Its’ Raining IPOs

What is an IPO all about? 

IPO or Initial Public Offer is when a company intends to raise funds from investors for its future projects and get listed on the Stock Exchange. It is selling of company ownership to the public in the primary stock market in exchange of their funds. When a company goes public it is usually to fund its expansion plans or to repay its debt or to diversify its business. So, whenever the company first lists its IPO, it comes out with an Prospectus, which gives an brief idea about the company’s business model, its past three years performance, existing share holding pattern and other factors related to its business.  

In recent times, the market has been flooding with Initial Public Offer or IPOs giving investors a wider market to explore and more opportunities to earn. Although, nowadays IPO is seen as quick money, in true sense it would be better to be seen as long term wealth building tool. If the investor is sure about the product delivered by the company then it is must to be a part of this success story. Lets’ understand take an example: 

Do you find yourself using the services of Just Dial every time you need to find the contact details of your local restaurant, club or salon? or does your local grocery shopkeeper only hands over “GO” cheese every time you go to buy. You know how popular these products/services are with us that it has formed part of our daily lives. But did you know these companies had in recent past come up with their IPO and you could easily earn good profits (capital appreciation / dividends) by participating in these IPOs. Still confused whether you should participate in an IPO, and then lets us put it in numbers: 

Success story of Asian Paints 

The company went public in Aug 1982, with a minimal premium of Rs 13 per share. However, if you or your elderly didn’t participate then in this IPO, lets’ us see what is the missed opportunity you have likely suffered. 

If you had brought 1000 shares @ RS 600 say, immediate IPO issue (since you didn’t get lucky to own one in an IPO) at Rs 600 per share.    

     

Year	Bonus Rate	No of Share owned	Face value
1982		1000	10
1995	1:1	2000	10
2000	3:5	3200	10
2003	1:2	4800	10

 (Source: Company Website)

Further to give you simple explanation let’s look at simple calculation to become a crorepati

Year	Split value of stock	No of Share**	Face Value
2013	10-1	48000	1

  (Source: Company Website)

                                                                   

This is a beautiful example of simple multiplication of wealth without any interfere of stock market players plainly on performance of the company. So, if you had invested identified the potential of a small paint company then, today you would have easily called a proud, shrewd millionaire. An individual who patiently stayed invested for his retirement and waited for 34 years to fulfill his goal. Interim, the stock has also declared dividends to give you regular income. 

Investment Value Rs.	6,00,000
Current Value* Rs.	5,02,56,000

*- Asian paints closing on 22 July 2016.

**- Stock Split doesn’t bring any change in valuation.

Some last words form our side:

·         Every IPO is unique and its success depends on the business model of the company. We are not advocating that every IPO is successful or should be subscribed.

·         When an individual invests in an IPO, it should be earmarked with a fixed goal and the amount needs to be redeemed when the goal arrives.