M.V.K. Agro Food Product IPO Subscription 8.46 times

About the M.V.K. Agro Food Product IPO

The stock of M.V.K. Agro Food Product Ltd has a face value of ₹10 per share and it is a fixed price issue. The price for the book building issue is set at ₹120 per share. Being a fixed price IPO, the question of price discovery does not arise in this case. The IPO of M.V.K. Agro Food Product Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive. As part of the fresh issue portion of the IPO, M.V.K. Agro Food Product Ltd will issue a total of 54,90,000 shares (54.90 lakh shares), which at the upper band of IPO price of ₹120 per share aggregates to fresh fund raising of ₹65.88 crore. Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size.

Therefore, the overall IPO size will also comprise of the issue of 54,90,000 shares (54.90 lakh shares) which at the upper band IPO price of ₹120 per share will aggregate to overall IPO size of ₹65.88 crore. This issue has a market making portion with a market maker inventory allocation of 2,74,800 shares. Nikunj Stock Brokers Ltd will be the market maker to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing. The promoter stake stands at 100.00% but post the IPO it will dilute to 64.56%. The fresh issue funds will be used by the company for setting up a greenfield unit in Nanded in Maharashtra for the manufacture of ethanol and the generation & bottling of bio-CNG and fertilizers. Horizon Management Private Ltd will be the lead manager to the issue, and MAS Services Ltd will be the registrar to the issue. The market maker for the issue is Nikunj Stock Brokers Ltd.

Final subscription status of M.V.K. Agro Food Product IPO

Here is subscription status of M.V.K. Agro Food Product IPO at close on 04th March 2024.

As can be seen from the above table, the overall IPO of M.V.K. Agro Food Product Ltd got subscribed a rather tepid 8.46 times. The retail portion led the stakes with 13.01 times subscription, followed by the HNI / NII portion at 3.90 times subscription. There was no dedicated QIB allocation in this IPO. That is a rather modest and moderate response to an SME IPO, especially if you consider the median subscriptions that similar other SME IPOs have got in the past. The subscription has shown very limited traction for the IPO across both the categories of investors; retail and HNI / NII investors.

Allocation quota for various categories

M.V.K. Agro Food Product Ltd has already announced the market maker allocation at 2,74,800 shares as inventory for market making. Nikunj Stock Brokers Ltd will be the market maker for the IPO. The market maker will provide buy and sell quotes on the stock post listing to ensure liquidity on the counter and to keep the basis costs on the stock in a narrow range to reduce the risk to the retail investors. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of M.V.K. Agro Food Product Ltd in terms of the allocation to various categories are captured in the table below.

In the above IPO of M.V.K. Agro Food Product Ltd, there is no QIB allocation in the IPO. The anchor allocation to the anchor investors is normally done out of this QIB allocation and hence the company has not done any anchor allocation in the IPO. Normally, the anchor is done to institutional investors, which gives confidence and assurance to the retail shareholders about the institutional interest in the stock The anchor allocation is normally adjusted and deducted from the QIB quota and only the net number of shares is available for public issue under the QIB portion.

However, in this case, there is neither any QIB quota, nor any anchor allocation to investors ahead of the IPO. Normally, the anchor portion bidding is done on the day before the IPO opens and such anchor investments are subjected to lock in at two levels. Half the anchor allocation is locked in for 30 days while the balance anchor allocation shares are locked in for a period of 90 days. The allocation of market maker inventory of 5.00% is outside the anchor portion. The market making portion is more towards ensuring liquidity post listing and ensuring low basis spreads on the stock.

How subscription built up for the M.V.K. Agro Food Product IPO

The oversubscription of the IPO was dominated by the HNI / NII investors followed by the Retail Investor category in that order. The table below captures the day-wise progression of the subscription status of M.V.K. Agro Food Product Ltd. The IPO was kept open for 3 working days.

Here are the key takeaways from the subscription numbers on a day-wise basis for M.V.K. Agro Food Product Ltd.

• The Retail portion got the best subscription in the M.V.K. Agro Food Product Ltd IPO at 13.01 times and it got 1.56 times subscribed on the first day of the IPO itself.
   
• The HNI / NII portion was behind the retail portion in terms of subscription at 3.90 terms overall and it got just 0.56 times subscribed at the end of the first day.
   
• While the retail portion got fully subscribed on the first day of the IPO itself, the HNI / NII portion got fully subscribed only on the third and final day of the IPO itself. However, the retail thrust saw the overall IPO getting subscribed fully on day one itself.
   
• The overall IPO, which saw subscription of 8.46 times at the close of the IPO, got fully subscribed at 1.06 times at the close of the first day itself.
   
• The HNI / NII portion saw good traction on the last day of the IPO. The HNI / NII portion saw the total subscription ratio moving from 0.78X to 3.90X on the third and final day of the IPO.
   
• Like the HNI / NII portion, even the Retail portion saw some very good traction on the last day of the IPO. In fact, the retail subscription ratio moved from 5.07X to 13.01X on the last day of the IPO.
   
• What about the Overall IPO. The last day story was true for the overall IPO also. On the third and final day of the IPO, the subscription ratio overall moved from 2.93X to 8.46X on the last day of the IPO.

Next steps in the IPO process

With the IPO closed for subscription at the end of 04th March, 2024, the next piece of action shifts to the finalization of the basis of allotment and later to the listing of the IPO. The basis of allotment will be finalized on 05th March, 2024 and the refunds will be initiated on 06th March, 2024. In addition, the demat credits are also expected to happen on 06th March, 2024 and the stock is scheduled to list on 07th March, 2024 on the NSE SME segment. This is the segment, in contrast to the mainboard, where IPOs of small and medium enterprises (SMEs) are incubated. The demat credits to the demat account to the extent of allotment will happen by the close of 06th March, 2024 under ISIN Number (INE0SGC01015).