Case 4

CASE 4
Incorporated in 2000, Dairy Corporation is one of the leading manufacturers

and marketers of dairy-based branded foods in India. In the initial years, its operation was
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, flavored yogurt, ice creams, butter milk, cheese, ghee, milk powders etc. In order to
raise capital to finance its expansion plans, Dairy Corporation has decided to approach
capital market through a mix of Offer for sale and a public issue of shares.
QUESTIONS :
1. Name and explain types of financial market being approached by company.
2. Identify possible financial instruments to be raised.
Financial markets, from the name itself, are a marketplace where the trading of securities
occurs, including the stock market, bond market, forex market, and derivatives market, among
others. Often, they are called as “capital market”. The markets make it easy for buyers and
sellers to trade their financial holdings. These markets create securities products that provide a
return for those who have excess funds (Investors/lenders) and make these funds available to
those who need additional money (borrowers).
Dairy Corporation can choose on a variety of financial markets wherein they can obtain funds for
their expansion. But in their case, they decided to approach capital market in order to fund
capital needs through selling of its own share securities to obtain fund providers in particular
with shareholders.
Capital Market is a place where buyers and sellers can interact and transact financial
securities like shares, debentures, debt instruments, bonds, derivative instruments like the
futures, options, and swaps. The securities referred to here would normally mean long-term
investments that have a lock-in period greater than one year. There are two types of Capital
Market, namely.
1. Primary Market
The primary market is a market where freshly issued securities are traded for the first time. It
is also known as the new issues market. This market enables both initial public offering and a
further public offering. In this market, the funds will be deployed with the help of offering
through a prospectus, preferential issue, rights issue, e-IPO, and private placement of securities.
2. Secondary Market
It is a type of capital market where old securities are traded, trading is done after transacting
first in the primary market. We also call this market as the stock market or aftermarket. Both
stock markets and over-the-counter trades come under the secondary market.
In the past few years Dairy Corporation showed excellent performance on their business.
Hence, giving them new opportunities to expand and develop their business. An expansion plan
is a strategic way to make their business grow and for all that, they must have sufficient
capital to sustain their objectives. Corporate financing is one of the best way Dairy
Corporation can use to raise capital. In corporate financing it involves decisions on how to
optimally finance the capital investments through the business’ equity, debt, or a mix of both.
Long-term funding for major capital expenditures or investments may be obtained from selling
company stocks or issuing debt securities in the market through investment banks.
Here are the possible financial instruments that Dairy Corporation may raise :
1. Securities- a general term for a stock exchange investment. It includes
 Shares, Scripts, Stocks, Bonds, Debentures.

 Government Securities.
 Such other instruments as may be declared by the Central government to be securities.
 Rights or interests in securities and,
 Derivatives
 Securitized instruments
Securities are generally classified into ownership securities and creditorship securities. Equity
shares and preference shares are ownership securities. They are also known as capital stock.
Creditorship securities are bonds, debentures etc. They are referred to as debt capital.
2. Equity Shares- are the ordinary shares of a limited company. It is an instrument, a
contract, which guarantees a residual interest in the assets of an enterprise after deducting
all its liabilities- including dividends on preference shares. Equity shares constitute the
ownership capital of a company.
3. Bank Loan- loan provided by bank giving medium to long-term finance options. Bank
sets their fixed period / time for repayment when loan is actually provided along with the
interest rate on the principal amount.
4. Debentures- are types of corporate financing for medium-term to long-term debt

financing mainly focused by large organizations to borrow money, at a fixed rates of
interest. A debenture is therefore like a certificate to loan bond evidencing your fact that
the organization is liable to repay loan amount along with fixed interest rate agreed upon.

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CASE 4

Incorporated in 2000, Dairy Corporation is one of the leading manufacturers

2. Identify possible financial instruments to be raised.

 Shares, Scripts, Stocks, Bonds, Debentures.

4. Debentures- are types of corporate financing for medium-term to long-term debt

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