IPO Process: an Overview Sumat Singhal

Page 2 of 43 Objective To give insight into the Applicable Guidelines, Issue Process and Critical Issues pertaining to the Initial Public Offer (IPO).

Page 3 of 43 Agenda IPO Size and Promoters Contribution Key Regulations Restructuring IPO Valuation Methodology Pre-Issue Placements Eligibility and Listing Criteria Underwriting IPO Grading IPO Process and Timeline Green Shoe Option Fast Track Issues

Page 4 of 43 IPO – A Complex Process Syndicate Agreement Offerors PoA Registrars MoU Underwriting Agreement Prospectus Software usage agreements with Stock Exchanges Depository 3- party agreements Red Herring Prospectus Escrow Agreement CAN Syndicate Agreement ISSUER COMPANY Offerors PoA Book Runners MOU Listing Agreements Listing Agreements International Wrap International Wrap Registrars MoU Underwriting Agreement Prospectus Software usage Agreements with Stock Exchanges Depository Tri-party Agreements DRHP RHP Escrow Agreement CAN

Page 5 of 43 IPO Process Price Discovery Finalizing Basis of Allotment Documentation with Depositories Credit into Investor Accounts Listing Approvals from the Stock Exchanges Post Issue Research Support for Sustained Coverage Long term value Creation Due Diligence Drafting of Prospectus IPO Grading Statutory Approvals Appointing Intermediaries Valuation and Pricing Marketing Strategy Arranging Firm Allotments Circulating Quality Research Report Printing and Distribution of Stationery Timing of Issue Media Strategy for Wide Publicity Road shows Press Brokers Analyst One to One Meets Analyst Meets / Plant Visits NRI Investors Retail Distribution Advertising campaigns Positioning & Marketing to Institutional & Retail Investors Pre Issue Marketing Post Issue

Page 6 of 43 IPO Timeline W1 W3 W5 W7 W9 W11 W13 W15 W17 W19 W21 W23 W25

Page 7 of 43 Eligibility Criteria for IPO Net Tangible Assets Rs. 3 Crores (3 Years) Track Record of Distributable Profits Sec 205 of Cos. Act (3 / 5 Years) Category I Net Tangible Assets, Profitability and Net Worth Track Record Net Worth Rs. 1 Crore (3 Years) (a) Issue through Book Building Route at least 50% Allotted to QIBs (b) Minimum Post Issued Capital Rs. 10 crores Category II (Companies Not Falling under Category–I) Participation by FIs / Banks >= 15% of Project (10% from Appraisers) Compulsory Market Making >= 2 years (Min 300 Shares) +10% Quote end 5% Inventory OR + ++ IPO Size <= 5X Pre-issue Networth + + Eligibility Criteria for Unlisted Companies

Page 8 of 43 Exemptions - Eligibility Criteria Banking Company under Section 5 of Banking Regulation Act, 1949 Correspondent New Bank Infrastructure Company  whose Project is Appraised by a PFI / IDFC / IL&FS or Bank which was earlier an PFI  5% of the Project Cost is Financed by Appraiser(s) / Institutions Jointly or Severally Rights Issues Exemptions from Eligibility Norms

Page 9 of 43 Issue Size >= 10% or 25% as the case may be of each kind of securities are offered to the Public through Advertisement in the Newspapers Minimum Issue Size 10% of Size Offer Pursuant to Exemption u/s 19 (2)(b) of SCRR, 1957 Minimum 20 lakh securities to be offered Minimum Issue Size of Rs. 100 Crs Issue through Book Building Allocation of 60% of Issue Size to QIBs

Page 10 of 43 Promoter’s Contribution Promoter’s Contribution and Lock-in Requirements Promoters’ Contribution Not less than 20% of Post Issue Capital Securities Ineligible for Computation of Promoters’ Contribution” Acquired for consideration other than Cash and Revaluation of Assets or Capitalization of Intangible Assets in last 3 years Bonus Issues out of Revaluation Reserves or Reserves without Accrual of Cash Resources in last 3 years Issued to the Promoters at a Price Lower than the IPO Price during the preceding One year from the date of SEBI filing, unless the difference in price is brought in Lock-in Requirements (Unlisted Companies) Entire Pre-issue Capital locked-in for One year from date of allotment in IPO or Commencement of Commercial Production, whichever is later. Transfer of Locked-in shares among pre-issue shareholders allowed, provided lock-in continues with transferee Promoter’s holding up to 20% of Post-issue Capital Locked-in for Three years and excess Promoter’s Holding locked-in for One year on LIFO basis Public Issue by Listed Companies No requirement for Promoters Contribution if company listed for Three Years and has paid Dividends for last Three Years – In case of Excess over Minimum Promoter's Contribution, will attract Preferential Issue Guidelines

Page 11 of 43 Key Regulations Allotment Allotment on Proportionate Basis to all categories 50% allocation to QIBs 15% to Non-Institutional Investors applying for an amount > Rs. 1,00,000 35% to Retail investors applying for an amount of <= Rs. 1,00,000 Spill-over permitted amongst all above categories including the reserved categories Bidding Bidding Mandatory on Electronically-linked Platform of the Stock Exchanges Bidding Terminals at all Centers where there is a Stock Exchange On-line Display On-line, Real Time Graphical Display of Demand and Price at the Bidding Terminals is mandatory Price Discovery Bidding Permitted by using a Price Band having 20% Range Price Band during the Bidding Period can be revised within a 20% band, provided Book is kept open for 3 days after Revision Bidding at different Price Levels Permitted (3 Price Bids) Retail Investor may Bid at “CUT-OFF” Book Building Guidelines

Page 12 of 43 Restructuring Essential Ingredient of IPO Complete all Capital Restructuring Exercise before going to the Market  Promoter / Promoter Group Holdings  Split of Shares (Clause (i)(a)) No restriction on Face Value of shares if issue price is higher than Rs.500/- subject to minimum of Re.1/- Face value of shares to be Rs.10/- if issue price is less than Rs.500/-  Consolidation or De-merger of Companies  Holding structure of the Company or Group of Companies  Leverage Position of the Company Market Prefers a Clean Company and Places Higher Value Track Record of the Promoters and Associate Companies Capital and Corporate Restructuring

Page 13 of 43 IPO Pricing Valuation Methodology Discounting Cash Flows Trading Multiple P/E Multiple EV / EBIDTA NAV or Price to Book Value Multiple Return on Net worth Transaction Multiple Free Pricing Differential Pricing Firm Allotment to be at a Price equal to or Higher than IPO Price Composite Issue Public Issue

Page 14 of 43 Valuation Methodology Discounted Cash Flow (DCF) Analysis Trading Multiples Transaction Multiples Net Asset Value (NAV) “Fundamental” or “Theoretical” valuation Estimates firm’s value by discounting expected free cash flows at a rate which reflects the risk of the cash flows Terminal Value  Perpetuity  Discount Factor (The resulting free cash flows at a cost of capital that reflects company specific risk) “Market” Valuation Investors view on prospects of an entire industry sector and specific companies Considerations for peer group include similar size, life of assets and similar management quality Difficult to establish peer group on account of diverse business activities “Acquisition” related Valuation Applies Multiples of related Industry Transactions to the valuation of a business Measures Premium paid for Acquiring Control and places value on intangible strategic factors Useful when the historical costs of assets purchased is not comparable to its Current Market Value NAV is based on Expected Future Cash Flows the market expects from the asset Two Methods  Replacement Cost  Future Cash Flows

Page 15 of 43 Pre-IPO Placements Further Issue of Shares  Company is prohibited to make further issue of Capital after filing a Draft Offer Document with SEBI till the listing of the shares referred in offer document  Now permitted to issue further shares, provided full disclosure in regards to total capital to be raised is given in Draft Offer Document (Circular dated March 31, 2006)

Page 16 of 43 IPO Grading (Unlisted Companies) IPO Grading Compulsory from May 1, 2007 Five-point point scale Higher score indicating stronger Fundamentals and vice versa All the grades to be disclosed Activity to run parallel to the filing of draft offer document Price of the IPO not taken into account for Grading IPO Grade : Price Matrix High Grade High Price High Grade Low Price Low Grade High Price Low Grade Low Price First IPO Grading CRISIL  Kiri Dyes and Chemicals Ltd – 2/5 (Subscription – 1.3 times) ICRA  SRS Entertainment – 2/5

Page 17 of 43 IPO Grading (Unlisted Companies) Business Prospects and Competitive Position Industry Prospects Company Prospects Financial Position Management Quality Corporate Governance Practices Compliance and Litigation History New Projects — Risks and Prospects Key Components of Investment Decision Fundamental Analysis Fundamental Analysis Returns Analysis Returns Analysis Investor Preference Investor Preference Factors Considered for IPO Grading

Page 18 of 43 Green Shoe Option Agreement of Stabilizing Agent with Promoter or Pre-Issue Shareholder for Borrowing Shares for Price stabilization 15% Excess Allotment upto 15% of the Total Issue Size to Stabilizing Agent Disclosure on : Name of SA Stabilisation Period : 30 Days Maximum increase in Capital in case of Allotment of shares Maximum Amount to be received by the Issuer Company in case of Further Allotment Separate GSO Account Amount to be Maintained Stabilisation of Post Listing Price Step III Stabilisation Process Step III Stabilisation Process Step II Sourcing of Additional Shares by SA Step II Sourcing of Additional Shares by SA Step I Over-allotment Step I Over-allotment Security trades Down on Listing Security trades Down on Listing Security trades Up on Listing Security trades Up on Listing

Page 19 of 43 Fast Track Issue Clause and – Filing of Offer Document Not Applicable Listed > 3 years w.r.t. Reference Date Average MCap >= Rs. 10,000 Crs. for One Year (upto previous quarters) Trading Turnover >= 2% (Six months preceding the month of Reference Date) >= 95% of Inventors Grievance Redressed ( Quarter preceding the month of Reference Date) Compliance with Listing Agreement – 3 Years Qualification by Auditors <= 5% Impact on Net Profit (respective year) No prosecution by SEBI against the Issuer Company’s Promoters and Whole-time Director Amendment on November 29, 2007

Page 20 of 43 Fast Track Issue Promoter Group Holding – 100% Dematerialised Form Notes :  Reference Date Date of Filling of RHP / Prospectus with ROC  Reference Date – Rights Issue Date of filling of Letter of Offer with Designated SE  Average MCap – Daily MCap (of Public Shareholdings) No. of Trading Days

Thank You… Sumat Singhal