India: Prataap Snacks shares rise 35% on stock market debut

Photo: Mint

Shares of Prataap Snacks Ltd made a strong market debut on Thursday. The snack food company was listed at Rs1,270, up 35.3% over its issue price of Rs938 per share on the NSE.

The Rs482-crore initial public offer (IPO) was subscribed 47.39 times during 22-26 September. The qualified institutional buyers (QIBs) portion was subscribed 76.89 times, non-institutional investors 101.15 times and retail investors 8.48 times, according to NSE data. It had raised Rs143.4 crore by allotting shares to institutional investors as part of its anchor book allocation.

Prataap Snacks’s revenue grew at a compounded annual growth rate (CAGR) of 27% from FY13-FY17. Its gross margins during FY13-17 have been 26-31%, which is weak compared to its peer DFM Foods’s, which made gross margins of 40% in FY17.

Ahead of its IPO, analysts had said its valuations are very high, though Prataap Snacks is one of the fastest growing companies in its sector. According to Angel Broking Pvt. Ltd, at 202 times its FY17 earnings, the issue is richly valued at the upper end of its price band.

“Ignoring its lower profitability in FY17 and valuing the issue on FY16 earnings per share (EPS) still yields a high price to earnings of 73 times of FMCG companies commanding such high PEs have a very strong profitability and returns profile such as Britannia,” it said in a report on 19 September.

Prabhudas Lilladher Pvt. Ltd also said that at the current margin profile and earnings, the company is being offered at expensive valuations, leaving little scope for appreciation in the near term. “It has shown 27.5% sales compounded annual growth rate (CAGR) in the past five years in a large and growing category, which instills confidence in its ability to drive growth. However, volatility in margins and limited pricing power at Rs5 price point (80% of sales) are the key risks for investment,” Prabhudas Lilladher said in a report on 20 September.

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