Bikaji Foods International, the maker of traditional North Indian savouries like bhujia and namkeen, apart from sweets, is going to make its debut on Wednesday, November 16, after getting a healthy subscription for its initial public offering (IPO).
Considering the good response to the IPO, optimism in the secondary market, its market leadership in its core states (Rajasthan, Assam, and Bihar), an international footprint, a healthy top line, and a strong management team, the listing premium is expected to be around 10 percent over the final issue price of Rs 300 per share, in line with the grey market premium, but the downside could be that the issue was a complete offer for sale (OFS) by promoters and investors, apart from falling margin, experts said.
The Rs 881-crore public issue was subscribed 26.67 times during November 3-7 backed by qualified institutional buyer (QIB) interest. QIBs had applied for more than 80 times the allotted quota, and high net-worth individuals over 7 times, while the portions set aside for retail investors and employees were subscribed 4.77 times and 4.38 times, respectively.
“Being India’s third-largest ethnic snacks company, Bikaji Foods managed to get a strong investor response. Given an optimistic outlook in the secondary market, Bikaji is expected to list with a decent premium of 8-10 percent on the issue price,” said Prashanth Tapse, senior vice-president, research, at Mehta Equities said.
But investors should also look at a few red flags on high ask valuations and a complete OFS issue as areas of concern, he added.
Overall, Bikaji has strong market positioning and good brand recall with improved penetration to maintain long-term growth, Tapse said.
With a track record of three decades in the Indian snacks industry, Bikaji recorded a 22 percent compound annual growth rate (CAGR) in sales during FY20-FY22. Over the same period, its EBITDA (earnings before interest, tax, depreciation and amortisation) and profit after tax grew at a CAGR of 21 percent and 16 percent, respectively.
However, in FY22, the company reported a 16 percent year—on-year decline in profit due to higher input cost and EBITDA margin dropped by 230 basis points (bps), but revenue grew 23 percent in the same period. With a fall in input costs, the second half of FY23 performance is expected to be better than the first half, analysts said.
“The company has a strong management team and a significant percentage of promoter holdings. It generated strong revenue growth in the last three years, where revenue improved from Rs 1,082.9 crore in FY2020 to Rs 1,621.45 crore in FY2022,” said Pravesh Gour, senior research analyst at Swastika Investmart, an Indore-based stockbroking services firm.
“The current grey market premium is 10 percent over its issue price. Nevertheless, the company’s margins are on the declining side and a P/E (price-to-earnings) valuation of 95.2 looks expensive. Therefore, we advise investors to lock in listing gains,” Gour added.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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