How is an IPO valued?

How is an IPO valued?

All financial assets and securities have their own values based on the demand and supply in the market. This stands true even for newly introduced assets in the market. Privately owned businesses introduce their IPO (Initial Public Offering) to the public in the form of shares available for trading in the market to meet expansion plans and raise capital. However, many are left wondering about the reasons behind the valuation of an IPO, which depends on a variety of factors.

Before we read more about factors affecting the valuation of an IPO, it is important to know in detail what an IPO really is.

What is an IPO?

As can be inferred from the term, an Initial Public Offering (IPO), takes place when a private company initiates the process to publicly sell its shares for the first time. Once the IPO is declared in a stock exchange, the company no longer remains a private entity and is collectively owned by the shareholders.

A private company usually initiates an IPO with the intention of raising funds for expansion by way of selling a percentage of the company’s shares.

The response to an IPO largely depends on two factors, i.e. the company’s profile and the IPO valuation. Potential shareholders should carefully evaluate both these factors to realize the significance of an IPO.

Process of IPO valuation

A team of lawyers, underwriters, certified accountants and Securities and Exchange Board of India (SEBI) experts get together to value an IPO. This team compiles data and goes through the financials of a company, its assets and liabilities, revenue generation and performance in the market, besides other parameters. These data are thoroughly analyzed over a period of time before it is submitted for an official audit. Based on this audit, a prospectus is filed with the concerned stock exchange, an offering date is scheduled, and the price of the IPO is determined. All of this happens months before the issue is even declared.

Factors affecting IPO valuation

The following factors determine the valuation of an IPO:

  • Number of stocks on offer: This helps understand the equation of demand and supply. By determining the number of stocks on offer, you can get a picture of whether it will be able to satisfy market demand.
  • Administration of the company: The top-level management of the company going public plays a major role in the success of an IPO. A good team of higher-ups can assure better growth with higher resilience to shockers.
  • Stock prices of competitors: This helps provide a reference mark for the IPO value. It also assists in closely understanding and predicting the market reception and consequent performance of the IPO.
  • Company's revenue model: This is a fundamental factor considered for IPO valuation. A company’s revenue model is the foundation of its profit and loss. A better revenue model helps a company avoid losses and book a good profit. Hence, it is a very imperative while evaluating an IPO.
  • Company's growth prospects: A team of underwriters closely monitors the future growth prospects of the company. It is on the basis of these prospects that shareholders choose to invest in the company’s IPO.
  • Company's share in the sector: The company’s share to its sector gives an overview of how much revenue percentage the company would contribute to the sector’s total earnings. This largely affects the future value of the company.
  • Market trend: Market movement plays an important role in strategically valuing the IPO. It is an external factor which affects every market player to a large or small extent.
  • Overall economy: The overall factors that affect the economy in a country, including taxes, policies, and other events, have an effect on organizations as well and thereby affect the IPO valuation.

Moreover, the IPO of the company is sometimes strategically undervalued to get better reception from the market.

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5 Stocks for next week 15th Jan-19th Jan 2018

5 Stocks for next week 15th Jan-19th Jan 2018
by Gautam Upadhyaya 01/12/2018


Recommendation The stock has formed a bullish engulfing candlestick pattern on the daily chart and has managed to give a close above its short term EMA. The stock has also formed a bullish hammer formation on the weekly chart.
Buy/Sell Range Target Stop Loss
Buy(cash 373.5-375.5 389 364
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 Day M.A
 INFRATEL  69036 481/283 382


Recommendation The stock has managed to give a close above the declining trend line on the daily chart backed by a surge in volumes. Derivative data is also suggesting a fresh long build up which is indicated by surge in price and O.I.
Buy/Sell Range Target Stop Loss
Buy(cash) 165.5-167.5 177 159
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 Day M.A
KTKBANK 4721 181/112 150



Recommendation The stock has given a breakout from its sideways consolidation on the daily chart backed by a surge in volumes; The stock is also on the verge of witnessing a bullish crossover on the daily MACD indicator.
Buy/Sell Range Target Stop Loss
Buy(cash) 323-326 337 315
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 M.A
TATAGLOBAL  20489 327/126 216


Recommendation The stock has formed a large bearish candle on the daily chart which has been accompanied by a rise in volumes. The stock has also breached its support levels and has given a close below its 200 day EMA which affirms our negative view on the stock.
Buy/Sell Range Target Stop Loss
Sell Jan Futures 78-79 73 82
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 M.A
DISHTV 8362 110/68 82


Recommendation The stock has formed a bearish candlestick on the weekly chart. It has also shown weakness on the daily MACD Histogram. Derivative data suggests fresh short positions.
Buy/Sell Range Target Stop Loss
SELL-Jan Futures 680-684 654 702
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 M.A
REPCOHOME 4233 932/552 675

Research Disclaimer

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Invest in these stocks before Union Budget 2018-19

Invest in these stocks before Union Budget 2018-19
by Nikita Bhoota and Gautam Upadhyaya 01/12/2018

Union Budget 2018-19 is the most widely discussed topic these days. Everyone has high expectations from this budget particularly, as it is the first budget post GST era and the last full budget of the NDA Government for its term from 2014-19. It is expected that this budget will continue to focus on infrastructure development, job creation to stimulate the economy and improving rural income. The major topics likely to be discussed in the upcoming budget are, change in long-term capital gain tax norms and increase in the tax exemption limit from Rs2.5 lakh to Rs.3 lakh p.a.  It may also introduce new policies and reforms to uplift the rural economy, thus resulting in improving the rural consumption.

Union Budget 2018-19 is expected to be the next big trigger for the Stock market. Almost all the stocks are likely to benefit from the announcements to be made in the forthcoming budget. Based on the fundamentals, management outlook, growth prospects and technical charts we have cherry picked the below mentioned stocks for investing before the Union Budget 2019.

DB Corp

Fundamental View

DB Corp is the largest print media company with an added presence in radio and digital media. Its revenue consisted of printing & publishing (91%), Radio (6%) and Others (3%) in FY17. The company enjoys leadership position in radio listenership in cities of Rajasthan, MP and Chhattisgarh.  We expect revenue CAGR of 7.5% over FY17-19E on account of traction in local print media and increase in circulation revenue backed by increasing copies in existing markets and launch of new edition in Surat in Q1FY18E. Additionally, company's foray into radio business is seeing good traction.  Its acquisition of 13 stations to further augment the radio revenue albeit on a small base. Due to better realizations, we expect EBITDA CAGR of 8.3% over FY17-19E. Consequently, PAT would register CAGR of 11.6% over FY17-19E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) BVPS (Rs) P/BV (x)
FY17 2,258 28.4 374 20.4 18.6 87.0 4.4
FY18E 2,425 28.3 403 22.0 17.3 104.3 3.6
FY19E 2,608 28.8 466 25.5 14.9 124.9 3.0

Source: 5 Paisa Research

Technical View


The stock has managed to give a breakout above the declining trend line on the daily chart backed by a surge in volumes. The stock has also managed to give a close above its 200 day EMA. We expect the positive momentum to continue in the stock. 

Buy/Sell Range Target Stop Loss
Buy (cash) 372-376 414 348
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 M.A
DBCORP 6,899 395/338 367

Texmaco Rail

Fundamental View

Texmaco’s acquisitions, Kalindee Rail Nirman (track work and signaling) and Bright Power Projects (railway electrification) have positioned it as a ‘Total Rail Solutions’ company. The company now operates in three segments - Heavy Engineering (wagons/freight cars), Steel Foundry and Rail EPC, contributing ~ 49%, 15.9% and 35.4% respectively to FY17 sales. We expect finalization of tender for 9,500 wagons by Indian Railway may help strengthen its wagon division order book. The RAIL EPC division’s sales and profitability is improving on back of completion of legacy contracts. Further, speedy electrification and completion of Dedicated Freight Corridor (DFC) projects will be positive for the company. The company’s foray into international markets - South East Asia, West Asia, Middle East Asia and Africa are likely to aid future growth in all the segments. Thus, we project revenue CAGR of 20% over FY17-19E. The present order book is ~Rs3,800cr (2.8xFY17 sales) providing strong sales visibility. We expect incremental sales to result in EBITDA margin expansion by 490bps by FY19E. PAT is expected to grow (led by improving operating performance and decline in interest) at 83% over the same period.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) P/BV (x)
FY17 1,154 5.0 34 1.6 2.5
FY18E 1,000 4.0 2 0.1 2.5
FY19E 1,650 9.9 114 5.2 2.3

Source: 5 Paisa Research

Technical View

Stock Texmaco Rail & Engineering Limited

The stock is in a higher top higher bottom chart structure on the daily chart and has managed to take support along the rising trend line. The trend and strength analysis indicates that the current momentum is likely to continue further.

Buy/Sell Range Target Stop Loss
Buy(cash) 117-119 136 108
NSE Code Market Cap (Rs in Cr) 52-week High / low 200 Day M.A
TEXRAIL 2,609 128/84 103

Ingersoll- Rand Ltd

Fundamental View

Ingersoll Rand (IRIL) manufactures and sells air compressors, which include reciprocating compressors, centrifugal compressors and system components. IRIL enjoys strong market positioning in domestic compressors market. We believe that pick up in user industries (automotive, metals, pharmaceuticals and textile) along with introduction of new products and development of Naroda as an export base for large reciprocating compressor packages and parts is likely to drive future sales. Thus, we see revenue CAGR of 12.5% over FY17-19E. Indigenization of most of its products and high realization from new products is likely to help the company maintain EBITDA margin despite pricing pressure. Hence, we project PAT CAGR of 12.5% over FY17-19E. The company’s debt free status and unencumbered promoter holding of 74% adds further stability. 

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) P/BV (x)
FY17 664 19.0% 77 24.4 35.7 2.6
FY18E 730 18.9% 85 26.9 32.4 2.4
FY19E 840 19.0% 97 30.9 28.2 2.2

Source: 5 Paisa Research

Technical View


The stock is on the verge of witnessing a symmetrical triangle breakout on the monthly chart and has also witnessed a smart uptick in volumes. The positive strength shown by the stock on the weekly MACD Histogram affirms our bullish view on the stock. 

Buy/Sell Range Target Stop Loss
Buy(cash) 858-868 998 784
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 Day M.A
INGERRAND 2,841 940/645 795

Cera Sanitaryware

Cera Sanitaryware is a pioneer in the sanitaryware segment in India. It is the third largest player in the organised sanitaryware business with market share of ~23%. It generates revenue from sanitaryware (~62%), faucets (~21%) and tiles (~17%) business. We see revenue CAGR of 23% over FY17-19E as company’s tie-up with Italian luxury brand ISEVA will help company to tap premium sanitaryware market. New innovative launches in faucet segment as well as commissioning of tiles plant in south, where presence of organised players is limited will also boost the revenues. Further, the replacement demand in India forms only 10-15% of total demand, whereas worldwide it contributes around 75-80%. Hence, with rising standard of living, the replacement demand for sanitary ware and faucet is expected to witness northward movement. Consequently, we expect ~23% CAGR in revenue over FY17-19E. The entry into premium segment, GST implementation and improving operating performance would drive PAT at ~27% CAGR over FY17-19E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) P/BV (x)
FY17 1,006 17.0% 99 76.2 49.6 9.4
FY18E 1,172 17.00% 120 92.3 40.9 7.9
FY19E 1,383 17.0% 144 110.8 34.1 6.6

Source: 5 Paisa Research

Technical View

Stock Cera Sanitaryware Limited
Recommendation The stock is in a higher top higher bottom chart structure on the monthly and weekly chart. The stock has also formed an ascending triangle formation on the daily chart; we expect the stock to breach its upper resistance trend line and head higher.
Buy/Sell Range Target Stop Loss
Buy(cash) 3,770-3,790 4,210 3,490
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 M.A
CERA 4,912 4,300/2,023 3,150

Reliance Industries Ltd

Fundamental View

Reliance Industries (RIL) is one of the largest private sector enterprises in India. RIL is a vertically integrated company with business interests in energy and materials value chain. Its revenue in FY17 comprised of refining business (64%), petrochemical business (24%) and others (12%). The company has rapidly grown its broadband business (4G) through RJio owing to strong operating competitiveness and healthy consumer traction. We estimate revenue CAGR of 18.2% over FY17-19E on account of expansion of RJio and strong refining margin outlook.  Jio’s RMS (revenue market share) is expected to be ~30% over next few years. Company’s margins are expected to remain robust due to firm demand and improving utilization in polyester segment. Refinery off-gas cracker (ROGC) has been commissioned and will be ramped up to full utilization by FY18E. In addition, company has commissioned 4 of its 10 petcoke gasifiers, which will ramp up over FY18-19E. Our outlook on refining remains strong with growth in petro-product demand outpacing supply additions. This should keep RIL’s GRM (Gross Refining Margin) in the US$11-11.5/bbl range. Consequently, we expect PAT CAGR of 12.2% over FY17-19E.

Year Net Sales (Rs Cr) OPM (%) Net Profit (Rs Cr) EPS (Rs) PE (x) P/BV (x)
FY17 305,400 15.1% 29,800 50.3 18.6 2.1
FY18E 392,700 15.0% 34100 57.6 16.3 1.9
FY19E 427,100 17.4% 37,600 63.5 14.8 1.7

Source: 5 Paisa Research

Technical View

Stock Reliance Industries Limited
Recommendation The stock is currently trading in a rising channel formation on the weekly chart. It has also witnessed a bullish crossover on the daily MACD Indicator. We expect the stock to trend higher and to move towards the upper end of the channel.
Buy/Sell Range Target Stop Loss
SELL-Jan Futures 935-940 1,010 888
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 M.A
RELIANCE 594,779 957/508 801

Research Disclaimer

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Attention Investors - Half of Your Salary Raise Should Go Towards the Future

Attention Investors - Half of Your Salary Raise Should Go Towards the Future

Getting a raise in salary is one of the best things for an employee. Professionals from all walks of life set targets and make wish lists in anticipation of a salary raise. A salary raise is usually an occasion for a celebration. To the more savings-minded, it is an opportunity to top-up on their investments. But before you decide to splurge the money, let’s have a look at why a fifty percent of the raise should be invested for your future.

The prevalent thought – Percentage Savings

Retirement planners bank upon the classic “save a percentage” model. It usually means taking a slice out of the income pie every year. There’s no universal consensus on what’s a reasonable amount. A 10% savings on the pre-tax salary seems reasonable to most. The general idea is that, as your salary increases, so does your savings. But there are pitfalls that we turn a blind eye to.


  • Increasing standard of livingWhen you save 10% of your income, you save only 10% of your raise. This puts you in a position of spending 90% of your salary, no matter what the increase. This significantly increases the standard of living and requires much greater savings for an equivalent retirement corpus.

  • Post-retirement difficulty - With the standard of living peaking just before retirement, it becomes difficult to sustain the lifestyle. Troubles multiply after hanging up your boots and a reduced corpus doesn’t help at all.

The alternative – Save your raise

Alternatively, you spend only 50% of each raise, implicitly saving the raise. Instead of dedicating the same percentage of your income to savings, you save the same percentage of our salary hikes.

  • The controlled standard of living Saving half of your salary raise helps you to control the rise in your living standard. Expenditure is capped and savings grow in parallel to your paychecks.

  • Early retirement opportunity  With your standard of living in check, and your salaries burgeoning, you can easily move for an early retirement.

A Case Study

Figures rarely lie. Logic and reasoning need to be backed up by some solid figures to support claims.

Let’s take two examples to illustrate the point.

Case A: Traditional Savings

Mohan starts off with a Rs 4,00,000 per annum salary in the mid-twenties. He follows a 3% savings growth plan. With a reasonable increment of Rs 20,000 per annum, his savings build up somewhat like this:

Now in a period of 3 years, Mohan will have an annual contribution of Rs 13,800 per annum.

Though Mohan possibly becomes a millionaire, he’s forgotten to take the bigger picture into account. He is raising the lifestyle costs by 90% each year.

Thus, an initial living cost of Rs 3,88,000 per annum (Rs 40K minus the 3% saved) can exponentially increase.

With a 4% withdrawal rate, Mohan is going to need a lot more to make it through.

Case B: Saving half your raise

Mohan’s friend Rohan started off on the same Rs 4,00,000 per annum as Mohan. However, he doesn’t plan to save exactly 3% every year. He plans to save half his salary raise every annum.

He puts aside 3% for the first year and then spends only 50% of each salary raise, saving the rest.

In a period of 3 years, Rohan has saved much more than Mohan. His annual savings contribution is now Rs 42,000. His savings graph now looks something like this.

Since he has significantly reduced his lifestyle growth, he’s more likely to make do with a much smaller corpus than Mohan’s on retirement. He had a lifestyle growth which was slower, but it definitely means that he won’t have to do with less once he hangs up his boots

Saving more and spending less is a double blessing. It grants more flexibility during your working career and significantly increases the chance that you will enjoy a comfortable retirement.

It’s worth your while to save that next pay raise—and you deserve it!

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IPO Note: Aster DM Healthcare Ltd - Not Rated

IPO Note: Aster DM Healthcare Ltd - Not Rated
by Nikita Bhoota 02/12/2018
Untitled Document

Issue Opens: February 12, 2018
Issue Closes: February 15, 2018
Face Value: Rs10
Price Band: Rs180-190
Issue Size: ~Rs980cr
Public Issue: 5.16-5.37 crore shares
Bid Lot: 78 Equity shares       
Issue Type: 100% Book Building

% Shareholding


Post IPO







Source: RHP

Company Background

Aster DM Healthcare (Aster) is one of the largest private healthcare service providers in multiple GCC countries (Gulf Cooperation Council). Company also has operations in India and Philippines. It has a diversified portfolio of healthcare facilities, consisting of 9 hospitals, 90 clinics and 206 retail pharmacies in the GCC countries, 10 multi-specialty hospitals and 7 clinics in India and 1 clinic in Philippines. Domestic business generated 18% of H1FY18 revenue, while rest came from GCC region and Philippines. Aster is planning to add 1,658 beds over the next 2-4 years through 4 new multi-specialty hospitals in the UAE and 5 new hospitals in India.

Objective of the Offer

The Initial Public Offer consists of an Offer for Sale for 1.34cr equity shares amounting to `255cr (on the upper price band) by promoter group company, Union Investments Private Ltd. The IPO also includes fresh issue of Rs725cr, which comprises of issuance of 3.82cr new shares on the upper price band. Company proposes to use the fresh issue proceeds to repay debt (Rs564.2cr) and to purchase medical equipment (Rs110.3cr).


Consolidated Rs Cr.















Adj. EBITDA Margin %





Adj. PAT





Adj. EPS* (Rs)

























RONW (%)





ROCE (%)





Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band.

Key Points

During the Union Budget 2018-19, Indian government announced National Health Protection Scheme (NHPS) to cover ~10cr poor and vulnerable families (up to Rs5 lakh cover per family/ year) for secondary and tertiary hospitalization. This brings ~50cr people under health insurance coverage, boosting domestic healthcare industry, including hospital sector. Aster operates in India with 10 hospitals (3,887 bed capacity) and plans to expand by adding 5 new hospitals (1,372 beds) over the next 4 years. Aster, with its presence in the tier 2/ 3 cities is likely to emerge as one of the beneficiaries of NHPS in India.

The Emirate of Abu Dhabi introduced mandatory health insurance for locals and expatriates in 2006, which increased number of insured people in Abu Dhabi at a CAGR of 7.4% over FY08-13 and covered 3.43 million people in 2015. The mandatory health insurance was also implemented in Dubai in March 2017, which is likely to have brought 1.5-2 million additional people under health insurance coverage by 2017. Aster is well placed in the GCC countries due to its early mover advantage, deep understanding of the region and strong presence.

Key Risk

Profitability has been inconsistent over the past and is likely to remain weak due to cost associated with new hospital additions and lower occupancy in the existing hospitals.

Research Disclaimer

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Do’s and Don’ts of Stock Market Investing for Beginners

Do's and Don'ts for beginners

With a trading account and demat account you are ready to trade. But if you are a beginner in the stock markets, then that is not all. You also need to keep a tab on some major do’s and don’ts before you venture into investing in the stock markets. Let us look at 10 such key dos and don’ts for investors.

10 important do’s and don’ts for investment beginners

Do’s are about doing the right things in the market when you are starting off on your investing journey while the don’ts are the ones to avoid. Here are ten such important dos and don’ts for investing beginners.

  1. Do your research before investing? Remember, research of a stock is not a rocket science and it is all about getting your research process right. Get comfortable reading the balance sheets and income statements of a company. Also read the Management Discussion and Analysis (MDA) of the stock you are planning to invest in.

  2. Start with your goals in mind. You must be clear about how much risk you are willing to take and how much risk you can afford to take. Your equity portfolio should be within the limits defined by your allocation. Always start with a plan.

  3. Don’t put all your eggs in one basket. That is age old wisdom and applies to investing as well. In technical parlance it is called diversification where you effectively spread your equity investments across sectors and themes so that your investment performance is not dependent on any one stock or sector.

  4. Take a long term view and cultivate that habit in the very beginning. It is futile to time the market. Not only that it is hard to consistently get the tops and bottoms of the market right but it hardly makes any difference to your eventual returns.

  5. Try to invest consistently and regularly instead of putting a large corpus in a stock of your choice. The advantage of being regular is that it instils discipline in your investment and also gives the added benefit of rupee cost averaging. That means; over time your average cost of investing comes down.

  6. Even through equity is about the long term, try to get bargains. Even if you are convinced about the long term prospects of Infosys, it makes a lot of business sense to buy at Rs.650 than at Rs.750. Quite often, a market correction creates salivating bargains. Use such corrections to add quality stocks at low prices.

  7. Divide your equity portfolio between core holdings and satellite holdings. Your core holdings are your long term investment portfolio and you don’t sell these stocks at every correction. On the other hand, the satellite portfolios are more of a trading portfolio where you look out for short to medium term opportunities in the market. Have a separate approach to both these types of stocks.

  8. Don’t ignore trading costs. Even if you are a long term investor, take at a close look at your costs. Your cost is not just about brokerage costs but there are a number of other costs too. There are statutory costs, exchange charges, demat AMC, DIS charges, demat and remat charges etc. All these need to be added to calculate your effective cost. Nowadays, it makes a lot of sense to opt for low-cost discount brokers who can give the same execution at a much lower cost.

  9. As a beginner, remember that quality always wins in the end. When we talk about quality we are talking about quality at a number of levels. Look at quality of earnings; more of the earnings must be coming from the core business. Look at profitability; the company must be earning more margins than the peer group. Take stock of asset turnover; it tells you how efficiently the business is using assets. At a qualitative level, prefer companies that have high standard of disclosure and transparency. Large caps or mid caps, this quality approach always works in your favour.

  10. Make effective use of technology and if you are a beginner then you better get used to it early. Ideally use the online trading platform; it gives you a lot more control over your trades. Also, if possible you can download the app on your smart phone which allows you to trade on the run. Get used to reading electronic contract notes and ledgers; they are a lot more convenient and environment friendly than printed stuff.

In an effort to chase stocks, investors tend to forget that investment success is a lot more about discipline than about skills or flair. It is in your hands to make your investments work in a systematic manner.