Bikaji Foods IPO: Better to take a call after 2 qtrs

The market capitalization for the company at the higher end of the band is Rs7,500 crore and the PE band is 90.48 – 95.24. The asking price is expensive. While the Indian ethnic namkeen business and packaged sweets story is compelling, the company needs to perform. The company has front ended the capex before going public which could be considered a strong point. Further the brand Bikaji is uniquely positioned, as the other family factions use the brand 'Haldiram' while they chose to create their own identity

Bikaji Foods International Ltd is tapping the capital markets with its offer for sale of 2,93,73,984 equity shares in a price band of Rs285-300. The issue would open on Thursday (November 3) and closes on Monday (November 7). At the top end of the price band the issue would raise Rs 881 crores.

The company is into the manufacturing and marketing of ethnic Indian snacks, packaged sweets, papad, western snacks as well as other snacks. Bhujia, an ethnic Indian snack is the flagship product of the company and Bikaner, the hometown of the company is the place from which this snack is famous. The quality of Bhujia manufactured in Bikaner because of the water and the natural environment has not been replicated anywhere else in the country as of date even though a number of people have tried it. The company is the largest producer of Bhujia and produced 29,380 tons of Bhujia or 80 tons per day in the financial year 2022.

The company is the second largest producer of handmade papad at 9,000 tons per annum after Lijjat. They are the third largest player in the organised sweets market with annual capacity of 24,000 tons of packaged Rasgulla, 23,040 tons of soan papdi and 12,000 tons of gulab jamun. They are present in 23 states and four union territories as of June 22. Logistics and distribution play a very important role in the distribution and availability of the snacks and sweets business of the company. Reaching the product across the length and breadth of the country in a timely manner and at affordable costs is a key. With this end in mind, the company has now set up factories across the country. They have units in Guwahati in Assam, Muzaffarpur in Bihar and Kanpur in Uttar Pradesh. They have also acquired a unit in Tumkur, Karnataka which would give them an edge in reaching their products in a more cost-effective manner pan-India.

The total capacities across the country in their various plants are 1,05,120 tons of namkeen, 2,400 tons of machine made papad, 33,900 tons of western snacks and 60,480 tons of packaged sweets. The entire expansion has happened recently in the last three quarters and there is capacity available for the next three years at the bare minimum and therefore no capex would be required. The company needs to sweat their assets and see that they maximise the production and distribution of their products.

Raw materials which consist of agriproduct and edible oil have seen huge volatility over the last couple of years particularly the covid period. The company has been able to pass on cost increases to its customers primarily because it sells its products in family packs, unlike some of the other snack companies, where the bulk is in small packs and power to increase prices is limited. The major way is to reduce the pack size by a couple of grams.

Bikaji has a very strong brand ambassador in film star and icon, Amitabh Bachchan who was taken on board in 2019. His contract has been renewed. His onboarding has helped the company in winning the confidence of distributors and retailers in keeping the product on shelves and resulting in sales. There are two other listed players in the snacks business. They are Prataap Snacks Limited and DFM Foods. Investors in these companies have not made money and the sector raises questions about investor returns.

The company has been registering a growth in revenues of around 20 per cent consistently. For FY22, it reported revenues of Rs 1,610.9 crores which had risen from Rs 1,310 in the previous year. The revenues for the quarter ended June 22 rose from Rs 337 crores to Rs 423.8 crores in the previous year. The profit before tax was Rs 105 crores for the full year and Rs 21.79 crores for the quarter. At the net level, the profit was Rs 76 crores and Rs 15.69 crores. The EPS for the company is Rs 3.15 for the full year and Rs 0.65 for the quarter.

The market capitalization for the company at the higher end of the band is Rs 7,500 crores and the PE band is 90.48 – 95.24. The asking price is expensive. While the Indian ethnic namkeen business and packaged sweets story is compelling, the company needs to perform. The company has front ended the capex before going public which could be considered a strong point. Further the brand Bikaji is uniquely positioned, as the other family factions use the brand 'Haldiram' while they chose to create their own identity.

The size of the issue considering its offer for sale is big at Rs 881 crores and is priced stiffly. To sell the issue as is the normal market system, there is an active grey market as well which is close to a fourth of the issue price. Investors looking to make a quick listing pop may dabble in the share. Long term investors should wait for a couple of quarterly results before entering the same.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)