Ultra-high P/E multiple for a depleting profit margin? Boom-time IPO pricing is bound to give bitter taste during market downturn!
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BIKAJI FOODS OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Offer for Sale | 2,93,73,984 equity shares (Rs 881.22 Cr) |
| Face Value | Re 1 |
| Price Band | Rs 285–300 |
| Mkt/Bid Lot | 50 Nos. |
| M-Cap | Rs 7,485 Cr (at cap price) |
| Equity Cap | Rs 24.95 Cr |
| Free Float | 24.03% |
| Lead Manager | JM Financial, Axis Capital, IIFL Securities, Intensive Fiscal Services and Kotak Mahindra Capital |
| Registrar | Link Intime |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :03-Nov-2022 | Closing :07-Nov-2022 |
| Allotment :11-Nov-2022 | Refunding :11-Nov-2022 |
| Demat Credit :14-Nov-2022 | Trading :16-Nov-2022 |
The Offer
Bikaner based Bikaji Foods International Ltd (BFIL) is entering the capital market with an offer for sale of 2,93,73,984 equity shares (Rs 881.22 Cr) from two promoters (17%) and eight investor-shareholders (83%). The offer is being made through the book-building route with a price band of Rs 285-300 for Re 1 paid-up share.
Applicants for the IPO should bid for a minimum lot of 50 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on Wednesday, November 16, 2022. JM Financial, Axis Capital, IIFL Securities, Intensive Fiscal Services and Kotak Mahindra Capital have been roped in as the lead-managers to the offer. Link Intime Technologies will act as the registrar to the issue. The bidding opens on Thursday, November 03, 2022 and closes on Monday, November 07, 2022.
The objects of the offer are to achieve the benefits of listing on the stock exchanges and carry out the offer for sale of equity shares by the selling shareholders.
Lineage
Incorporated as Shivdeep Industries Ltd on October 6, 1995, the name of the company was changed in October 2011 to the present one in order to reflect the brand in the company’s name. BFIL’s history traces back to Gangabishan Agarwal, founder of Haldiram brand. His grandson Shiv Ratan Agarwal (founder of BFIL) continued his legacy and developed extensive experience in the Indian ethnic snacks industry.
Shiv Ratan Agarwal launched the Bikaji brand in the year 1993 with an in depth understanding of Indian tastes and preferences. The company has over the years established market leadership in the ethnic snacks market in the states of Rajasthan, Assam and Bihar with extensive reach, and have gradually expanded their footprint across India, with operations across 23 states and four union territories.
In the three months period ended June 30, 2022, BFIL exported products to 21 countries spanning across North America, Europe, Middle East, Africa and Asia Pacific accounting for 3.2% of its total sales during the period.
Key Management
BFIL’s management is in the hands of the promoter family. The senior member of the family, Shiv Ratan Agarwal (71) is the Chairman and Whole-time Director of the company. His son and co-promoter Deepak Agarwal (41) is the Managing Director. Deepak Agarwal’s spouse Shweta Agarwal is designated as Whole-time Director.
Stakeholders
As on the date of the Red Herring Prospectus, the company had 475 Shareholders of which 10 are from the promoter group which collectively holds 77.97%, out of which 8 are from the Agarwal clan who control 76.5%. The non-promoter selling shareholders have 15% and the balance is held by employees.
Post Offer, founder-promoter Shiv Agarwal will hold 34.36%, while his son Deepak Agrawal will have 15.59%. The non-promoter selling shareholders namely India 2020 Maharaja, IIFL Special Opportunities Fund, IIFL Special Opportunities Fund-Series-2, IIFL Special Opportunities Fund-Series-3, IIFL Special Opportunities Fund-Series-4, IIFL Special Opportunities Fund-Series-5, Avendus Future Leaders Fund I and Intensive Softshare Pvt Ltd will collectively hold only 5.65%.
Business
BFIL is reportedly the third largest ethnic snacks company in India with an international footprint, selling Indian snacks and sweets, and it is claimed to be the second fastest growing company in the Indian organised snacks market. In Fiscal 2022, it was one of the largest manufacturers of Bikaneri bhujia with annual production of 29,380 tonnes, and was the second largest manufacturer of handmade papad with an annual production capacity of 9,000 tonnes. It is also the third largest player in the organised sweets market with annual capacity of 24,000 tonnes for packaged rasgulla, 23,040 tonnes for soan papdi and 12,000 tonnes for gulab jamun.
BFIL’s product range includes six principal categories: bhujia, namkeen, packaged sweets, papad, western snacks as well as other snacks which primarily include gift packs (assortment), frozen food, mathri range and cookies, residuary snacks, rasgullas, bakery products; biscuits, confectioneries, edible oils, pulses, cereals and their products, tinning of food stuffs, fruits, vegetable, pickles, cold drinks, all kinds of sharbat, syrups, thandai, soft drinks, squashes, ketchup, soda and spices and condiments etc.
BFIL has seven manufacturing facilities, with four located in Bikaner (Rajasthan), one in Guwahati (Assam), one facility in Tumakuru (Karnataka) under BFIL’s subsidiary Petunt Food Processors Private Ltd to cater to the southern markets in India, and one facility in Muzaffarpur (Bihar) held through another subsidiary Vindhyawasini Sales Private Ltd to cater to the core market of Bihar.
In addition, the company has entered into a manufacturing agreement on a non-exclusive basis with a contract manufacturer in Kolkata which helps the company primarily cater to certain parts of eastern India, and two contract manufacturing agreements on an exclusive basis with BFIL’s group company, Hanuman Agrofood, for its facility located at Bikaner and with another third-party contract manufacturer for a contract manufacturing facility located at Kanpur, Uttar Pradesh.
The company also has one small facility in Mumbai to manage its Mumbai restaurant sales. BFIL intends to operationalise two additional manufacturing facilities, of which one in Rajasthan will be operated by the company manufacturing frozen snacks and sweets products, and for the other addition in Bihar, BFIL has entered into contract manufacturing agreement for the manufacture of namkeen and western snacks.
Financial Track
Notwithstanding the pandemic, the 27-year-old BFIL has recorded impressive business growth in recent years. Sales have steadily grown from Rs 900 Cr in fiscal 2019 to over Rs 1600 Cr in fiscal 2022. Nonetheless, the company’s operating margin has squeezed from 10.4% to 8.9% which speaks volume about the competition in the industry.
The company registered a record net profit of Rs 90 Cr in fiscal 2021 but in 2022, despite sales growing by an impressive Rs 300 Cr, net profit dipped to Rs 76 Cr. However, as compared to the equity base, its bottom line looks attractive. Against a capital of less than Rs 25 Cr, BFIL’s reserves amount to Rs 800 Cr which mainly consists of retained earnings Rs 461 Cr and share premium Rs 338 Cr.
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Bikaji Foods Consolidated Financials (in Cr) |
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| Period Ended |
Jun-22 |
Mar-22 | Mar-21 | Mar-20 |
Mar-19 |
| Months |
3 |
12 | 12 | 12 |
12 |
| Revenue |
419 |
1611 | 1311 | 1075 |
901 |
| Operating Profit |
31 |
143 | 146 | 98 |
93 |
| OPM% |
7.3 |
8.9 | 11.1 | 9.1 |
10.4 |
| Other Income |
5 |
10 | 11 | 8 |
9 |
| EBIDTA |
35 |
154 | 157 | 106 |
103 |
| EBIDTA % |
8.4 |
9.5 | 11.9 | 9.8 |
11.3 |
| Interest |
3 |
7 | 3 | 5 |
4 |
| Depreciation |
11 |
38 | 33 | 34 |
23 |
| Tax |
6 |
28 | 31 | 16 |
18 |
| Net Profit |
16 |
76 | 90 | 56 |
51 |
| Equity |
25 |
25 | 24 | 24 |
24 |
| Reserves |
811 |
796 | 581 | 505 |
445 |
| Borrowing |
156 |
141 | 86 | 52 |
72 |
| Fixed Assets |
577 |
557 | 455 | 405 |
407 |
Valuation
BFIL’s Re 1 paid-up share is priced at Rs 300 which discounts the company’s last fiscal earnings as high as 94 times which is indeed very steep. Though BFIL’s P/E compares well with Prataap Snacks, it is very costly as compared to ADF Foods (32.5x) and Agro Tech Foods (79x). BFIL’s cash earnings are discounted more than 63 times as compared to ADF’s 27x, Prataap’s 30x and Agro Tech’s 42x. In terms of Price to Book value, Revenue, EBIDTA and Net Block too, BFIL looks costlier than its peers. During boom time, BFIL’s current valuation may hold. But, when the markets take a turn, such valuations may stumble.
Moreover, it is pertinent to note that the residual cost of holding of the promoters and the selling shareholders, who will collectively hold more than 80% of the equity, will be extremely negative. Hence, when the going is tough, they can dump the shares at any price after the lock-in period.
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HOW BIKAJI COMPARES WITH BRANDED PACKAGED FOOD PEERS |
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Financials |
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| (Amount in Cr) |
Bikaji Foods |
Prataap Snacks | DFM Food | Agro Tech |
ADF Food |
| Market Cap |
7485 |
2153 | 1875 | 1873 |
1564 |
| Borrowing |
141.2 |
30.1 | 91.4 | 38.5 |
15.5 |
| Fixed Assets |
556.5 |
517.7 | 238.5 | 312.4 |
137.1 |
| Revenue |
1611 |
1397 | 554 | 917 |
421 |
| Other Income |
10 |
14 | 8 | 2 |
9 |
| EBIDTA |
154 |
72 | -9 | 56 |
76 |
| Interest |
7 |
7 | 9 | 2 |
2 |
| Net Profit |
80 |
17 | -25 | 24 |
49 |
| Equity Cap |
25 |
12 | 10 | 24 |
22 |
| Reserves |
811 |
613 | 143 | 438 |
322 |
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Stock Features |
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| Current Price (Rs) |
300 |
918 | 373 | 769 |
712 |
| Face Value (Rs) |
1 |
5 | 2 | 10 |
10 |
| Book Value |
34 |
266 | 30 | 190 |
156 |
| Promoter Stake % |
75.97 |
71.17 | 73.70 | 51.77 |
36.59 |
| Debt/Equity |
0.2 |
0.1 | 0.6 | 0.1 |
0.1 |
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Profitability |
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| OPM % |
8.9 |
4.2 | -3.1 | 5.9 |
15.8 |
| Net Margin % |
4.9 |
1.2 | -4.4 | 2.6 |
11.3 |
| Cash EPS |
4.73 |
30.11 | -2.06 | 18.35 |
26.02 |
| Earnings Per Share |
3.19 |
7.18 | -4.93 | 9.73 |
21.89 |
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Return |
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| RONW % |
9.5 |
2.7 | 0 | 5.1 |
14.1 |
| ROCE % |
11.8 |
2.8 | 0 | 7.1 |
18.6 |
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Discounting |
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| Price/Earnings |
94.0 |
127.8 | -75.7 | 79.0 |
32.5 |
| Price/Cash EPS |
63.5 |
30.5 | -180.8 | 41.9 |
27.4 |
| Price/Book Value |
9.0 |
3.5 | 12.3 | 4.1 |
4.6 |
| Price/EBIDTA |
48.7 |
29.9 | -198.9 | 33.2 |
20.6 |
| Price/Revenue |
4.7 |
1.5 | 3.4 | 2.0 |
3.7 |
| Price/Fixed Assets |
13.5 |
4.2 | 7.9 | 6.0 |
11.4 |
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Distribution |
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| Dividend % |
10 |
10 | 0 | 30 |
40 |
| Yield % |
0.03 |
0.1 | 0 | 0.4 |
0.6 |
| Pay-out % |
3.1 |
7.0 | 0 | 30.8 |
18.1 |
Concern
- BFIL has made investments in unsecured debt instruments of Hanuman Agrofood in the form of compulsory convertible debentures amounting to Rs 106 Cr and optionally convertible debentures of Dadiji Snacks amounting to Rs 11.5 Cr whose credentials are not known.
- Some of the closely-held companies of the promoters operate in the same or similar line of business, which may lead to conflicts of interest with BFIL’s business.