Post-IPO Coverage Under ECM Pressure

The conflicts are both structural and behavioural:

• Investment banking relationship: the firm earned underwriting fees and the company is a significant revenue client. Research must not be used as a marketing tool for the banking franchise.
• Lock-in expiry: anchor investors' lock-in ending in 30 days creates a supply overhang and an incentive for the firm to support the price ahead of that event.
• Sales pressure: the sales head's requested rating and target price are not based on valuation but on client relationship and distribution needs.
• Research head instruction: 'be supportive' is an instruction to reach a predetermined conclusion, which compromises analyst independence.
• Unreviewed draft: publishing without compliance review would bypass the firm's controls.

The analyst should not accept a rating instruction from ECM or sales. The appropriate process is to escalate the request to compliance, document it, and ensure that the rating and target price are set by research based on evidence. If the firm cannot separate research from the banking relationship, the note should not be published. Disclosure of the underwriting relationship is necessary but does not cure an instruction to produce a favourable rating.

A 45% revenue CAGR for three years is aggressive without independent support. The analyst should test it against:

• Market growth: is the addressable market growing fast enough? Without an independent market-size study, the forecast is essentially management guidance.
• Capacity: a single plant at 70% utilisation can support some growth, but 45% CAGR for three years may require debottlenecking or a new plant. The capex plan, timeline, and funding must be checked.
• Working capital: receivables at 120 days mean growth absorbs cash. A 45% increase in sales could require substantial incremental receivables; the analyst should model the funding need and interest cost.
• Auditor qualification on inventory: this affects the reliability of the cost of goods sold and the inventory balance. The forecast should not be built on unverified margins.
• Single-plant concentration: operational, environmental, and labour risks are higher.

The target price should be derived from a documented model with base, bull, and bear cases. If the base case cannot support a price 35% above the current level on reasonable assumptions, the analyst should say so. The current price and the IPO price are not valuation inputs; nor is the lock-in expiry a reason to be positive or negative, though it is a risk to disclose.

Before publication:

1. Escalate the ECM and sales requests to compliance and the research head's supervisor, in writing.
2. Refuse to adopt a predetermined rating or target price. If the evidence supports only a Neutral or Underperform view, that is what the note should say.
3. Build an independent model with explicit assumptions, a capacity build-up, working-capital schedule, and sensitivity analysis. Do not simply repeat management guidance.
4. Obtain and review the auditor's qualification, the company's response, and the inventory valuation policy. If the qualification is unresolved, use a higher discount rate or a valuation range, and disclose the limitation.
5. Disclose the underwriting relationship, the lock-in expiry, the single-plant concentration, and the auditor qualification prominently.
6. Obtain compliance clearance and ensure that no banking or sales personnel reviewed the rating before publication.

If compliance cannot clear the note or the conflict cannot be managed, the note should not be published. The analyst's duty is to investors who rely on the research, not to the banking client's share price.