Prataap Snacks Ltd IPO.......... Should you Invest????

Hello Friends,

Well it seems to be the final IPO of the month and this month really has been one hell of an IPO season. The IPO we are gonna talk about today is Prataap Snacks Ltd. So let’s look into this pack, shall we?

Particulars
Details
Issue Open Date
22nd  Sep 2017
Issue Closing Date
26th  Sep 2017
Issue Price Band
Rs 930 to Rs 938
Issue Size
Rs 481.94 Crs
Shares per Lot
15 Shares



About the company!!!

India is a country where we all love namkeens. Even though the market is flooded with competition, we still find new brands popping in and out at times. The company is in the business of manufacturing and selling edibles fmcg products such as potato, corn and other chips. Although this market is dominated by lays, peppy, cornitos and many other, like I said earlier there is always room for some profit.



Now that you know the company. Should you invest in Prataap Snacks Ltd?

Promoters!!!

The Promoters of the Company are Arvind Mehta, Amit Kumat, Apoorva Kumat, Rajesh Mehta, Naveen Mehta, Arun Mehta, Kanta Mehta, Rita Mehta, Premlata Kumat, Swati Bapna, Rakhi Kumat, Sandhya Kumat and SCI. As on the date of this Red Herring Prospectus, the Promoters hold 16,339,536 Equity Shares in the aggregate, which is equivalent to 76.63% of the pre-Issue issued, subscribed and paid-up Equity Share capital of our Company.

Come let’s dive into this company to look at the fruits it might hold.

Utilization of Funds!!!

The issue is partly aN OFS and partly a fresh issue.

1.       OFS of Rs 281.94 Crs which will go to the promoters and will not be received by the company.

2.       Fresh issue of Rs 200 Crs which will be utilized for the following:

a.       Repayment/pre-payment, in full or part, of certain borrowings availed by our Company  = Rs 12.98 Crs

b.       Funding capital expenditure requirements in relation to expansion (including through setting up of a new production line and construction of a building) and modernisation at certain of our existing manufacturing facilities. = Rs 66.98 Crs

c.        Investment in our Subsidiary, Pure N Sure, towards enabling the repayment/pre-payment of certain borrowings availed of by our Subsidiary = Rs 29.37 Crs

d.       Marketing and brand-building activities = Rs 105.20

e.       General corporate purposes. = balance.

The company has some serious plans for the funds raised. However it seems that most of the funds are going into marketing and brand building. Which means that, these funds will be wiped off from the company as expenses soon. It really shows that the company is facing stiff competition.

Subsidiary!!!

The company has one subsidiary: Pure N Sure Food Bites Private Limited.




So into the Financials now!!!

1.       The company’s consolidated networth has increased from Rs 146.89 Crs as on 31.03.2013 to Rs 238.34 Crs as on 31.03.2017. Not bad for a company operating in this industry.

2.       The company’s consolidated long term liabilities are at Rs 49.13 crs as on 31.03.2017, which is good as compared to the company’s networth.

3.       It is important to note that the company is operating more on its vendor’s money. We can see that as on 31.03.2017 the company’s creditors stand at Rs 77.28 Crs, which is much higher than its long term liabilities. This amount can be seen locked up in its huge inventory pile of Rs 78.87 Crs as on 31.03.2017. Not a good sign. Clearly the company is struggling with sales and working capital management.

4.       Company has a good amount of fixed assets and more capital assets are under WIP. Clearly the company has worked on its assets and is continuing to work on its assets.

5.       Now looking into the consolidated Profit and Loss A/c, the revenue has increased from Rs 344.48 Crs in FY 2012-13 to Rs 905.46 Crs in FY 2016-17, which is good.

6.       Looking into the consolidated profit of the company, the profit has been very inconsistent and not been on a rising front. Whatever may be the reason for the inconsistent profitability it is very much imperative to note that the company is not able to control its position in the market.

7.       Consolidated Profit for FY 2012-13 was Rs 14.87 Crs whereas profit for FY 2016-17 was Rs 9.89 Crs.

Valuations!!!

As the company has very inconsistent profitability we shall consider the weighted average consolidated EPS of past 3 years, which comes to Rs 7.63. At the price of Rs 938, the PE shall be 122.94. I have seen overvalued IPOs but this is like asking for the heavens. Even on the basis of standalone weighted average EPS of Rs 8.25 the PE shall be 113.7. Very high valuations indeed.

So the verdict on this case!!!

Prataap Snacks Ltd is a company operating in a very competitive space and it’s not in the elite clubs on its business. The company is struggling with its profits and most of all the valuations don’t support the price by even a mile. This issue is a clear 'avoid'.

Thank you very much for joining us.



-RicherInvestor


Written by Roger Vins Herman (CA, Mcom)


Disclosures:

The author or any person at RicherInvestor doesn't have any financial interest in the Company.

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