IPOs and Under subscription : Bata’s Share Capital Dynamics

Let’s delve deeper into Bata’s share capital to gain a better understanding of the different aspects involved. The authorized capital of the company is INR 700 million, with each share having a face value of Rs 5. This results in a total of 140,000,000 shares when dividing the authorized capital by the face value.

Out of the authorized capital, Bata has issued INR 642.85 million worth of shares, which amounts to 128,570,000 shares. This is in line with the issued figure. Additionally, the paid-up and subscribed shares total INR 642.64 million or 128,527,540 shares, which is equal to or less than the issued figure.

Understanding the different types of share capital is crucial. To calculate the number of outstanding shares, divide the share capital value by the face value per share. If the paid-up capital is lower than the issued value, it indicates an undersubscribed Initial Public Offering (IPO), which can be seen in companies like Zomato’s IPO.

Conversely, if the demand for an IPO exceeds the available shares, it is referred to as an oversubscription. In such cases, the company may consider raising more money through equity, leading to an increase in the authorized share capital.

Let’s consider an example of a company that issued 10,000 shares with a face value of Rs. 10 each, resulting in an initial share capital of Rs. 100,000. If the IPO is priced at Rs. 250 per share and all shares are subscribed, the company will obtain Rs. 2,500,000 from the offering. This additional capital will be reflected on the liabilities side of the balance sheet under the heading of “Reserves & Surplus,” with a subheading of “Securities Premium Reserve.”

Now, let’s focus on Reserves and Surplus from a financial modelling perspective.

Reserves and Surplus represent the accumulated profits and retained earnings of a company over time. It includes various components like the General Reserve, Capital Reserve, and Profit and Loss Reserve. These reserves are essential as they provide a buffer against financial downturns, fund expansion plans, and distribute dividends to shareholders.

In a financial model, we need to forecast the growth of Reserves and Surplus over the projection period. This can be based on historical data, management guidance, and industry trends. Analysing the company’s dividend policy is also crucial, as it impacts the retention of earnings and, consequently, the growth of Reserves and Surplus.

Furthermore, understanding the factors that affect Reserves and Surplus, such as dividend pay-out ratio, share buybacks, and stock splits, is essential for accurate financial modelling. These components can significantly impact the company’s equity and financial position.

In conclusion, comprehending the intricacies of share capital, IPOs, and Reserves and Surplus is vital for financial modelling and gaining insights into a company’s financial health and future prospects. As a financial analyst, incorporating these elements into your modelling process will contribute to well-informed decision-making and accurate forecasting.