The ₹881-crore initial public offering (IPO) of Rajasthan-based Bikaji Foods International (BFIL) opens for subscription today, November 3. The company has decided on the price band of ₹285-300 apiece for the issue and will close for subscription on November 7.
About the IPO
The IPO only has an offer for sale (OFS) portion, thus the company will not receive any proceeds from the issue. The selling shareholders will be entitled to the entire proceeds, giving them a partial or full exit from the company.
The OFS is of up to 29,373,984 equity shares with a face value of Re 1 each by existing shareholders and promoter group entities.
About the firm
Bikaji Foods is India's third-largest ethnic snack company. The company's product range includes six principal categories: bhujia, namkeen, packaged sweets, papad, and western snacks among others. It is the second fastest-growing company with a CAGR of 21.3 percent from FY2019 to FY2022 in the Indian organized snacks market.
As of June 30, 2022, the company sold more than 300 products under the Bikaji brand. The company also exports products to 21 international countries, including North America, Europe, the Middle East, Africa, and Asia Pacific.
Bikaji Foods has six operational manufacturing facilities, including four facilities located in Bikaner (Rajasthan), one in Guwahati (Assam), one facility in Tumakuru (Karnataka) through the subsidiary Petunt Food Processors.
Its revenue from operations grew 23 percent to ₹1,610.96 crore in FY22 against ₹1,310.75 crore a year ago. For the three months ending June 30, revenue from operations stood at ₹419.16 crore, with a net profit of ₹15.7 crore.
The company has registered good revenue growth over the recent years (5-year CAGR of 19.8 percent over FY18– FY22) and a growth of 9.08 percent in EBITDA over the same period. Despite the price of palm oil increasing significantly in FY22 and the increase in inflation resulting in an increase in raw material prices in the 3 months ended June 30, 2022, they have managed to maintain consistent EBITDA margins by passing on the increase in raw ingredients cost to their consumers.
The sales of food products had grown at a CAGR of 22.25 percent from ₹1,072.18 crore in FY20 to ₹1,602.29 crore in FY22 and were ₹332 crore and ₹416.89 crore in the 3 months ended June 30, 2021, and June 30, 2022, despite the impact of the covid-19 pandemic since the beginning of Fiscal 2021
The company has reserved 50 percent of the shares for qualified institutional buyers, whereas non-institutional investors will get 15 percent of the shares. The remaining 35 percent of shares have been allocated to retail bidders.
Investors who wish to subscribe to Bikaji Foods IPO can bid in a lot of 50 equity shares and multiples thereafter. At the upper price band, it will cost them ₹15,000 to get a single lot of Bikaji Foods International.
Book running managers
JM Financial, Axis Capital, IIFL Securities, Intensive Fiscal Services, and Kotak Mahindra Capital Company are the bankers to the issue, whereas Link Intime India has been appointed as registrar to the issue.
Bikaji Foods International mobilised ₹262.11 crore from 36 anchor investors ahead of its IPO as it allocated 87.37 lakh equity shares at ₹300 apiece.
Government of Singapore, Whiteoak Capital, Blackrock Global Funds, Goldman Sachs, Morgan Stanley, Eastspring Investments, Neuberger Berman Emerging Markets, Carmignac Portfolio, Bay Capital and Edelweiss were among the anchor investors.
The majority of the brokerages remain positive on the issue due to their industry-leading position, consistent financials and strong brand visibility, however, some brokerages have flagged pricey valuations and a complete OFS issue as areas of concern.
“Bikaji with its industry-leading position is well placed to capture the high-growth snacks market. Upcoming new manufacturing facilities, expansion of distribution base and strengthening of product/geographic portfolio could propel earnings growth. Despite high competition, we expect Bikaji to do well given the strong positioning of its brand and products. However, it is valued at 98xFY22 P/E which seems expensive. Thus, we suggest investors to Subscribe for listing gains.”
Considering its consistent top-line growth, industry-leading position, future expansion plans, new product launches, investments in strengthening the brand recall and good future prospects for the packaged food business, Geojit Financial Services has assigned a subscribe rating on the issue on a short-term basis for high-risk investors.
“At the upper price band of ₹300, BFIL is available at a P/E of 98.5x (FY22), which appears expensive compared to its peers," it said.
On the financial front, the company has seen strong growth. However, on the valuation front, it seems expensive, said Religare Broking and recommended investors to avoid the issue.
"Bikaji plans to strengthen its presence by adding products and investing behind its brand," the brokerage added. It has cited intense competition in the Indian food market and expensive valuation as the key risks to the issue.
"At the higher price band, Bikaji is demanding an EV/sales multiple of 4.5x, which is a premium to the peer average. The food market in which the company is operating is normally dominated by unorganized players," said Choice Broking.
"This might be the reason for the lower operating margin for Bikaji, despite so much value addition. In the current inflationary environment, we are cautiously optimistic on the sustainability of the profitability margins," it added with a 'subscribe with caution' rating for the issue.
"BFIL, with its strong market position across its diversified product portfolio, strong distribution, strategic manufacturing facilities, strong brand visibility and consistent financial performance is in a good position with healthy visibility going ahead. We recommend investors to SUBSCRIBE to the IPO of BFIL."