Nova Agritech IPO: Anchor Allocation at 30%

About the Nova Agritech Ltd IPO

The stock of Nova AgriTech Ltd has a face value of ₹2 per share and the price band for the book building IPO has been set in the range of ₹39 to ₹41 per share. The final price will be discovered within this band. The IPO of Nova AgriTech Ltd will be a combination of a fresh issue and an offer for sale. The fresh issue portion of the IPO of Nova AgriTech Ltd comprises the issue of 2,73,17,073 shares (273.17 lakh shares approximately), which at the upper price band of ₹41 per share will translate into a fresh issue size of ₹112 crore. The offer for sale (OFS) portion of the IPO of Nova AgriTech Ltd comprises the sale of 77,58,620 shares (77.59 lakh shares approximately), which at the upper price band of ₹41 per share will translate into an offer for sale (OFS) size of ₹31.81 crore. Promoters currently hold 84.27% in the company. None of the promoters or promoter group are selling shares in the IPO. The entire OFS quantity of 77.59 shares is being sold by investor shareholder (Nutalapati Venkata Subbarao), who will sell his entire 11.9% stake in the company.

The promoter stake, post the issue will stand reduced to 59.39%. The overall IPO of  Nova AgriTech Ltd will be a combination of a fresh issue and an offer for sale. The overall issue will, therefore, comprise of the fresh issue and sale of 3,50,75,693 shares (350.76 lakh shares approximately), which at the upper price band of ₹41 per share translates into total IPO size of ₹143.81 crore. The IPO of Nova AgriTech Ltd will be listed on the NSE and the BSE on the IPO mainboard. The fresh issue proceeds of the IPO will be used by Nova AgriTech Ltd to invest in its subsidiary, Nova Agri Sciences to set up a formulation plant, funding capex for expansion and for the working capital needs of the company and its subsidiary. The IPO will be jointly lead managed by Keynote Financial Services and Bajaj Capital ltd. Bigshare Services Private Ltd will be the registrar to the issue.

A brief on the anchor allocation of Nova Agritech Ltd

The anchor issue of Nova Agritech Ltd saw a relatively strong response on 19th January 2024 with 30% of the IPO size getting absorbed by the anchors. Out of 3,50,75,693 shares (350.76 lakh shares approximately) on offer, the anchors picked up 1,05,22,220 shares (105.22 lakh shares approximately) accounting for 30% of the total IPO size. The anchor placement reporting was made to the BSE late on Friday, 19th January 2024; one working day ahead of the IPO opening on Monday, 22nd January 2024.

The entire anchor allocation was made at the upper price band of ₹41 per share. This includes the face value of ₹2 per share plus a share premium of ₹39 per share, taking the anchor allocation price to ₹41 per share. Let us focus on the anchor allotment portion ahead of the Nova Agritech Ltd IPO, which saw the anchor bidding opening and also closing on 19th January 2024. Post the anchor allocation, here is how the overall allocation looked.

Here it must be noted that the 1,05,22,220 shares issued to the anchor investors on 19th January 2024, were actually reduced from the original QIB quota; and only the residual number of shares will be available to QIBs in the IPO. That change has been reflected in the table above, with the QIB IPO portion reduced to the extent of the anchor allocation. The overall allocation to QIBs includes the anchor portion, so the anchor shares allotted has been deducted from the QIB quota for the purpose of the public issue.

Finer points of anchor allocation process

Before we go into the details of the actual anchor allotment, a quick word on the process of anchor placement. The anchor placement ahead of an IPO/FPO is different from a pre-IPO placement in that the anchor allocation has a lock-in period of just one month, although under the new rules, part of the anchor portion will be locked in for 3 months. It is just to give confidence to investors that the issue is backed by large established institutions. It is the presence of institutional investors like mutual funds and foreign portfolio investors (FPIs) that gives confidence to the retail investors. Here are details of the anchor lock-in for the issue of Nova Agritech Ltd.

However, the anchor investors cannot be allotted shares at a discount to the IPO price. This is explicitly stated in the SEBI revised regulations as under, “As per the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirement) Regulations, 2018, as amended, in case the Offer Price discovered through book building process is higher than the Anchor Investor Allocation Price, then the Anchor investors will be required to pay the difference by the pay-in as specified in the revised CAN.

An anchor investor in an IPO is normally a qualified institutional buyer (QIB) like a foreign portfolio investor or mutual fund or insurance company or a sovereign fund which invests before the IPO is made available to the public as per SEBI regulations. Anchor portion is part of the public issue, so the IPO portion to the public (QIB portion) is reduced to that extent. As initial investors, these anchors make the IPO process more attractive for investors, and instil confidence in them. Anchor investors also largely aid in price discovery of the IPO

Anchor allocation investors in Nova Agritech Ltd

On 19th January 2024, Nova Agritech Ltd completed the bidding for its anchor allocation. There was a strong and robust response as the anchor investors participated through the process of book building. A total of 1,05,22,220 shares were allotted to a total of 4 anchor investors. The allocation was done at the upper IPO price band of ₹41 per share (including premium of ₹39 per share) which resulted in an overall anchor allocation of ₹43.14 crore. The anchor s have already absorbed 30% of the total issue size of ₹143.81 crore, which is indicative of fairly robust institutional demand.

Listed below are the 4 anchor investors who, have been allotted 100% of the anchor allocation of Nova Agritech Ltd between the four of them. The entire anchor allocation of ₹43.14 crore was spread across a total of 4 major anchor investors. While there were 4 anchor investors in all, all the 4 anchor investors who got allocated shares in the anchor portion have been listed in the table below. These 4 anchor investors accounted for 100% of the total anchor collection of  ₹43.14 crore. The detailed allocation is captured in the table below, indexed descending on size of anchor allocation.

Data Source: BSE Filings (Value Allocated in ₹ in Crore)

The above list includes the set of 4 anchor investors who got allotted 100% of the overall anchor allocation of Nova Agritech Ltd IPO between them. The detailed and comprehensive report on the anchor allocation with the mutual fund portion separated (if any) can be accessed by clicking on the link below.

https://www.bseindia.com/markets/MarketInfo/DownloadAttach.aspx?id=20240119-13&attachedId=64053518-903e-4a47-bf5b-3fbc61c9ac77

The detailed report is available in PDF format and can be downloaded by clicking on the link above. Alternatively, readers can also opt to cut this link and paste in their browser, in case the link is not directly clickable. The details of the anchor allocation can also be accessed in the Notices section of the BSE on its website www.bseindia.com.

Overall, the anchors absorbed 30% of the total issue size. The QIB portion in the IPO has already been reduced to the extent of the anchor placement done above. Only the balance amount will be available for QIB allocation as part of the regular IPO. The general norm is that, in anchor placements, smaller issues find it hard to get FPIs interested while larger issues do not interest mutual funds. Nova Agritech Ltd saw most of the interest coming from the AIFs, and the smaller sized anchor investors. Let us finally look at the sub-category of mutual fund participation in the anchor allocation ahead of the Nova Agritech Ltd IPO.

The anchor response normally sets the tone for the retail participation in the IPO and the anchor response has been fairly steady this time around. Out of the 1,05,22,220 shares allocated to the anchors in the IPO, there was no allocation made by the company to mutual funds registered with SEBI.