Karnika Industries IPO Subscribed at 3.07 times

About the Karnika Industries IPO

The IPO of Karnika Industries opened for subscription on 29th September 2023 and closed for subscription on 05th October 2023. The IPO was kept open for a period of 4 days. The company stock has a face value of ₹10 per share and it is a fixed price issue with the IPO price already fixed at ₹76 per share. The IPO of Karnika Industries Ltd has only a fresh issue component and no offer for sale (OFS) component in the IPO. As part of the fresh issue portion of the IPO, Karnika Industries Ltd will issue a total of 32,99,200 shares (32.99 lakh shares approximately). At the fixed price of the IPO price of ₹76 per share, the total value of the fresh issue portion aggregates to ₹25.07 crore. Since there is no offer for sale portion, the fresh issue will also be the total size of the issue. Thus, the overall IPO will also entail the issue of 32,99,200 shares (32.99 lakh shares approximately). At the fixed IPO price of ₹76 per share, the total size of the IPO of Karnika Industries Ltd will be ₹25.07 crore.

The minimum lot size for the IPO investment will be 1,600 shares. Thus, retail investors can invest a minimum of ₹1,21,600 (1,600 x ₹76 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 3,200 shares and having a minimum lot value of ₹2,43,200. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The promoter holding, post-IPO, would get diluted from 100.00% to 73.39%. The company will use the IPO funds to fund working capital gaps and for general corporate purposes. Beeline Capital Advisors Private Ltd will be the lead manager to the issue and Skyline Financial Services Private Ltd will be the registrar to the issue. The market maker for the issue will be Spread X Securities.

Final subscription status of Karnika Industries Ltd

Here is the subscription status of the Karnika Industries IPO as at close on 05th October 2023.

As can be seen from the above table, the overall IPO of Karnika Industries Ltd got subscribed a very tepid 3.07 times. The HNI / NII portion led the stakes with 3.22 times subscription, followed by the Retail portion at 2.91 times. That is a very tepid and modest response to an SME IPO, especially if you consider the median subscriptions that similar other SME IPOs have got in the past.

Allocation quota for various categories

The issue was open for retail investors, and for the HNI / NIIs. There was a broad quota designed for each of the segments viz. the retail and the HNI NII. The table below captures the allocation reservation done for each of the categories out of the total number of shares offered in the IPO. A total of 1,66,400 shares were allocated as market maker portion to Spread X Securities Ltd, which will act as a market maker to provide bid-ask liquidity on the counter post listing. Market maker action not only improves liquidity in the counter but also reduces the basis risk.

As can be seen, from the above table, the company has not made any anchor allocation and also does not have any QIB allocation component. The company has allotted 5.04% of the total shares in the IPO to market makers to provide bid-ask spreads in the counter to maintain liquidity and reduce the basis risk. The net offer (net of market making portion) was distributed equally between the retail investors and the HNI / NII investors.

How subscription built up for the IPO of Karnika Industries Ltd

The oversubscription of the IPO was dominated by the HNI / NII category followed by the Retail, although the subscription performance was quite tepid. The table below captures the day-wise progression of the subscription status of Karnika Industries Ltd IPO.

It is clear from the above table that none of the categories got fully subscribed in the first three days of the IPO. In fact, the IPO was kept open for a period of 4 days. While the retail portion got fully subscribed on the last and fourth day of the IPO, the HNI / NII portion also got fully subscribed only on the last day. Overall, the IPO obviously got fully subscribed on the last day only. However, all the 3 categories saw bunching of flows, albeit marginal, on the last day of the IPO. The overall IPO was fully subscribed on the fourth and final day of the IPO although most of the limited traction came on the last day.

All the 3 categories of investors viz., HNIs / NIIs, retail and QIB categories saw traction and build-up of interest on the last day of the IPO, and that was when the IPO also got subscribed.  Post the IPO listing, the market maker will offer two way quotes on the stock, using the inventory of shares, and ensure that investors do not have to worry about liquidity and basis risk. The basis of allotment will be finalized on 10th October 2023 while the stock is expected to be listed on 13th October 2023. The listing will happen on the NSE SME segment for small companies, which is in contrast to the mainboard IPO space.