IPO Investment Guide Lecture Notes

Introduction

• IPO season is back; many want to invest because of the business appeal or to exit quickly.
• Importance of reading the Draft Red Herring Prospectus (DRHP) before investing.

Understanding the Draft Red Herring Prospectus (DRHP)

• Purpose: Document that details everything about the company, including opportunities and risks.
• How to Access:
  • Go to sebi.gov.in
  • Navigate to Filings > Public Issue > Draft RHP
  • Standard format across companies.

Five-Point Guide for IPO Investment

1. Objects of the Offer

• Describes the utilization of raised funds.
• Example: Zomato using funds for organic growth, which is positive.
• Caution: Using excessive funds to repay debts is generally negative.

2. About Our Company

• Industry Overview:
  • Market size and growth potential
  • Possible overly optimistic projections
• Our Business Section:
  • Company operations and segments.
  • Important to understand primary business activities.
• Financial Information:
  • Focus on debt to equity ratio, sales growth, operating margins.
  • Key ratios: EBITDA/Interest should be > 2x; ROC should be at least 15%.

3. Management

• Importance of knowing board of directors and management team.
• Experience and connections are crucial.
• Legal issues: Significant legal cases are red flags.

4. Valuation

• Compare P/E ratio of IPO to industry peers.
• Calculate P/E ratio using:
  • Earnings per share (EPS)
  • Example: Dodla Dairy IPO process explained.

5. Understanding Risks

• Awareness of potential risks is critical for investment.
• Risk of ruin: Events leading business to failure.
• Example: Legal cases in Gower's DRHP.

Conclusion

• Even with the guide, specific questions may arise.
• Learnapp offers workshops and live classes for deeper understanding.
• Encourage checking out Learnapp and videos for financial education.