IPO Size: Rs. 650 cr, entirely Offer for Sale (OFS)   

• Rs. 600 cr by promoters (94% stake to drop to 81%), to repay personal debt taken in Nov 2022 to buy-out elder brother’s 26% stake in the company

Price band: Rs. 381-401 per share  

M cap: Rs. 4,996 cr, implying 13% dilution

IPO Date: Wed 6^th Mar to Mon 11^th Mar 2024, Listing Thu 14^th Mar 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Regional Snack Company

Gopal Snacks is a 30 year old Rajkot based company and India’s largest gathiya maker, with 70% of its Rs. 1,400 cr revenue generated from SKUs priced at Rs. 5 per unit. It is a regional player with 78% revenue from Gujarat. Thus, company’s strength lies in cost and local distribution and it is not really a brand play.   

Problem of Sales?

Between FY21-23, revenue grew at just 11% CAGR from Rs. 1,129 cr to Rs. 1,395 cr (as against 20+% growth for peers Bikaji, Balaji Wafers among others). This was due flat sales of ‘namkeen’ and ‘gathiya’ also growing at only 8% CAGR between FY21-23, despite ample capacity (<40% utilization currently). Infact FY23 revenue grew at only 3% YoY while H1FY24 revenue declined 3% YoY to Rs. 676 cr, as gathiya and namkeen sales dropped 16% YoY and 9% YoY respectively. When sales of key products (gathiya and namkeen together account for 56% of H1FY24 revenue) are falling, it is worrisome! Elder brother, who has launched a competing brand ‘Gokul’, was responsible for sales function. Thus, company needs to demonstrate sales growth.

Single Digit Net Margin

As share of western snacks like wafer and snack pellets increased to 30% in revenue (27% in H1FY23), net margin expanded to 8.2% in H1FY24, from 7.4% YoY. Yet, net margin is lower than other listed food companies - Bikaji (8.9%), Tasty Bites (8.9%), Mrs Bector (8.6%). Scope for margin expansion is limited as material cost accounts for 70% of revenue and 3/4^th revenue is derived from Rs. 5 pack SKU, where price hike is difficult and grammage reduction has its own limitations.

High RoE

Working capital is well managed - outstanding inventory and debtors (combined) at 1.5 months. Coupled with a high asset turnover ratio, Gopal Snacks’ RoE of 39% in FY23 is higher than peers - Bikaji (14%), Mrs. Bector (18%), unlisted Balaji Wafers (22%).  

Fully Valued

Based on H1FY24 PAT of Rs. 56 cr and EPS of Rs.4.5, FY24E EPS is estimated at about Rs. 9.4, discounting the IPO price by a current year PE multiple of 43x, which is fully valued, for flat topline, regional presence and significant dependence on Rs 5 SKU packs.  

Biscuit and bakery products maker Mrs Bectors, with Rs.1,600 cr topline, 25% revenue CAGR between FY21-23 and 8.6% net margin, is ruling at a PE multiple of 45x PE, making Gopal’s valuation inline.

India’s 3^rd largest ethnic snack company Bikaji Foods, having posted 22% revenue CAGR between FY21-23, and 9% YoY jump in H1FY24 revenue, is ruling at a PE multiple of 65x due to its national presence and double topline as Gopal.

Unjustified 25% Premium in 5 months

In Nov 2022, promoter acquired brother’s stake at Rs. 174 per share.

In Oct 2023, 4.4% stake was sold by promoter to institutional investors at Rs. 321 per share.

Present IPO price of Rs. 401 is 25% premium to the last transaction price 5 months ago. This premium is unjustified, as business growth has not been commensurate.