The objective of this Group Field Project is the evaluation of the appropriateness of the Initial Public Offering Price (IPO) of Rp.12,750 of P.T. Schering Plough Indonesia using the company's prospectus and other publicly available data.



Our calculations and analysis suggest that the IPO price of Rp.12,750 overvalues the stock of the company based on our assumption that the stock market in Indonesia is efficient. The IPO price of the company should have been in the range of Rp.1,167 per share as calculated using the Book-Value asset based valuation method to Rp.5,470 per share using .the Net Present Value of Earnings per share method. The best method to value the stocks by far is the Discounted Cash Flow method and using this approach we calculated the stock price at Rp.4,448 per share. All of our calculations of the stock price are much lower than the stock price of Rp.12,750.



We presume that the psychological factors prevailing in the stock market at the time motivated the underwriter of the issue to propose such a high price for the issue and we know as a fact today that the price of the stock is Rp.13,350 per share (as on August 2, 1990).



Our analysis and calculations clearly determine that the IPO price is not appropriate in efficient stock.



Research location: PT Schering Pough Indonesia

Supervisor: Marita O'Sullivan, MBA

Accept: 14 August 1990