Market Price on the date of suggestion – : 596Rs
Prataap Snacks Ltd. (PSL) is only a 9 year old completely debt free company engaged in the business of Namkeen (traditional Indian snacks).It offers multiple variants of products across categories of Potato Chips, Extruded Snacks, Namkeen (traditional Indian snacks) under the popular and vibrant Yellow Diamond brand. Prataap Snacks is one of the fastest growing companies in the organised snacks industry.
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Incorporated in 2009 at Indore today Prataap Snacks Ltd key brands include the flagship Yellow Diamond, Rich Feast, and Avadh comprising a portfolio of products that include potato chips, namkeens, cup cakes and other packaged snacks. Having started with potato chips, the Company today has a diversified product portfolio into various categories. It has more than 100 Stock Keeping Units (SKUs) at strategic price points and pack sizes – starting from ` 5 till ` 100. Currently, it sells more than 11 million packets per day spread over 100 SKUs, which reflects its vibrant product offerings. Currently company has presence across 27 states in India with 14 manufacturing facilities of which 5 facilities are owned and 9 facilities (located in Ahmedabad, Kolkata and Bangalore) are on contract manufacturing basis. Company currently has more than 4,100+ Distributors all over the country.
PSL’s portfolio comprises the 3 broad categories of salty snacks, sweet snacks, and Avadh.
The salty snacks portfolio includes potato chips, extruded snacks, namkeen and pellets. All products of the segment are marketed under the Yellow Diamond brand name.
The sweet snacks portfolio (marketed under the Rich Feast brand) comprises cakes such as cupcake, tiffin cake, and sandwich cake.
The Avadh portfolio comprises products marketed under the Avadh brand. The Avadh portfolio compliments PSL’s salty snacks portfolio through offerings in the namkeen and fryums categories.
The company is a leading player in the Rs 5 price-point segment, which accounts for >50% of the organised snacks market.
Company had Forayed into Gujarat with the acquisition Avadh Snacks Private Limited, one of the Gujarat’s leading Snacks company. PSL has agreed to acquire 80% equity stake for a consideration of 148 crores through a combination of primary & secondary investment
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The Avadh acquisition adds a strong local namkeen and fryums brand to PSL’s portfolio. PSL acquired Avadh Snacks in October 2018 with the objective of gaining a strong foothold in the Gujarat market which has India’s highest per capita snacks consumption. With 55 SKUs, Avadh is the fastest growing and fourth-largest snacks brand with a market share of 6% in Gujarat, one of India’s largest packaged snacks markets. Avadh has a manufacturing facility at Rajkot and a well-established direct distribution network in Gujarat. PSL concluded the first phase of capacity expansion (by 50%) at Avadh in June 2020 with further plans of doubling the capacity (from pre-expansion levels) in a second phase. The company is working on increasing Avadh’s touchpoints in Gujarat and neighbouring markets and subsequently plans to launch the Avadh brand across the country by leveraging Yellow Diamond’s manufacturing and distribution setup. We expect Avadh to be a leading contributor of growth for PSL going forward.
The company received ISO 22000:2005 certification to their Indore Plant for manufacturing extruded snacks in 2010. The company incorporated its wholly owned subsidiary ‘Pure N Sure Food Bites Private Limited’ in 2011. During the year under review, the company acquired the snack foods business of its Group Company, Prakash Snacks Private Limited, pursuant to a business transfer agreement dated September 28, 2011. Pursuant to such arrangement, the company acquired the Yellow Diamond brand and the snack foods business under such brand. During the year under review, the company commissioned plants to manufacture rings and namkeen in Indore.
Squoia Capital has made following investments in the company over the years
- In 2011 Sequoia Capital made investment aggregating to Rs 62 crore in the company.
- In 2012 Sequoia Capital made additional investment of Rs 12 crore in the company.
- In 2013 Sequoia Capital made further investment of Rs 30 crore in the company in 2013.
- In 2014 Sequoia Capital made additional investment of Rs 25 crore in the company.
- Thus at present Sequoia Capital holds around 48%+ stake in the company.
Sequoia Captial an American venture capital firm. It has backed companies that now control $1.4 trillion of combined stock market value.Sequoia Capital has invested in over 250 companies since 1972, including Apple, Google, Oracle, PayPal, Stripe, YouTube, Instagram, Yahoo! and WhatsApp.
The Company reported a full year consolidated revenue of 1,39,379 lakhs in FY 2020 as compared to 1,17,061 lakhs in FY 2019, representing a growth of 19.1%.
Gross margins contracted by 129 bps to 28.6% in FY 2020.
Operating EBITDA in FY 2020 increased by 12.6% to 9,368 lakhs.
Profit before tax (PBT) declined by 39.5% to 3,368 lakhs.
Consequently, the net profit for the year stood at 4,692 lakhs
PSL looks to enhance margins through strategic initiatives in product mix and cost optimisation. While PSL continues to strengthen its savoury snacks portfolio both organically and inorganically, the company aims to increase the share of revenues from higher-margin sweet snacks. To this end, the company launched 3 new products in the cakes category and commissioned 2 new lines for cakes in FY20 as it looks to increase the revenue share of sweet snacks from 3% currently to 10% over the next 3 years. PSL is undertaking initiatives to improve operational efficiency and streamline costs with the objective of enhancing profitability . The company is also looking to keep Advertising spend in tight control. These strategic initiatives are expected to boost the overall margin profile of the business.
All its manufacturing plants at Indore and Guwahati had shut down immediately as the lockdown was announced. As a result during April and May company operated at 25% and 50% capacity respectively on an overall basis.
Like every other business, Prataap Snacks too faced numerous problems in our operations. PSL ceased production in several facilities. Labour became scarce with many migrant workers moving homewards. Supplies were interrupted, as were deliveries of goods in transit. Sales plummeted as shops downed shutters, with distribution and logistics being adversely impacted.
The FMCG Industry The FMCG industry in India is currently estimated to be a 4.3 trillion market and is the fourth-largest sector in the economy, having witnessed a remarkable transformation in the past two decades. Growth in the sector is driven by significant demographic shifts, increase in income levels, youth entering the workforce and increasing nuclearisation of households. India’s long-term consumption story seems to be intact as it is expected to be the 5th largest consumer products market in the world by 2025 with a size of USD 262 billion, according to a report by EY India. A robust ecosystem, along with a favourable demographic, is expected to drive growth in India’s consumer retail sector.
India’s demographic profile, rising consumerism in non-metro cities, and increasing rural income and consumption pose well for the growth of packaged snacks. India’s young population with a rising consumerist culture in lower-tier cities present a fertile ground for healthy growth of packaged snacks. A large unorganised market and rapid urbanisation offer solid potential for expansion of the addressable market and penetration of packaged snacks in the medium-to-long term. Rising farm income and increasing disposable income in rural and semi-urban areas present robust future potential
Indian Packaged Foods Industry
The Indian packaged food industry is growing at a rapid pace, owing to evolving consumption patterns of consumers and as the shift in demographics is fuelling changes. The packaged food market is estimated to grow from the current ` 1.04 lakh crore to ` 1.64 lakh crore by FY 2024-25, registering a 9.6% CAGR growth over the next five years. With a rise in busy lifestyles, millennials and Gen-Zs have adopted snacking attitudes and are making different packaged food choices based on health, convenience, brand and trust.
PSL has been amongst the fastest growing players in India’s packaged snacks industry over the last decade. The Company has followed a well-calibrated approach to diversify both geographically and product-wise and expects this strategy to continue spurring growth in the near future. It plans to drive continued growth in the established portfolio of snacks by better penetrating the existing markets and entering the new ones. Also the company has stable margins however low operating profit margins can be offset by consistent higher sales growth. Company sales CAGR of 20% over 5 year and Profit CAGR of 35% over the same period. Thus Prataap snacks can be a good bet for long term for all those who are searching to bet on Rural India theme.
Prataap Snacks was previously suggested on darkhorsestocks. on 13th December 2019. Since then the stock is down about 25% thereby failing to deliver any meaningful returns. However majority of the darkhorsestock ideas are suggested from a long term perspective of 1-2 years. Therefore it is very early to decide if it has actually failed or not.
Please note that above expressed are our own views. Users are requested to take their own decision regarding investments. No member of DARKHORSESTOCKS would be responsible for any loss.