An IPO question?

Hi experts,

I am just going thru some article on MoneyControl.I came to across the words "public offer of 51,26,100 equity shares of Rs 10 each for cash at a premium of Rs 35 per share ".

Can you please tell me whats the premium means here??

Thanks in Advance.

Premium refers to the excess amount which the investor will be willing to pay to obtain a share. In your eg., the face value of the stock is just rs 10. But the investors have a good opinion about the firm that makes them pay Rs 35 to obtain a share. that is, the investors are willing to pay Rs 25 more to buy the firm. this is due to the demand for good firms and their ability to move up faster. Just imagine, in an auction, the bidders increase their bid on a product. because they believe that it is more valuable and pay more to obtain the product. similarly ipo evaluations are done to find what amount the people will pay for the share and this demand analysis will fix the premium for the new share issue.

Rs. 10 is the base price of share.
Premium here means that looking at the strengths of the company, you will have to invest at least Rs. 35 for a share whose original price is only Rs. 10.

You should know that every share has a base price and in 99.9% cases, it wud b Rs. 10. When a company decides to list its shares i.e. decides to issue an IPO it needs to take into account the growth plans, the management of the company, projected profits and many other such factors. Depending on these factors companies calculate the minimum fair market price and they call it premium because a subscriber is paying some extra money ( in addition to Rs.10) to get that share.

Hope it helps.

i will tell u with an example that you have an dog of a particular kind which you purchased for Rs. 500/-. It cost u Rs. 500/-. You want to sale it for money. U analyze that there will be a great demand in the market for these types of dogs. then you want some profit on it and u decide to sell it for Rs. 600 (500+100). this 100 is known as Premium.

In case of shares, there is a book value of shares i.e. 10/- (in your case) but the big company doing good business and in good profit feels that there shares will be purchased if they are sold on a price higher than the face value. this increased price is known as Premium. in your case the one share will be sold at a price of Rs. 45 (10+35).
for the Definition of Share Premium search on google.

You have to read carefully. Face value of share will be Rs 10. If they say premium Rs 35 then you have to pay Rs 45. The market value is the value quoted. You will get realisation only on market value. Don't venture in new shares. These shares may vanish. You will lose all the money invested.