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Stock Analysis, IPO, Mutual Funds, Bonds & More

Prataap Snacks IPO subscribed 43% on Day 1; should you subscribe?

The offer received bids for 15,42,180 shares as against 36,27,518 shares on offer.

ETMarkets.com|
Sep 22, 2017, 06.52 PM IST
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The company's Rs 482-crore issue size includes Rs 200 crore through fresh equity issue.
The company's Rs 482-crore issue size includes Rs 200 crore through fresh equity issue.
The initial public offer (IPO) of Prataap Snacks got subscribed 43 per cent on the first day of the offer on Friday.

The offer received bids for 15,42,180 shares as against 36,27,518 shares offered by the company.

The company's Rs 482-crore issue size includes Rs 200 crore through fresh equity issue and the rest from the offer for sale of 30,05,770 scrips.

The company has fixed price band of Rs 930-938 per equity share. The issue will close on September 26.

Prataap Snacks will also offer a discount of Rs 90 per share to eligible employees of the company.

The company manufactures products under the brand name of 'Yellow Diamond'. It aims to use the proceedings to expand the capacity of chips by 50 per cent and double that of namkeen, marketing and brand building activities and to retire the debt on its books.

Brokerage Geojit Financial Services has given ‘Subscribe’ rating to the issue. It said, “The company intends to foray into relatively untapped high margin chocolate-based confectionary, the market for which is estimated to grow at 15-18 per cent annually over the next four to five years. We recommend 'Subscribe' to the issue, with a long term perspective.”

Angel Broking said that the issue looks richly valued at 202 times of its FY17 earnings.

“Ignoring its lower profitability in FY17 and valuating the issue on FY16 EPS still yields a high P/E of 73.0x. FMCG companies commanding such high P/Es have a very strong profitability and returns profile such as Britannia. Its peer in exactly the same industry ie DFM Foods, also has good margins (10 per cent in FY17) and handsome return profile (20 per cent cent)," the brokerage said.

Centrum Broking has given ‘Avoid’ rating to the issue. The brokerage house in a research note said, “At the higher end of the price band of Rs 938, the issue is valued at 222.4x P/E on FY17 basis (post dilution). This appears very expensive given the current financials (EBITDA margins around 4.5 per cent and RoE around 4.5 per cent). Food snack industry in India has a strong historical dominance of both MNCs (Pepsico) and Indian brands (Haldiram’s, DFM Foods, Balaji Wafers) having deep pockets for aggressive advertisement and promotion budget making the space highly competitive. Given PSL’s declining profitability, competitive intensity and high valuation we recommend investors to Avoid the IPO.”

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