HOW TO READ AN IPO-HBL

Initial Public Offers are queuing up to hit markets, clamouring for
your attention as multiple offers open together many a time. Here, the
Red Herring Prospectus (RHP) will come in handy to evaluate IPOs or at
least understand the company. Given its intimidating bulk, here's
guiding you through reading the prospectus.
Basics
To begin with, download the prospectus of the companies you want to
look up from the SEBI website:
http://www.sebi.gov.in/Index.jsp?contentDisp=Section&sec_id=5

A prospectus is divided into nine sections. In order, from Section I
to Section IX, these are: general details, risk factors, introduction
to the industry, business and offer details, in-depth information
about the company and history, financial details, legal details, other
offer information, main provisions of the articles of association and
finally, miscellaneous information. To make trawling through the
prospectus a shade less confusing, here's two points: one, you need
really concentrate on certain sections only and two, don't read the
prospectus in order.
Reading the document
Start with the section called ‘About Us', the fourth section. It
contains details about what the company does, the industry in operates
in and the prospects of both. It also contains the history of the
company, its management and group and associate companies. A thorough
read is a must.
Then flip back to the start and read ‘Risk Factors', the second
section. This way you will be able to better understand risks and
their judge their impact on the company. Move on to the third section
and read the parts which contain the terms of the offer and objects of
the offer in detail. Understand why the company is raising money,
whether any private equity investors or promoters are exiting the
company (the entire issue proceeds will not accrue to the company in
this case). You can also glance at the capital structure and the
capital history that falls in this section to check whether big
private investors have invested in the company, if so, when and at
what price. You will also get an indicative market capitalisation post
listing.
At this point, you have a clear picture of the industry the company
operates in, its revenue model, risks to business and uses to which
the money raised will be put. Next go on to the financials, to check
if all business potential has translated into numbers. ‘Financial
information' forms the fifth section of the prospectus. Here, both
standalone and consolidated (if applicable) profit & loss statements,
balance sheet, cash flow, break up of debt and other key financial
details are provided. Comb through these to know how profitable the
company is, whether profitability has been improving, effect on
leverage as a result of the issue and so on. You can, if you wish,
analyse financials before risks and issue objects also.
Finally, thumb through the part on outstanding litigations contained
in the sixth section - ‘Legal and other information'. More often than
not, main litigations that have a heavy bearing will be mentioned in
the risks. However, some sectors such as real estate could be facing a
whole lot of litigations, so do spare a glance. If you still have the
time and inclination, glance through the sections left. Annexure
usually contain the IPO grading report. HINDU BUSINESS LINE