A new entrant in the primary market, Prataap Snacks, opened its issue on Friday and will close on September 26, 2017.
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 issue, with a price band of Rs 930-Rs 938 per equity share, will be open for public subscription during September 22-26. It will also offer a discount of Rs 90 per share to eligible employees of the company.
Also read - Here are 10 things you should know before investing in Prataap Snacks IPO
The company, which makes products under the 'Yellow Diamond' brand, 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.
Edelweiss, JM Financial and Spark Capital are managing the issue.
The company raised Rs 143 crore from anchor investors, which include Goldman Sachs India, Fidelity Funds, Smallcap World Fund Inc and HDFC Trustee Company, among others.
Spa Research | Rating: Subscribe
The brokerage house said that the company’s sales CAGR growth of 27 percent in the last 4 years implants confidence in the company's ability to drive growth. “However, volatility in margins and limited pricing power at Rs 5 price point (80 percent of sales) has been a big concern for the company,” the brokerage house said in its report.
Furthermore, high sales growth and operating leverage to play out resulting in margin expansion of 8 percent can result in sharp increase in profitability and improvement in ROE going forward, it added.
On valuations, it said that the issue is priced at P/E of 218x but a P/S of 2.4x.
Geojit Financial Services | Rating: Subscribe
The broking firm observed that Prataap's story should be considered based on its 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% annually over the next four to five years,” the report added. With this, it recommends the subscribe rating to the issue.
Angel Broking | Rating: Neutral
Angel Broking said that the issue’s valuation is rich at the upper end of the price band. It highlighted that the FY16 EPS yields a PE of 73 times. “FMCG companies commanding such high P/Es have a very strong profitability and returns profile such as Britannia,” it said in a report.
The company has to justify this valuation by showing remarkable improvement in profitability, which may come at the cost of lower growth, it added.
Aditya Birla Money | Rating: Subscribe
The broking firm said that the company’s revenue has grown at a CAGR of 27 percent over FY13-17. Further, after the issue, the market capitalization is expected to be Rs 2,200 crore. The firm recommends having a long term view on the stock with possible listing gains.
ICICI Securities | Rating: Subscribe
The broking firm said that the stock’s valuation is seen at 2.4x FY17 MCap/sales. It believes that Prataap Snacks is attractively placed compared to its peers.
“With expansion plans in place initiative to penetrate the weaker markets and strengthening of brand image & recall through Rs 40 crore investment over coming three years, the company would be able to post sustainable operating margin and also record better earnings going forward,” the brokerage said in its report.
Hem Securities | Rating: Subscribe
Hem Securities said that the company has a pan-India distribution network, but looking at the valuation, the issue is overpriced. Hence, it recommends a long term subscribe on the issue.