Prataap Snacks IPO Note

Nikita Bhoota

21 Sep 2017

Issue Opens: September 20, 2017

Issue Closes: September 26, 2017

Face Value: Rs 5

Price Band: Rs 930-938

Issue Size: Rs 514 cr

Public Issue: 0.51 cr shares (at upper price band)

Bid Lot: 21 Equity shares

Issue Type: 100% Book Building

% shareholding Pre IPO Post IPO
Promoter 93.0 71.0
Public 37.0 29.0

Source: RHP

Company Background

Prataap Snacks Ltd (PSL), which sells its products under the Yellow Diamond brand, is one of the fastest growing companies in the Indian organized snacks market. Its product category includes- Extruded Snacks (Chulbule, Rings, Puffs, Wheels, Scoops and Seven Wonders), Potato Chips and Namkeen (Dal, Sev, Mixture, etc). As per industry reports, PSL was one of the top six Indian snack food companies in terms of revenues in 2016 and had ~8% market share in the organized extruded snack market.

Objective of the Offer

The offer consists of Fresh Issue of `200 crore shares and an Offer for Sale (OFS) of up to 0.30 crore shares. The net proceeds from the Fresh Issue will be utilized as follows - Rs 67 crore for capex requirements, Rs 13 crore for repayment of loans, Rs 29 crore for repayment of borrowings availed by its subsidiary Pure N Sure, Rs 40 crore for marketing and brand building activities and balance will be utilized for general corporate purposes.

Key Investment Rationale

  • PSL is a relatively newer entrant as compared to its peers having completed ~13 years of operations. Its larger peers have been in business for most part of the century and have already been through their growth phase. As per the company, its region-wise split is East – 33.4%, West - 33.1%, North - 24.1% and South – 9.4%. We believe that the company is yet to drive deeper into metros and other geographies, which should enable it to maintain its high growth rate. Moreover, the company is also planning to explore foreign markets like South Asia that can provide support to top-line.

  • The company also plans to foray into newer categories like chocolate-based confectionaries to add to its recent launches in “Better For You” segment (healthier snacking). Chocolate-based confectionaries are generally a high margin business. Increasing contribution from this category will expand EBITDA margins as the company will be using its existing infrastructure for the product.

Key Risks

Brands such as Lays and Kurkure owned by PepsiCo have much higher advertisement budget compared to PSL. So far PSL has grown by targeting regions where major peers have lower focus. Failure to make inroads in territory where stronger competition has firm hold will have a negative impact on PSL’s revenues.

Conclusion

At upper end of the price band, P/E multiple on post-IPO shares works out to 222x (FY17 EPS). Considering, strong growth outlook and margin expansion, we believe that the IPO provides a good entry point and hence we recommend SUBSCRIBE on the issue.

Have Referral Code?

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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Prataap Snacks IPO Note

Nikita Bhoota

21 Sep 2017

Issue Opens: September 20, 2017

Issue Closes: September 26, 2017

Face Value: Rs 5

Price Band: Rs 930-938

Issue Size: Rs 514 cr

Public Issue: 0.51 cr shares (at upper price band)

Bid Lot: 21 Equity shares

Issue Type: 100% Book Building

% shareholding Pre IPO Post IPO
Promoter 93.0 71.0
Public 37.0 29.0

Source: RHP

Company Background

Prataap Snacks Ltd (PSL), which sells its products under the Yellow Diamond brand, is one of the fastest growing companies in the Indian organized snacks market. Its product category includes- Extruded Snacks (Chulbule, Rings, Puffs, Wheels, Scoops and Seven Wonders), Potato Chips and Namkeen (Dal, Sev, Mixture, etc). As per industry reports, PSL was one of the top six Indian snack food companies in terms of revenues in 2016 and had ~8% market share in the organized extruded snack market.

Objective of the Offer

The offer consists of Fresh Issue of `200 crore shares and an Offer for Sale (OFS) of up to 0.30 crore shares. The net proceeds from the Fresh Issue will be utilized as follows - Rs 67 crore for capex requirements, Rs 13 crore for repayment of loans, Rs 29 crore for repayment of borrowings availed by its subsidiary Pure N Sure, Rs 40 crore for marketing and brand building activities and balance will be utilized for general corporate purposes.

Key Investment Rationale

  • PSL is a relatively newer entrant as compared to its peers having completed ~13 years of operations. Its larger peers have been in business for most part of the century and have already been through their growth phase. As per the company, its region-wise split is East – 33.4%, West - 33.1%, North - 24.1% and South – 9.4%. We believe that the company is yet to drive deeper into metros and other geographies, which should enable it to maintain its high growth rate. Moreover, the company is also planning to explore foreign markets like South Asia that can provide support to top-line.

  • The company also plans to foray into newer categories like chocolate-based confectionaries to add to its recent launches in “Better For You” segment (healthier snacking). Chocolate-based confectionaries are generally a high margin business. Increasing contribution from this category will expand EBITDA margins as the company will be using its existing infrastructure for the product.

Key Risks

Brands such as Lays and Kurkure owned by PepsiCo have much higher advertisement budget compared to PSL. So far PSL has grown by targeting regions where major peers have lower focus. Failure to make inroads in territory where stronger competition has firm hold will have a negative impact on PSL’s revenues.

Conclusion

At upper end of the price band, P/E multiple on post-IPO shares works out to 222x (FY17 EPS). Considering, strong growth outlook and margin expansion, we believe that the IPO provides a good entry point and hence we recommend SUBSCRIBE on the issue.

Have Referral Code?