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IPO Grading

Overview

Brickwork Ratings - IPO Grading
Initial Public Issue Grading


  1. What is Brickwork IPO Grading?

    Initial Public Issue Grading (IPO Grading) is the fundamental evaluation of a company’s public issue by a Credit Rating Company. The IPOs grading by Brickwork is comparative assessment of the fundamentals of the issue in relation to its peers. The grading is an independent opinion on the fundamental strengths of the IPO. The grading is communicated to the investors by an intuitive and simple grading score. The grading score and the report give the investors an additional investment decision tool.

  2. Why IPO Grading?

    The Indian capital markets have witnessed improving transparency and disclosures by the companies raising public funds. Better transparency and improved disclosure help investor to make more informed decisions leading to healthy growth of capital markets. With increasing disclosures, however, the offer documents have become more detailed and technical. The retail investors often do not have either time or resources to carry out the analysis. The IPO grading by Brickwork helps the investors by analysing the offer document and providing an independent opinion on the financial strengths of the issue.

    Securities Exchange Board of India (SEBI) has mandated IPO Grading for all companies raising public funds from capital market by way of IPO.

  3. Which Companies will be evaluated?

    All the companies planning to raise public funds from capital market can approach Brickwork for IPO grading. Companies which give grading mandate to Brickwork will be evaluated.

  4. What IPO Grading is not?
    • A recommendation to invest in the issue
    • A prediction of pre/post listing price of the issue.
    • Valuation report of the equity being offered by the issuer
    • Market risk analysis for securities being offered by the issuer
    • An audit and/or forensic report to detect fraud
  5. Brickwork IPO Grading Scale

    The IPO Grading is an ‘overall assessment of IPO fundamentals’. The grading is communicated on a five point scale. The issuers with strong fundamental relative to its peers will be assigned highest score “BWR IPO Grade 5” and the issuers with poor fundamentals relative to its peers will be assigned lowest score “BWR IPO Grade 1”.

    BWR IPO Grade 5 Strong fundamentals
    BWR IPO Grade 4 Above-average fundamentals
    BWR IPO Grade 3 Average fundamentals
    BWR IPO Grade 2 Below-average fundamentals
    BWR IPO Grade 1 Poor fundamentals
  6. Validity of the Grading

    The Grading is a onetime exercise assessment of the fundamental strengths of the IPO by the issuer at the time of assessment. There is no review mechanism. The grading is valid till the closure of company’s IPO or sixty days from the date of grading letter, whichever is earlier. Brickwork may extend the validity of the grading for a further period of sixty days if there is delay in IPO, without charging additional fee.

  7. Brickwork IPO Grading Process

    The grading process starts with the issuer issuing mandate to Brickwork to grade its IPO. On getting the mandate, Brickwork will internally assign the analysis to an analyst. The analyst interacts with the company and obtains the relevant documents and conduct desk research. After initial analysis, he or she meets with the management, auditors, bankers, and undertakes site visits to fully understand the operations of the company.

    The analyst prepares grading recommendation note and circulates it to the Grading Committee members. The Grading Committee discusses the grading note and report and offers the grading verdict.

    The grading is communicated to the issuer. In case the issuer feels that material information is not factored in the report, an appeal can be made clearly indicating the relevant facts. The grading report is sent to SEBI, company and also disseminated by way of press release.

  8. Brickwork IPO Grading Methodology

    The grading criterion is comparative fundamental evaluation of the company entering capital market with that of the peers on following key parameters.

    • Management evaluation

      The management evaluation is Brickwork assessment of track record, the current position and the future sustainability of the issuer’s management. The qualitative evaluation will also focus on the depth of management talent, accounting practices etc followed by the company.

    • Corporate Governance practices

      The governance practices evaluation focuses on the board composition, practices, relationship with stakeholders, transparency, adequacy of disclosure and value creation by the company.

    • Business Risk- At Industry and Company level

      The business prospects are evaluated for the industry and for the company in within the industry. The analyses will assess the competitive advantage, operational effectiveness in relation to the peers. The analysis will also focus on the selling and distribution network, investor support and sustainability of profitable operations for the company as a going concern.

    • Financial Risk Evaluation

      The evaluation is based on the financial performance of the company and projections in relation to the financial performance of the peers, ability to fund the capital needs and service the future obligations.

    • Project related factors

      The assessment will be based on the level of project’s completion at the time of issue, funding needs and funding tie ups, promoters’ contribution, marketing tie up etc for the project.

Disclaimer

Brickwork IPO Grading is neither an audit of the issuer by Brickwork nor a credit rating. IPO grading is a present assessment and research result of the analysis of fundamental of the equity issue in relation to other Indian Listed securities.

Brickwork does not guarantee the completeness or accuracy of the information on which the grading is based. The Brickwork IPO grading depends on the information provided by the issuer or obtained by the relevant sources by Brickwork. A Brickwork IPO Grading is not a recommendation to buy/sell or hold the graded instruments. It does not comment on the issue price, future market price or relevance for a particular type of investor. Brickwork IPO Grading has a limited validity.

Brickwork is not responsible for any errors and especially states that it has not financial liability, whatsoever, to the subscribers / users/transmitters/ distributors of Brickwork IPO Grading.