Bikaji Foods IPO review (May apply)

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Review By Dilip Davda on October 31, 2022

•    BFIL is the third largest ethnic snacks company in India with global sales.
•    It is also the third largest player in the organized sweets markets.
•    It posted a historic high bottom line for FY21, but in FY22 though its top line grew, its bottom line declined with pressure on margins.
•    The company is operating in highly competitive and fragmented markets.

ABOUT COMPANY:
Bikaji Foods International Ltd. (BFIL) is the third largest ethnic snacks company in India with an international footprint, selling Indian snacks and sweets, and is the second fastest growing company in the Indian organized snacks market. (Source: F&S Report). In Fiscal 2022, BFIL was the largest manufacturer of Bikaneri bhujia with an annual production of 29,380 tonnes and was the second largest manufacturer of handmade papad with an annual production capacity of 9,000 tonnes in Fiscal 2022. (Source: F&S Report). 

The company is also the third largest player in the organized sweets market with an annual capacity of 24,000 tonnes for packaged rasgulla, 23,040 tonnes for soan papdi and 12,000 tonnes for gulab jamun. (Source: F&S Report). 

It has over the years established market leadership in the ethnic snacks market in the core states of Rajasthan, Assam, and Bihar with extensive reach, and has gradually expanded its footprint across India. In the three months ended June 30, 2022, it has exported products to 21 international countries, including countries in North America, Europe, the Middle East, Africa, and Asia Pacific, representing 3.20% of its sales of food products in such a period.

BFIL's product range includes six principal categories: bhujia, namkeen, packaged sweets, papad, western snacks as well as other snacks which primarily include gift packs (assortment), frozen food, mathri range, and cookies. In the three months that ended June 30, 2022, the company sold more than 300 products under the Bikaji brand. As of June 30, 2022, it had six depots, 38 super stockists, 416 direct and 1,956 indirect distributors that work with super stockists, located across 23 states and four union territories in India. In core markets of Rajasthan, Assam, and Bihar, it has established deep penetration in Fiscal 2022 and enjoyed approximately 45%, 58%, and 29% respectively, of the total market share of the organized Indian ethnic snack category in such states. (Source: F&S Report).

The company has seven operational manufacturing facilities that are operated, with four facilities located in Bikaner (Rajasthan), one in Guwahati (Assam), one facility in Tumakuru (Tumkur) (Karnataka) held through of one its subsidiary Petunt Food Processors Private Limited to cater to the southern markets in India and one facility in Muzaffarpur (Bihar) held through the other subsidiary Vindhyawasini Sales Private Limited to cater to the core market of Bihar, respectively. In addition, the company has entered into a contract manufacturing agreement on a nonexclusive basis with a contract manufacturing unit in Kolkata (West Bengal), that helps primarily cater to certain parts of eastern India, and two contract manufacturing agreements on an exclusive basis with one of its Group Company, Hanuman Agrofood for a contract manufacturing facility located at Bikaner and with another third-party contract manufacturer for a contract manufacturing facility located at Kanpur, Uttar Pradesh. BFIL also has one small facility in Mumbai to manage Mumbai restaurant sales. It intends to operationalize two additional manufacturing facilities, of which one in Rajasthan will be operated by it and will manufacture frozen snacks and sweets products, and for the remaining manufacturing facility in Bihar, it has entered into a contract manufacturing agreement for the manufacture of namkeen and western snacks. As of June 30, 2022, BFIL had 2,664 staff on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
For listing benefits and providing exit to some of its stakeholders, BFIL is coming out with a pure secondary issue i.e. Offer for Sale (OFS) of 29373984 equity shares of Re. 1 each via book building route. It has announced a price band of Rs. 285 - Rs. 300 per share and mulls mobilizing Rs. 881.22 cr. at the upper cap. The issue opens for subscription on November 03, 2022, and will close on November 07, 2022. A minimum application is to be made for 50 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 11.77% of the post-issue paid-up capital of the company. 

The company has reserved 250000 equity shares for its eligible employees and offers them a discount of Rs. 15 per share. From the residual portion, it has allocated 50% for QIBs, 15% for HNIs, and 35% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are JM Financial Ltd., Axis Capital Ltd., IIFL Securities Ltd., Intensive Fiscal Services Pvt. Ltd., and Kotak Mahindra Capital Co. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued/converted initial equity shares at par, the company issued further equity shares in the price range of Rs. 10 to Rs. 220.04 per share (based on FV of Re. 1). It also issued bonus shares in the ratio of 8 for 1 in March 2011. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.11, Rs. 0.14, Rs. 0.16, Rs. 10.00, Rs.30.85, Rs. 125.53, and Rs. 155.81 per share.  

This being a secondary issue, post IPO, BFIL's paid-up equity capital remains the same at Rs. 24.95 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 7485.30 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, BFIL has (on a consolidated basis) posted turnover/net profits of Rs. 1082.90 cr. / Rs. 56.37 cr. (FY20), Rs. 1322.21 cr. / Rs. 90.34 cr. (FY21), and Rs. 1621.45 cr. / Rs. 76.03 cr. (FY22). For Q1 of FY23, it earned a net profit of Rs. 15.70 cr. on a turnover of Rs. 423.82 cr. 

Though its top line marked growth, its bottom line after posting record earnings for FY21, declined in the following year. 

For the last three fiscals, on a consolidated basis, BFIL has reported an average EPS of Rs. 3.20 and an average RoNW of 11.51%. The issue is priced at a P/BV of 8.97 based on its NAV of Rs. 33.46 per share as of June 30, 2022. 

If we annualize its FY23 earnings and attribute it to post-issue fully diluted equity capital, then the asking price is at a P/E of around 119.05. 

DIVIDEND POLICY:
The company has paid a dividend of 20% for the last three fiscals and a dividend of 10% for Q1 of FY23. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, BFIL has shown Prataap Snacks, DFM Foods, Nestle India, and Britannia Ind. as their listed peers. They are currently trading at a P/E of 152.68, 00, 83.43, and 62.35 (as of October 31, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKERS' TRACK RECORDS:
The five BRLMs associated with the offer have handled 81 public issues in the past three years, out of which 24 issues closed below the offer price on the listing dates, respectively.

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