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Indigo Paints IPO: Listing Exit or Long-Term Investment?
內容大綱
In January 2021, Indigo Paints Limited launched an initial public offering of ordinary equity shares to list the company on a stock exchange. It was one of the most subscribed public offers in recent times in India. The company was in the business of manufacturing and selling decorative paints. A retail investor from Mumbai, India received an allotment of Indigo shares and wondered if the grey market premium indicated a fair value for the stock. He understood that initial public offerings were generally underpriced, but wondered what the company’s intrinsic value actually was. He sought input from his friend, who was an independent financial advisor, to help him understand the value proposition that the initial public offering would bring to Indigo Paints Limited. The two friends consulted all relevant financial statements and began their calculations.
學習目標
This exercise is intended for finance courses in the second year of graduate-level finance program. It is designed to be taught in one long session or over two shorter sessions. It may also require four or five hours of time outside class for students to prepare for the class discussion. The exercise aims to help students understand the challenges of valuing a company’s equity that has launched an initial public offering in the Indian market. It discusses the challenges involved in preparing pro forma financial statements, estimating the cost of capital of an unlisted firm, and calculating equity value. It also discusses the dilemmas created by grey market activities typical to the Indian stock market. After working through the exercise and assignment questions, students will be able to do the following:<ul><li>Understand the challenges involved in valuing an initial public offering.</li><li>Analyze a business, its past, and its expected performance.</li><li>Complete a comprehensive valuation of a company using both intrinsic and relative methods.</li><li>Understand the relevance of the grey market premium.</li></ul>