COMPARATIVE STUDY ON INITIAL PUBLIC OFFER (IPO)

Submitted to : Dr. Prof. Paresh Shah IIM - Ahmedabad

Management of Indian Financial Systems

Submitted by : Prashant Maharshi ISBE/PGP/SS/2011-13

What is IPO?
Process of selling securities to public in primary market Made with 2 types Fixed Price Issues Book building Issues Majorly done to raise Capital Process is directed towards both institutional & the retail investors

Why IPO is done?

New capital Almost all companies go public primarily because they need money to expand the business Future capital Once public, firms have greater and easier access to capital in the future Mergers and acquisitions Its easier for other companies to notice and evaluate a public firm for potential synergies IPOs are often used to finance acquisitions

SEBI Guidelines for IPO

1. It must have a pre-issue net worth of not less than Rs. 10,000,000 (Rupees One crore) in 3 out of the preceding 5 years, with a minimum net worth to be met during the 2 immediately preceding years. It must have a track record of distributing dividends for at least 3 out of the immediately preceding 5 years, and The issue size, i.e., the offer through the offer document, the firm allotment and the promoters contribution through the offer document, should not exceed five times the pre-issue net worth as per the last available audited account, either at the time of filing the draft offer document with the Securities and Exchange Board of India (SEBI) or at the time of opening of the issue.

2. 3.

If the above conditions are not satisfied, then the IPO can be made only through a book-building process, provided that sixty percent (60%) of the issue size must be allotted to Qualified Institutional Buyers (QIBs).

The Process of IPO

Company nominates lead merchant banker(s) Disclose of securities to be issued & price band for bidding Appointment of syndicate members Bidding process Process normally remains for 5 days Bids have to be entered within the specified price band On the closure of the process, the book runners evaluates the price levels At last the book runners & the issuer decides the final price Allocation of securities is made to the successful bidders Rest get refund orders.

TRIBHOVANDAS BHIMJI ZAVERI IPO

About the Company

The 148 year old company, Tribhovandas Bhimji Zaveri, Mumbais local jeweller, plans to raise around Rs. 200 crore through 16.7 million shares.
The company is in the retail jewellery business with 14 showrooms across 5 states mainly in western and central India. Around 72% revenue comes from gold jewellery and 25% from diamonds

About IPO
Offer Date
Price Band Minimum Application Reserved for QIB Reserved for Non Institutional Bidders Reserved for retail Total Amount to be raised Total No. Of Share on sale

24 26 April
Rs. 120 126 per Share 45 Shares 50% 15% 35% Rs. 200 Crore 16.7 million

Got BID for

Subscribed by

1.62 crore shares

1.15 times

Plans
To finance establishment of new showrooms To expand this to around 57 showrooms, adding 43 new ones in India by 2015

To use about Rs. 20 Crore to open 9 new large format showrooms by the end of fiscal 2013.
To finance working capital requirements The remaining amount would be used for general corporate purpose

Financial Information
In Rs. Crore Net Sales
% Change Operation Profit % Change Net Profit % Change

FY 10 885
32.3 47 11 17 63.5

FY 11 1194
34.9 87 37.2 40.4 137.6

9 Months FY 12 1117
NA 102 NA 50.5 NA

Competitors / Peers
Tanishq Rajesh Exports Gitanjali Gems Shri Ganesh Jewellery

Suraj Diamond

Share holding pattern post IPO

%

3.17%

10.81%

11.85%

Promoter holding FII DII Others

74.17%

Day 1 trading
122

Listing Day Trading Information

BSE NSE

120

118

116

Issue Price:

Rs. 120.00 Rs. 120.00

114 BSE 112 NSE

Open:
Low:

Rs. 115.00 Rs. 115.05

Rs. 110.00 Rs. 110.50 Rs. 119.80 Rs. 120.00 Rs. 111.20 1,157,892 Rs. 111.00 1,253,983

110

108

High: Last Trade:

Open High Low Close

106

104

Volume:

No. of times issue is subscribed

Subscribed by

1.16

1.29
Qualified Institutional Buyers Non Institutional Investors

Retail Investors

0.68

Anchor Investors

1.91

Strength of TBZ
Strong and trusted Brand Name
Focus to develop new design and products by understanding customer requirement with constant interaction The company has substantial experience in expanding operations and managing the launch of new showrooms. The company has its own manufacturing facilities in Kandivali with a carpet area of 5,755 sq. ft.

Weakness of TBZ
Inventory risk and gold price fluctuation is also high
Working capital situation of the company is not good Financial performance of the company is also not encouraging Peers are doing good in compare to TBZ

Opportunities for TBZ

Branded retail chains are expanding their presence by creating growth opportunities in jewellery market The Indian gold jewellery sector accounted for 61% total domestic gold demand in 2011 It is expected that domestic industry to grow at a CAGR of 10% 12% up to 2015 because of: Higher disposable income Rising young population with the urge to spend Higher no. of women investing her saving in gold/diamond jewellery Conscious marketing efforts by companies Steady rise in gold prices across the global market.

Threats of TBZ
There is intense competition in the jewellery retailing market

Branded players are also willing to expand

Devaluation of gold may affect the business The company has not registered its jewellery designs so it could be duplicated by competitors

The new tax policy where the customer has to give his/ her PAN number on purchase made above `5 lakh is likely to hinder the business.

Future Strategy of TBZ

The company is planning to add 43 showrooms by end of fiscal year 2014
It is building additional facility at Kandivali with a carpet area of Approx. 17739 sq. ft. Increasing marketing activities to increase footfalls and sales at showrooms. Focusing to increase its diamond studded jewellery sales which will improve its overall profit margin.

Conclusion
IPO of TBZ got moderate response because: The Shares are offered quite expensive in compare to its peers As it intend to utilize 70% of its raised funds for working capital needs , this may affect the performance of the company. The opening of new stores will mount pressure on profitability due to time taken for break-even of new stores, higher marketing expenses and working capital requirement Even though the gross margin in the gold segment is around 10.86 %, while that in the case of diamond jewellery is around 36 %, company intent to invest in gold business.

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