Feasibility study of underwriting; Godrej Soaps Ltd.

Abstract

Underwriting is a contractual agreement between two parties in which one party agrees, for a consideration, to subscribe to an issue in the event of its nonsubscription by those to whom it is offered. Since the SEBI (Underwriters) Rules and Regulations, 1993, and the amendment made in it in October 1994 the underwriting market is undergoing a major restructuring. Even though the number of new issues has been increasing, the underwriting business is actually shrinking with underwriting of capital issues having been made optional. Also, the risks involved in underwriting have once again been exposed by recent devolvement of two major issues. The situation is aggravated by sluggish primary market, and the fear of a market shake-out is looming large. For GSL to offer this service image of and back up from the Godrej group are the strengths on which it can capitalize. However, lack of expertise, experience and infrastructure are the crucial factors against the company. In addition it faces a competitive disadvantage with respect to other companies in this field, most of which are part of large finance houses and thus have advantage of a well-established clientele and higher economies due to resource-sharing among different services provided by them.