Prataap Snacks IPO Review : Good Revenue Growth Marred by Lower Margins

Prataap Snacks IPO

Indore based, Prataap Snacks Limited which  is a snack Food company and has shown rapid growth in last few years  is entering the capital market. Prataap Snacks IPO intends to raise Rs. 200 crore from fresh issue of equity shares and an offer for sale (OFS) of upto 30 lac equity shares of Rs. 5 each. Prataap Snacks claims to be among the fastest growing companies in the Indian organised snack market. Promoters as well as PE investor Sequoia are participating in the Offer for sale.

Prataap Snacks IPO:Issue Details
 
Issue OpensFriday, September 22, 2017*
Issue ClosesTuesday, September 26, 2017
Price BandRs.930 – 938
Employee DiscountRs.90/- per share
Bid Lot15 Equity Shares and multiple thereof
Issue Size (No. of Shares)Fresh Issue of Equity Shares for Rs.200 Crores
 and  Offer for sale of 3,005,770 Equity shares
Issue Size ( Rs.)Rs.485.50 Cr (at upper end)
Employee ReservationUp to 42,000 Equity shares (Rs.3.56 Cr)
Issue Structure : 
QIB50% of the Net offer – 2,578,154 Shares – Rs.240.97 Cr
NIB15% of the Net offer -773,446 shares  – Rs.72.29 Cr
Retail35% of the Net offer -1,804,708 Shares  – Rs.168.68 Cr
 ~ Lower Price Band and ^Upper Price Band
BRLMsEdelweiss Financials, JM Financial, Spark Capital
RegistrarKarvy  Computershare Pvt. Ltd.
About Prataap Snacks Limited
  • Incorporated on year 2009, Prataap Snacks Limited  is an Indore based company selling extruded snacks, potato chips and namkeen under the  brand ‘Yellow Diamond’ & ‘Chulbule’
  • The company has  3 manufacturing facilities i.e. at  Indore in Madhya Pradesh ans two other plants at Guwahati in Assam.
  •  Prataap Snacks is one of the top six Snack Food Company in India and among the fastest growing companies in the Indian organised snack market.
  • Prataap Snacks  has three major savoury Snack Food categories i.e. Extruded Snacks, Chips and Namkeen. Extruded snacks, Potato Chips and Namkeen represented 63%, 24%, and 12%, of its revenue in FY2017.
  • The Company owns brands such as Chulbule, Yellow Diamond etc. 
  • Prataap Snacks has 40 flavours of Chips and Extruded Snacks and 23 varieties of Namkeen in the market.

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  • Prataap Snacks(PSL)  has set up a pan-India distribution network which included 168 Super Stockists across 24 States and 1 Union Territory in India and approximately 2,900 Distributors.
Prataap Snacks: Financials:
Rs. In crore
2017201620152014
Revenue 908.05760.42562.10448.83
Revenue Growth (%)19.41%35.28%25.24%
EBIDTA 42.4157.2335.6321.38
EBIDTA  Margin(%)4.67%7.53%6.34%4.76%
Extraord Losses05.80.960
Profit Before Tax12.9427.56134.98
Net Profit 9.8927.379.95.38
Net Profit  Margin1.09%3.60%1.76%1.20%
Face Value5555
Share Capital10.71.471.471.46
Reserves235.28215.77188.14175.81
Net worth238.34217.23189.61177.27
RoNW (%)4.15%12.60%5.22%3.03%
NAV 125.08115.76101.0495.93
EPS (Rs.) 4.7713.324.832.65
ROE %4.20%12.60%5.20%3.00%
IPO Price938
PE ratio196.65
P/BV ratio7.50
Post Issue Equity11.77 
Earning – Diluted equity4.20
PE ratio (Post Issue)223.19
CAGR Sales 3 yrs26.48% 
CAGR NP  3 Yrs22.50%
Market Cap 2207.32
Market Cap/Sales 2.43

Prataap Snacks is having wafer thin margins and these are in rage of 1-4% for the fiscal 2016 & 2017.

Prataap Snacks: Comparison with Peers
Rs. In Crores
Name of CompanyPrataap SnacksBritannia IndustriesDFM Foods
Revenue FY17903.929,324.10344.89
EBITDA Margin  %4.67%15.32%10.06%
Net Profit9.89885.7915.87
EPS (₹)4.7773.8215.87
Equity (Pre Issue)10.72410
Face Value5210
NAV114.66224.9280.75
RONW4.1532.7819.65
IPO/Market Price9384,331.851,399.70
P/E196.6558.6888.20
P/B8.1819.2617.33
ROE4.20%32.67%19.65%
Market Cap2207.3251982.201399.70
Market Cap/ Sales2.445.584.06

While the Prataap Snacks Revenues & Revenue growth attracts attention, its margins and consequently other return ratios have been poor.

Assessment : Prataap Snacks IPO
  • Prataap Snacks is one of the top six Indian snack food companies in terms of revenues for 2016. 
  • The company is among the fastest growing companies in the organized snack market for the period 2010 and 2016. Prataap Snacks Revenues have grown at a CAGR of 27.3% in the last four years, higher than the average  industry growth of 10%.
  • At upper price band of Rs 938, the company is demanding a PE of 196.65 on the Pre Issue Equity capital. The PE ratio on post issue equity stands at a whooping 223.19 which is considered quite high. The PE even on its FY2016 performance is still higher than peers and gives little comfort.
  • Prataap Snacks IPO Valuations are high and it  compares poorly with the peers it has listed in RHP.  Its OPM stood at 4.5% as compared to double digit figures of its peers. Also it may not be proper to compare Prataap Snacks with companies like Britannia which has much more diverse and reputed range of products.
  • Only notable point about Prataap Snacks IPO is the companys ability to grow its sales at a good rate which speaks well for the company.
  • I am not likely to subscribe to Prataap Snacks IPO even though one cannot rule out speculative activity in this counter on listing. 

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.

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