Prataap Snacks IPO – Should you subscribe to this IPO?
Prataap Snacks IPO would open for subscription on 22nd September, 2017. Prataap Snacks Ltd one of the top six Indian snack food companies in terms of revenues. Its revenues grew at 27% CAGR in last 5 years. It posted thin profits of 1.1% for FY2017. Company has grown aggressively in terms of revenues in the last few years. What are the positive factors in Prataap Snacks Ltd IPO? What are the hidden factors in Prataap Snacks IPO? Is Prataap Snacks IPO Price is over priced? In this article, I would provide some interesting insights and do Prataap Snacks Limited IPO Review. You should read complete review of this article before you make investment decision in this IPO.
About Prataap Snacks Ltd
They were one of the top six Indian snack food companies in terms of revenues in 2016, and among the fastest growing companies in the Indian organised snack market between 2010 and 2016. Based on the FS Report, the snacks market in India is estimated at approximately Rs 550 billion, out of which organised snack market is estimated at Rs 220 billion and grew at a CAGR of 14% between 2012 and 2016. With increasing competition and cost pressure, there has been a gradual shift from an unorganized to organized sector across the various product segments. They are present in three major savitsy snack food categories in India and all its products are sold under the Yellow Diamond brand.
In Fiscal 2012, the Company acquired the snack foods business of its Group Company, Prakash Snacks Private Limited, pursuant to a business transfer agreement dated September 28, 2011. Pursuant to such arrangement, they acquired the Yellow Diamond brand and the snack foods business under such brand. They have over the years leveraged its understanding of its target markets and consumer segments, product innovation capabilities, extensive distribution network, strategically located manufacturing facilities, and have focused its marketing and promotional activities to strengthen its product brands and establish the Yellow Diamond brand across India.
Its diversified product portfolio includes three categories:
1) Extruded Snacks. Extruded snacks are processed, reconstituted and shaped potato or cereal based snacks. Extruded snacks may be flavitsed or unflavitsed. It includes puffed snacks. its Extruded Snacks products are divided into two sub-categories: (i) Shaped Extruded Snacks, which includes its Puffs, Rings and Pellets products; and (ii) Random Extruded Snacks, which includes its Chulbule product. Chulbule was introduced by Prakash Snacks in Fiscal 2006, and this business was subsequently acquired by the Company in Fiscal 2012. Rings, one of its major products in the Extruded Snacks category, was launched by them in Fiscal 2012. Currently, they sell Extruded Snacks under the Yellow Diamond brand.
2) Chips. Chips include fried, sliced chips or crisps made from potatoes, hummus, lentils etc. It includes flavitsed and unflavitsed chips, and may be standard chips, thick-cut and / or crinkle-cut. Potato Chips were introduced by company in Fiscal 2010. its Group Company, Prakash Snacks, introduced potato chips in Fiscal 2005 and they acquired its potato chips manufacturing business in Fiscal 2012.
Currently, they sell Potato Chips under the Yellow Diamond brand.
3) Namkeen. Namkeen are a type of traditional savitsy Indian snack which includes products such as moong dal, masala or fried nuts, sev and bhujia. Namkeen under the Yellow Diamond brand was launched by its Company in Fiscal 2012, pursuant to the business transfer agreement dated September 28, 2011.
Prataap Snacks IPO Issue details
- IPO open date: 22-September-2017
- IPO close date: 26-September-2017
- Face Value: Rs 5 per share
- Issue price band: Rs 930 to Rs 938 per share
- Issue size: Approx Rs 482 Crores on higher price band
- Prataap Snacks IPO Lot size: 15 shares and 15 shares there-off
- Minimum investment: Rs 14,070
- Leading Managers: Edelweiss Financial Services, JM Financials and Spark Capital Advisors
- Listing: BSE / NSE
- Download Prataap Snacks IPO RHP Prospectus at this link.
Objects of the Prataap Snacks Ltd IPO issue
The Issue comprises the Fresh Issue and the Offer for Sale.
a) Offer for Sale
Each of the Selling Shareholders will be entitled to their respective portion of the proceeds from the Offer for Sale. Company will not receive any proceeds from the Offer for Sale. All expenses in relation to the Issue other than listing fees (which shall be borne by Company) shall be shared between Company and the Selling Shareholders in accordance with applicable laws. Each Selling Shareholder shall reimburse Company for all expenses incurred by Company in relation to the Offer for Sale on behalf of such Selling Shareholder.
b) Fresh Issue
Company proposes to utilise the Net Proceeds from the Fresh Issue towards funding the following objects:
1) Repayment/pre-payment, in full or part, of certain borrowings availed by Company
2) Funding capital expenditure requirements in relation to expansion (including through setting up of a new production line and construction of a building) and modernisation at certain of its existing manufacturing facilities
3) Investment in Subsidiary, Pure N Sure, towards enabling the repayment/pre-payment of certain borrowings availed of by its Subsidiary
4) Marketing and brand-building activities
5) General corporate purposes.
Company Financials (reinstated-consolidated)
1) The company generated revenue of Rs 344.4 Crores for the year ended Mar-13 and Rs 905.4 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 14.8 Crores for the year ended Mar-13 and profit of Rs 9.9 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 4.77 and 3 years average EPS is Rs 7.63.
Company Financials (reinstated-unconsolidated)
1) The company generated revenue of Rs 344.3 Crores for the year ended Mar-13 and Rs 905.9 Crores for the year ended Mar-17.
2) The company posted a profit of Rs 14.7 Crores for the year ended Mar-13 and profit of Rs 10.4 Crores for the year ended Mar-17.
3) Its FY17 EPS is Rs 5.04 and 3 years average EPS is Rs 8.25.
What are the key strengths of Prataap Snacks Limited?
Here are the key strengths of the company.
1) Innovation driven diversified product portfolio.
2) Value proposition for consumers.
3) Strategic supply chain for a pan-India distribution network.
4) Strategically located manufacturing facilities.
5) Successful track record and professional management.
Also Read: Top Rated Equity Funds to invest in India
What are the Strategies of Prataap Snacks Ltd?
Here are the key strategies of Prataap Snacks which it want to focus.
1) Deeper penetration in existing markets and explore select new territories.
2) Expand and modernize its production capabilities.
3) Increased advertising and marketing activities.
4) Expand its product portfolio into healthier snacks segment and confectionaries.
Reasons to invest in Prataap Snacks IPO
1) It posted strong revenue growth of 27% CAGR in the last 5 years.
2) Good brand in food segment in India.
Risk Factors / Reasons not to invest in a Prataap Snacks Ltd IPO
1) It earns thin profits. For FY2017 it earned 1.1% margins only.
2) There are outstanding legal proceedings against company, Group Companies and Directors which may adversely affect its business, financial condition and results of operations.
3) Any actual or alleged contamination or deterioration of its products or any negative publicity or media reports related to its products or its raw materials could result in legal liability, damage its reputation and adversely affect its business prospects and consequently its financial performance.
4) Inadequate or interrupted supply and price fluctuation of its raw materials and packaging materials could adversely affect its business, results of operations, cash flows, profitability and financial condition.
5) They operate in a highly competitive industry. An inability to maintain its competitive position may adversely affect its business, prospects and future financial performance.
6) Failure to develop, launch and market new products due to unpredictable consumer preferences may have a material adverse effect on its business, results of operations, profitability and financial condition.
7) Failure to effectively manage its future growth and expansion may have a material adverse effect on its business prospects and future financial performance.
8) Its business prospects and results of operations may be adversely affected if any future capacity expansion plans are not successfully implemented.
9) If they fail to maintain and enhance its brand and reputation, consumers’ recognition of its brands, and trust in us, and its products, its business may be materially and adversely affected.
10) Its inability to expand or effectively manage its growing super stockists and distribution network or any disruptions in its supply or distribution infrastructure may have an adverse effect on its business, results of operations and financial condition.
11) Its procurement operations in relation to potatoes are concentrated in Madhya Pradesh and any adverse developments affecting this region could have an adverse effect on its business, results of operations and financial condition.
12) They have limited financial history and its prior period financial results may not accurately represent its future financial performance.
14) There has been a significant increase in its reported profit after tax on account of recognition of MAT credit entitlement relating to earlier years.
15) Its Subsidiary, Pure N Sure has negative net worth and incurred losses in the past and may incur losses in the future.
16) Certain of its Group Companies have incurred losses in the past, which may have an adverse effect on its reputation and business.
17) Other risk factors (Internal and external) can be viewed in the prospectus.
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Recommendation / Investment strategy – Prataap Snacks IPO
1) On the upper price band of Rs 938 and on consolidated restated FY17 EPS of Rs 4.77, P/E ratio works out to 196x. Even based on last 3 years restated consolidated EPS of Rs 7.63, P/E ratio works out to 122x. Means, company is asking higher price band of Rs 938 in the P/E ratio of 122x to 196x. Its peers like Britannia Industries are trading at P/E ratio of 56 (lowest) and DFM Foods at P/E ratio of 87.8 (Highest) and average is at 72.2. Hence Prataap Snacks IPO issue price at P/E ratio of 122x to 196x is over priced.
2) Company revenues grew at 27% CAGR in the last 5 years. However, it earned thin margins of 1.1% for FY2017. Its issue price is also overpriced. Considering all these negative factors, investors should be little cautious and stay away from such high priced IPOs.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
Readers, What is your view on this IPO? Do you feel my thoughts are not correct?
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Prataap Snacks IPO – Should you subscribe to this IPO