Prataap Snacks IPO subscribed over 47 times on Day 3
The public offer received bids for 7,81,79,475 shares against 36,27,518 shares on offer.
The public offer received bids for 7,81,79,475 shares against 36,27,518 shares offered by the company. The QIB, NII and retail quotas were subscribed 76.89, 101.15 and 8.39 times, respectively.
The company had already garnered a little over Rs 143 crore from anchor investors.
The company's Rs 482-crore issue size includes Rs 200 crore through fresh equity issue and the rest from sale of 30,05,770 shares.
Prataap Snacks has fixed a price band of Rs 930-938 per share. The company, which makes products under the ‘Yellow Diamond’ brand, aims to use the proceeds to expand capacity, marketing and brand building activities and retire the debt on its books.
Geojit Financial Services has given ‘Subscribe’ rating to the issue with long-term perspective.
Being a pan-India player, Prataap Snacks saw phenomenal growth over the last few years with revenue CAGR of 27.34 per cent over FY13-17. During the same time, it successfully garnered market share from large players like PepsiCo and ITC. In the Rings segment (part of extruded snacks), Prataap is the market leader and its share in the overall organised snacks market has grown from 1 per cent to 4 per cent during 2010 to 2016.
“With current utilisation rates, Prataap has the capability to grow organically. Current Indian organised snacks market is estimated at Rs 22,000 crore and is estimated to grow at around 14.6 per cent CAGR, over 2016-21E. Prataap's story should be considered on its new product launch plans, strong, sustained revenue growth and strengthening market position in the last few years. 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,” Geojit Financial Services said.
However, Angel Broking believes that at 202x of its FY17 earnings, the issue is richly valued at upper end of its price band of Rs 938. Ignoring its lower profitability in FY17 and valuaing 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 (which is not an exact peer due to size and product portfolio).
“Its peer in exactly same industry ie DFM Foods, also has good margins (10 per cent in FY17) and handsome return profile (around 20 per cent). For Prataap to justify this high valuation, remarkable improvement in profitability is required which may come at the cost of lower growth. Considering this, we rate Prataap Snacks as Neutral,” Angel Broking said.