If you hope to make money in public equity offers, you have to make some efforts and become an informed investor, says Prithvi Haldea of Prime Database.
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Factors to watch before investing in IPOs
If you hope to make money in public equity offers, you have to make some efforts and become an informed investor, says Prithvi Haldea of Prime Database.
Like this story, share it with millions of investors on M3
Factors to watch before investing in IPOs
If you hope to make money in public equity offers, you have to make some efforts and become an informed investor, says Prithvi Haldea of Prime Database.
How is the company financing the objects of the issue?
Is entire cost being funded by the present issue?
Is company committing any internal accruals to the project?
Is appraisal of any relevance?
Good, if appraised but not a critical factor
Are there any further capital raising plans?
This may lead to a dilution of your earnings.
What is the time frame of deployment of issue proceeds?
Is it immediate or is it spread over next 2-3-4 years? If most of it is for later deployment, why money being raised now?
Stretched deployment has its own hazards!
What are the key risk factors?
Lawyers are now listing out too many risk factors to crowd out significant ones (e.g. communal India, South Asia conflict zone etc.)
Sebi insists on too many irrelevant risk factors (e.g. First-generation entrepreneurs, rented premises etc.)
Identify critical internal risk factors; likely impact on the company – family disputes?
Identify critical external risk factors; likely impact on the company - Dependence on airport infrastructure? - Future prospects of the principal? (stock exchange) - Over dependence on one industry? (for raw materials or customers)
Are any major government approvals pending?
Some of these may have a major bearing on the company/project - Intermediary registration with SEBI? - NBFC approval from RBI? - Banking approval from RBI? - Pollution Control approval from PCB? - Licenses to run cinema halls?
Is the industry highly regulated?
Are there any significant trademark/ brand/ copyright issues?
This could be a problem area in many ways.
Does the company own these?
Recent case of Jet Airways and how it was resolved before the issue.
Serious litigation by others can hurt the company.
Where is the company listing?
Apply only if the company is listing at BSE/NSE.
If a company is listing only at regional exchanges, you will have no exit, as almost all regional exchanges are lying closed.
Is the company/ group company already listed abroad?
Will have better disclosures
Will have better corporate governance
Is there any special reservation for shareholders of the company/group companies?
