Karnika Industries coming with IPO to raise Rs 25.07 crore

Karnika Industries

• Karnika Industries is coming out with an initial public offering (IPO) of 3,299,200 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 76 per equity share.
• The issue will open for subscription on September 29, 2023 and will close on October 4, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 7.60 times higher to its face value of Rs 10.
• Book running lead managers to the issue is Beeline Capital Advisor.
• Compliance Officer for the issue is Muskan Mundhra.

Profile of the company

The Company is an ISO 14001:2015 certified manufacturer through job work, trader and exporter of garments. It 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. It has 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 its infrastructure is operated by its highly experienced team of professionals. It is manufacturing majority of its products through job work, it is capable of undertaking bulk requirements of its clients and deliver within stipulated time schedule.

The company majorly focuses in high quality of fabrics and garments, delivering quality textiles and maintaining long term association with its clients. The level of advancement determines the productivity of machines and labour, which in turn, determines the production and profitability of the company. Its technical team is equipped with modern technology and processing techniques by virtue of which it is able to ensure quality output. It sells its products under brand of KARNIKA and sub category as KARNIKA Care, KARNIKA Cool, KARNIKA Cube, KARNIKA Life, KARNIKA Key, KARNIKA Club. 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.

Its Business Process includes use of yarn and fabrics during the manufacturing process. Besides, it is also able to offer its customers fabric alternatives for their existing collections thus, create important added values in terms of pricing, quality and delivery terms. Its endeavour to satisfy customers by continuous improvement through process innovation and quality maintenance. It focuses on producing quality product to increase customer satisfaction and develop a positive brand image in the industry. Its management and team have enabled it to maintain continuing customer relations, ensuring repeat order flows.

Proceed is being used for:

• Meeting working capital requirement
• General corporate purpose
• Meeting the issue expenses

Industry overview

India’s textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. The industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, with the capital-intensive sophisticated mills sector at the other end. The fundamental strength of the textile industry in India is its strong production base of a wide range of fibre/yarns from natural fibres like cotton, jute, silk and wool, to synthetic/man-made fibres like polyester, viscose, nylon and acrylic. 

The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach $190 billion by 2025-26. India has a 4% share of the global trade in textiles and apparel. India is the world’s largest producer of cotton. Estimated production stood at 362.18 lakh bales during cotton season 2021-22. Domestic consumption for the 2021-22 cotton season is estimated to be at 338 lakh bales. Cotton production in India is projected to reach 7.2 million tonnes by 2030, driven by increasing demand from consumers. The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach $190 billion by 2025-26. India has a 4% share of the global trade in textiles and apparel. India is the world’s largest producer of cotton. Estimated production stood at 362.18 lakh bales during cotton season 2021-22. Domestic consumption for the 2021-22 cotton season is estimated to be at 338 lakh bales. Cotton production in India is projected to reach 7.2 million tonnes by 2030, driven by increasing demand from consumers. 

The future of the Indian textiles industry looks promising, buoyed by strong domestic consumption as well as export demand. India is working on various major initiatives to boost its technical textile industry. Owing to the pandemic, the demand for technical textiles in the form of PPE suits and equipment is on the rise. The government is supporting the sector through funding and machinery sponsoring. Top players in the sector are achieving sustainability in their products by manufacturing textiles that use natural recyclable materials. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and Next into the Indian market. The growth in textiles will be driven by growing household income, increasing population and increasing demand by sectors like housing, hospitality, healthcare, etc.

Pros and strengths

Diversified product portfolio: The Company has diverse product portfolio across various segments to fulfil customer‘s requirements. It basically manufactures all types of kids wear i.e., shorts, joggers, capri, tees, rompers, sleep suits, pyjamas, winter wear, infant wear etc. It supplies products on the basis of needs and requirements in the market. Its product range in formulations allows its existing customers to source majority of their product requirements from it and also enables it to expand its business from existing customers as well as address a larger base of potential new customers.

Consistency in quality and service standards: It follows stringent quality standards in its manufacturing unit to ensure that its products meet required customer standards. These standards ensure the quality consistency of the manufactured product by ensuring that it employs well trained staff, have sufficient premises and equipment for manufacturing.

Cost effective production and timely fulfilment of orders: Timely fulfilment of the orders is a prerequisite in its industry. The company has taken various steps in order to ensure adherence to timely fulfilment and also to achieve greater cost efficiency at its existing unit. The company constantly endeavors to implement an efficient procurement policy for inputs required for production so as to ensure cost efficiency in procurement which in turn results in cost effective production. 

Risks and concerns

Face competition: The market in which the company is doing business is highly competitive on account of both the organized and unorganized players. Players in this industry generally compete with each other on key attributes. Some of its competitors may have longer industry experience and greater financial, technical and other resources, which may enable them to react faster in changing market scenario and remain competitive. Moreover, the unorganized sector offers their products at highly competitive prices which may not be matched by it and consequently affect its volume of sales and growth prospects. Growing competition may result in a decline in its market share and may affect its margins which may adversely affect its business operations and its financial condition.

Depends on third party transportation: It relies on third party transportation and other logistic facilities at every stage of its business activity including for procurement of raw material from its suppliers, sending & receiving back the product from job work and for transportation from its finish products to its customers. For this purpose, it hires services of transportation companies. However, it has not entered into any definitive agreements with any transport service providers and engage them on a need basis. 

Depends on top ten customers: Its top ten customers have contributed 54.49%, 61.66%, 61.49% and 62.40% of its revenues for the period ended March 31, 2023, April 12, 2022, March 31, 2022 and March 31, 2021 based on Restated Financial Statements. However, its top customers may vary from period to period depending on the demand and thus the composition and revenue generated from these customers might change as it continues to add new customers in normal course of business. Since its business is concentrated among relatively few significant customers, also it have its promoter group entities as its customers. It could experiences a reduction in its results of operations, cash flows and liquidity if it losses one or more of these customers or the amount of business it obtains from them is reduced for any reason, including but not limited on account of any dispute or disqualification.

Outlook

The company is engaged in the business of manufacturing of readymade cloths, and fabric is used as the primary raw material during its manufacturing process. The Company is an ISO 14001:2015 certified manufacturer through job work, trader and exporter of garments. It 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. On the concern side, the market in which the company is doing business is highly competitive on account of both the organized and unorganized players. Players in this industry generally compete with each other on key attributes.

The company is coming out with an IPO of 3,299,200 equity shares of Rs 10 each at a fixed price of Rs 76 per share to mobilize Rs 25.07 crore. On performance front, the company’s revenue from operations had increased by 32.54% from Rs 9880.93 lakh in Fiscal 2022 to Rs 13095.95 lakh in Fiscal 2023 was due to increase in sales of products during the year. The company reported a net profit of Rs 852.41 lakh in Fiscal 2023 as compared to a net profit of Rs 454.01 lakh in Fiscal 2022. Meanwhile, the company constantly endeavors to improve its manufacturing process, and will increase service activities to optimize the utilization of resources. It has invested significant resources and intend to further invest in its activities to develop customized systems and processes to ensure effective management control.