Prataap Snacks IPO: Here’s What You Need To Know

Prataap Snacks Ltd.’s initial public offering opens on Friday as the maker of Yellow Diamond chips looks to raise close to Rs 482 crore to expand its operations and modernise equipment.

The company is offering 51.4 lakh shares at Rs 930-938 apiece in the IPO that closes on September 26. It’s looking at a valuation of Rs 2,200 crore at the upper end of the price band.

Fund Utilisation

The snacks maker will use majority of its fresh issue proceeds to scale up and Rs 42 crore to repay debt.

Business

Prataap Snacks is one of the top six snack makers by revenue and sells them under the Yellow Diamond brand. The company owns and operates four manufacturing facilities at Indore, Madhya Pradesh and two in Assam. It also has two facilities on contract in Karnataka and West Bengal. The company sells products through 218 super stockists and over 3,500 distributors.

Unregistered business accounts for 60 percent of India’s Rs 55,000-crore packaged snack market (including includes chips, extruded snacks and namkeen). The organised market, estimated at Rs 22,000 crore, grew at 16.4 percent in six years to March last year. It’s estimated to grow at a compounded annual growth rate of 14.6 percent in five years to March 2021.

Revenue Sources

The company generates most its revenue from extruded snacks (like corn puffs) and has very low exposure to South India. Extruded snacks contribute 64 percent of its revenue.

Raw Material Costs

Earnings before interest, tax and depreciation and amortisation (EBITDA) margins have been volatile in the range of 4.5-8 percent because raw materials account for a chunk of expense and vary due to seasonality and global commodity prices.

Financial Highlights

• Prataap Snacks’ net worth was close to Rs 238 crore as of March 31, translating into a book value of Rs 102 apiece after issuing the new shares.
• At the upper end of the price band of Rs 938 apiece, earnings per share and price-earnings ratio for the year ended March (after issuing new shares) stands at Rs 4.2 and 222 times, respectively, according to BloombergQuint’s calculations.
• Revenue rose at a CAGR of 27.3 percent and EBITDA increased at 10.4 percent over five years to March.

• Net profit showed a negative CAGR of 10 percent, as company’s profit fell 63 percent to Rs 10 crore in the year to March due to potato crop-related issues.

• Its total debt stood at Rs 101 crore, while the debt-to-equity was 0.4 times. This will further reduce by Rs 40 crore as the company repays part of the debt from IPO proceeds.
• The company has reduced its working capital cycle to nine days from 32 in five years to March, and improved its asset turnover ratio to 4.5 times from 2.7 times.

Peer Comparison

Prataap Snacks has a higher price-to-earnings ratio than its listed rival DFM Foods Ltd.. It’s cheaper in terms of price-to-sales and price-to-book.

Its return ratios were impacted due to a 63 percent fall in net profit in the last financial year.

Shareholding

After the IPO, promoters will own 71.4 percent of the company and the rest will be held by public shareholders.

Brokerage Take

Angel Broking: Neutral rating

The company is valued higher even if last year’s lower profits are ignored. Its peer DFM Foods has a good margin and return profile. For Prataap to justify high valuations, remarkable improvement in profitability is required which may come at the cost of lower growth.

ICICIDirect: Subscribe rating

Prataap Snacks is attractively placed compared to its peers at 2.4 times its market-capitalisation to sales ratio. With expansion plans in place, initiative to penetrate weaker markets and strengthening brand image and recall through Rs 40 crore investment over coming three years, the company would be able to post a sustainable operating margin and record better earnings.