Buy Prataap Snacks; target of Rs 1390: JM Financial

JM Financial's research report on Prataap Snacks

Prataap Snacks, owner of the ‘Yellow Diamond’ brand, has established a sizeable presence in the Indian Snacks industry over the past few years by capturing a reasonable share in the Extruded Snacks space through its product innovations, intelligent marketing campaign and focus on distribution which has helped quadruple its market share over a 6-year period. This drove 27% revenue CAGR over FY13-17 but the company’s current scale is still way too small at INR9bn p.a. when compared to the size of the opportunity; the organised snacks market is a c.INR220bn (c.$3.5bn) one. We believe Prataap can easily sustain high-teens revenue growth rate over next few years – its high exposure to faster-growing sub-segments and market-share gain opportunities being some of the tailwinds in this regard. Efforts on improving margin-profile of the Namkeens portfolio and efficiency gains from GST should also help the company maintain its operating margin at 8.5-9.5% over the coming years.

Outlook
Strong growth prospects, improving margin-profile and healthy balance sheet drive our liking for the stock - our DCF-based target price works out to INR1,390/share. BUY.

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