Highlights
| Issue Size –: 16,209,476 shares | Issue Open/Close – 06 Mar / 11 Mar, 2024 |
| Price Band (Rs.) 381 – 401 | Issue Size (Rs.) – 6,500 mn |
| Face Value (Rs) 1 | Lot Size (shares) 37 |
Gopal Snacks Limited (GSL) incorporated in 2009, is a FMCG company in India that offers ethnic snacks, western snacks, and other products in ten States and two Union Territories as of H1FY24. They offer a wide variety of savoury products under their brand ‘Gopal’, including ethnic snacks such as namkeen and gathiya, western snacks such as wafers, extruded snacks and snack pellets, along with fast-moving consumer goods that include papad, spices, gram flour or besan, noodles, rusk and soan papdi.
Over the years, they have leveraged their experience and understanding of the preferences and tastes of their consumers, and target markets to develop a wide range of products, which has enabled them to strengthen foothold in the Indian snacks industry. As H1FY24, their product portfolio comprised 84 products with 276 SKUs across various product categories, thereby addressing a wide variety of tastes and preferences.
The company has expanded their footprint across India, with its products being sold over 523 locations in ten States and two Union Territories. Their distribution network comprised three depots and 617 distributors. The company operate six manufacturing facilities comprising three primary manufacturing facilities and three ancillary manufacturing facilities. Their three primary manufacturing facilities are located at Nagpur, Maharashtra; Rajkot, Gujarat; and Modasa, Gujarat and these facilities primarily focus on the manufacturing of finished products.
Out of the total proceeds of Rs. 6,500 mn, Rs. 6,500 mn would go towards existing selling shareholders of the company.
Key Highlights
- The Indian packaged food industry was valued at Rs. 2,972 bn in 2018 and stood at Rs. 4,622 bn in 2023 and would reach a market value of Rs 6,767 bn by 2027. Indian market for savoury snacks including western snacks and ethnic savouries (including gathiya) was estimated to be valued at Rs. 796 bn in FY23 and is projected to grow at an approximately 11 pct CAGR reaching Rs. 1,217 bn by FY27. Western snacks and ethnic savouries (including gathiya) were estimated to be contributing 51 pct and 49 pct of the Indian savoury snacks market, respectively. Indian savoury snacks industry and is forecasted to grow at a 11.7 pct CAGR during FY23-27.
- The company is the 2nd largest ethnic namkeen manufacturer in Gujarat and 4th largest ethnic savouries brand in India. They have ~31 pct market share in organized gathiya market in India, ~8 pct market share in total western snacks market in Gujarat and ~20 pct market share in total ethnic savouries market (incl. gathiya) in Gujarat.
- Their manufacturing operations are vertically integrated which include in-house manufacturing capabilities of certain key ingredients such as besan or gram flour, raw snack pellets, spices and seasoning, as well as the ability to tailor machines to the specific needs for manufacturing of their product portfolio.
- GSL’s key growth strategies includes (i) To further enhance presence in core market of Gujarat. (ii) Accelerate expansion in focus markets (iii) Continue to leverage technology to further optimize operations. (iv) Continue to leverage technology to further optimize operations. (v) Continue to launch new products, expand wallet share with consumers and grow consumer base. (vi) Utilize unutilized capacity and expand manufacturing capacity at existing facilities and set-up additional strategically located facilities and (vii) enhance brand awareness.
- As of H1FY24, the sales of the company came at Rs. 6,762 mn. Out of this, 27.64 pct sales is contributed by Gathiya products, 28.44 pct of sales contributed by namkeen products, 31.12 pct of sales are contributed by Western Snacks products and 10.04 pct of sales are contributed by other products of the company
- Sales of the company has grown by ~11.49 pct CAGR during the period FY21-23 while EBITDA and profit grew 80.38 pct and ~130 pct CAGR over the same period respectively. During FY23, company reported sales of Rs. 13,946 mn which increased by ~3.14 pct YoY, while EBITDA increased by 107 pct YoY to Rs. 1,962 mn as EBITDA margin sharply jump from 7.01 pct in FY22 to 14.07 pct in FY23. As of FY23 the company reported profit of Rs. 1,123 mn which was increased by ~170 pct YoY. During H1FY24 the Sales/EBITDA/Profit came at Rs. 6,761 mn/Rs. 942 mn/Rs. 555 mn.
Key Risks
- GSL’s business is subject to seasonality. Lower revenues outside of the festive period and when the schools are on summer break may adversely affect its business, results of operations, financial condition, and cash flows.
- The company generates most of its revenue from Gujarat. In FY21, FY22 and FY23 and the six months ended September 30, 2023, its revenue from sale of products in Gujarat accounted for 74.31 pct, 76.27 pct, 79.08 pct, and 76.49 pct of total revenue, respectively. Any adverse development affecting operations in Gujarat could have an adverse impact on the business.
- The company has received eight notices under the relevant provisions of the Food Safety and Standards Act, 2006, (i) declaring its products to be allegedly substandard; (ii) alleging misbranding or deficient packaging; and (iii) issuing misleading advertisements. An adverse outcome in any of these matters or inability to comply with food safety may adversely impact the business.
- As of September 30, 2023, the company had contingent liabilities worth Rs 454.3 mn, representing about 82 pct of its PAT in H1FY24. If these liabilities materialize, they could have an adverse effect on the business
Financial Performance
| Particulars | FY21 | FY22 | FY23 | H1FY23 | H1FY24 |
| Revenue from operations (Rs. mn) | 11,288.61 | 13,521.61 | 13,946.53 | 6,993.01 | 6,761.95 |
| Gross profit margin (%) | 18.13% | 20.61% | 28.38% | 27.01% | 29.98% |
| EBITDA (Rs. mn) | 603.52 | 947.97 | 1,962.25 | 935.53 | 942.64 |
| EBITDA Margin (%) | 5.35% | 7.01% | 14.07% | 13.38% | 13.94% |
| Profit After Tax | 211.22 | 415.38 | 1,123.69 | 519.60 | 555.65 |
| Profit after tax margin (%) | 1.87% | 3.07% | 8.06% | 7.43% | 8.22% |
| Return on Equity (%) | 15.56% | 23.38% | 38.63% | 22.57% | 16.05% |
| RoCE (%) | 13.48% | 18.69% | 43.08% | 21.43% | 20.83% |
| Debt to Equity Ratio | 1.02 | 0.92 | 0.37 | 0.58 | 0.08 |
| Net Fixed Asset Turnover Ratio | 7.14 | 6.86 | 6.27 | 3.13 | 3.06 |
| Working Capital Days | 4.97 | 4.52 | 28.62 | 7.84 | 36.86 |
Peer Comparison
| Company | EBITDA Margin | PAT Margin | ROE | ROCE |
| Gopal Snacks | 14.07% | 8.06% | 38.63% | 43.10% |
| Bikaji Foods | 10.89% | 6.46% | 13.30% | 16.70 |
| Prataap Snacks | 3.75% | 1.21% | 3.00% | 0.00% |
| Balaji Waffers | 13.18% | 8.30% | 22.50% | 25.50% |
| Pepsi Co. India | 8.13% | 3.27% | 7.70% | 13.80% |
Valuation
At the upper end of the price band, the issue is quoting at PE of 44.96 its FY24E annualised earnings. Thus, the issue appears to be fully priced. One may Avoid this issue.
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