BOOK BUILDING PROCESS – A Must Read For Every Investor

BOOK BUILDING PROCESS – A Must Read For Every Investor

Dear Readers, pls note that this article is for novice investors, thos who dont know the basic terminologies of market. I have tried to simplify the term Book Building.

I was surprised this year when one of friend was filling up the IPO of Reliance Power. He told me that he is unaware of the term “Book Building” though he listens to this term 100 times a day in advertisements and newspapers.

My this article is for those investors who don’t know the Book Building process. I have taken most the part of this article from www.bseindia.com

Book building acts as scientific method through which a consensus price of IPOs may be deter-mined on the basis of feedback received from most informed investors who are institutional and corporate investors like, UTI, LICI, GICI, FIIs, SFCI etc. The method helps to make a correct evaluation of a company’s potential and the price of its shares.

Book Building is essentially a process used by companies raising capital through Public Offerings-both Initial Public Offers (IPOs) or Follow-on Public Offers ( FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process.

The Process:
1) The Issuer who is planning an offer nominates lead merchant banker(s) as 'book runners'.

2) The Issuer specifies the number of securities to be issued and the price band for the bids.

3) The Issuer also appoints syndicate members with whom orders are to be placed by the investors.

4) The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction.

5) The book normally remains open for a period of 5 days.

6) Bids have to be entered within the specified price band.

7) Bids can be revised by the bidders before the book closes.

8) On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels.

9) The book runners and the Issuer decide the final price at which the securities shall be issued.
Generally, the number of shares are fixed, the issue size gets frozen based on the final price per share.

10) Allocation of securities is made to the successful bidders. The rest get refund orders.

Guidelines for Book Building
Rules governing Book building are covered in Chapter XI of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000.

BSE's Book Building System
BSE offers a book building platform through the Book Building software that runs on the BSE Private network.
This system is one of the largest electronic book building networks in the world, spanning over 350 Indian cities through over 7000 Trader Work Stations via leased lines, VSATs and Campus LANS.
The software is operated by book-runners of the issue and by the syndicate members , for electronically placing the bids on line real-time for the entire bidding period.
In order to provide transparency, the system provides visual graphs displaying price v/s quantity on the BSE website as well as all BSE terminals.

XL Telecom Energy

• XL Telecom buy call…..
  
  Mkt Cap 392.62cr
  
  P/E 11.73
  
  EPS (TTM) 17.82
  
  B/V: 83.86
  
  FV 10.00
  
  PAT in June 2006 -- 1067.17 lakhs
  PAT in June 2007 -- 2017.69 lakhs (Just doubled!!!!)
  
  EPS in June 2006 -- 10.12
  EPS in June 2007 -- 13.91
  Expected EPS for 2008 ~ 20
  
  
  
  The Zooming Business of XL Tele in non-conventional energy…
  
  1) XL Telecom has been focusing in the NON CONVENTIONAL ENERGY sector since 1994 and has recently refocused on Export Market of Solar Panels of higher Capacity for niche Grid Connected Segment.
  
  2) XLTL is not only into Alternate Enery but also into Ethanol and telcom biz + thinking to get into semiconductor business.All things are big and futuristic and call for hefty gains.
  
  3) XL has been investing heavily for last 18 months its efforts to get orders from Europe and emerging US Market for its products. XL is focusing emerging Grid Connected Solar Solutions, which is growing at a fast pace recently as against the conventional Stand alone Solar Power Systems.
  
  4) The Company has been successful in securing additional Orders worth Rs 1,539 Million for the supply of Solar Panels to the European Market, and the customer is a large Power Utility Company in Europe.
  
  5) The Total Pending Order Book for the Export of Solar Panels with this Order stands at Rs 6.75 Billions worth of Solar Panels.
  
  6) The Company is bullish on entering as a vendor with this large Power Utility Company and is confident that over the period the Customer engagement will be extremely fruitful with multiple repeat orders. The Company is working smooth execution of larger portion of these orders with in the financial year ending of June 30, 2008.
  
  7) XL Telecom has recently concluded its FCCB Issue and has raised about US$ 40 Millions for part funding its establishing of 120 MW Solar Cell Manufacturing Plant along with Expansion of Module Making capacity by another 40 MW fully automated plant in the SEZ with a total CAPEX of US$75 Million or Rs 3 Billions.
  
  8) XL's subsidiary Saptashva on in Europe is in the process of establishing the Solar Farms for Power Generation in Europe.
  
  
  Orders that will take XL on runway to fly…. (source http://www.bseindia.com/)
  13 August
  XL Telecom & Energy Ltd has informed BSE regarding a Press Release issued in respect of 5 year Wafer supply agreement with LDK Solar Co. Ltd, China.
  
  30 July
  XL Telecom & Energy Ltd has informed BSE regarding a Press Release dated July 30, 2008 titled "XL Telecom & Energy Ltd., a leading Solar Export Company Signs a Five-Year Wafer Supply Agreement with Mola Solaire Produktions GmbH, Germany"
  
  24 March
  XL Telecom & Energy Ltd has informed BSE that the Company has received ORDERS VALUED OVER Rs 1,539 Millions for supply of Export of Solar Panels.
  Pls refer http://www.xltelenergy.com/invRelations.htm
  
  
  I am bullish on this stock and have a substantial quantity in my portfolio.
  
  Considering above facts and figures it has potential to reach up to 1000+ in two year time frame
  
  Kindly take your own decision before investing…..

Next Inning of Gold Rally....... will begin soon…

I am giving a buy call to add gold in your portfolio,

Remember This may be last chance to buy gold………….


Historically, gold has been a proven method of preserving value when a national currency was losing value. If your investments are valued in a depreciating currency, allocating a portion to gold assets is similar to a financial insurance policy

Gold versus Stocks
The performance of gold bullion is often compared to stocks.

They are fundamentally different asset classes:
Gold -- is a store of value
Stocks -- are a return on value (i.e. growth plus dividends). Stocks and bonds perform
Best in a stable political climate with strong property rights and little turmoil


Why gold?
One of the traditional strengths of gold is that it has always been a hedge against inflation. Gold has done a remarkably good job of beating inflation for, literally, centuries

Another argument for gold is that it helps diversify your portfolio (in simple terms, this means not putting all your financial eggs in one basket).

gold tends to move differently from other financial assets and it may hold its value even when other assets are performing poorly. Thus, an investment portfolio may earn smoother returns if some of it is invested in gold.

Perhaps the best argument for gold is that it is a good investment in times of severe crisis: like a massive war or a major breakdown of public order. In such a situation, the economy would naturally suffer along with most regular investment products like stocks and mutual funds. The value of the currency would also likely fall. In the ensuing panic, the price of gold would probably increase sharply as people flee to the age-old store of value

10-10% Allocation of Gold in Your Portfolio
A healthy portfolio includes a wide range of assets including a variety of equities with exposures to different market sectors and regions; a variety of different countries' bonds; a diversified property portfolio; a cash component and a 10-15% allocation to gold-related investments and gold bullion. The key is to determine what amount of each asset class to have. In a globalised and increasingly integrated global economy, a portfolio should be compiled based upon current global macroeconomic fundamentals.


Is it time to buy gold?
With an uncertain economic growth road ahead, Indian stock investors are nervously asking themselves: Should I stay or should I gold?

Gold has long been touted as the ultimate hedge against hard times. They don't call it the gold standard for nothing; central banks the world over stockpile the stuff to defend the value of their currencies.
Historically, gold prices rise when currency values and interest rates fall. Gold has been on a seven-year rally that has seen it rise precipitously out of back-to-back price slumps at $255 an ounce in 1999 and 2001 to early 2008 peaks of more than $900.

Gold's recent upward mobility, especially a 31-percent gain for 2007 followed by another 11-percent spike in the first month of 2008, has gold enthusiasts (known as gold bugs) and precious metals analysts alike watching in wonder at the commodity's latest high-wire act.
Some say a price correction is imminent and long overdue; others maintain that gold's next great historic run is just getting started.

The question is, should you buy gold now, even at historic highs of $900-plus an ounce?

Too high to buy?
Although it may seem counterintuitive, I must say it is definitely time to put a little bling into your portfolio.

"I'm surprised at just how strong it has been. Even though I think it could pull back, probably if you don't own some, you still should," he says. "It's high now, but what if it's going to go higher? I believe it will."

"I think gold will certainly rise into the new heights
"The last 100 years, stocks have outperformed gold perhaps 10 to 1 as an investment, so there's no disputing that the place to be is in stocks in the long run. But there are these peculiar moments in history when I think: gold. So few people own it that just the move of people into gold will cause it to really surge. I think we're in the second or third inning of the gold rally."

6 Points Favoring my Guess
• Real interest rates (interest rates minus inflation) are down globally. Result: Gold yields a better return than stocks or bonds.

• The declining dollar. Gold rises when currency falls.

• The ETF effect. With the introduction of exchange-traded funds in 2003, investors can now buy into the gold market with the click of a mouse. What's more, it's less risky than investing directly in gold mining. Two of the most popular gold ETFs are StreetTracks Gold Trust (GLD) and iShares COMEX Gold Trust (IAU). "The convenience by which individual investors can get in on the gold rally is propelling the rally itself," Laidi says.

• International rally. Gold is rallying worldwide, not just against the U.S. dollar but other currencies as well. Every time the Fed cuts interest rates to contend with the impact of the credit crisis, gold becomes more attractive.

• Increased fabrication: Emerging economies in China, India, Asia and the Middle East are boosting demand for gold jewelry.

• Political and economic uncertainty: When fears arise as they did post-Sept. 11, the enduring value of the world's oldest currency takes on a new luster.


I am giving a buy call to add gold in your portfolio, Remember This may be last chance to buy gold………….

My Favourite Picks

My Dear Friends,

This time i am giving the list of all stocks in which i am interested for long term play and also having positions in them. There is no indication from my side for you all to buy these, please take your own call. Go to bseindia.com for results and do your own analysis.

In my views these stocks will right the growth story of india in coming years.

XL Telecom
Hindustan Dorr-Oliver
Bhagwati Gases
Jayaswal Neco
Alpa Labs
Southern Bio
Ennore Coke
Jyoti Ltd
Indsil Electro
Gremach Infra
India Gylcols
JK Lakshmi Cement
Flex Foods
Karuturi Global
Ramsarup Industries
Confidence Petroleum
Crew BOS
MP Glychem
Yash management & Satellite
Natco Pharma
Sujana Towers
Galaxy Entertainment
Geojit Fin
Impex Ferro
Facor Alloys
Indbank merchant
Ion Exchange
PVR Limited
Pyramid Symaira
GMR Infra
Apcotex
Micro Technologies
Godawari Power

Facor Alloys
Impex Ferro
Gujarat NRE Coke

Have a good session in coming week.....

Things I learned from Warren Buffett

I just went back to my notes from a video of Warren Buffett speaking his mind. Here are a few of his tips on investing, business, and life. The bolded text is Warren’s followed by my comments.

1) Invest in companies selling products that consumers are not concerned with price. You will notice that some products are like that people will buy whatever the price is. Like Maggi and Whisper.. he he.. its just an example, dont take it otherwise.....

2) There are no called strikes in the ballgame of investing. You do not lose a single penny by passing on any given investment. Even if someone else hits a SIX with it, doesn’t mean that you are missing out. That said, you will have to swing the bat if you ever want to get anywhere. Just make sure it is a good pitch.

3) Do business with people you like and who share your objectives. If you are taking business decisions that keep money out of your mind. We have all worked with some people who we would have paid any amount NOT to work with. If we could quantify joy and happiness, it would be easy to see that working with people you like would far outweigh the joy received by getting more money with bad business partners.

4) It’s not about the biggest motor, but the most efficient motor. A Great Saying really, i like it... i have countless examples of many small companies who paid more money to their shareholders as compared to big companies in last year...A smaller company that is run efficiently is going to do better for their shareholders than a mammoth company with wasteful spending.

5) Don’t worry about what the stock market will do, focus on what the company will do. Good companies can and will go up even in the middle of falling market. Always be stock specific... again stressing on non conventional energy companies.. like XL Telecom.. take your own bet...

6) With Stocks it is hard to know WHEN something will happen, but it is easy to know WHAT will happen. Everyone seems to be concerned with the WHEN, but focusing on the WHAT seems to yield a nice fruit as Warren has proved. Great Saying... trust me

7) Find companies with endless demand for their products. Funeral homes will always be needed, because people are still dying. Also Hair treatment products.. he he he... joke but truth..

8) Leave your children enough money so they can do anything, but not enough that they don’t have to do anything. ... hmmmm extremely good.. dont make your kids to behave like a king, better to make him act like a finance minister.....

9) Decision making abilities fade as cash flow increases. If you only have Rs5 in your pocket until the end of the week, it is likely that you will make a good decision with it, because it is all you have. On the other hand, if you have Rs100 for the week, your decisions regarding a Rs5 purchase are far less critical since you have another Rs95. Therefore, people tend not to treat those decisions with the same respect they would if it was their last Rs5.

Have a good time ahead....... Comments are welcome on this article

How to select a company using Fundamental Analysis

In this volatile market, nobody wants to have a bumpy ride and lose money in the risky instrument like equity. Caution needs to be taken and instead of going for the `tips', doing your own `homework' certainly helps.

Common investors, if they invest their time in selecting the businesses, which are fundamentally strong, then they should not fret over the market movements.

Here are some pointers to look at before investing in any business.

1. Income
- Look at the quarterly and yearly progress in the earnings of the company

- Look at its competitors' earnings and do a comparative analysis

- See whether the income is coming from its core businesses and its growing

- Give attention to debt part, see whether it is shrinking or growing

2. Change
- Keep an eye on any change in management, geographical focus or any new launch of product which could make/destroy the value

- See what is the capital structure of the company, any change, issue of new shares, buyback

3. General Points
- The stage of the economy, i.e. Expansion, Recession, Peak, Trough

- See whether the company has monopoly or is the market leader in any segment which is expected to grow exponentially

Following are the additional points which you must look at before selecting the company.
Important parameters in Stock Selection

_ The company must have an adequate size (Sales of Rs 150 crore may be taken as adequate size for Indian companies)
_ Current ratio should be 2:1

_ The total debt should not be greater than its equity capital

_ The company should have paid dividends and earned profits for the last 7-8 years

_ There should be a 10% growth in earnings per share (EPS) over the last five years

_ The current price should also not be more than 2 times the latest book value.

_ The latest year's operating cash flow should be positive and it must exceed the current year's net income.

_ Look for the companies like Infosys which is a zero-debt company. Such companies are safe investments as the amount of the profit shared by the equity shareholders is bigger compared to that of leveraged ones.

_ Asset Turnover should be growing, as it shows the company's sales are increasing at the same asset base.

_ Return on Assets and Return on Equity, both these ratios should show grow every year as it shows the efficient use of the assets and capital

_ Number of issued shares should be the same or less over the years, if not then dig deeper to see whether company has issued any bonus shares or split the shares and see whether your EPS will grow or reduce.

_ Ask yourself questions like - How competitive the company is? Is the company equipped to tap the opportunities, how innovative it is?

_ Look at the Order book of the company - How strong it is?

_ The company should be investor friendly like Infosys, Reliance. It should pass the benefits to its shareholders immediately.