing the performances of the shares. The
following table and chart presents the long term return of FPO in Bombay Stock Exchange.

Table No: 4.05

Table showing company wise Long term Returns on BSE

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 Company Name BSE
NMDC 0.001841769
NTPC 0.000963536
RURAL ELECTRIFICATION
CORPORATION 0.002011452
BIRLA SHLOKA EDUTECH 0.002662259
BEML 0.00196877
ICICI BANK 0.001546748
ANDHRA BANK 0.001693573
BIRLA POWER SOLUTIONS 0.000774602
Average 0.001682839

Chart No: 4.03

Chart showing company wise Long Term Returns on BSE

The finding of the study reveals that the long term return on the FPO is highest in the
case of Birla Shloka Edutech when compared to other companies. Whereas long term returns

46 | P a g e
are lowest in the case of Birla Power Solutions. Due to the certain limitations the NSE long
term returns are not taken for the study.

Under pricing of FPOs

Under pricing of FPO means, the FPOs are listed in stock Exchanges less than the
issue price. Investors do not want the FPOs to be underpriced because it will affect them in a
negative direction. The study reveals that no FPOs were underpriced and are listed on or
above the issue price.

Analysis of Individual Companies

This study analyse the individual company on the basis of return expected, actual
return, and the relation between them with the help of t-test, Beta and Alpha.

1. National Mining Development Corporation Limited (NMDC).

Incorporated in 1958, NMDC Ltd is a fully Government of India owned public

enterprise. NMDC is under the administrative control of the Ministry of Steel, Government of
India. NMDC involved in the exploration of wide range of minerals including iron ore,
copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin,
tungsten, graphite, beach sands etc.

NMDC is the India's single largest iron ore producer and exporter, presently producing about
30 million tons of iron ore from 3 fully mechanized mines viz., Bailadila Deposit-14/11C,
Bailadila Deposit-5, 10/11A (Chhattisgarh State) and Donimalai Iron Ore Mines (Karnataka
State) which are awarded ISO 9001-2000 certification. NMDC has the only mechanized
diamond mine in the country with a capacity of 1.00 lakh carats/annum at Panna (Madhya
Pradesh State). Apart from iron ore NMDC is developing Magnesite mine in Jammu and Arki

47 | P a g e
Lime Stone Project in Himachal Pradesh. In the past, NMDC had developed many mines like
Kiriburu, Meghataburu iron ore mines in Bihar, Khetri Copper deposit in Rajasthan,
Kudremukh Iron Ore Mine in Karnataka, Phosphate deposit in Mussorie, some of which were
later handed over to other companies in public sector and others became independent
companies.

Table No: 4.06

Table showing Actual and Expected returns of NMDC

Year Ri Re
2005 0.005397957 0.002560894
2006 0.003789954 0.002546041
2007 0.008662766 0.002664751
2008 -0.009840068 -0.00095391
2009 0.00470441 0.003089045
2010 -0.002367121 0.001235989
Average 0.001724649 0.001857134
t-test 0.964043791
Beta 0.692294472
Alpha 0.001119899

Chart No: 4.04

Chart showing Actual and Expected returns of NMDC

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 The study reveals that return on security of this company is fluctuating year to year.
Return is highest in the year 2007 and lowest in the year 2008 with the negative return. In t-
test there is insignificant difference between Actual Return and Expected return. Expected
Return indicates that Return expected to get at the end of the period, in 2009 there is high
Expected Return and in the year 2008 there is negative Required Return as shown in the above
table. In the year 2005,2006,2007,2009 actual returns were more than the average. Similarly
in the year 2005,2006,2007,2009 expected returns were more than the average.

Beta indicates systematic risk. If we consider the beta value of this company which
is below 1, it is the indication that the company stocks are non-aggressive in nature. Alpha
indicates that if market does not give any return, then what % of return this security will give.
If we apply this to above table we can tell that this company is giving positive return.

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2. National Thermal Power Corporation Limited (NTPC).

Incorporated in 1975, National Thermal Power Corporation Limited (NTPC) is the

largest power generating company in India. It has emerged as an ‘Integrated Power Major’,
with presence in the entire value chain of power generation business. Apart from power
generation, which is the mainstay of the company, NTPC has already ventured into
consultancy, power trading, ash utilization and coal mining. NTPC ranked 317th in the ‘2009,
Forbes Global’ ranking of the World’s biggest companies.

The total installed capacity of the company is 30,644 MW (including JVs) with 15 coal based
and 7 gas based stations, located across the country. In addition under JVs, 3 stations are coal
based & another station uses naphtha/LNG as fuel. By 2017, the power generation portfolio is
expected to have a diversified fuel mix with coal based capacity of around 53000 MW, 10000
MW through gas, 9000 MW through Hydro generation, about 2000 MW from nuclear sources
and around 1000 MW from Renewable Energy Sources (RES). NTPC has adopted a multi-
pronged growth strategy which includes capacity addition through green field projects,
expansion of existing stations, joint ventures, subsidiaries and takeover of stations.

In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as
fresh issue and 5.25% as offer for sale by Government of India. NTPC thus became a listed

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company in November 2004 with the government holding 89.5% of the equity share capital.
The rest is held by Institutional Investors and the Public. The issue was a resounding success.
NTPC is among the largest five companies in India in terms of market capitalization.

The current offering (FPO) is to divestment of 5% in NTPC Limited by Government of India,

which owns approximately 89.5% of NTPC’s Equity Share capital.

In 2009, NTPC contributed 28.6% of the total power generation of India. In 2009, NTPC was
the top independent power producer in Asia, and ranked second in the world, on the basis of
asset worth, revenues, profits and return on invested capital.

Table No: 4.07

Table showing Actual and Expected returns of NTPC

Year Ri Re
2005 0.001446619 0.001523638
2006 0.001033571 0.001434375
2007 0.00272007 0.001858816
2008 -0.000763857 -0.002256101
2009 0.001302704 0.002511394
2010 -0.00299441 0.000334652
Average 0.00045745 0.000901129
t-test 0.690255446
Beta 0.813222761
Alpha 0.000198284

Chart No: 4.05

Chart showing Actual and Expected returns of NTPC

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 The study reveals that return on security of this company is fluctuating year to year.
Return is highest in the year 2007 and lowest in the year 2010 with the negative return. In t-
test there is insignificant difference between Actual Return and Expected return. Expected
Return indicates that Return expected to get at the end of the period, in 2009 there is high
Expected Return and in the year 2008 there is negative expected Return as shown in the above
table. In the year 2005,2006,2007,2009 actual returns were more than the average. Similarly
in the year 2005,2006,2007,2009 expected returns were more than the average.

Beta indicates systematic risk. If we consider the beta value of this company
which is below 1, it is the indication that the company stocks are non-aggressive in nature.
Alpha indicates that if market does not give any return, then what % of return this security
will give. If we apply this to above table we can tell that this company is giving positive
return.

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3. Rural Electrification Corporation Limited (REC).

Incorporated in 1969, Rural Electrification Corporation Limited (REC) is one of the leading
public financial institutions in Indian power infrastructure. They are engaged in the financing
and promotion of transmission, distribution and generation projects throughout India.

REC provides funding to their clients and assists them in formulating and implementing
various types of power project-related schemes. Clients include public sector power utilities at
the central and state levels and private sector power utilities. Additionally, they fund power
projects for their joint sector clients. Their financial products primarily include long-term
loans, short-term loans, bridge loans and debt refinancing.

REC has contributed to the development of rural India and India's agriculture through our
funding of transmission and distribution projects in rural areas. For Fiscal 2009, more than
half of their loan sanctions related to generation projects and generation-related loan assets
currently comprise more than a third of their total loan assets. In September 2009, their
mandate was further extended to include financing other activities with linkages to power
projects, such as coal and other mining activities, fuel supply arrangements for the power
sector and other power-related infrastructure.

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As of September 30, 2009, they are one of only 18 India public sector undertakings to be
granted “Navratna” status by the Department of Public Enterprise by virtue of our operational
efficiency and financial strength. The Government of India has rated their performance as
“Excellent” continuously since Fiscal 1994.

The current offering (FPO) shall constitute 17.39% of the fully diluted Post Issue capital of
the company and the Net Issue shall constitute 17.36% of the fully diluted Post Issue capital
of the company. The government holding will be reduced to 66.80% post issue.

Table No: 4.08

Table showing Actual and Expected returns of REC

YEAR Ri Re
2008 -0.002249 -0.00066843
0.00545739
2009 6 0.0040728
2010 0.00084812 0.00178154
0.00135217
Average 1 0.001728635
0.89421990
t-test 6
0.85000728
Beta 3
0.00163900
Alpha 4

Chart No: 4.06

Chart showing Actual and Expected returns of REC

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 The study reveals that return on security of this company is fluctuating year to year.
Return is highest in the year 2009 and lowest in the year 2008 with the negative return. In t-
test there is insignificant difference between Actual Return and Expected return. Expected
Return indicates that Return expected to get at the end of the period, in 2009 there is high
Expected Return and in the year 2008 there is negative expected Return as shown in the above
table. In the year 2009 actual returns were more than the average. Similarly in the year 2009,
2010 expected returns were more than the average.

Beta indicates systematic risk. If we consider the beta value of this company
which is below 1, it is the indication that the company stocks are non-aggressive in nature.
Alpha indicates that if market does not give any return, then what % of return this security
will give. If we apply this to above table we can tell that this company is giving positive
return.

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4. Birla Shloka Edutech Limited (BSEL).

Incorporated in 1992, Birla Shloka Edutech Ltd is a Yash Birla Group Company in
educational arena. Birla Shloka Edutech provides educational services through reliable,
budget friendly and ethical approaches. Birla Shloka Edutech Ltd. Presently provides end to
end solutions in sales and services of various educational products to various educational
institutes and government organisations.

The services provided by the company include ICT and Multimedia in Private Schools, ICT
solutions in government schools, Hardware, equipments and Software Product Sale. The
Equity Shares of the Company are presently listed on BSE, CSE and ASE and the shares
issued through this FPO are proposed to be listed on all of these exchanges

Table No: 4.09

Table showing Actual and Expected returns of Birla Shloka Edutech Ltd

Year Ri Re

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 0.00701949
2005 5 0.306336389
2006 -0.00147804 0.306346765
0.00382516
2007 8 0.306504446
0.00101331
2008 8 0.304936763
0.00335714
2009 1 0.306749207
0.00455388
2010 7 0.305904814
0.00304849
Average 5 0.306129731
2.70320E-
T-test 12
0.30632983
Beta 6
0.30585447
Alpha 3

Chart No: 4.07

Chart showing Actual and Expected returns of Birla Shloka Edutech Ltd

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 The study reveals that return on security of this company is fluctuating year to year.
Return is highest in the year 2005 and lowest in the year 2006 with the negative return. In t-
test there is insignificant difference between Actual Return and Expected return. Expected
Return indicates that Return expected to get at the end of the period, in 2009 there is high
Expected Return and in the year 2008 there is low expected Return as shown in the above
table. In the year 2005, 2007, 2009, 2010 actual returns were more than the average. Similarly
in the year 2005, 2006, 2007, 2009 expected returns were more than the average.

Beta indicates systematic risk. If we consider the beta value of this company
which is below 1, it is the indication that the company stocks are non-aggressive in nature.
Alpha indicates that if market does not give any return, then what % of return this security
will give. If we apply this to above table we can tell that this company is giving positive
return.

5. Bharat Earth Movers Limited (BEML).

It is a leading manufacturer of mining and construction equipments in India. BEML

was incorporated in 1964 as a Public Sector Undertaking (PSU) under the administrative

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control of Department of Defense Production and Supplies, Ministry of Defense, with
headquarters at Bangalore.

BEML deals in three product segments comprising Mining and Construction equipments,
Defense products and Railway & Metro products. BEML is also in design and manufacturing
high quality hydraulics, heavy-duty diesel engines, welding robots and heavy fabrication jobs.

BEML is a Mini-Ratna (Category 1) Company under the Ministry of Defense and ranked as
the first among the Fastest Growing Construction Equipment Companies in India.

Table No: 4.10

Table showing Actual and Expected returns of BEML

Year Ri Re
2003 0.004994313 0.003540926
2004 0.002126698 0.001589048
2005 0.005106251 0.002068871
2006 0.000242904 0.002325464
2007 0.002405921 0.002849417
2008 -0.006134528 -0.002091344
2009 0.005638631 0.003683023
2010 -0.001150965 0.001026307
Average 0.001653653 0.001873964
t-test 0.889620304
Beta 0.985583602
Alpha 0.000861036

Chart No: 4.08

Chart showing Actual and Expected returns of BEML

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 The study reveals that return on security of this company is fluctuating year to year.
Return is highest in the year 2009 and lowest in the year 2008 with the negative return. In t-
test there is insignificant difference between Actual Return and Expected return. Expected
Return indicates that Return expected to get at the end of the period, in 2009 there is high
Expected Return and in the year 2008 there is negative expected Return as shown in the above
table. In the year 2003, 2004, 2005, 2007, 2009 actual returns were more than the average.
Similarly in the year 2003, 2005, 2006, 2007, 2009 expected returns were more than the
average.

Beta indicates systematic risk. If we consider the beta value of this company
which is below 1, it is the indication that the company stocks are non-aggressive in nature.
Alpha indicates that if market does not give any return, then what % of return this security
will give. If we apply this to above table we can tell that this company is giving positive
return.

6. ICICI BANK.

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 Incorporated in 1994, ICICI Bank is part of the ICICI group. ICICI Bank is India's
largest private sector commercial bank. ICICI Bank together with its subsidiaries, offer
products and services in the areas of commercial banking to retail and corporate customers
(both domestic and international), treasury and investment banking and other products like
insurance and asset management. The Bank’s commercial banking operations for retail
customers consist of retail lending and deposits, private banking, distribution of third-party
investment products and other fee-based products and services, as well as issuance of
unsecured redeemable bonds. The Bank provides a range of commercial banking and project
finance products and services to corporations, growth-oriented middle market companies, and
small and medium enterprises, including loan products, fee and commission-based products
and services, deposits, and foreign exchange and derivatives products.

Table No: 4.11

Table showing Actual and Expected returns of ICICI Bank

Year Ri Re
2003 0.003255594 0.003534203
2004 0.001211527 0.00106917
2005 0.002033529 0.001675141
2006 0.001947848 0.001999193
2007 0.001609055 0.002660895
2008 -0.002902987 -0.003578809
2009 0.003569888 0.003690147
2010 0.001979195 0.000358483
Average 0.001587956 0.001426053
t-test 0.883011979
Beta 1.244696784
Alpha 0.000149762

Chart No: 4.09

Chart showing Actual and Expected returns of ICICI Bank

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 The study reveals that return on security of this company is fluctuating year to year.
Return is highest in the year 2009 and lowest in the year 2008 with the negative return. In t-
test there is insignificant difference between Actual Return and Expected return. Expected
Return indicates that Return expected to get at the end of the period, in 2009 there is high
Expected Return and in the year 2008 there is negative expected Return as shown in the above
table. In the year 2003, 2005, 2006, 2007, 2009, 2010 actual returns were more than the
average. Similarly in the year 2003, 2005, 2006, 2007, 2009 expected returns were more than
the average.

Beta indicates systematic risk. If we consider the beta value of this company which is
below 1, it is the indication that the company stocks are non-aggressive in nature. Alpha
indicates that if market does not give any return, then what % of return this security will give.
If we apply this to above table we can tell that this company is giving positive return.

7. Andhra Bank.

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 Andhra Bank was registered on 20 November 1923 and commenced business on 28
November 1923 with a paid up capital of Rs 1.00 lakh and an authorised capital of Rs 10.00
lakhs. The Bank crossed many milestones and the Bank's Total Business as on 30.06.2008
stood at Rs.83,256 Crores with a Clientele base over 1.74 Crores. The Bank is rendering
services through 2139 Business Delivery Channels consisting of 1371 branches, 66 Extension
Counters, 38 Satellite Offices and 664 ATMs spread over 21 States and 2 Union Territories as
at the end of June, 2008. All Branches are 100% computerized, 1186 units viz., 1101
Branches, 68 Extension Counters, 15 Service Centers networked under Cluster Banking
solution and providing "Any Branch Banking (ABB)". Real Time Gross Settlement (RTGS)
Facility and National Electronic Fund Transfer (NEFT) facility has been introduced in 723
Branches. To provide value-added services to Customers, the Bank has set up its own 664
ATMs as on 30.06.2008. Of which 03Mobile ATMs and two with Biometric access. Besides,
ATM sharing arrangements with several Banks including SBI group, IDBI Bank, UTI Bank,
HDFC Bank, Indian Bank and others under National Financial Network Switch covering
24856 ATMs.

Bank is migrating to "Centralized Core Banking Solution". 118 Branches have already
migrated to CBS. It is proposed to cover 550 branches by September 2009. This will benefit
the customers, who will have access to banking and financial services anytime, anywhere
through multiple delivery channels Andhra Bank is a pioneer in introducing Credit Cards in
the country in 1981 Our Bank introduced Internet Banking Facility (AB INFI-net) to all
customers of cluster linked branches.

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 Table No: 4.12

Table showing Actual and Expected returns of Andhra Bank

Year Ri Re
2002 0.004180809 0.001267461
2003 0.004368996 0.003357948
2004 0.002695103 0.001357991
2005 0.000456576 0.001847662
2006 7.88564E-05 0.002143862
2007 0.001087146 0.00266882
2008 -0.002042379 -0.002420596
2009 0.003066897 0.003475943
2010 -0.00064074 0.000783701
Average 0.001472363 0.001609199
t-test 0.887215624
Beta 1.005811045
Alpha 0.000615038

Chart No: 4.10

Chart showing Actual and Expected returns of Andhra Bank

The study reveals that return on security of this company is fluctuating year to year.
Return is highest in the year 2003 and lowest in the year 2006 with the negative return. In t-
test there is insignificant difference between Actual Return and Expected return. Expected
Return indicates that Return expected to get at the end of the period, in 2009 there is high

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Expected Return and in the year 2008 there is negative expected Return as shown in the above
table. In the year 2002, 2003, 2004, 2009 actual returns were more than the average. Similarly
in the year 2003, 2005, 2006, 2007, 2009 expected returns were more than the average.

Beta indicates systematic risk. If we consider the beta value of this company which is
above 1, it is the indication that the company stocks are aggressive in nature. Alpha indicates
that if market does not give any return, then what % of return this security will give. If we
apply this to above table we can tell that this company is giving positive return.

8. Birla Power solutions Limited (BPCL).

BPSL is an Rs.2500 Crore Yash Birla Group Company, established in April1984 in

collaboration with globally renowned Yamaha Motor Co. Japan by dynamic visionary late

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Shri Ashok Birla. The Company has many a firsts to its credit. It was the first Company to
manufacture portable generators in India in 1986. The Company has the expertise of
manufacturing 2 stroke as well as 4 stroke engines. The Company is presently producing a
wide range of Generators catering to the power requirements of 500W to 40K.W being fuelled
by variety of fuel options like Kerosene, Petrol, Diesel, LPG, CNG, Biogas etc. It was the 1st
Company to roll out Self Start Gensets and became the 1st Company to launch emission
compliant Generators under the brand name – Birla Ecogen, once again taking a step ahead, to
launch low noise gensets, complying with phase-II noise norms and entering a new era of
silent technology gensets.

BPSL is committed to provide total Power Solution depending upon customer needs
by manufacturing Portable Generators, Inverters, and home UPS. To provide complete Power
Solution to its esteemed customers under one roof Company has recently started opening
power shoppee across the country. To support the farming community it includes Water
Pumps & Multi Purpose Engines & its application products such as Power Sprayers & Needle
Vibrators and Lawn Movers, under the brand name ‘Ecoshakti’. The Company also has plans
to increase its range of Pump sets and Sprayers in the lower power range. The company has
recently launched power tiller in the brand name “Birla Harit.” The Diesel Engine of 11.5 HP
used in it has been manufactured by “Yanmar”, the global leader of engine manufacturing,
with their latest technology. This Power Tiller will be very useful particularly to the farmers
having small & medium land holdings.

Table No: 4.13

Table showing Actual and Expected returns of BPCL

Year Ri Re

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 2002 0.00112967 0.000430671
2003 0.003458569 0.002140877
2004 -0.000268938 0.000504732
2005 0.003415846 0.000905327
2006 -0.000399182 0.001119552
2007 0.00366732 0.00155699
2008 -0.006572399 -0.00255902
2009 0.00198192 0.002252951
2010 -0.000619601 3.49113E-05
Average 0.000643689 0.000709666
t-test 0.956126444
Beta 0.822844139
Alpha -0.00010307

Chart No: 4.11

Chart showing Actual and Expected returns of BPCL

The study reveals that return on security of this company is fluctuating year to year.
Return is highest in the year 2007 and lowest in the year 2008 with the negative return. In t-
test there is insignificant difference between Actual Return and Expected return. Expected
Return indicates that Return expected to get at the end of the period, in 2003 there is high
Expected Return and in the year 2010 there is negative expected Return as shown in the above
table. In the year 2002, 2003, 2005, 2007, 2009 actual returns were more than the average.
Similarly in the year 2003, 2006, 2007, 2009 expected returns were more than the average.

67 | P a g e
 Beta indicates systematic risk. If we consider the beta value of this company which is
below 1, it is the indication that the company stocks are non-aggressive in nature. Alpha
indicates that if market does not give any return, then what % of return this security will give.
If we apply this to above table we can tell that this company is giving negative return.

Findings

The finding in the study indicates that, how efficiently the Follow-on Public Offerings
are performing in India. The study reveals the following findings;

 The study reveals that only Andhra bank and Birla power solutions earned return on
listing price and Listing Return is more in the case of Birla Power solutions Ltd
compared to that of Andhra Bank. It shows that FPOs of other remaining companies

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 could not get return on listing price. Which indicates FPOs which were made recently
did not get return on listing price.

 It is found that return on listing price is more in the case of NSE compared to that of
BSE. The study shows that FPOs which were listed on NSE earned good return
compared to listing on BSE.

 First Day Trading Returns are more in the case of BPCL and REC. Except Andhra
Bank; all companies are earned positive return. The study shows that the most of the
FPOs on the first day of their trading have got positive returns to the investors.

 The finding of the study reveals that all companies yielded positive first day returns to
the investors on issue price in NSE and in the case of BSE there was a negative return
to the Andhra Bank.

 The study reveals that the first day return on listing price is higher in the case of Rural
Electrification Corporation in both BSE and NSE, whereas the lowest return is in the
case of Andhra Bank in NSE and that is negative return in the case of BSE.

 The finding of the study reveals that first day return on listing price is more in the case
of NSE compared to that of BSE when average is taken in to consideration.

 The finding of the study reveals that the long term return on the FPO is highest in the
case of Birla Shloka Edutech, also considered as the most consistent return earned
company and Birla Power Solutions is the biggest loser in the Long Term Return.

 The study reveals that none of the FPOs were under priced. It indicates that chances
are more in the case of IPOs to be under priced.

 The study finds that there was no significant difference between the actual returns
earned and returns what was expected.

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  The finding of the study reveals that all company’s stocks are non-aggressive in nature
except Andhra Bank.

 The study finds that all the companies except Birla Power Solutions Ltd are showing
positive return even though market return is zero.

Conclusion

It is noted that getting in to a FPO is possible but not difficult as IPO. It depends on
how an investor approaches to an FPO. The process of underwriting involves raising money
from investors by issuing new securities. Companies hire investment banks to underwrite an
FPO. It is not that much hard to analyze the stock of an established company, an FPO
company is easy to analyze because there is lot of historical information. It all depends on the
investors’ way of analysis. SEBI has laid down certain guidelines for issuing FPO which
protects and helps the investors in their decision for investing. The various returns associated
with the FPOs are analyzed in this study which helped to know the performance of FPOs
during this period.

There has been a trend that IPOs will be under priced, but in the study it is found that
none of the FPOs were underpriced. It is found that Rural Electrification Corporation Limited
is the best company in terms of listing returns and Birla Shloka Edutech Limited is best in
terms of long term returns. It is the indication that FPOs issued in recent years have fetch
much long term returns as earlier FPOs, first day returns are more in the this years. It shows
that share prices of recent FPOs have closed higher on the day of their listing.

List of Companies:

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 • National Mining Development Corporation Limited (NMDC).

• National Thermal Power Corporation Limited (NTPC).

• Rural Electrification Corporation Limited (REC).

• Birla Shloka Edutech Limited (BSEL).

• Bharat Earth Movers Limited (BEML).

• ICICI BANK.

• Andhra Bank.

• Birla Power solutions Limited (BPCL).

 Websites

 http://www.google.com/

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  http://www.wikipedia.org/

 http://www.investopedia.com/terms/f/followonoffering.asp

 http://en.wikipedia.org/wiki/Secondary_market_offering

 http://www.answers.com/topic/follow-on-offering-1

 http://lastbull.com/what-is-follow-on-public-offer-fpo/

 http://www.chittorgarh.com/

 http://www.chittorgarh.com/ipo/ipo_dashboard.asp

 http://www.chittorgarh.com/ipo/ipo_detail.asp?a=223

 http://www.chittorgarh.com/ipo/ipo_detail.asp?a=230

 http://finance.yahoo.com/

 http://www.sebi.gov.in/

 http://www.nseindia.com/

 http://www.bseindia.com/

 Books

• International Financial Management by P.K.Jain, Josette Peyrard,

Surendra.S.Yadav, published by MACMILLAN INDIA LTD,
2001.

• Financial Management by I.M.Pandey, by Vikas publishing house

pvt ltd, 9th edition.

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