INITIAL PUBLIC OFFERING: DUKE FASHIONS

Presented by:Jaisna jaswalMBA 2(C )

Introduction

Introduction to Duke Fashions (India) Ltd

Commenced about four decades ago (1966) in Ludhiana.

Founded by Mr. Komal Jain and presently headed by Mr. Kuntal Raj Jain.

Completely vertically integrated plant with knitting, dying, processing etc under one roof.

Produces apparels for men, women and children.

Awards and Rewards

ISO 9001-2000 certificate from DNV, the largest certification body in India.

Number one selling T-shirts brand in India by ORG_MARG, the largest market intelligence service in Asia

Udyog Patra Award by the Institute of Trade & Industrial Development to Mr. Komal Kumar Jain for his contributions towards economic growth.

The first public offering of equity shares or convertible securities by a company, which is followed by the listing of a company’s shares on a stock exchange.

Issued by smaller, younger companies seeking the capital to expand.

Initial Public Offering (IPO)

Book building IPOApplications received are bided in the exchange. Price band involved and the applicant has to apply within this price range.

Fixed price IPOThe applicant has to apply at a single price provided to him.

Types of IPO’s

Entry Norm I (Commonly known as “Profitability Route”)

Net Tangible Assets of at least Rs. 3 crores in each of the preceding three full years.

Distributable profits in at least three of the immediately preceding five years.

Net worth of at least Rs. 1 crore in each of the preceding three full years.

If the company has changed its name within the last one year, at least 50% revenue for preceding 1 year should be from the activity suggested by the new name.

The issue size does not exceed 5 times the pre-issue net worth as per the audited balance sheet of the last financial year.

Entry requirements for an issuer to make an issue/offer to public

Entry Norm II (Commonly known as “QIB Route”)

Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs).

The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.

Entry Norm III (Commonly known as “Appraisal Route”)

The “project” is appraised and participated to the extent of 15% by Financial Institutions/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s).

The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.

1) Compliance with SEBI Guidelines2) Holding of general meeting3) Intimation to Stock Exchange4) Appointment of managers to the issue5) Appointment of various other agencies6) Drafting of prospectus7) Approval of prospectus8) Approval of board of directors to prospectus and other

documents9) Making application to Stock Exchanges for permission to

listing

Procedure of Issuing Shares

10) Printing and distribution of prospectus and application forms

11) Pricing12) Promoters contribution and lock-in-period13) Underwriting14) Mandatory Collection Centres15) Certificate relating to promoters’ contribution16) Coordination with the bankers to the issue17) Minimum subscription18) Allotment of shares19) Filing of other Forms with Registrar of Companies20) Refund orders21) Issuance of share certificates

Review of Literature

Author Year

Findings

Kim and Ritter

1998 Use of accounting information in conjunction with comparable firm multiples are widely recommended for valuing initial public offerings (IPOs).

Dunbar 1999 examined the effect of several factors on the market share of investment banks that act as book managers in initial public offerings (IPOs).

Herbst, Lin and Pantzails

2001 Valuation of the pre-IPO startup companies is of crucial importance to venture capital providers.

Bartov and Mohanram

2002 Cash flows, sales, and sales growth are significantly related to offer prices

Deloof, Maeseneire and Inghelbrecht

2002 Discounted free cash flow was the most popular valuation method among various methods used by lead underwrite for estimating stock value.

Author Year

Findings

Hand 2003 IPO valuation is positively and linearly related to the pre-income book value of equity.

Pastor and Veronesi

2003 IPO waves are preceded by high market returns, followed by low market returns, and accompanied by high stock prices.

Purnanandam and Swaminathan

2004 IPO are not undervalued rather overvalued at the offer price relative to valuation based on industry peer price multiple.

Yeh, Shu and Guo

2004 investigated the effect of ownership structure on IPO valuation in the Taiwanese market.

Roosenboom 2007 Underwriters base their choice for a particular valuation method on firm characteristics, aggregate stock market returns and aggregate stock market volatility in the period before the IPO.

Scope

Need

Objectives

of the study

and

Need of the study

Legal formalities and procedure for launching of Initial public offering Fair value of IPO of the company Financial stability of the company

Scope of the study

The scope of the present study was limited to Duke Fashions (India) ltd, Ludhiana.

Objectives of the study

To give the overview to Duke Fashions of the procedure involved in launching IPO.

To know the legal formalities and procedure to launch IPO in the market.

To do the valuation of the company in order to find the fair value of the share.

To know the financial stability of the company.

Methodology

Research

Research Design

Descriptive Research

Data Collection and Analysis

Methods of Data Collection

Secondary Source

Tables Percentage

Tools of Presentation and Analysis

Finding Study of the

Duke Valuation

Book Value or Net Asset Value

Shares Common gOutstandin of Number

companytheofworthNetNAVorvalueBook

Net Worth March 2009 (in Cr.)

Ordinary share capital 1.50

General reserve 5.50

Other reserves 0.13

Surplus in P&L a/c 4.75

Deffered tax liabilities 1.00

Total 12.88

66.858Rs0.015

88.12NAVorvalueBook

The fair price of the Duke share from Book value is Rs. 858.66.

Discounted Cash Flow (DCF)

The Forecast Period Taken as 5 years on the assumption that the company will have solid competitive position, operates with advantage such as strong marketing channels, recognizable brand name, or regulatory advantage etc.

Growth Rate The company expected to grow at average growth rate of 25%. Fixed growth rate of 25% for DCF valuation for coming 5 years is taken for valuation.

Forecasting Free Cash Flows

2009 2010 2011 2012 2013 2014

Expected Growth Rate

25% 25% 25% 25% 25%

FCF 4,40,65,189

5,50,81,486 6,88,51,858 8,60,64,82210,75,81,02

813,44,76,28

5

Weighted Average Cost of Capital (WACC)

WACC = Cost of Equity + Cost of Debt= 12.54%

Present Value

2010 2011 2012 2013 2014

Free Cash Flow

5,50,81,486 6,88,51,858 8,60,64,82210,75,81,02

813,44,76,285

Discount rate 1.1254 (1.1254)² (1.1254)³ (1.1254)4 (1.1254)5

Present value 4,89,43,919 5,43,62,803 6,03,81,645 6,70,66,871 7,44,92,260

500,49,10,6.Rs5

9830,52,47,4yearsof.No

years5ofvaluepresentofSumfirmtheofValue

approx407.Rs000,50,1

06,10,49,50sharesequityof.No

firmofValueshareofvalueFair

The fair value of share from DCF method is Rs. 407 approx

Financial Analysis of Duke Fashions (India) Ltd from 2006 to 2009

Current Ratio

1.28

1.32

1.36

1.4

1.44

2006 - 07 2007 - 08 2008- 09

Current Ratio

Quick Ratio

0.8

0.81

0.82

0.83

0.84

0.85

0.86

0.87

2006 - 07 2007 - 08 2008- 09

Quick Ratio

Absolute Liquid Ratio

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

0.045

0.05

2006 - 07 2007 - 08 2008- 09

Absolute LiquidRatio

Inventory Turnover Ratio and Conversion Period

Year 2006 – 07 (in Cr.)

2007 – 08 (in Cr.)

2008 – 09 (in Cr.)

Cost of goods sold 37.80 53.19 64.01

Average inventory 5.88 7.435 8.56

Inventory turnover ratio

6.43 7.15 7.48

Inventory holding period (in days)

57 days 51 days 49 days

Debtor’s Turnover Ratio and Average Collection Period

Year2006 – 07

(in Cr.)2007 – 08

(in Cr.)2008 – 09

(in Cr.)

Net credit sales 48.49 68.46 82.98

Average debtors 7.70 9.725 11.92

Debtors turnover ratio

6.30 7.04 6.96

Debtors collection period (In days)

58 52 52.5

Creditor Turnover Ratio and Average Payment Period

Year 2006 – 07 (in Cr.)

2007 – 08 (in Cr.)

2008 – 09 (in Cr.)

Net credit purchases

32.30 46.31 53.94

Average creditors 3.545 5.345 7.71

Creditors turnover ratio

9.11 8.66 6.70

Creditors payment period

40 42 54.5

Working Capital Turnover Ratio

0

2

4

6

8

10

12

2006 - 07 2007 - 08 2008 - 09

Working CapitalTurnover Ratio

Debt Equity Ratio

0

0.1

0.2

0.3

0.4

0.5

0.6

2006 - 07 2007 - 08 2008 - 09

Debt Equity Ratio

Proprietary Ratio

31.00%

32.00%

33.00%

34.00%

35.00%

36.00%

37.00%

38.00%

39.00%

2006 - 07 2007 - 08 2008 - 09

Proprietary Ratio

Solvency Ratio

58.00%

59.00%

60.00%

61.00%

62.00%

63.00%

64.00%

65.00%

66.00%

67.00%

2006 - 07 2007 - 08 2008 - 09

Solvency Ratio

Gross Profit Ratio

19.80%

20.00%

20.20%

20.40%

20.60%

20.80%

21.00%

21.20%

2006 - 07 2007 - 08 2008 - 09

Gross Profit Ratio

Net Profit Ratio

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

2006 - 07 2007 - 08 2008 - 09

Net Profit Ratio

Operating Net Profit Ratio

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

2006 - 07 2007 - 08 2008 - 09

Operating NetProfit Ratio

Return on Shareholders’ Equity

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

2006 - 07 2007 - 08 2008 - 09

Return onShareholders’Equity

Trend analysis of net profit earned by Duke Fashions (India) ltd

0

0.5

1

1.5

2

2.5

3

2005 2006 2007 2008 2009

Net Profit

Trend Value

Trend analysis of sales of Duke Fashions (India) ltd

0

10

20

30

40

50

60

70

80

90

2005 2006 2007 2008 2009

Sales

Trend Value

Conclusion

Recommendations

Easily fulfill the entry norms for launching IPO in the market but preparation required to bring the IPO and have a good price of share.

Turnover of the company is around Rs. 100 crores. The expert’s say that companies launching IPO should have turnover around Rs 300 – 400 crores.

Enhance reputation and goodwill in the market to get a good number of investors with good price for IPO.

Improve liquidity position to earn the trust of the investor.

Use more of the debt portion in the capital structure instead of equity in future as it will provide higher returns to the present equity shareholders.

Query