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Advent to snack on Crax maker DFM Foods as promoters, Westbridge seek exit

The move is likely to trigger an open offer for another 26% of the share capital of the company.

, ET Bureau|
Updated: Sep 09, 2019, 07.55 PM IST
Guest contributor and other agencies
Advent looks to buy Crax maker DFM Food as promoters, Westbridge seek exit
MUMBAI: Advent International is set to acquire DFM Foods, a homegrown snacking company that was among the first to launch its now cult Crax brand of corn rings in mid 1980s.

Advent, the US headquartered buyout fund, that is looking at announcing two transactions in as many weeks, will buy out the promoters as well as Westbridge, an existing investor that owns almost a quarter of the company, the company said in a late evening statement on Monday.

The move will trigger an open offer for another 26% of the share capital of the company at Rs 249.50/share. If fully subscribed, Advent could end up owning up to 89.12.

ET broke the story online ahead of the announcement.

The promoters own 38.12 per cent while Westbridge, a public market focussed fund, owns 24.85 per cent held via two entities. DFM Foods’ market cap as on Monday was Rs 1,353.93 crore. The stock moved up over 7% intra day before closing at Rs 270.20/share.

DFM Foods was spun off from the Delhi Flour Mills, which was launched by RP Jain in 1993. It is now run by Jain’s son Mohit. The company sells packaged salty snacks such as CRAX Corn Rings that alone contributes half the total sales, CRAX Namkeen and NATKHAT. The firm has a strong presence in North India which contributes 75% of total sales and also sells its products in central, western and southern regions. It has been trying to expand its reach to the eastern region as well. South has been its smallest market.

The product portfolio comprises of Corn Rings, Corn Puffs, Wheat Puffs, Cheese Balls, Corn and Potato Sticks and traditional Namkeens in 13 distinct product variants sold through an extensive distribution network. The company has two state of the art processing units located at Ghaziabad and Greater Noida.

Since 2014, Westbridge bought into the company buying from the promoters at Rs 259.1 share. In 2016 it launched a voluntary offer to acquire up to 51 per cent at a purchase price of Rs 1320/share translating to a cumulative price tag of Rs 344 crore. But with shares of the company shooting up five time in 1 year then, the offer was much below the then prevailing price of Rs 1530/share and thereby failed.

Over the last 10 years, the company has grown at a Compounded Annual Growth Rate (CAGR) of 20.9%, with sales increasing from approximately Rs.72.2 Crores in 2009-10 to approximately Rs.483 Crores in the financial year ending March, 2019 with EBITDA margins also expanding from 11.95% in the previous year to 13.4%, PAT in FY19 was also up 40.5% Y-O-Y at Rs.32.76 crores.

Keeping in mid the growth potential, the company has also announced setting up additional production line by Q2FY20 at Greater Noida to add roughly 5000 metric tons per annum of incremental production capacity translating into an incremental revenue of nearly Rs 100 crores.

The Indian savoury snacks market is estimated at Rs 33,500 crore according to research firm Euromonitorm expected to grow a massive 22% over the next five years and is largely restricted to salted snacks category. The high growth has prompted several M&As and consolidation dialogues such as Pepsico’s attempt to buy Gujarat based namkeen maker Balaji or Kellogg’s exploring a strategic in Haldiram’s. In May, an Avendus fund invested a minority stake in Bikaji Foods International Ltd, one of India’s largest manufacturers of branded ethnic snacks from two existing investors.

“Any control deal in the foods sector would continue to attract good interest due to paucity of quality of assets & limited sellers in the market. Also, several businesses are still subscale. Globally, food & beverages shows one of the highest activity in terms of M&A,” said Navroz Mahudawala, Founder, Candle Advisors.

Like biscuits, across categories in snacks, there is a major transition happening from unorganised to organised players, feel analysts.

ICICI Securities and KPMG were the advisors in the deal.

Investors like the fact that despite the large base, the organised market is growing at 12-13% yet it is still approximately 40% of the total market.

Because of the high growth category, multiples have stacked up and are close to FMCG multiples (35 – 45 (x) trailing P/Es). While there have been limited strategic activity in this sector as yet it would increase as players scale up.

Even then, establishment of supply chain remains a challenge for many regional brands since the product can’t be freighted over very long distances due to cost compulsions. Most players will have several manufacturing capacities -- either owned or contract manufactured). For example, Prataap has 14 manufacturing units. The other major challenge is the price points – majority of the packs are in standard pricing of Rs 5, Rs 10, Rs 15 and Rs 30. This limits the scope of any pricing power and scope to earn a premium.

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Share market update: CG Power, DFM Foods among top gainers on BSE

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