Question

936 Incorporated in 1990, Raju Dairy Ltd., is one of the leading manufacturers and
marketers of dairy-based branded foods in India. In the initial years, its operations
were restricted only to collection and distribution of milk. But, over the years it has
gained a reasonable market share by offering a diverse range of dairy based products
including fresh milk, flavoured yogurt, ice creams, butter milk, cheese, ghee, milk
powders etc. In order to raise capital to finance its expansion plans, Raju Dairy Ltd. has
decided to raise necessary funds by approaching few brokers who can help in
providing the funds by subscribing to the whole issue,
Page 10 of 12

Answer 1

Complete Question: Incorporated in 1990. Raju Dairy Ltd., is one of the leading manufacturers and marketers of dairy-based branded foods in India. In the initial years, its operations were restricted only to collection and distribution of milk. But, over the years it has gained a reasonable market share by offering a diverse range of dairy based products including fresh milk, flavoured yogurt, ice creams, butter milk, cheese, ghee, milk powders etc. in order to raise capital to finance its expansion plans. Raju Dairy Ltd. has decided to approach capital market through a mix of Offer for sale of Rs. 4 crore shares and a public issue of Rs. 2 crore shares. In context of the above case: 1. Name and explain the segment of capital market being approached by the company. 2. Identify the two methods of floatation used by the company to raise the required capital. Give one difference between them.

1. The correct answer is: Primary Market.

The segment of the capital market being approached by Raju Dairy Ltd. is Primary Market.

• A primary market is where new securities are bought and sold. Companies, governments, and other organizations frequently go to an exchange to get finance through debt- or equity-based instruments. Underwriting groups are made up of investment banks that determine an initial price range for certain securities and manage their sale to investors to enhance primary markets.

2. The correct answer is: Issue through Prospectus and Offer for Sale.

Issue through Prospectus and Offer for Sale are the two methods of floatation used by Raju Dairy Ltd. to raise the required capital.

Difference between Issue through Prospectus and Offer for Sale:

• In cases of issuing securities using a prospectus, an organization contacts potential investors by publishing a prospectus. In contrast, while making an offer for sale, an organization contacts potential buyers directly rather than going through a middleman like a stock broker or issuing house.

Therefore,

1. The correct answer is: Primary Market.

2. The correct answer is: Issue through Prospectus and Offer for Sale.

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