The number of mainboard IPOs that hit the market in 2023 was the second highest in over a decade.
The rush to go public looks far from over, with about ₹600 billion of share sales in the pipeline.
In 2023, 57 Indian companies raised around ₹490 billion through mainboard IPOs, and 27 received approval from the regulator to float their public issues and raise around ₹290 billion.
Another 29 companies, looking to raise a combined ₹340 billion, are awaiting approval. One such company is Gopal Snacks.
#1 About the company
Gopal Snacks is a fast-moving consumer goods company that sells namkeen, western snacks and other products across India and globally. It is the largest manufacturer of snack pellets and gathiya.
Under the Gopal brand, the company boasts an impressive array of 84 products with 276 stock-keeping units (SKUs). These include fast-moving consumer goods such as papad, spices, gram flour (besan), noodles, rusk, and soan papdi.
The company operates three manufacturing facilities – in Rajkot, Modasa in Gujarat, and Nagpur. It also runs three ancillary facilities that mostly produce besan, raw snack pellets, seasoning and spices.
#2 Details of the issue
Gopal Snacks’s IPO features an offer for sale (OFS) of equity shares worth up to ₹6.5 billion, including shares worth ₹1 bn from Bipinbhai Vithalbhai Hadvani and up to ₹5.4 billion from Gopal Agriproducts (promoters), and up to ₹100 million from Harsh Sureshkumar Shah.
The IPO also includes a quota for eligible employees.
#3 Peer comparison
According to the company's red herring prospectus, Bikaji Foods and Prataap Snacks are its industry peers. With a wide market share, Bikaji Foods is at the top with the highest revenue, followed by Prataap Snacks and Gopal Snacks.
Bikaji Foods consistently leads on revenue, but all three companies have seen positive revenue growth. And while Bikaji Foods also leads on absolute gross profit, it's crucial to acknowledge Gopal Snacks's impressive growth on this metric. From FY21 to FY23, the company clocked a 93% increase in gross profit, demonstrating significant improvement in cost management.
While Bikaji Foods has maintained a consistently higher average gross margin of 28.3% across all three years, Gopal Snacks has seen a significant increase in its gross margin, suggesting a continuous improvement in cost control and efficient pricing.
Gopal Snacks saw a 170% increase in net profit in 2023, surpassing both Bikaji Foods and Prataap Snacks thanks to its pricing strategy.
It has also shown robust profitability metrics (PAT margin, ROE, and ROCE) in recent years compared to its peers, suggesting efficient use of its resources.
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It is the second largest organised ethnic namkeen maker in Gujarat and the fourth largest packaged ethnic namkeen and papad manufacturer in India. In FY23 it is also the largest manufacturer of gathiya (in terms of production volume and sales revenue) and snack pellets (in terms of production volume) in India.
The company has a strong foothold in Gujarat, where it accounts for about 20% of the market in ethnic savouries, 8% in western snacks, and 6% in papad (including the unorganised sector) in FY23.
#4 Arguments in favour of the business
The company has a varied range of products designed to cater to the expanding Indian snacks market. This diversity allows it to meet evolving consumer preferences and capture a broader market share.
As the leading manufacturer of gathiya in India it has a dominant position in a specific snack category.
The locations of its manufacturing facilities enhance operational efficiency. Proximity to key markets and resources helps streamline production, and reduce logistical challenges and costs.
The company's vertically integrated operations give it control over various stages of the production and supply chains.
The company has a wide and robust distribution network that which makes its products accessible and gives it a competitive edge.
#5 Risk factors
The company's sales are concentrated in Gujarat. Any disruptions there could have a detrimental effect on the entire business.
The promoters have pledged their equity shares. If they do sell, it would dilute the promoters' shareholding and negatively impact the business.
Maintaining or enhancing the popularity of the ‘Gopal’ brand is critical. An inability to achieve this could adversely affect the business.
The company also depends heavily on the sale of small packets. A substantial increase in raw material, packaging, or commodity costs for these SKUs could cause inflationary pressures.
The business also relies heavily on having an efficient distribution network. Difficulties in expanding or effectively managing this network could affect cash flows.
Conclusion
The Indian savoury snacks market, including Western snacks and local savouries, was valued at ₹796 billion in FY23.
Projections indicate promising growth of 11% CAGR to ₹1,217 billion by FY27. The organised market currently commands a substantial 57% share and is poised to grow at an impressive 11.7% CAGR from FY23 to FY27.
The e-commerce sector is projected to register the highest CAGR of 16.8% during this period. The contribution of e-commerce to retail sales of food and grocery, consumer electronics and apparel is the largest. The growth of the online grocery segment has also received a huge boost from the pandemic, thanks to lifestyle changes and shifts in consumer preferences.
However, the company has its own set of advantages and disadvantages.
One should therefore conduct thorough research before subscribing to an IPO. Big-ticket IPOs like Tata Tech are already done and dusted, so subscription figures for upcoming IPOs could be lower.
For more information, check out this list of upcoming IPOs.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
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