1. Discussion Material For Initial Public Offerings Presentation by: Abhiram Bhattacharjee March 27, 2009

2. 1 Agenda Introduction Initial Public Offer – Key Requirements IPO Sizing, Valuation and Marketing Key Intermediaries and Timeline

3. 2 Agenda Introduction Initial Public Offer – Key Requirements IPO Sizing, Valuation and Marketing Key Intermediaries and Timeline

4. 3 Trend of Funds Raised Through Domestic Capital Markets Public Issues (IPOs + FPOs) Rights Issues Source: Prime Database; * Data upto Feb. 2009

5. 4 Fund Raising at Different Stages of a Life Cycle Investors and Instrument issued depend on the option and the stage of lifecycle Seed Capital Shares Personal Contribution, Family, Friends, Angel Investors IPO: Initial Public Offer QIP: Qualified Institutions Placement GDR: Global Depository Receipts FCCB: Foreign Currency Convertible Bond ADR: American Depository Receipts IPO: Initial Public Offer QIP: Qualified Institutions Placement GDR: Global Depository Receipts FCCB: Foreign Currency Convertible Bond ADR: American Depository Receipts Venture Capital Warrants / Shares Venture Capitalist Private Equity Shares Private Equity investors IPO Shares FIIs, FI, Banks, Insurance Cos, MF, HNI, Individuals including NR Private Placement Shares / Warrants / FCD / PCD Promoters, Financial Investor, Strategic Investor Follow-on Public Issue Shares FIIs, FI, Banks, Insurance Cos, MF, HNI, Individuals including NR Rights Issue Shares / PCD / FCD Existing Shareholders QIP Shares QIB GDR Depository Receipts with the underlying being Shares FII FCCB Foreign Currency Bond convertible into Shares Hedge Funds and FIIs ADR Depository Receipts with the underlying being Shares US QIB Strategic Investment Shares Customer, Supplier, Competitor

6. 5 Benefits of Listing BenefitsDescription High Liquidity and Depth  Indian Stock Exchanges have a high number of listed companies and provide significant liquidity  Additional recognition in case of presence in Sensex/ Nifty/ A group Flexibility for future capital raising opportunities  Multiple choice: QIP, Rights, Follow-on public issue, GDR, ADR, FCCB Establishes profile  Sharing history, business operations, strategy and growth plans helps develop franchise value  Enables branding and customer awareness; provides access to retail investors; lenders have higher comfort with listed entities Positive impact on valuation  Greater awareness amongst research analysts, fund managers, investment advisors  Creates greater liquidity and market if part of the derivatives segment Wealth creation  Ability to create wealth for promoters and shareholders  Provides a benchmark for Company valuation Creation of currency  Ability to create currency for strategic initiatives  Leverage as currency for M&A, alliance etc. Employee incentivization  Ability to serve HR initiatives; serves as an incentive mechanism for management and employees e.g.: ESOS/ ESPS  Mechanism for tracking management performance

7. 6 Agenda Introduction Initial Public Offer – Key Requirements IPO Sizing, Valuation and Marketing Key Intermediaries and Timeline

8. 7 Eligibility Criteria for Unlisted Companies for an IPO Book built route mandatory with 50% QIB participation if all issues during the same financial year (including proposed IPO) > 5X pre-issue net worth Eligibility criteria for Unlisted Companies set forth by SEBI Exemptions from SEBI Eligibility Norms Listing criteria of Bombay Stock Exchange Limited Banking company Correspondent new bank (“public sector banks”) Infrastructure company Whose project is appraised by a FI/ IDFC/ IL&FS or bank which was earlier an FI 5% of the project cost is financed by the appraiser(s)/ institutions jointly or severally Rights issues For large cap companies: Post Issue paid up equity capital - Rs. 30 mn Issue size - Rs. 100 mn Post Issue market capitalization – Rs. 250 mn Option I: Net tangible assets, profitability and net worth track record Net tangible assets of at least Rs.30 mn in the preceding 3 full years, not more than 50% held in monetary assets + Track record of distributable profits in terms of Section 205 of Companies Act, 1956 (excl extra ordinary items) for 3 out of preceding 5 years + Net worth of at least Rs. 10 mn in each of the preceding 3 full years Option II: No net tangible assets, profitability and net worth track record Issue through book building route with at least 50% allotted to QIBs Minimum post issue face value capital of the Company shall be Rs 100 mn or+ ‘Project’ has at least 15% participation by Financial institutions/banks of which 10% comes from appraiser and at least 10% of issue size allotted to QIBs Compulsory market making for at least 2 years

9. 8 Restructuring Complete all capital restructuring exercise before going to the market Promoter/promoter group holdings -Family shareholding Bonus or split of shares Consolidation or sub-division of Company Holding structure of the Company or group of Companies Leverage position of the Company

10. 9 Issue Size and Minimum Dilution in terms of Securities Contracts (Regulation) Rules, 1957 (“SCRR”) Minimum Issue Size Regulations as governed by SCRR Minimum dilution (Unlisted companies)  At least 10% of each class of securities (on post-IPO capital) to be offered to the public under Rule 19(2)(b) of SCRR subject to following conditions:  Minimum 2 million securities to be offered;  Minimum Issue size of Rs. 1 billion;  Issue through book building with allocation of 60% of issue size to QIBs  However, exemption granted by SEBI to PFC and PGCIL to allocate 50% to QIBs and higher proportion to Retail  If the company does not meet any of the three conditions, it shall offer at least 25% of post-IPO capital  A recognized stock exchange may relax any of the above conditions with the previous approval of SEBI, in respect of a Government Company  Net offer to public would exclude reservations and firm allotments to select category of investors  Infrastructure companies are exempt from these requirements Continuous Listing and Offer for Sale Requirements Continuous Listing  Minimum post–IPO market cap of Rs. 10 bn and total number of shares issued 20 million, where the IPO is in terms of Rule 19(2)(b) Offer for Sale  Only securities held for more than one year can be offered for sale  Bonus shares issued during last one year may not be eligible for offer for sale

11. 10 Promoters’ Contribution and Lock-in of Shares Promoters’ Contribution and Lock-in Requirements (SEBI) Promoters’ contribution  At least 20% of post-IPO capital of the company to be held by the Promoters, which is referred to as Promoters’ contribution  The Promoters’ can comply with the Promoters’ contribution condition by bringing in the full amount of promoters contribution, including premium, at least one day prior to the issue opening date  Securities ineligible for computation of promoters’ contribution are those that are  Acquired for consideration other than cash and revaluation of assets or capitalization of intangible assets is involved  A result of bonus issues out of revaluation reserves or reserves without accrual of cash resources or against shares which are ineligible for computation of promoter contribution  Acquired by the promoters at a price lower than the IPO price during the preceding 1 year from the date of filing the DRHP with SEBI, unless the difference in price is brought in. However, this is not valid if these acquired shares result from an inter-se promoter transfer and (i) such shares were acquired by the transferor promoter during the past 1 year at or more than the IPO price; or (ii) such shares were acquired by the transferor promoter prior to the past 1 year  Ineligible shares acquired in pursuance to a scheme of merger or amalgamation approved by a High Court shall be eligible for computation of promoter’s contribution  Compliance with norms for Promoters’ contribution shall be required at the time of filing the DRHP with SEBI

12. 11 Promoters’ Contribution and Lock-in of Shares (Cont’d.) Promoters’ Contribution and Lock-in Requirements (SEBI) Lock-in Requirements (Unlisted companies)  Entire pre-IPO capital locked in for 1 year from date of allotment in IPO (exempt for (a) Venture Capital Funds which have held shares for a minimum of 1 year; (b) pre-IPO shares held by employees which were issued under ESOP or ESPS before the IPO). Transfer of locked-in shares among pre-IPO shareholders allowed, provided lock-in continues with transferee  Promoter’s holding up to 20% of post-IPO capital locked-in for 3 years from the date of allotment in IPO and excess promoter’s holding locked-in for 1 year Pledge  Pledged securities held by promoters shall not be eligible for computation of Promoters’ contribution  Other locked-in securities may be pledged only with Banks/ FIs as collateral provided the pledge is a term of sanction  If securities are locked-in as Promoters’ contribution, the same may be pledged if the loan has been granted by such Banks/ FIs for the purpose of financing one or more objects of the Issue

13. 12 Reservation of Shares in an IPO for Allotment to Select Segments No reservation can be made for the issue management team, syndicate members, their promoters, directors and employees and for the group/associate companies of issue management team Net Public Offer” i.e. the size of the offer, net of reservations and firm allotments, if any, has to be greater than 10% of post issue capital Reservation on a competitive basis EmployeesShareholdersBusiness Associates New CompanyPermanent employees of the Issuer and promoting companies Shareholders of the promoting companies Persons who have business association with the Issuer, as depositors, bondholders and subscribers to services Existing CompanyPermanent employees of the issuer company Shareholders of group companies Limit as a % of Issue size10%*10%5% Available for bidding in net Public issue Yes No * Firm allotment + Reservation

14. 13 Corporate Governance Requirements Composition of Board of Directors Reconstitution of the Board of Directors At least one-half non executive Directors One-third independent Directors in case of a non-executive Chairman One-half independent Directors in case of an executive Chairman One-half independent Directors in case non-executive Chairman being a promoter or related to the promoters or persons occupying management positions at the Board level or at one level below the Board Committees of the Board Audit Committee Should comprise at least three members Two-thirds of the members shall be independent Directors At least one Director should have financial and accounting knowledge Committee Chairman to be an independent Director Shareholder’s/Investor Grievance Committee A board committee under the chairmanship of a non-executive director Redressal of shareholder and investors complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. Remuneration Committee (optional) Should comprise at least three members Have all non-executive Directors Committee Chairman to be an independent Director A report on Corporate Governance to be included in the Annual Report of the Company  Clause 49 requirements of the Listing Agreement of the Stock Exchanges to be met at the time of filing the DRHP with SEBI  Instances in the past where DRHP filed with SEBI by certain PSUs without Clause 49 compliance, with an undertaking to comply with the same prior to opening of the Issue

15. 14 IPO Grading Process IPO grading is a service aimed at facilitating the assessment of equity issues offered to public and is mandatory as per SEBI guidelines Aimed at providing an independent assessment of fundamentals to aid comparative assessment Intended to serve as an Information and Investment tool for investors IPO grading does not take cognizance of the price of the security. It is not an investment recommendation. IPO Grading is required prior to marketing of the IPO and needs to be disclosed in the RHP and Prospectus IPO Grading process involves a review of the Company background, Corporate Governance, Business, financial performance and SEBI observations

16. 15 Relaxations available to a Government Company Definition Government Company: Section 617 of the Companies Act, 1956 defines a Government company to mean any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company as thus defined. Relaxations available to a Government Company Certain provisions of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 to not apply to a Government Company: -Face value of shares to be Rs. 10 if issue price is less than Rs. 500 -Securities acquired by promoters in the preceding one year at a price lower than the IPO issue price not to be considered as eligible for promoter’s contribution -“Offer for Sale” shares to be held for at least one year at the time of filing of the Offer document -Disclosure of financial information of group companies in the Offer document -Disclosure of Outstanding litigations involving the promoter and group companies in the Offer document

17. 16 Agenda Introduction Initial Public Offer – Key Requirements IPO Sizing, Valuation and Marketing Key Intermediaries and Timeline

18. 17 Issue Sizing Considerations Net Public Offer: Total Issue Size less firm allotments and /or reservations * Assuming a dilution of less than 25%. If dilution is more than 25%, distribution plan shall be as follows: Up to 50% to QIBs, not less than 15% to HNI and not less than 35% to Retail Investors A correct IPO size has a favourable impact on quality of demand, achievable price and aftermarket performance IPO Size RecommendationKey Considerations Net Public Offer  Large enough float to attract good quality institutional investors and have adequate liquidity  Meet additional investment requirements Potential Distribution Plan Key Considerations Minimum 60%* to Qualified Institutional Buyers (QIBs)  In accordance with SEBI guidelines; 5% of the 60% reserved for domestic mutual funds 10%* to Corporate/ HNI and 30%* to Retail Investors  Significant enough retail distribution to enhance liquidity; but not so much as to affect immediate aftermarket adversely Motivation for a Small Offering Motivation for a Large OfferingRequirement Minimise DilutionUse of Proceeds  Expectation of better valuation in future, especially as operations and cashflows improve  Significant improvement to the balance sheet size  Funding requirements over the next 2 – 3 years Scarcity perceptionLiquidity  Limit supply to achieve best pricing  Optimising size for liquidity, which is an important consideration for most investors Minimum Float  In a Book Built IPO, Institutional Investors prefer a minimum investment size  Regulations allow a minimum of 10% dilution, subject to adherence to certain conditions, chiefly min. 60% allocation to QIBs IPO Size

19. 18 Approach to Valuation of Company Valuation on an Enterprise Value basis or on a per share basis A unlisted company relies on its inherent cash flows or valuation of comparable companies to derive its valuation Pre-IPO, if considered, plays an important aspect in valuation – creates a benchmark and improves perception Valuation parameter is based on the valuation driver Valuation are based on a one year forward earnings Discounted Cash Flow (DCF) Future cash flow discounted by WACC (Weighted cost of capital with the proportion of Debt and Equity as weights) Cost of Equity is Rf + Beta * Market premium IPO discounts built into the price to make the Issue attractive to investors As a multiple of EPSAs a multiple of operating profitAs a multiple of Sales Globally Accepted valuation parameter Directly related to the profits, which is supposed to be distributed to the shareholders Globally Accepted valuation parameter Financial jugglery and capex below the operating profit levels distorts the P/E Start-ups Net profit and operating profit not the right parameters due to initial stages of business As a multiple of Book ValueNet Asset Value/Replacement ValuePEG Banks Assets suggest true value of business Real Estate, Shipping companies Fixed assets are the valuation driver Retail, Media and Entertainment, IT High growth companies EV/EBITDARSum of PartsAs a multiple of operating asset Airline companies Lease value forms a significant portion Diversified companies Synergy value may be an addition Per tonne for Cement, steel etc Per square feet for retail

20. 19 A Typical Allocation Plan in an IPO If issuer company meets eligibility norms and IPO dilution # 25% of post- IPO capital IPO dilution is more than 10%, but less than 25% of post-IPO capital If issuer company does not meet eligibility norms and IPO dilution is # 25% of post-IPO capital SEBI Guidelines require allotment of shares to be done on a proportionate basis in relation to available shares in the respective category, for all three categories of investors Notes: @ 5% of the issue in the QIB portion is available for allocation to Indian Mutual Funds on proportionate basis and balance is available to QIBs including Indian Mutual Funds on a proportionate basis. * SEBI Guidelines specify not less than specified level of allocation for respective category of investors. However, in case of under subscription in any category, spill over from any other category is allowed. # SEBI Guidelines specify not less than specified level of allocation for respective category of investors. However, in case of mandatory book built IPO, QIB allotment of 60% or 50%, as the case may be, is mandatory and under subscription in retail and non-institutional categories can be met by spill over from other categories.

21. 20 Marketing Strategy Marketing Plan Direct marketing to shareholders/ stakeholders Public Relation Plan Conference Plan i.e. Press & Broker Conferences, Analysis Media Plan Stationery distribution schedule (Form & Prospectus Corporate Ads

22. 21 Marketing Strategy (Cont’d.) Retail and Non Institutional Marketing in India Communication of the equity story to the investors prior to management roadshow Almost all the investors that the Issuer Company would meet on the roadshow would have been “warmed up” in the pre-marketing stage to maximize investor interest and enable optimal targeting of the right investor set. Roadshow schedule will comprise one-on-one meetings and group presentations In Mumbai, Hong Kong, Singapore, Europe and US, one- on-one meetings will dominate the schedule; small-group meetings would supplement the one-on-ones Global Institutional Marketing Asia US Europe

23. 22 Agenda Introduction Initial Public Offer – Key Requirements IPO Sizing, Valuation and Marketing Key Intermediaries and Timeline

24. 23 Key Parties and Responsibilities for an IPO Intermediary Structure BRLM Book Runners’ Legal Counsel Broker / Syndicate Legal Counsels Advertising Agency Printers IPO Grading Agency Registrars Escrow Bankers Issuer Company / Selling Shareholder Arrangement Coordination

25. 24 Role Played By Book Running Lead Manager Suggesting optimal Capital structure for the Company Appropriately positioning the Company vis-à-vis its peers Advising on all critical aspects related to the Issue Overall transaction management responsibility Navigating transaction strategy, including structuring, timeline and execution Conducting due-diligence and participating in the Drafting sessions Co-ordination with all parties involved in the transaction; liaison with SEBI and Stock Exchanges Issue marketing, including co-ordination of Research briefing and management road shows Managing the Book, advice on pricing and allocation and assisting in post-issue management

26. 25 Preliminary IPO Timeline The Preliminary Timeline Can be Refined Based on the Specific Case Week 1 - 2 Week 3 - 5 Week 6 - 7 Week 8 Week 9-15 Week 16 Week 17-21 Week 22

27. Thank you