04-Mar-2024
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Gopal Snacks coming with IPO to raise Rs 684.53 crore
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<p></p><div style="text-align: justify;"><span style="font-weight: bold;">Gopal Snacks</span></div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><ul><li>Gopal Snacks is coming out with a 100% book building; initial public offering (IPO) of 1,70,70,543 shares of Rs 1 each in a price band Rs 381-401 per equity share.</li><li>Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.</li><li>The issue will open for subscription on March 06, 2024 and will close on March 11, 2024.</li><li>The shares will be listed on BSE as well as NSE.</li><li>The face value of the share is Rs 1 and is priced 381 times of its face value on the lower side and 401 times on the higher side.</li><li>Book running lead managers to the issue are Intensive Fiscal Services, Axis Capital and JM Financial.</li><li>Compliance Officer for the issue is Mayur Popatbhai Gangani.</li></ul></div><div style="text-align: justify;"><span style="font-weight: bold;">Profile of the company</span></div><div style="text-align: justify;"><br></div><div style="text-align: justify;">Established as a partnership firm in 1999 and subsequently incorporated as a company in 2009, Gopal Snacks is a fast moving consumer goods company in India, offering ethnic snacks, western snacks and other products in ten States and two Union Territories as of September 30, 2023. The company offers a wide variety of savoury products under its 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, the company has leveraged its experience and understanding of the preferences and tastes of its consumers, and target markets to develop a wide range of products, which has enabled it to strengthen its foothold in the Indian snacks industry. As of September 30, 2023, its product portfolio comprised 84 products with 276 SKUs across its various product categories, thereby addressing a wide variety of tastes and preferences.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">The company has expanded its footprint across India, with its products being sold over 523 locations in ten States and two Union Territories as of September 30, 2023. Its distribution network comprised three depots and 617 distributors, complemented by its sales and marketing team comprising 741 employees, as of September 30, 2023. It also relies on channels such as ecommerce, modern trade and exports for sale of its products. It has implemented a distribution management system that helps it coordinate with its distributors and provides visibility on its inventory levels and distributor sales, enabling it to optimise its distribution network. It also offers real-time insights on demand for its products, allowing it to make data-driven decisions, plan its operations and meet demands of its consumers in a timely and effective manner. In addition, as of September 30, 2023, it owned a fleet of 263 logistics vehicles to support its distribution network.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">In addition, the company engages third party manufacturers on a need basis to produce its products such as chikki, nachos, noodles, rusk, soan papdi and washing bar. Its 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 its specific needs for manufacturing of its product portfolio. Furthermore, the company has an engineering and fabrication facility at Rajkot, Gujarat to manufacture customised containers which are mounted on vehicles for transportation of its products to distributors. It also has a cold storage within its primary manufacturing facility at Modasa, Gujarat, with a capacity of 40,000 MT as of September 30, 2023. Its vertically integrated manufacturing operations allow it to control the production process enabling it to manage costs, achieve increased operational efficiency and exercise better control over the quality and source of its ingredients. </div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Proceed is being used for:</span></div><div style="text-align: justify;"><br></div><div style="text-align: justify;">The Company will not receive any proceeds from the Offer and all the Offer Proceeds will be received by the Selling Shareholders, in proportion to the Offered Shares sold by the respective Selling Shareholders as part of the Offer.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Industry overview</span></div><div style="text-align: justify;"><br></div><div style="text-align: justify;">The Indian packaged food industry was valued at Rs 2,972 billion in 2018 and stands at Rs 4,622 billion in 2023. The segment is evaluated to register a CAGR of 10% during 2023 to 2027 and would reach a market value of Rs 6,767 billion by 2027. Surging demands for high-value, pre-packed ‘on-the-go' and ‘ready-to-eat' products is supported by increasing disposable income, rising population of urban middle-class consumers, and increasing population of working women across the country. In Fiscal 2023, the packaged food industry was valued at Rs 4.6 trillion. Dairy products along with snacks and sweets together contribute to approximately 71% of the overall packaged food segment followed by Biscuits and Snack bar holding around 15% of the overall market share. Among the various categories of the packaged food products, ready-to-eat meals and baked products are evaluated to register the highest CAGR of around 15% and around 13% in 2023 and 2027 respectively owning to the rising health concerns among the consumers. This also has positively influenced the demand for food products offering various health benefits. Rising sales of packaged food is attracting Indian entities towards this high revenue generating sector which in turn influences various new products and variants launches in the packaged food category during the forecast period.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">Additionally, the snack industry holds substantial share in the Indian packaged food products market i.e., around 32% in 2023. The sector is considered to have high untapped potential as Indian consumers have high inclination towards savoury snacks. Emphasis on healthy foods and increasing demand for convenience foods together pushes the snack segment towards holding overall higher market share in the packaged food industry. The packaged food industry in India is estimated to reach Rs 4,622 billion in Fiscal 2023 and projects a growth potential of around 10% during Fiscal 2023- 2027. The packaged food market is segmented into organized and unorganized sector. The Indian packaged food industry is dominated by the unorganized players. The unorganized sector dominates the industry accounting for a market share of approximately 81% in Fiscal 2023. It is estimated that the unorganized sector would continue to occupy a significant market share of approximately 79% in Fiscal 2027 and would project a CAGR of 9% during the forecast period 2023-2027.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">Per capita spend of packaged food in 2018 was Rs 2,095 and grew to Rs 3,657 in 2023. The per capita spend is anticipated to witness a CAGR of 11% during the forecast period of 2023-2027. Rising disposable income along with rising population of women at workforce is driving the demand for ready-to-eat, ‘on-the-go' products in India. Additionally, rising demand for ‘better-for-you' ingredients is anticipated to support the growth of healthier and premium products such as baked snacks in the Indian market. Ahmedabad (Gujarat) stands among the top 10 cities with the highest total spend on packaged food in 2023. Farsan (ethnic snack) including fried savouries, gathiya and sweets are the major packaged snack purchased by the local consumers. Further, India's top 25 cities contribute to about 10% of revenue of packaged food industry. India's consumer spending on packaged food per capita is estimated to grow to Rs 5,552 by 2027. India's fast-growing economy is a major influencer of the growth of the packaged food sector in the country.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Pros and strengths</span></div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Diversified product portfolio:</span> The company offers a diversified portfolio of savoury snacks, including ethnic savouries such as namkeen and gathiya and western snacks such as wafers, extruded snacks and snack pellets, that cater to varied consumer tastes and preferences. It also offers fast-moving consumer products that include papad, spices, besan or gram flour, chikki, nachos, noodles, rusk, soan papdi and washing bar. During the past few years, the organized segment has been consolidating its position in the market for savoury snacks through the introduction of new products and product innovations that primarily target urban as well as rural consumers. As of September 30, 2023, the company's product portfolio comprised 84 products with 276 SKUs across its product categories, including 31 and 8 products in the namkeen and gathiya categories, respectively to address consumer requirements. Over the years, the company has established its position across certain product offerings in the organized snacks market in India.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Positioned itself as a manufacturer of gathiya in India:</span> Its sale of gathiya was increased by 16.99% from Rs 3,623.09 million in Fiscal 2021 to Rs 4,238.73 million in Fiscal 2023. Further, in Fiscal 2021, 2022, 2023 and the six months ended September 30, 2022 and 2023, its sale of gathiya accounted for 32.10%, 33.01%, 30.39%, 31.80% and 27.64% of its revenue from operations, respectively. In Fiscal 2023, the organized market for gathiya accounted for 3% of the total organised Indian savoury snacks market and was estimated to be valued at Rs 14 billion. Gathiya market is forecasted to grow at a CAGR of 11.7% during Fiscal 2023 to 2027. Gathiya as a snack holds prominence in the state of Gujarat and is gradually gaining popularity in other states as well, particularly in Uttar Pradesh, Maharashtra, Rajasthan and Madhya Pradesh.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Strategically located manufacturing facilities: </span>The company operates six manufacturing facilities comprising three primary manufacturing facilities and three ancillary manufacturing facilities. The company's three primary manufacturing facilities are located at Nagpur, Maharashtra; Rajkot, Gujarat; and Modasa, Gujarat and these facilities primarily focus on the manufacturing of its finished products. As of September 30, 2023, the aggregate annual installed capacity of these primary operated manufacturing facilities (including the annual installed capacity for papad which is manufactured at one of its ancillary facilities at Rajkot, Gujarat) was 303,668.76 MT. In addition, the company operates three ancillary manufacturing facilities, of which two ancillary manufacturing facilities are located at Rajkot, Gujarat and one ancillary manufacturing facility is located at Modasa, Gujarat. These ancillary manufacturing facilities primarily focus on producing besan or gram flour, raw snack pellets, seasoning and spices which are primarily utilised for its internal use in the manufacturing of finished products such as gathiya, namkeen and snack pellets. As of September 30, 2023, the aggregate annual installed capacity of these ancillary manufacturing facilities (excluding the annual installed capacity for papad) was 1,01,060.00 MT.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Strong distribution network: </span>As of September 30, 2023, the company had three depots and 617 distributors, who helped it to reach retailers located across ten States and two Union Territories in India, including Gujarat, Maharashtra and Uttar Pradesh. As of September 30, 2023, the company had 263 logistics vehicles which facilitate timely delivery of its products to its distributors. It has developed longstanding relationship with a number of its distributors. As of September 30, 2023, 69 distributors in Gujarat have been associated with it for more than ten years, representing 24.73% of its total distributors in Gujarat and such distributors contributed to 26.62% and 25.97% of its revenue from operations in Fiscal 2023 and in the six months ended September 30, 2023, respectively. The company's distributors have established sales channels with conventional grocery retailers, supermarkets and hypermarkets and help its products reach the end consumers located in urban, semi-urban and rural regions efficiently. In addition, its products are sold through a retail store chain in Gujarat and through e-commerce platforms.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Risks and concerns</span></div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Majority of revenue comes from sale of namkeen, gathiya and snack pellets:</span> The company's future business prospects are dependent on the demand for its products in Indian markets. Its financial performance is dependent primarily on the sale of certain of its products i.e., namkeen, gathiya and snack pellets. Its aggregate revenue from sale of namkeen, gathiya and snack pellets accounted for 88.96%, 85.25%, 81.66%, 83.24% and 77.89% of its revenue from operations in Fiscal 2021, 2022, 2023 and the six months ended September 30, 2022 and 2023, respectively. The company derives substantial revenue from the sale of its top 3, top 5 and top 10 stock keeping units (SKUs) of gathiya and namkeen products. Any decrease in demand for these SKUs can have an adverse impact on its business, results of operations, financial conditions and cash flows. Further, any disruption in the supply chain for these SKUs, such as delays in delivery or quality issues, may impact its ability to meet customer demand and result in loss of sales. While there has not been any instance of any disruption in the supply chain of these SKUs in the last three Fiscals and in the six months ended September 30, 2023, it cannot assure that such instance will not arise in the future. </div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Geographical constrain:</span> The sale of the company's products is concentrated in its core market of Gujarat. In Fiscal 2021, 2022 and 2023 and the six months ended September 30, 2022 and 2023, its revenue from sale of products in Gujarat accounted for 74.31%, 76.27%, 79.08%, 79.06% and 76.49% of its revenue from operations, respectively. Any significant social, political or economic disruption, or natural calamities or civil disruptions in this region, or changes in policies of the state or local governments or the government of India or adverse developments related to competition in Gujarat, may adversely affect its business, results of operations, financial condition and cash flows. While it has not experienced any of the above risks that had an adverse impact on its business operations and financial conditions in the last three Fiscals and in the six months ended September 30, 2023, it cannot assure that these risks will not arise in the future.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Business is subject to seasonality: </span>The company is impacted by seasonal variations, to a certain extent, in sales volumes, which may cause its revenues to vary significantly between different quarters in a fiscal year. Typically, it sees an increase in its business during festive seasons in the markets where it operates as customers tend to purchase higher quantities of snacks and savoury products during these times. Further, it witnessed a decline in the sale of products during the summer season, especially when schools are on summer break. The primary reason for this is that children do not attend school during this time, therefore, less likely to visit shops or snack vendors, resulting in reduced sales. Therefore, as a consequence of these seasonal fluctuations, its results of operations and cash flows across quarters in a Fiscal may not be comparable and any such comparisons may not be meaningful, or may not be indicative of its annual financial results or its results in any future quarters or periods.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Products are semi-perishable in nature: </span>The company manufactures a wide variety of savoury products including ethnic snacks such as namkeen and gathiya, western snacks such as wafers, snack pellets and extruder snacks, along with fast-moving consumer goods that include papad, spices, gram flour or besan, noodles, rusk and soan papdi, which are semi-perishable in nature. These products are semi-perishable in nature and the average shelf life of its products ranges from three to six months. As its products are semi-perishable, any inaccuracies in predicting demand could result in excess inventory and subsequent wastage of the products. This wastage could have an adverse effect on its business, financial condition, results of operations, cash flows, and reputation. While there has not been any instance in the last three Fiscals and in the six months ended September 30, 2023 where its business, results of operations and cash flows were adversely affected on account of the aforesaid risks, it cannot assure that such instance will not arise in the future.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;"><span style="font-weight: bold;">Outlook</span></div><div style="text-align: justify;"><br></div><div style="text-align: justify;">Gopal Snacks is an FMCG company that deals in ethnic and Western snacks, and other products in India and internationally. The company has six manufacturing units out of which three are primary manufacturing units and three are ancilliary manufacturing units. The primary manufacturing units are in Nagpur, Maharashtra; Rajkot, Gujarat; and Modasa, Gujarat. The two ancillary units are situated in Rajkot, Gujrat and one unit is located in Madosa, Gujrat. On the concern side, the company's aggregate maximum revenue comes from sale of namkeen, gathiya and snack pellets. An inability to anticipate and adapt to evolving consumer tastes, preferences and demand for particular products, or ensure product quality may adversely impact demand for its products, brand loyalty and consequently its business, results of operations, financial condition and cash flow. The sale of its products is concentrated in its core market of Gujarat and any adverse developments affecting its operations in such region, could have an adverse impact on its business, financial condition, results of operations and cash flows.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">The company is coming out with an IPO of 1,70,70,543 equity shares of face value of Rs 1 each. The issue has been offered in a price band of Rs 381-401 per equity share. The aggregate size of the offer is around Rs 650.39 crore to Rs 684.53 crore based on lower and upper price band respectively. On performance front, total income increased by 3.10% from Rs 13,564.75 million in Fiscal 2022 to Rs 13,985.38 million in Fiscal 2023, primarily due to an increase in its revenue from sale of products. The company recorded a profit after tax attributable to owners of the Company of Rs 1,123.69 million in Fiscal 2023 compared to Rs 415.39 million in Fiscal 2022.</div><div style="text-align: justify;"><br></div><div style="text-align: justify;">The company intends to continue to gain market share and strengthen its position in its core market of Gujarat. In Fiscal 2023, Gujarat contributed approximately 10.5%, approximately 12.3% and approximately 10.6% to the overall markets of ethnic savouries, western snacks and papad, respectively, in India. It intends to deepen penetration in Gujarat with a focus on increasing its market share in the western snacks market by leveraging its distribution network and a wide array of products including products in the western snacks category. As of September 30, 2023, it had 279 distributors across Gujarat, representing 45.22% of its total distributors in India. Its distribution network in Gujarat will enable it to deepen its market penetration and expand its reach to new consumers within Gujarat. Further, the company has a considerable amount of unutilized capacity that provides it with the flexibility to expand its operations to meet growing demand as required. This advantage gives it a competitive edge in the market and positions it well for future growth opportunities in these focus markets. Further, it also intends to develop other markets such a Jharkhand, Chhattisgarh, Odisha, Telangana and Karnataka to expand its sales and enhance its brand recognition.</div><p></p>
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