Sample Paper

Prof BN Murthy

Case Study 1

Book Building – A case study of a US company IPO:

Risk Metrics group Inc. USA, a leading provider of Risk Analytics and information processing to the global financial services community, came with a Red Herring Prospectus on 24^th January, 2008.

The issue is for 14,000,000 shares. The issue was lead managed and syndicated by Investment bankers, viz. Goldman Sachs, Credit Suisse, Citi Merrill Lynch & Morgan Stanley. The price was discovered through book building by underwriters @ $17.50 per share. The issue had Green Shoe Option to the extent of 2,100,000 additional shares, to be placed by underwriters, at the same price, representing 15% of the issue size. The issue was over-subscribed by 2.3 times. The listing price immediately after the issue was $24.45, showing an appreciation of about 40% to issue price. The company got merged with MSCI Morgan Stanley Capital International during 2010, the price factored for merger was $21.75 per share. Current quote of MSCI is $34. You are required to respond on the following:

1) Comment on the pricing of the IPO

2) Comment on returns of the investors

Case Study 2

Book Building – A Case Study of an Indian Company

Issue Details

· Company Name – ICICI Bank

· Issue Open Date – 19^th June 2007

· Issue Close Date – 22^nd June 2007

· BRLM’s – Led by Goldman Sachs, Meril Lynch

· Pricing Responsibility – All Book Running Lead Managers

· Issue Type – 100% book building issue

· Issue Size – 94663600 shares

· Issue Price – INR 940 ($23)

· Face Value – INR 10 (25 cents)

· Issue Size – INR 88983784000 ($2.25 billion)

· Green Shoe Option - Yes

The issue pricing basis as given in the prospectus is shown below:

The consolidated EPS to be used in the issue price is as follows:

Adjusted EPS (basic)

Year	EPS (INR)		Weight
	Unconsolidated	Consolidated
Year ended March 31, 2005	27.55	25.45	1
Year ended March 31, 2006	32.49	30.96	2
Year ended March 31, 2007	34.84	30.92	3
Weighted Average	32.84	30.02

*EPS is calculated based on weighted average number of shares

This computes the current P/E ratio to be 26.98

The snapshot of the forecasted earnings analysis is presented below:

Key Financials (Rs m)	FY07	FY08E	FY09E	FY10E
Net interest Income	6636	9388	12065	15183
Growth (%)	40.9	41.5	28.5	25.9
Operating Profit	5874	8281	10550	13413
PAT	3110	4162	5267	6599
EPS (INR)	34.6	37.4	47.4	59.3
Growth (%)	21.2	8.2	26.6	25.3
Net EPS (INR)	10.0	11.2	14.2	17.8

Source: Company Data, PL Research

Key Financials (Rs m)	FY07	FY08E	FY09E	FY10E
NIM (%)	2.0	2.4	2.5	2.5
RoAE (%)	13.3	10.8	10.8	12.5
RoAA (%)	1.0	1.1	1.1	1.1
P / BV (x)*	3.1	2.0	1.9	1.7
P / ABV (x)*	3.4	2.2	2.0	1.9
PE (x)*	24.5	22.7	17.9	14.3
Net Dividend Yield (%)	0.7	0.8	1.0	1.2

Source: Company Data, PL Research * CMP adjusted for subsidiary value of INR 587

The company has clearly attempted to get advantage in pricing by going for aggressive pricing. The prospectus, states the following reasons for the pricing:

1) ICICI bank is the biggest private sector bank and the 2^nd largest bank in India

2) Banking de-regulation is stated to take place in the year 2009; this is expected to stretch the valuation multiples including P/E

3) They provide one stop shop for the financial services needs and hence provide inherent diversification benefits to its investors

4) It holds leadership positions across various segments

5) One of its key strengths and important parameters for valuation of any bank is its wide distribution network and reach

6) With India set to flourish, this bank is also expected to become one of the global players to reckon with in the coming future

Question – You are required to comment on the issue pricing from the return perspective of the investors keeping in view the current market price.

Case Study 3

Book Built Issue – UAE Experience of an issue

An illustrative case relating to a book built issue from UAE

D.P. World Limited, a Government associate company, came with a Book Building issue with an Offer Price range of $1.00 to $1.30 per share. The issue was launched on November 4, 2007, and was kept open till 15^th November 2007. The shares got listed in Dubai International Financial Exchange, on 26^th January 2008.

The company was part of Government, offered shares to the extent of 3245.3 million shares, along with Green Shoe Option of 572.7 million shares in the form of Green Shoe option. The Green Shoe Option, represented 17.65% of the offer. The issue was well received and the cut off price was determined @ $1.30, the ceiling price.

Question:: If you were an Investor at the Issue Price, what would be your call on your investment today?