IPO Analysis: Bikaji Foods International Limited

IPO Rating: Avoid

About the issue:

Bikaji Foods International Limited one of India's largest fast-moving consumer goods ("FMCG") brands is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 1 per equity share. The price band of the issue has been fixed at Rs 285 to Rs 300 per equity share. The issue size is Rs 881.22 crore at a higher price band.

The IPO opening date is November 3, 2022, and it will be closing on November 7, 2022. The issue is likely to be listed on the exchange on November 16, 2022. The IPO market lot size is 50 Shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (650 shares or Rs 195,000) at the upper price band.

Objects of the Issue

The Selling Shareholders will be entitled to the entire proceeds of the Offer after deducting the Offer expenses and relevant taxes thereon. The Company will not receive any proceeds from the Offer.

Promoter holding

The Pre issue shareholding is 77.97 per cent, Post the IPO the promoter stake will be 75.96 per cent.

About the company:

Bikaji Foods International Limited is one of India's largest fast-moving consumer goods ("FMCG") brands. The company'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. In the six months that ended June 30, 2022, the company sold more than 300 products under the Bikaji brand.

The company was the largest manufacturer of Bikaneri bhujia with an annual production of 29,380 tonnes and was also the second largest manufacturer of handmade papad with an annual production capacity of 9,000 tonnes in Fiscal 2022. The company has an international footprint, selling Indian snacks and sweets, and is among the fastest-growing companies in the Indian organised snacks market.

The company has over the years established market leadership in the core states of Rajasthan, Assam and Bihar with an extensive reach. It has gradually expanded its footprint across India, with operations across 23 states and three union territories as of June 30, 2022.

In the six months that ended on June 30, 2022, the company has exported the products to 21 international countries, including North America, Europe, the Middle East, Africa, and Asia Pacific, representing 3.20 per cent of our sales of food products in such period.

Bikaji Foods International Limited has six operational manufacturing facilities that are operated by us, with four facilities located in Bikaner (Rajasthan), one in Guwahati (Assam), one facility in Tumakuru (Tumkur) (Karnataka) held through the subsidiary Petunt Food Processors Private Limited to cater to the southern markets in India.

Financial

On the financial performance front, for the last three fiscals, BFIL has (on a consolidated basis) posted turnover/net profits of Rs 1082.90 crore / Rs 56.37 crore (FY20), Rs. 1322.21 crore / Rs 90.34 crore (FY21), and Rs 1621.45 crore / Rs 76.03 ccrore (FY22). For Q1 of FY23, it earned a net profit of Rs 15.70 crore on a turnover of Rs 423.82 crore.  Though its top line marked growth, its bottom line after posting record earnings for FY21, declined in the following year. For the last three fiscals, on a consolidated basis, BFIL has reported an average EPS of Rs 3.20 and an average Return on a net worth of 11.51 per cent. The company has paid a dividend of 20 per cent for the last three fiscals and a dividend of 10 per cent for Q1 of FY23. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects.

Valuation and Outlook

The topline of the company is increasing at a 3-year CAGR of 21 per cent. However, the net profit is growing at a 3-year CAGR of just 16 per cent. The issue is priced at a P/BV of 8.97 based on its NAV of Rs 33.46 per share as of June 30, 2022. BFIL is one of the largest organized namkeen snacks and sweets manufacturing and marketing companies. It has posted declined margins for FY22 on higher sales in line with the general trends of the industry. Sustainability of such margins going forward amidst stiff competition raise concerns. If we annualize its FY23 earnings and attribute it to post-issue fully diluted equity capital, then the asking price is at a P/E of around 119.05 times. Based on its FY23 annualized earnings, the issue is aggressively priced. Due to declining profitability margins, aggressive IPO pricing, and a highly competitive industry we recommend investors to avoid investing in this IPO.