Karnika Industries Limited IPO

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i. Karnika Industries is a manufacturer through job work, trader and exporter of garments. They basically manufacture through job work all types of kids wear i.e., shorts, joggers, capri, tees, rompers, sleep suits, pyjamas, winter wear, infant wear etc. They have constructed well-established manufacturing units for designing, preparation of sample, quality inspection, ironing and packing of Garments that is equipped with all the necessary hi-tech machines and tools that are required for a modern manufacturing unit. Machinery that is equipped in their infrastructure is operated by their highly experienced team of professionals. They are manufacturing majority of their products through job work, we are capable of undertaking bulk requirements of their clients and deliver within stipulated time schedule.

ii. The company majorly focuses in high quality of fabrics and garments across globe utilizing best technology, delivering quality textiles at the most competitive prices and maintaining long term association with their clients. The level of advancement determines the productivity of machines and labour, which in turn, determines the production and profitability of the Company. Their technical team is equipped with modern technology and processing techniques by virtue of which they are able to ensure quality output.

iii. They sell their products under brand of KARNIKA and sub category as KARNIKA Care, KARNIKA Cool, KARNIKA Cube, KARNIKA Life, KARNIKA Key, KARNIKA Club.

iv. Karnika has reputed client base which includes various reputed Commission Agents and retail sectors clients. Karnika is growing with rapid pace and making its presence in market with quality and professional work

v. The Business Process includes use of yarn and fabrics during the manufacturing process. Besides, they are also able to offer their customers fabric alternatives for their existing collections thus, create important added values in terms of pricing, quality and delivery terms. They endeavour to satisfy customers by continuous improvement through process innovation and quality maintenance.

vi. Karnika has been organising trade shows and exhibitions on a pan India basis from time to time. Through these exhibitions, they have not only magnified their brand visibility but also created opportunities for others to network and collaborate with us.

Competitive Strengths

i. Diversified Product Portfolio
ii. Consistency in Quality and Service Standards
iii. Cost effective production and timely fulfilment of orders

Objects of the Karnika Industries Limited IPO:

The company intends to utilize the net proceeds from the issue towards the funding of the following objects: i. To Meet Working Capital Requirement. ii. General Corporate Purpose. iii. To Meet the Issue Expenses.

Karnika Industries Limited IPO Details:

Open Date: Sep 29 2023
Close Date: Oct 05 2023
Total Shares: 3,299,200
Face Value: ₹ 10 Per Equity Share
Issue Type: Fixed Price Issue IPO
Issue Size: 25.07 Cr.
Lot Size: 1600 Shares
Issue Price: ₹ 76 Per Equity Share
Listing At: NSE Emerge
Listing Date: Oct 13 2023

Promoters And Management:

Mr. Niranjan Mundhra, 38 years is Chairman cum Managing Director and also the Promoter of the Company. He holds Bachelor of Commerce Degree. He was appointed on the Board on April 13, 2022 and further designated as the Chairman cum Managing Director of the Company on June 01, 2022 for a period of 5 years, not liable to retire by rotation. He is having experience of 07 years in textile industry. He has been instrumental in taking major policy decision of the Company. He is playing vital role in formulating business strategies and effective implementation of the same. He is responsible for the expansion and overall management of the business of the Company. His Vision to do business with ethics & to keep up with latest developments, Consistent Innovation in Technology and Management practices has helped him provide an overall growth for the company. Mr Shiv Shankar Mundhra, aged 33 years, is the Whole Time Director and also the Promoter of the Company. He holds degree in Master of Business Administration. He was originally appointed on the Board on April 13, 2022 and further designated as the Whole-Time Director of the Company on June 01, 2022 for a period of 5 years liable to retire by rotation. He is having of experience of 07 years in textile industry. He is an innovative, highly organized Promoter with a history of profound success in General / Project Manager and senior Operational manager within manufacturing Industry. Mr. Mahesh Kumar Mundhra, aged 30 years is the Whole-Time Director and also the Promoter of the Company. He holds Higher secondary degree. He was originally appointed on the Board on April 13, 2022 and further designated as the Whole-Time Director of the Company on June 01, 2022 for a period of 5 years liable to retire by rotation. He is having experience of 07 years in textile industry. He is a seasoned team leader with the ability to coach and mentor associates to create a solid team with a commitment to quality standard and superior customer satisfaction through strategies and proficiencies.

Financials of Karnika Industries Limited IPO:

Particulars ( In Lakhs )
2021
2022
2023
Revenue from Operations 4,746 9,881 13,096
Other Income 33 12 148
Total Revenue 4,779 9,893 13,244
Cost of material consumed 3,966 8,591 9,623
Purchase of Stock in Trade 477 1,094 1,772
Changes in Inventories -288 -1,459 -1,206
Employee benefits expenses 173 299 620
Other Expenses 208 396 732
EBITDA 243 972 1,703
Depreciation & Amortisation 14 22 35
Finance Cost 104 233 517
EBIT 229 950 1,668
OPM (%) 5.08% 9.83% 12.86%
PBT 125 717 1151
Tax 44 263 298
PAT 82 454 852
NPM (%) 1.71% 4.59% 6.44%
No.of Shares 123.99 123.99 123.99
EPS 0.65 3.66 6.87

Comparison With Peers:

Name of the Company Revenue (In Crore) PAT (In Crore) EPS ( in Rs) P/E CMP Mcap (In Crore)
Karnika Industries Limited 131 9 6.87 11.1 76 94
S.P. Apparels Limited 1,078 83 32.88 17.9 511 1,284
Veekayem Fashion and Apparels Limited 235 2 3.08 26.3 81 48
* All the data is as per FY23.

Recommendation on Karnika Industries Limited IPO:

Review and Recommendation of Karnika Industries SME IPO by IZ team is 3/10

Overview of Karnika Industries

Karnika Industries is a specialized manufacturing company that outsources the production of a wide range of kids' wear, including shorts, joggers, capri, tees, rompers, sleep suits, pyjamas, winter wear, and infant wear, among others. The company acts as a middleman, securing bulk orders from major corporations and subcontracting the work to job shops.

Experience and Leadership

The company has been operational for the past seven years under the leadership of its promoter, Mr. Niranjan Mundhra, and Whole Time Directors, Mr. Shiv Shankar Mundhra and Mr. Mahesh Kumar Mundhra. Each of these individuals brings seven years of experience to the table, particularly in the garment industry.

Financials and Challenges

One of the main challenges Karnika Industries faces is scalability. The business model necessitates a high working capital and a significant labor force. Over the past three years, the company has grown its revenue from INR 50 Crore to INR 130 Crore. However, its short-term debt has surged from INR 14 Crore to INR 54 Crore, and its inventory has also increased from INR 11 Crore to INR 48 Crore. The IPO aims to raise INR 25 Crore, which will be allocated solely for meeting working capital requirements.

Sectoral Competition and Historical Context

The garment manufacturing sector is highly competitive and generally not considered a lucrative investment avenue. As a case in point, SP Apparel, another company in the same sector, has not yielded substantial returns for its investors over the last five to six years. Currently, its shares are trading at a P/E ratio of 18x.

Valuation and Investment Outlook

Karnika Industries is launching its IPO at a P/E ratio of 12x. While the valuation seems reasonable, the overall sector does not appear to be particularly enticing for investment purposes.

Conclusion

Karnika Industries has demonstrated strong revenue growth and has experienced leadership at the helm. However, the company's high working capital requirements, along with its increased short-term debt and inventory levels, pose a concern. The sector itself is highly competitive and has not been lucrative for investors historically. While the IPO valuation seems fair, the sector overall does not present a compelling investment case

Lead Manager of Karnika Industries Limited IPO:

  1. Beeline Broking Limited

Registrar of Karnika Industries Limited IPO:

  1. Skyline Financial Services Private Ltd

Company Address:

Karnika Industries Limited 6&6/1, Gurgola Ghat Road P.O. Salkia Howrah - 711106 Phone: 033-26558101 Email: info@karnikaindustries.com Website: http://www.karnikaindustries.com/Default/Index

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