Bikaji Foods IPO opens on November 3rd: Should you subscribe?

Bikaji Foods International Limited IPO opens for subscription on 3rd November. The company is looking to raise up to Rs 881.22 crore through the public issue. Here are the details:  

Bikaji Foods Limited IPO Details

• Bikaji Foods IPO Date: 3 November - 7 November 2022
• Bikaji Foods IPO Price band: Rs 285- Rs 300
• Bikaji Foods IPO Issue Size: Rs 881.22 crore (Only offer for sale)
• Reservation: QIB 50%, Retail - 35%, NII 15%
• Post Issue Implied Market Cap: Rs 7,111 – Rs 7,485 crore
• Bid lot: 50 shares, and in multiples of 50 shares

Bikaji Foods International Limited IPO: Objects of the Issue

The selling shareholders are entitled to the entire proceeds of the Offer after deducting the Offer expenses, and relevant taxes/ The company will not receive any proceeds from the IPO.

Bikaji Foods International Limited IPO: About Global Health

• The company (Bikaji) was incorporated in 1995 and is the third largest ethnic snacks company in India.
• Bikaji also has an international footprint and is labeled as the fastest-growing company in the Indian organized snacks market.
• In FY22, they were the largest manufacturer of Bikaneri bhujia and the third largest player in the organized sweets market.
• Bikaji’s product range includes six principal categories: bhujia, packaged sweets, papad, western snacks, and other snacks, which primarily include gift packs, frozen food, mathri range, and cookies.
• The company has seven manufacturing facilities with four facilities located in Bikaner, one in Guwahati, one in Tumakuru, and one in Muzaffarpur.
• They have engaged Amitabh Bachchan as their brand ambassador. 

Bikaji Foods IPO: Products

Below are different products and their contribution to the company's revenue:

• Bhujia: Contributed 34.98% of sales of products
• Western Snacks: Contributed 8.64% of sales of products
• Nakeem: Contributed 39.18% of sales of products
• Sweets: Contributed 7.57% of sales of products
• Papad: Contributed 6.57% of sales of products

Bikaji Foods Limited IPO: Industry Outlook

• In FY15, the packaged food retail revenue was worth Rs 2,434 billion and registered a CAGR of approximately 8.3% from FY15 to FY22. It is estimated to grow at a CAGR of 8% in the next five years to reach Rs 5,798 billion.
• Organized western snacks, with a Rs 242 billion market value, are expected to grow at 15% CAGR till 2026.
• Milk-based sweets are growing at a CAGR of 15% and are expected to reach approximately ₹ 29 billion by 2026.
• The overall papad market is expected to reach Rs 103 billion by 2026 with a CAGR of 7%. The organized market in the papad segment is valued at Rs 26 billion and is growing at a CAGR of 10%.

Bikaji Foods Limited IPO: Listed peers

The company has many listed peers which include some small players and also FMCG giants. The listed peers include Prataap Snacks, DFM Foods, Nestle India, and Britannia Ltd. The comparison with listed peers is as below:

• In terms of revenue, Bikaji Foods is placed higher among smaller companies (Prataap and DFM) but is well below Nestle and Britannia.
• Earning Per Share (EPS) for Bikaji is 3.15 above Prataap and DFM but below Nestle and Britannia.
• All companies in the segment are trading at higher PE (except DFM). PE for Bikaji is on the higher side compared to other peers.
• For Return of Net Worth (RoNW), Bikaji has a RoNW of 9.51% only above Prataap and DFM.

Bikaji Foods Limited IPO: Financials

• Bikaji Foods has reported revenue from operations for FY20, FY21, and FY22 was Rs 1074.55 crore, Rs 1310.75 crore, and Rs 1610.96 crore, respectively. The revenue has grown at a CAGR of 22.45% over the last three years.
• The company reported EBITDA of Rs 94.60 crore, Rs 144.77 crore, and Rs 139.54 crore for FY20, FY21, and FY22, respectively. The EBITDA margin for the same period was Rs 8.80%, 11.04%, and 8.66%, respectively.
• The net profit for the same period was Rs 56.37 crore, Rs 90.34 crore, and Rs 76.03 crore, respectively. 
• The average EPS and RoNW for the last three financial years are 3.06 and 11.70, respectively.
• In FY20, FY21, and FY22, the company's advertisement expenses were Rs 36.72 crore, Rs 30.64 crore, and Rs 29.13 crore and represented 3.43%, 2.34%, 1.82%, respectively of total sales.
• The company has Debt to Equity Ratio of 0.19 at end of FY22. It has increased from 0.10 in FY20 and 0.14 in FY21.

Bikaji Foods Limited IPO: Unique Selling Propositions 

Well-established brand: The company sells all products under a well-established Bikajo brand with a focus on a diverse range of quality products, authentic ethnic Indian taste, and effective pricing strategies covering all key price points. These qualities have helped them develop strong brand recognition and consumer loyalty.

Diversified product portfolio: The company understands the Indian taste palate, which has allowed them to develop a comprehensive portfolio of a variety of Indian snack foods and sweets. They have over 300 products across all product segments.

Strategically located manufacturing facilities: Company's existing manufacturing facilities are built for large-scale operations and are strategically located in proximity to its key raw ingredient supply and improve its distribution and supply of finished products, which results in reduced freight and logistics-related time and cost.

Extensive distribution network: The company has developed a large pan-India distribution network. They had six depots, 38 super stockists, 416 direct and 1,956 indirect distributors that work with super stockists, located across 23 states and four union territories in India ( June 2022).

Bikaji Foods Limited IPO: Growth Potential

Implement distinctive growth strategies: Company's strengths and presence in various markets are distinct from one another, and are correspondingly split into core markets, focus markets, and other markets. Each market requires different inputs and support. The company intends to implement differentiated strategic priorities for the respective geographies.

New manufacturing facilities: They have entered into a contract manufacturing agreement on a non-exclusive basis with a contract manufacturing unit in Kolkata (West Bengal), that helps them cater to certain parts of eastern India. Similarly, they plan to introduce new facilities to increase their reach.

Use technology: They have made and will continue to make a significant investment to support super stockists and distributors and further scale the distribution network. They are also in the process of digitizing their superstockists and distributors by providing them with a comprehensive distribution management system.

Brand strengthening: They intend to roll out special programs and enter into arrangements with ‘category top end stores', which will help them in enhancing brand visibility, and premiumization thus delivering same-store growth and enhancing brand equity.

Bikaji Foods Limited IPO: Risks

Dependency on a single segment: The financial performance of the company is dependent on its bhujia products. On average, the segment contributes around 35% of the company's total sales. If they are unable to evolve consumer tastes, preferences, and demand for particular products, the financials will be impacted. 

Risks of unanticipated delays: Company's proposed capacity expansion plans relating to the manufacturing facility and proposed contract manufacturing facilities are subject to the risks of unanticipated delays in implementation and cost overruns.

Investments in unsecured debt instruments: The Company has made investments in unsecured debt instruments of Hanuman Agrofood in the form of compulsorily convertible debentures amounting to Rs 106.23 crore, and optionally convertible debentures of Dadiji Snacks Private Limited amounting to Rs 11.5 crore. 

Bikaji Foods: Detailed review and Analysts' Recommendation

• A robust rise in revenues: Bikaji Foods has seen a robust 22.4% CAGR rise in revenues between FY20- 22.
• Healthy rise in profits: The company’s net profit has grown at a CAGR of 16.1% over the last 3 years. 
• Stable margins: Bikaji has maintained healthy EBITDA margins between 8-11% over the last 3 years. 
• Dominant market share: The company was the largest manufacturer of Bikaneri bhujia with an annual production of 29,380 tonnes, and the second largest manufacturer of handmade papad with an annual production capacity of 9,000 tonnes in Apr-March 2022.  It is also the third largest player in the organized sweets markets.
• Reasonable valuations: At the higher end of the price band,  Bikaji Foods is aggressively priced at post-issue at a PE ratio of 119 times FY23 annualized EPS on a fully diluted basis. This is higher than well-established peers Nestle (91 times) and  Britannia (63 times).  
• Bikaji Foods IPO review: Given factors such as a strong rise in revenues, and a good runway for growth but aggressive valuations, various external analysts have given a ‘neutral’ rating on the company’s long-term prospects.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.