What is an IPO?

IPO stands for the Initial Public Offering, when a private company offers it’s shares for public to the first time. It is company’s first sell of stock to the public or you can say it is the process of going public through an offering of securities by a corporation to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it’s known as an IPO.

Companies are of 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 jurisdiction. Most of the small businesses are privately held and most of the large companies are public. There are many examples of large companies which are not public like IKEA, Domino’s Pizza and Hallmark Cards are all privately held.

An IPO is the 1st sale of a joint venture shares to the public. After taking out an IPO a private company becomes public company.

This is done with the help of a stockbroker firm(sometimes by several banks) which handles the distribution of shares to the public.If one has a private business and own all its shares, then he can take some of these shares and sell them to the general public to raise money.

Reasons behind offering an IPO:

The primary reason to offering an IPO is that companies plan to use the money gathered from IPO to further expand their business or
to increase their business operations. It is pretty tough to grow your company with just your own money or depend on debt. This is when companies think of taking out an IPO and raise money for expansion.

Taking out an IPO is the right time to cashing the success of a company and hyping the excess money to grow your company.

Why IPO’s are so popular:

IPO’s are so popular just because they are comprehended to make easy money for short term as well as long term investors.

Suppose a company decides to take out an IPO, and fixes the number of shares and price, at which the offer will be made to the public. Then investors starts applying for shares of this particular company, and normally most of the IPO’s of famous company’s receives more number of applications  than the total. People are keen on getting shares because the price at which the IPO is offered is commonly perceived to be at a discount to the fair value and when this IPO is listed, stock zooms up on the day of listing and a lot of investors made money by selling on the same day itself and if it was beneficial for long term also.

Other reasons are:

• 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.

Risk on today’s scenario:

Till a few years back IPO’s were the surest way to earn money because company’s offer their shares at a discount to the public in an IPO and it was sure to jump on the very first day of listing it’s stock. But it is rare now a days to find an IPO with discounted rate, company’s are offering their shares at a decent price and it is just like a wild goose chase for the normal public to buy shares of an IPO.

I am giving you an example of India’s one of the biggest IPO ever, Mumbai-based Reliance Power who raised $3 billion in January 2008 by initial public offering.The 228 million shares Reliance Power offered on January 15 sold in less than a minute. The shares sold represented a 10% stake in the company, which aims to provide electricity to power the country’s fast growth but which so far doesn’t have a single operating power plant till now.

Remember: an IPO is just selling stock. It’s all about the sales job. If you can convince people to buy stock in your company, you can raise a lot of money.So in my opinion IPO’s are one more another option for making or loosing money in share market.

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Oil India will come out with an initial public offering (IPO) of 26,449,982 equity shares of face value Rs 10 each. Its issue price has been fixed at Rs 950-1050 per equity share and it will raise around Rs 2,512.75-2,777.25 crore. The IPO opens on September 7^th and closes on September 11^th.

Oil India is the country’s second largest state run explorer and produces 3.5 million tons oil annually. It is engaged in exploration, development, production and transportation of crude oil and natural gas onshore in India. Oil India has also been accorded the status of Mini Ratna by the Government of India. Just to keep things in perspective though, ONGC, which is also controlled by the government is ten times the size of Oil India.

CRISIL has graded Oil India 4 out 5, which indicates above average fundamentals.

The IPO is being planned out to issue new shares to the public, but at the same time the government will also sell 10% its own stake to IOC, HPCL, BPCL and IOC.

Oil India has most of its business concentrated domestically, but it is exploring oil and natural gas in Gabon, Libya, Nigeria and Yemen too.

Risk and Competitors:

Volatility of oil prices either it is very high or low crude prices, are also bad for the company. The risk is that when the government sells petrol and kerosene at a discount to international prices to retail consumers, the subsidy is then shared by the government and oil companies and when oil price goes sky-high, the burden of this subsidy becomes really high on oil companies.

Oil India has all of its oil reserves in the Upper Assam basin, which is a maturing resource, and so it is facing decreasing production rates. This means that the need for developing new resources is relatively higher for Oil India, than other companies.

The company has main competition in oil exploration by companies like ONGC, IOCL, GSPCL, GAIL, British Energy, RIL, Cairn Energy and Niko Resources.

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This is the second largest acquisition in India’s Iron Ore Industry when Sesa Goa, a subsidiary of London-listed Vedanta Resources, today acquired Goa based Dempo group mining and maritime business for Rs 17.5 billion in an all-cash deal.

The assets sold including mining rights, mining leases and related infrastructure in Goa. Company was said to have cash resources of about Rs41.4 billion and all transaction are said to done from there, nothing from outside.The acquisition will give Sesa Goa access of handling Dempo’s 70 million tons of iron resources mineable resources in Goa.

Due to this deal shares of Sesa Goa surges 5.78% to Rs203.20 when market was down more than 150 in BSE.

Sources:The Wall Street Journal

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Today on 11th June L&T(Larsen & Toubro) offloaded it’s entire stack in Ultra Tech Cement which was 11%, to a group of investors.Near about 13.67 mn shares were traded in a single transaction on NSE

.Shares of Ultra Tech Cement have declined by over 4.02% to Rs732 on NSE and 3.66% to Rs735 on BSE and the shares of L&T increased by o.25% to Rs1627 on NSE but declines 0.55% on BSE with volumes of over one mn shares on NSE.

Grasim Industries a flagship cement firm of the Aditya Birla Group along with associates has the right of first refusal to acquire the L&T’s stack because it has 54.78% in Ultra Tech Cement but the latest development shows the company has taken the go-ahead from Grasim to sell stack to other buyer.L&T appointed City group to be the main book runner for the deal.

source:http://www.indiainfoline.com/

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Satyam hit 10% circuit when company announce it’s earning today.The stock is locked at Rs66.85.The company posted a standalone profit of Rs181 crore

on revenue of  Rs2290 crore in December quarter.According to the statements to the Bombay Stock Exchange company has a bank balance of Rs 373 crore on March 31.The company claims a profit of Rs 4 crore on the revenue of Rs 681 crore in January and net profit of Rs 52 crore on the revenue of Rs 676 crore in February.

In early January company was in troubled water when it’s former owner Ramalinga Raju accepted the company and of course Countries one of the biggest fraud.After this drama Tech Mahindra won auction of Satyam at Rs 2890 crore.Larsen & Tubro which also has stack in Satyam gained 6.25 per cent.Obviously company is doing well now.

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Many people often like to ask me the different timing sessions of BSE.Some people think market opens at sharp 9:55 in the morning and closes at 15:30 evening but this is not true.There are seven different timing sessions of Bombay Stock Exchange some we know and some we don’t, so I think to write a simple post on this.One can call this 9:55 to 15:30 timing as a normal trading session for many people, not for all.The different sessions are-

1. Login Session from 8:30 to 9:55
2. Trading Session from 9:55 to 15:30
3. Position Transfer Session from 15:30 to 15:50
4. Closing Session from 15:50 to 16:10
5. Option Exercise Session from 16:10 to 16:40
6. Margin Session 16:40 to 16:55
7. Query Session 16:55 to 17:40

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