Angel Broking has given a neutral rating to Pratap Snacks IPO given the high valuation and the low profitability.
Angel Broking has kept a neutral rating to Pratap Snacks IPO given the high valuation and the low profitability. Indore-based Prataap Snacks has fixed a price band of Rs 930 to Rs 938 per share for its upcoming initial public offer. The company expects to raise Rs 250 crore from a fresh issue of equity shares, but the stock broking firm says that the company will need to show remarkable improvement in profitability to justify this high valuation.
“For Pratap to justify this high valuation, remarkable improvement in profitability is required which may come at the cost of lower growth. Considering this, we rate Prataap Snacks as neutral,” Angel Broking research analyst Shrikant Akolkar said.
Pratap Snacks is a Sequoia Capital-backed company, which clocked a revenue of Rs 903 crore last fiscal, also plans to enter the sweet snacks category. The company, which makes products under the Yellow Diamond brand, gets 80 per cent of its sales from the Rs 5 pack but expects its share to reduce in the next five years. The organised snack category is estimated to be Rs 22,000 crore growing at 10-11 per cent.
Sequoia Capital’s stake would reduce to 49% post IPO from 63% at present, while the other three promoters Arvind Mehta, Amit Kumat and Apoorva Kumat’s shareholding will come down to approximately 24 % from around 33-34 % at present.
The equity shares offered through the RHP are proposed to be listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The company’s product portfolio includes extruded snacks, chips and namkeen. According to a report by Frost and Sullivan, Prataap Snacks is one of the top six Indian snack food companies in terms of revenues in 2016, and among the fastest growing companies in the Indian organized snack market between 2010 and 2016.