IPO Analysis: Mukka Proteins Ltd

IPO Rating: Apply for the long-term

About the Issue:  

Mukka Proteins Ltd is launching its initial public offering (IPO) for equity shares valued at Rs 1 each. The IPO price range is set between Rs 26 and Rs 28 per equity share, resulting in a total issue size of Rs 224 crore at the upper price band.

The IPO is scheduled to commence on February 29, 2024, and will conclude on March 04, 2024. The market lot size for the IPO is 535 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 6,955 shares or a total investment of Rs 1,94,740 assuming the upper price band.   

Objects of the Issue  

Considering that the offer is exclusively a fresh issue, it is crucial to note that the company will directly profit from the offer proceeds. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Funding working capital requirements of the company

2. Investment in the associate, viz. Ento Proteins Private Limited, for funding its working capital requirements

3. General corporate purposes.

Promoter holding  

Kalandan Mohammed Haris, Kalandan Mohammad Arif and Kalandan Mohammed Althaf are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 100 per cent in the company.   

Company profile  

According to the CRISIL report, the company stands as a leading player in India's fish protein industry, with its revenue contributing approximately 25 per cent to 30 per cent of the estimated revenue of the Indian fish meal and fish oil industry for FY23.

It is one of the pioneering companies to have introduced the steam-dried process in India for the production of fish meal. Additionally, the company is among the early adopters in India to have commercialized insect meal and insect oil as ingredients for aqua feed, animal feed, and pet food.

The company specializes in the manufacturing and supply of fish meal, fish oil, and fish soluble paste, which are crucial components in the production of aqua feed (for fish and shrimp), poultry feed (for broiler and layer), and pet food (dog and cat food). Additionally, fish oil serves various purposes, including pharmaceutical products, soap manufacturing, leather tanneries, and paint industries.

The company sells its products both domestically and internationally, exporting to numerous countries such as Bahrain, Bangladesh, Chile, Indonesia, Malaysia, Myanmar, Philippines, China, Saudi Arabia, South Korea, Oman, Taiwan, and Vietnam.

The company operates six manufacturing facilities, with four located in India and two held through its Foreign Subsidiary, Ocean Aquatic Proteins LLC, situated in Oman. Additionally, it runs three blending facilities and five storage facilities in India. Strategically positioned near the coastline, all these facilities are strategically located for efficient operations.

Financials  

The company has demonstrated sustained and robust growth over the past few years. In FY23, both revenue and net profit witnessed impressive year-on-year growth, with a 52 per cent surge in revenue and an 84 per cent rise in net profit compared to FY22. 

Similarly, the figures for the first half of FY24 showcased positive results, further affirming the company's trajectory of sustained growth for the fiscal year 2024. The company boasts a return on equity (RoE) and return on capital employed (RoCE) of 37 per cent and 18 per cent, respectively, for the fiscal year 2023.

Valuation and outlook  

The issue is priced with a P/BV ratio of 3.87 times, calculated using its Net Asset Value (NAV) of Rs 7.23 as of September 30, 2023. When we calculate the PE ratio for the company by considering the annualised FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 10. Mukka Proteins Ltd demonstrated exceptional outperformance compared to its listed peers, excelling in terms of both valuation and returns.

Given the government's emphasis on the industry, as evidenced by the substantial allocation of Rs 2,248 crore for the Department of Fisheries in the recent budget, and the optimistic outlook surrounding the industry with expectations of a favourable boost soon, the company is well-positioned for growth. Hence, we advise investors to contemplate subscribing to the offering with a long-term perspective.