F IN G YAAN S ESSION 1: IBD 1 Investment Banking Shashank More F IN G YAAN S ESSION 1 and present

F IN G YAAN S ESSION 1: IBD Structure of an I-bank Source: GS Sumer Internship presentation 2006 PUBLIC COMPANIES Clients Seeking Capital Intermediary Directing / Facilitating the Flow of Capital Investors With Capital MERCHANT BANKING Traditional Private Equity Fund Real Estate Private Equity Fund Infrastructure Fund INVESTMENT MANAGEMENT (Private Wealth / Asset Management) INVESTMENT BANKING Advisory Groups  Country Teams  Industry Teams Financing Group  Debt Product Groups  Equity Product Groups  Derivatives MARKETS Sales Trading & Strategy GSS/Prime Brokerage SSG GLOBAL INVESTMENT RESEARCH EXECUTIVE OFFICE Operations, Technology & Finance *Including Services Human Capital Management Legal/Management Compliance Controls GOVERNMENT & AGENCIES PRIVATE COMPANIES INSTITUTIONAL INVESTORS GOVERNMENTS & AGENCIES RETAIL INVESTORS Chinese Wall

F IN G YAAN S ESSION 1: IBD Work done by IBD Team  Relationship Development  Acquisition Strategy  IPO Advisory  Sale Advice  Execution of M&A  Debt advisory

F IN G YAAN S ESSION 1: IBD Recent Trend  Debt Restructuring to avoid bankruptcy  Global Expansion by Firms  Structured Products that aid fund raising for deals  Participation by Private Equity and VC Firms

F IN G YAAN S ESSION 1: IBD Types of Valuations  Market Based (# of shares outstanding * Share Price)  Comparables Method (Very common in IPOs)  P/E, P/B, EV/EBITDA, EV/EBIT  Sum of the Parts Valuation  Most often method used in M&A today  Cash Flow based Valuations  Used in Manufacturing Industries

F IN G YAAN S ESSION 1: IBD FCF based Valuation EV (Enterprise Value) = Equity Value + Net Debt Net Debt = ST and LT loans – Operating Cash – Liquid and short term investments

F IN G YAAN S ESSION 1: IBD Sector Preparation Detailed sector analysis of at least 2 sectors Choose common sectors Imp. points to think over: – What has been happening in the sector? – Where is the sector headed? – FDI norms in the sector. – Which stocks in the sector are over valued? Avg P/E – Stocks to buy in the sector? – Which company should come out with an IPO? – What M&A opportunities are there? – Evaluative parameters of the sector. E.g. EV/Reserves, ARPU, Avg. cost per seat mile

F IN G YAAN S ESSION 1: IBD Deal Preparation All the deals of the sector that you are preparing Major historic deals and all recent deals Questions – Why did the deal happen? – Did it make strategic sense? – Value of the deal – Transaction multiples – Was it over valued? – What happened after the deal got executed?

F IN G YAAN S ESSION 1: IBD Key Industry  Infrastructure  Real Estate  Steel  Mining  Metals (Aluminum)  Banks and Financial Services  Automobile  Telecom  Airlines  Spirits Business  Retail  IT & BPO Services

F IN G YAAN S ESSION 1: IBD Steel Industry  Major Deals  Mittal Arcelor  Tata Corus  Essar Steel acquired a Canadian firm  Parameter for Evaluation: EV/Tonne  Why did Mittal buy Arcelor? (Image makeover)  Did Tata Steel over-pay?  What is Tata Steel doing with Corus?  Other important issues:  How is raw material sourced?

F IN G YAAN S ESSION 1: IBD Banks & Financial Services  Major Deals  Nationalization of RBS  India: ICICI BOR Deal  Events out of the credit crisis  BASEL III Norms (How is it better than the previous norms? Should BASEL be made a regulation?) Parameter: Geographical Spread, CASA: Current Account Savings Account, Advances Growth, Gross NPA ratio, Net NPA/Net advances, RWA/Total Assets, Cost / Income Ratio, Cost of Funds, NIM-Net Interest Income/(Average Interest Bearing assets), Capital Adequacy ratio-need to raise capital CARMEL Model

F IN G YAAN S ESSION 1: IBD Telecom  Major Deals  Idea Cellular - Spice  Hutch – Vodafone  Unitech-Telenor, Swan- Etisalat  NTT Docomo-Tata teleservices  Bharti-Zain Deal  Parameters:  Revenue=Subscribers x ARPU (ARPU is more for Airtel and Vodafone because old post paid urban customers)  Revenue = RPM x MOU  Spectrum availability (900 Mhz, 1800 MHz)  EVA/No. of subscribers  Common Questions:  After the huge price war, where do you see the industry headed?  Details of 3G Spectrum allocation. Was it overpriced?  Why did Hutch Sell? What was the value that Vodafone saw? What is tax issue that Vodafone is facing now?  What are the tax hiccups they face with the Indian revenue authorities?  Possible mergers is a very relevant question for this sector

F IN G YAAN S ESSION 1: IBD Bharti MTN deal $24-billion cash-and-share swap deal which will have over 200 million subscribers and $20 billion in annual revenues Bharti to buy 49% of MTN for $14 billion MTN, to acquire 33% of Bharti for about $10 billion Merged entity to be the world’s third-largest mobile phone operator by subscribers that would straddle Africa, Asia and the Middle East. South African government keen on dual listing –Indian laws do not allow dual listing GDR issues with voting rights may fall under SEBI takeover code

F IN G YAAN S ESSION 1: IBD Coal and Iron Ore Indian Power and mining companies scouting for raw materials in Australia, Indonesia and South Africa Look at major mines acquired by Indian companies abroad Shift in industry practice from long term contracts to short term contracts Coal India IPO: Multiples, EV/Reserves EV/Resources

F IN G YAAN S ESSION 1: IBD Airlines  Major Deals  Kingfisher – Air Deccan  Jet – Air Sahara  Parameters: Average fuel costs, average yield/passenger, average yield/kg, Passenger Load Factor, Number of Departures, revenue/passenger-km  What is the current industry scenario? Further Consolidation?  Details regarding Jet & Kingfisher agreement/ Deccan buyback  Details of Air India’s sovereign backed debt issue  Details regarding changes in the loan structure for airline industry  How much impact does fuel prices make on the industry?

F IN G YAAN S ESSION 1: IBD Others: Oil and Gas: – Imperial Energy Corp Plc-ONGC – Reliance petroleum Ltd-Reliance Industries Ltd Pharma: Ranbaxy-Daiichi Sankyo, Piramal Abott (Why is pharma the source of many acquisitions?) Auto and auto ancillary: JLR-Tata Motors Infrastructure and Engineering sector Retail (Recent FDI controversies in Retail. Should the 74% cap be raises?) FMCG

F IN G YAAN S ESSION 1: IBD Primary Market The market for new issue of securities.  Primary market issuers are bodies corporate, mostly companies under the Companies Act, Other bodies corporate are corporations owned pre- dominantly by the Government.  The main market for new issuances are Public Issues (IPOs and FPOs), Rights Issues and Private Placements.  The main constituents of the primary market are – Investors, Issuers, Instruments and intermediaries.

F IN G YAAN S ESSION 1: IBD Primary Market  Investors are in three categories – Institutional, HNI and Retail.  The main instruments that can be issued are pure equity (ordinary shares), pure debt such as NCDs/long term notes or bonds and convertibles. Convertibles can be debt convertibles such as PCDs/FCDs and equity convertibles such as warrants.  The main intermediaries associated with the primary market are merchant bankers, underwriters and brokers. The service providers are bankers, registrars, depository participants, couriers and printers.

F IN G YAAN S ESSION 1: IBD Institutional Investors Also known as Qualified Institutional Buyers (QIBs) as per regulations – – Multilateral, Bilateral and Domestic Financial Institutions (MFIs/ DFIs) – Foreign Institutional Investors (FIIs) – Unregistered Foreign Investors (FDI Investors) – Foreign Venture Capital Investors (FVCIs) – Domestic Venture Capital Investors (VCs) – Domestic Mutual Funds (MFs) – Commercial Banks

F IN G YAAN S ESSION 1: IBD Non-Institutional Investors  High Networth Investors – These are investors who cannot be categorized either as Institutional or Retail – ◦ Non-banking Financial Companies ◦ Capital Market Intermediaries (other than in issues wherein they are acting in official capacity) ◦ Investment companies, trusts, societies and other incorporated bodies ◦ Partnership Firms ◦ HUFs and Individuals  Retail Investors – ◦ Are those whose application in a public issue does not exceed Rs. 100,000 in value. ◦ Any of the above category of investors under the HNI category can be a retail investor if the application size does not exceed the above limit.

F IN G YAAN S ESSION 1: IBD Methods of Raising Funds IPO – Fixed Price Offer – also known as 100% retail offer – Book Built Offer – price discovery through book building  FPO and Right Issues  Qualified Institutional Placement

F IN G YAAN S ESSION 1: IBD Recent trends in Equity Capital Markets Large number of divestments Near zero fees Standard chartered issued India’s first ever IDR

F IN G YAAN S ESSION 1: IBD Depository Mechanism  Depository - security that represents ownership in a foreign security. Therefore they are negotiable securities in a foreign jurisdiction that represent a company’s publicly traded domestic equity.  An ADR is an American security that is issued through a public offering in the US which requires SEC registration.  A GDR is issued anywhere in the world through a public offer but only through private placement (Rule 144A) in the US.

F IN G YAAN S ESSION 1: IBD Underwriting Contingent Obligation Underwriting Agreement and Commission SEBI (Underwriters) Rules 1993 Devolvement – Tata Motors Rights Issue – JM Financial – Hindalco Right issue

F IN G YAAN S ESSION 1: IBD Fight for League Tables Major banks are getting mandates at near zero fees to get top spots in the league tables Evaluation criteria used by companies is 70% based on bid and 30% technical based on the presentation Coal India IPO total banker’s fees is expected to be around Rs. 12,000/- to be shared among 5 bankers Banker’s expense expected to go upto Rs. 25 crores

F IN G YAAN S ESSION 1: IBD Stages of fund raising VC or seed investment – Now even VCs have started to approach I-banks for advisory – Evaluate individual more than company PE investment – If company does not wish to list to avoid regulatory compliance IPO – To gain visiblity – Have to abide by regulatory compliance – PE firms can invest as PIPE Delisting – Market is undervaluing the firm – Change in strategic objectives due to change in control

F IN G YAAN S ESSION 1: IBD Company specific preparation Know as much as possible about the bank you are interviewing Regions and areas of operation Sector of expertise (This will give you a point of discussion in the ppt and interview) Scale in India Major deals that it has been a part of

F IN G YAAN S ESSION 1: IBD Stock market specific questions Where is the stock market headed? Are Indian companies overvalued? What is the average P/E? Which industries are you bullish on? Which companies would you invest in? Do you have a portfolio? What is your criteria of choosing stocks?

F IN G YAAN S ESSION 1: IBD Preparation stuff HR Questions – Why IBD? – Why not Markets / Consulting? – Lifestyle management – Finance personality you are a fan of Other resources – Vault Guides – Text Books Corporate Finance, Macroeconomics, Valuation – Online News resources Bloomberg

F IN G YAAN S ESSION 1: IBD Thank You Questions ???