Bikaji Foods: Will this ‘namkeen’ IPO leave a sour taste in your mouth?

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The Bikaji Foods International IPO is set to open for public bidding on November 3. The issue is entirely an offer-for-sale and the company will not receive any money raised from the share sale.

Bikaji Foods has been running a TV commercial featuring megastar Amitabh Bachchan with the tagline: Amitji loves Bikaji. But, do analysts also love Bikaji Foods as much? The answer is not very enthusiastic.

Even as many analysts have recommended that investors can have this issue on their plate, they also advise a big dollop of caution as the IPO is priced at an expensive valuation. Moreover, this share sale will just give an exit route to the existing shareholders.

According to Angle One at the upper end of the price band, the stock will list at a P/E of 98.5 times FY22 EPS. This is slightly more expensive than its peers like Prataap Snacks, Nestle India and Britannia Industries.

However, the rationale behind the rich valuation sought by Bikaji Foods could be a fact that Bikaji has relatively better revenue and net profit growth – a CAGR of 22 percent and 16 percent – over the last two years. Also the company has a strong brand recall with the name Bikaji and pan-India presence. However, it cannot be denied that the company operated in a crowded market.

“The food market in which the company is operating is normally dominated by unorganised players,” said Rajnath Yadav, an analyst with Choice Broking. “This might be the reason for lower operating margin for Bikaji, despite so much value addition. In the current inflationary environment, we are cautiously optimistic on the sustainability of the profitability margins. Thus we assign a ‘subscribe with caution’ rating for the issue.”

In terms of EV/Sales, according to Yadav, Bikaji Foods is demanding a multiple of 4.5, which is premium to the peer average.

The company plans to raise Rs 881 crore for its promoters and shareholders from the primary market. The issue is priced in a band of Rs 285-300 per share. The offer will close on November 7.

Bikaji Foods has already mobilised Rs 262.11 crore from 36 anchor investors, it said on November 2. These shares were allocated to anchor investors at Rs 300 apiece. The anchors includes the Government of Singapore, ICICI Prudential, HDFC Mutual Fund, Nippon Life India, Aditya Birla Sun Life, Whiteoak Capital, Blackrock Global Funds, Goldman Sachs, Morgan Stanley and Kotak Mutual Fund.

Analysts at Geojit Financial Services also acknowledged that the issue “appears expensive compared to its peers” but they assigned a ‘subscribe’ rating on a short-term basis for high-risk investors.

They said their stance is considering its consistent top-line growth, industry-leading position, future expansion plans, new product launches, investments in strengthening the brand recall and good future prospects for the packaged food business.

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Bikaji Foods is the third-largest ethnic snacks company in India with an international footprint, selling Indian snacks and sweets, and is the second fastest growing company in the organised snacks market. The company has operations across 23 states and four Union Territories and is also exporting products to other countries.

Analysts at Marwadi Services also assigned ‘subscribe with caution’ rating as it also underlined that the IPO is richly priced and the company will have to continue growing its business at high growth rate in order to justify its valuation.

Apart from rich valuations, two key concentration risks are significant dependence on the sale of Bhujia and Namkeen products (70 percent of sales) and sale from three core markets of Rajasthan, Assam and Bihar, which also amounted for 70 percent of total sales.

However, some analysts believe even those with moderate risk can subscribe to the issue. Amit Ranjan of Angel One said this valuation is reasonable, given how every FMCG stock trades at an expensive valuation. Thus, he recommends a ‘subscribe’ rating on the issue.

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