Bikaji Foods International is the third largest ethnic snacks company in India with an international footprint, selling Indian snacks and sweets, and is among the fastest growing companies in the Indian organised snacks market. The company is largest manufacturer of Bikaneri bhujia, with annual production of 29,380 tonnes, and the second largest manufacturer of handmade papad with an annual production capacity of 9,000 tonnes in FY2022.

The company is one of the pioneers in the Indian packaged snacks industry, which has given a novel twist to classic Indian snacks with a contemporary taste along with maintaining the regional flavours to address the evolving consumer preferences in India and internationally.

The company is also the third largest player in the organised sweets market, with annual capacity of 24,000 tonnes for packaged rasgulla, 23,040 tonnes for soan papdi and 12,000 tonnes for gulab jamun.

The company has presence in various markets that are distinct from one another, and correspondingly split into core markets, focus markets and other markets. Its core markets are Rajasthan, Assam and Bihar. The focus markets are states identified basis the proximity of markets and opportunity to expand. Its focus markets include Uttar Pradesh, Punjab, Haryana and Delhi in north India and Karnataka and Telangana in south India. In other markets company intends to build experienced superstockist distribution network.

The company has over the years established market leadership in the ethnic snacks market in core states of Rajasthan, Assam and Bihar, with extensive reach, and have gradually expanded its footprint across India, with operations across 23 states and 4 union territories as of June 30, 2022. In the three months ended June 30, 2022, the company exported its products to 21 international countries, including countries in North America, Europe, Middle East, Africa, and Asia Pacific, representing 3.2% of total sales of food products in such period.

The company’s product range includes six principal categories: bhujia, namkeen, packaged sweets, papad, western snacks as well as other snacks, which primarily includes gift packs (assortment), frozen food, mathri range and cookies. In the three months ended June 30, 2022, it sold more than 300 products under the Bikaji brand.

In FYs 2020, 2021 and 2022 and in the three months ended June 30, 2021 and June 30, 2022, sales of its family pack products (packs priced at more than Rs 10) were Rs 640.73 crore, Rs 818.58 crore, Rs 970.51 crore, Rs 194.04 crore and Rs 223.62 crore, respectively, representing 59.76%, 62.64%, 60.57%, 58.43% and 53.64% of its sale of food products, respectively, in such periods.

Among competitors, the company is the market leader in the family pack segment, with 60.57% share of business coming from SKUs other than Rs 5 and Rs 10 packs in FY2022. In Q1 FY2023, impulse purchase packs contributed 45.05% of sale of food products, family packs 53.64%, and others 1.31%.

Over the years, the company developed a large pan-India distribution network. As of June 30, 2022, company has 6 depots, 38 superstockists, 416 direct and 1,956 indirect distributors that work with its superstockists, located across 23 states and 4 union territories in India.

In its core markets of Rajasthan, Assam and Bihar, the company established deep penetration in FY2022 and enjoys approximately 45%, approximately 58% and approximately 29%, respectively, of the market share of the total organized Indian ethnic snack category in such states.

The company has seven operational manufacturing facilities, with four facilities located in Bikaner (Rajasthan), one in Guwahati (Assam), one facility in Tumakuru (Tumkur) (Karnataka) held through of its subsidiary Petunt Food Processors and one facility in Muzaffarpur (Bihar) held through the other subsidiary Vindhyawasini Sales. In addition, the company has entered into various contract-manufacturing agreements.

The company intends to establish additional manufacturing facilities to ensure optimization of its logistical costs.

Offer and its objects

The IPO will be complete offer for sale of Rs 881.22 crore by existing shareholders Shiv Ratan Agarwal, Deepak Agarwal, India 2020 Maharaja, Intensive Softshare, IIFL Special Opportunities Fund and Avendus Future Leaders Fund.

The price band of the IPO is Rs 285 to Rs 300 per equity share of face value Re 1 each.

The company will not directly receive any proceeds from the offer. All the offer proceeds will be received by the selling shareholders in proportion to the offered shares sold by them.

Promoters of the company are Shiv Ratan Agarwal, Deepak Agarwal, Shiv Ratan Agarwal (HUF) and Deepak Agarwal (HUF). Promoters and promoter group hold an aggregate of 194,543,900 equity shares, aggregating to 77.97% of the pre-offer issued and paid-up equity share capital. Their post IPO shareholding is expected to be around 75.97%.

The issue, through the book-building process, will open on 3^rd November 2022 and will close on 7^th November 2022.

Strengths

The company has a track of consistent revenue growth and profitability, even during periods impacted by the covid-19 pandemic. The company recorded an increase in sales of food products at a CAGR of 22.25% between FY2020 and FY2022.

The company’s manufacturing facilities are generally equipped with modern and automated production processes, with specialized custom-made manufacturing equipment obtained from national and international suppliers. In particular, the production process for bhujia, namkeen snacks and packaged tin-based sweets are almost fully automated.

The company has identified few focus markets, which are in proximity to company’s core markets where it has already established a strong brand equity. Sales of food products from these markets increased at a CAGR of 35.84% between FY2020 and FY 2022. The company expects these focus markets to contribute disproportionate growth for the next several years and eventually move into the set of core states.

The company has a successful track record of over three decades in the Indian snacks industry, which has enabled it to develop an effective business model with stringent control over processes, manufacturing operations and inventory management across its large range of products.

The company has undertaken many brand-building initiatives to increase brand recall and consumer preference. In FYs 2020, 2021 and 2022 and in the three months ended June 30, 2021 and June 30, 2022, its advertisement expenses were Rs 36.78 crore, Rs 30.63 crore, Rs 29.13 crore, Rs 1.49 crore and Rs 1.42 crore, representing 3.43%, 2.34%, 1.82%, 0.45% and 0.34%, respectively, of total sales of food products in such periods.

The company has a diversified product portfolio focused on various consumer segments and markets. As of June 30, 2022, its diversified product portfolio included more than 300 products across all product segments. In Q1 FY2023, bhujia contributed 34.98% of total sales, western snacks 8.64%, namkeen 39.18%, sweet 7.57%, papad 6.97% and others 2.66%.

The company’s manufacturing facilities are strategically located in proximity to key raw ingredient supplies, which results in reduced freight and logistics related time and cost.

The company has extensive pan-India and global distribution network, including arrangements with reputed retail chains, e-commerce and exports channel. In Q1 FY2023, general Trade contributed 85.45%, modern trade 5.7%, exports 3.2%, e-commerce 0.82% and others 4.83%.

The company is led by dedicated and experienced management team. Its founder and promoter Shiv Ratan Agarwal has more than three decades of experience in this industry.

Weaknesses

The company is significantly dependent on the sale of its bhujia products and sale of family pack stock keeping units (SKUs) for its revenues. An inability to anticipate and adapt to evolving consumer tastes and preferences may adversely impact demand of its products. In FYs2020, 2021, 2022 and in the three months ended June 30, 2021 and June 30, 2022, sales of its family pack products stood at Rs 640.73 crore, Rs 818.58 crore, Rs 970.51 crore, Rs 194.04 crore and Rs 223.62 crore representing 59.76%, 62.64%, 60.57%, 58.43% and 53.64% of total sale of food products.

The company’s proposed capacity expansion plans relating to its manufacturing facility and contract-manufacturing facilities are subject to the risks of unanticipated delays in implementation and cost overruns.

The company faces intense competition in the Indian snack food market, from various domestic and multinational companies in India.

The company has made investments in unsecured debt instruments of Hanuman Agrofood in the form of compulsory convertible debentures amounting to Rs 106.23 crore, as of June 30, 2022. In the event the company not able to seek a return on such investments in future in relation to investments in unsecured debt instruments, it may adversely affect its business.

There were certain procedural instance of lapses such as delays in filings and non-filing of forms, non-compliance with procedural requirements for allotment of non-voting shares and variation of rights of such shares, and factual errors in its corporate records, in relation to certain corporate actions taken by the company in past. The company may be subject to regulatory actions and penalties for any such past or future non-compliance.

The company is subject to various contamination-related risks, which typically affect the FMCG industry, including product tampering; relatively short shelf life of certain of its products; improper storage of products and raw materials; adulteration of products with any substance unfit for human consumption and labelling and packaging errors.

The company currently avail benefits under certain export promotion schemes, including duty-free import authorization scheme (DFIA Scheme), and merchandise exports from India scheme (MEIS). Any failure in meeting the obligations under such schemes may adversely affect its business operations.

The company does not have a formal hedging policy. Any material fluctuation in foreign currency exchange rates may impact its results of operations. In FYs 2020, 2021 and 2022 and in the three months ended June 30, 2021, and June 30, 2022, unhedged foreign currency exposure was Rs 5.37 crore, Rs 6.27 crore, Rs 10.97 crore, Rs 8.47 crore and Rs 8.71 crore, representing 0.50%, 0.48%, 0.68%, 2.55% and 2.09%, respectively, of total sale of food products.

The company relies on limited number of super-stockists and direct distributors for s portion of its revenue. A significant decrease in revenue from any of those super-stockists may have an adverse effect on business prospects. In FYs 2020, 2021 and 2022 and for the three months ended June 30, 2021, and June 30, 2022, the company had two super stockkeepers, which contributed more than 10.00% of total sale of food products.

The company relies on third-party transportation providers for both procurement of raw materials and distribution of its products. Any failure by transportation providers to deliver its raw materials or products on time, may adversely affect business.

A part of company’s manufacturing operations is dependent on contract manufacturing facilities. Any termination of its agreements in relation to the contract manufacturing facilities may adversely affect business. In FYs 2020, 2021 and 2022, and in the three months ended June 30, 2021, and June 30, 2022, the sale of food products from western snacks manufactured by the contract manufacturing facility represented Rs 12.04 crore, Rs 17.82 crore, Rs 23.98 crore, Rs 4.24 crore and Rs 9.18 crore, representing, 1.12%, 1.36%, 1.50%, 1.28% and 2.20% of sale of food products, respectively.

Some of group companies, namely, Babaji Snacks, Haldiram Foods International, Haldi Ram Products, Haldiram Snacks, Hanuman Agrofood, Oam Industries (India), Haldiram Ethnic Foods and Mastkin Foods, operate in the same or similar lines of business. Further, promoters and certain directors have interests in other companies, which are in businesses similar as Bikaji Foods, which may result in conflicts of interest.

The company derives significant portion of total revenues from its core markets of Rajasthan, Assam and Bihar. Any adverse developments in these regions could have an adverse impact on business. In FYs 2020, 2021 and 2022, and in the three months ended June 30, 2021 and June 30, 2022, sale of food products from core markets of Rajasthan, Assam and Bihar amounted to Rs 778.07 crore, Rs 933.66 crore, Rs 1145.29 crore, Rs 253.79 crore and Rs 311.43 crore, respectively, accounting for 72.57%, 71.43%, 71.48%, 76.43% and 74.70%, respectively, of total sale of food products.

Valuation

In Q1 FY2023, consolidated sales were up by 25.48% to Rs 419.16 crore compared to Q1 FY 2022. The OPM decreased by 43 bps to 7.35%, which led to 18.48% increase in operating profit to Rs 30.80 crore. Other income increased 54.32% to Rs 4.67 crore, while interest cost rose 48.29% to Rs 2.60 crore and depreciation increased 24.71% to Rs 11.07 crore. PBT increased 18.53% to Rs 21.79 crore. Tax expenses were Rs 6.09 crore compared to tax expenses of Rs 5.97 crore in Q1 FY2022. Minority interest was negative Rs 0.54 crore compared to negative Rs 0.51 crore, Net profit rose 25.65% to Rs 16.24 crore.

In FY2022, consolidated sales were up by 22.90% to Rs 1610.96 crore compared to FY2021. The OPM decreased by 238 bps to 8.66%, which led to 3.61% decrease in operating profit to Rs 139.54 crore. Other income decreased 8.49% to Rs 10.49 crore, while interest cost rose 123.41% to Rs 6.69 crore and depreciation increased 15.73% to Rs 38.33 crore. PBT decreased 12.58% to Rs 105.01 crore. Tax expenses for FY22 was of Rs 28.99 crore compared to tax expense of Rs 29.78 crore in FY21. Minority interest for FY2022 was negative Rs 1.92 crore compared to Rs 0.13 crore in FY2021, Net profit fell 13.59% to Rs 77.95 crore.

The TTM EPS on post-issue equity works out to Rs 3.26. At the upper price band of Rs 300, P/E works out to 92.11.

At the higher price band of Rs 300, the offer is made at post-issue EV/ TTM sales of 4.52 times on a post-issue equity share capital of Rs 24.95 crore of face value of Re 1 each.

Listed industry peers of the company are Prataap Snacks trades at 1.43 times its EV/ TTM sales, DFM Foods trades at 3.24 times its EV/ TTM sales, Nestle India trades at 12.83 times its EV/ TTM salesand Britannia Industries trades at 6.48 times its EV/ TTM sales.

For FY2022, Bikaji Foods International OPM and ROE stood at 8.66% and 9.5%, respectively, compared to 4.18% and 0.46% for Prataap Snacks, 24.42% and 102.89% for Nestle India ( ROE for Nestle calculated on CY2021) and 15.57% and 59.60% for Britannia Industries, respectively.