Battered down after IPO, this smallcap stock could now jump 38% as consumption rises

By: |
March 11, 2021 4:26 PM

Along with the expected increase in consumer spending and consumption, analysts at JM Financial also see the stock to be trading at fairly attractive multiples.

Brokerage Favourite StocksPrior to listing on the stock exchanges, Prataap Snacks delivered revenue CAGR in excess of 25% over the fiscal years 2013-2017.

Prataap Snacks share price has been nothing short of a disappointment for investors who bought the stock in its IPO in 2017. The company did make a healthy stock market debut at Rs 1,470, a 35% premium to the issue price of Rs 938 apiece, but has been in a constant downfall since April 2018. After falling to less than half over the last three years, the stock now trades at Rs 648 apiece. But with the unlocking of the economy and the return of impulse consumption, analysts at JM Financial believe the table could turn for Prataap Snacks, expecting the stock to jump 38% from current levels.

“We expect the coming fiscal year to be more productive for the company as a gradual increase in mobility would start benefiting impulse consumption and higher RM prices would get in the base,” the report said.

Prior to listing on the stock exchanges, Prataap Snacks delivered revenue CAGR in excess of 25% over the fiscal years 2013-2017. Post listing and with the implementation of Goods and Services Tax and competitive issues being faced in its flagship ‘Rings’ product, the revenue trajectory witnessed a sharp deceleration during the financial year 2018-2019. Although the company was on track to counter these issues before the pandemic struck. “As the impact of pandemic fades and mobility normalises, we expect the company to revert back to mid-teens growth rates (basis its efforts as stated above) which would act as a catalyst for share price in our view,” JM Financial added.

Despite the hurdles faced by the company, its revenue and EBITDA have been better than its other listed peer DFM Foods, the report noted. However, coming to gross margins, DFM Foods has an edge. This, analysts say, is owing to higher freight costs and increased commissions for Prataap Snacks which has a Super Stockist in its supply chain. Prataap is presently in process of streamlining its distribution model which should help in reducing freight costs and could drive operating margin higher by 1-1.5% over next couple of years, the report said.

Along with the expected increase in consumer spending and consumption, analysts at JM Financial also see the stock to be trading at fairly attractive multiples, even when the market seems to be stretched. JM Financial said the stock trades at 14x on NTM EV/EBITDA relative to the average of 25x since listing.

Since the end of October, Prataap Snacks’ stock price has gained 13% but still remains well below the IPO issue price. JM Financial has set a target price of Rs 900 per share for Prataap Snacks, increasing its earlier target of Rs 890 apiece. This would translate into a 38% upside from current levels.

(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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