Gopal Namkeen IPO Review – Finance, GMP and More

Gopal Namkeen IPO Review: Gopal Namkeen faces IPO issue of Rs. 650 Cr to commence on March 6, 2024. The issue will close on March 11 and be listed on the exchange on March 14, 2024. So, in this article we will cover finances, GMP and more… . Read on to find out!

Gopal Namkeen IPO Review – About Us

Founded in 1999, Gopal Namkeen It is a fast-moving consumer goods company that offers ethnic, western snacks and other products. The company has a presence in 523 branches across 10 states and two union territories.

Ethnic snacks include namkeen and gathiya, while western snacks include wafers, extruded snacks and snack pellets. The company sells papad, spices, gram flour noodles, rusks and padi dip in its FMCG range. We are also involved in third party manufacturing of chikkis, nachos, noodles, rusks, soan padi, washing bars, etc.

Currently, the company operates six manufacturing facilities comprising three primary and three secondary facilities. Its main facilities are located in Nagpur, Maharashtra and Gujarat. These facilities focus on manufacturing finished products.

The auxiliary facility is primarily focused on producing flour, seasonings, raw snack pellets and spices. The primary facility has an annual installed capacity of 3.03 million MTPA and the secondary facility has 1.01 million MTPA.

Additionally, in a step towards greater vertical integration, the company manufactures and installs its own goods containers on its distribution vehicles. For this purpose, we also have engineering and manufacturing facilities in Gujarat.

As of FY23, Gopal is the fourth largest brand in the ethnic flavor clearance segment and the largest manufacturer of gathiya in terms of sales and volume. The company has a 20% market share in ethnic flavors and a 6% market share in the paper industry in Gujarat.

Gopal Namkeen IPO Review – Industry Insights

India’s packaged food industry was valued at ₹2.97 Lakh Cr in 2018 and will reach Rs. 4.6 Lakh Cr in 2023. This segment is expected to grow at a CAGR of 10% from FY23 and the market value will reach Rs. 6.7 billion Cr by 2027.

The surge in demand for high-value, pre-packaged ‘on-the-go’ and ‘ready-to-eat’ products is underpinned by rising disposable incomes, a growing urban middle-class consumer population, and a growing population of working women globally. nation.

Dairy products along with snacks and confectionery account for approximately 71% of the total packaged food segment, while biscuits and snack bars account for approximately 15% of the overall market share. The image below shows consumption by packaged food category in India and how it is expected to change by FY27.

The packaged food industry in India is dominated by unorganized players. The unorganized segment dominates the industry, accounting for approximately 81% market share in FY23. The market share of the unorganized segment is estimated to continue to grow at a CAGR of 9% during this period but is estimated to fall to around 79% in FY27.

Meanwhile, the organized sector is expected to grow at a rate of 13 per cent, driven by the major transformation that occurred during the COVID-19 pandemic that influenced the country’s retailers to adopt technology to support their businesses.

Gopal Namkeen IPO Review – Finance

Gopal Namkeen reported operating revenue worth Rs. 1395 Cr in FY23, up just 3% from Rs. 1352 Cr in FY22. Nonetheless, from FY21, the company’s revenue was only Rs. 1129 Cr growing at 11% CAGR till FY23.

Although its revenue performance was quite dismal, the company’s margins expanded from 5.35% EBITDA margin in FY21 to 14.07% in FY23. This is due to the continued decline in raw material costs, which fell from 81% to 71% of revenue in FY23.

As a result, the company’s net profit increased from 50 billion won to 100 billion won. 42 Cr in FY22 to Rs. 112 Cr in FY23, a whopping 171% growth in one year. Net profit has grown at a CAGR of 131% since FY21.

Return on equity was seen rising from 15.56% in FY21 to 39% in FY23 due to improved profitability and lower reserve base. The company also shrank its balance sheet, reducing its debt-to-equity ratio to 0.37 times. This increased ROCE to 43%.

Gopal Namkeen IPO Review – Key Players

Bikaji Foods and Pratap Snacks are Gopal Namkeen’s two listed peers with a revenue of Rs. 1966 Cr and Rs. 1652 Cr each. What’s shocking is that Gopal Namkeen’s sales growth is only 3% while its peers’ sales growth is 22% and 18.4%.

However, in terms of gross profit margin, Gopal and Pratap snacks maintain their gross profit margin in the range of 28%, while bikaji is slightly ahead at 29%.

Nonetheless, in terms of return on net worth, Gopal Namkeen is outperforming with a RONW of 39% compared to 14% and 3% for other companies.

Gopal Namkeen, located at the higher end of the price range of Rs. Rs. 401 with a base EPS of Rs. As of FY23, it is valued at 44.5x price-to-earnings ratio of 9.02. The P/E ratio may seem sky-high, but it is much cheaper than its peers, which trade at a P/E ratio of 105x and 138x.

Gopal Namkeen’s Strengths

1. Excellent brand awareness: The company enjoys a leading position in the Indian ethnic flavors market with a significant presence in Gujarat. The company has spent decades building a strong brand for itself in the somewhat unorganized Indian snacks industry.
2. Diverse Portfolio: The company has diversified away from namkeen and Gathiyas to build its presence in the western snacks space. To capture the strongly established market in Western snacks, the company manufactures wafers, extruded snacks and snack pellets.
3. Gathiya’s rise in popularity: The main product manufactured by the company is Gathiya. The product gained more traction across India, enabling the company to expand its brand across the country, especially in the states of Uttar Pradesh, Maharashtra, Rajasthan and Madhya Pradesh.
4. Strategically located manufacturing facility: We reduce storage and logistics costs by locating the manufacturing facility in Gujarat close to the raw material production base. Final product manufacturing also takes place close to the company’s key markets.
5. Vertically integrated business operations: Our company manages the production process by operating the manufacturing process of raw materials and fixed products. We also build custom containers with the cooling solutions you need to run your business at efficient scale.

Weakness Gopal Namkeen

1. Product Concentration Risk: Although the company offers fast-moving products such as western snacks, papad, besan and other spices, it is still an ethnic snacks manufacturer that contributes ~59% to sales.
2. Requirements to maintain high quality standards: As the company falls under the consumable FMCG category, it is subject to high food and safety standards. Improper use or contamination of food can result in legal action against the company, which can result in reputational and financial damage.
3. No new problems: The entire Rs. The 650 Cr issue will be an offer for sale and the proceeds will not go to the company. This does not directly benefit the company itself and only benefits the promoters of the company.
4. Underutilization of resources: The company’s manufacturing capacity continues to trend downward from 40% in FY21 to 28% in FY23. This low capacity may signal that the company is overestimating, but in reality there is much less demand for its product.
5. History of misbranding allegations: During FY20-FY22, the company received eight notifications from state food safety boards regarding misbranding claims for its products.

Gopal Namkeen IPO Review – GMP

Shares of Gopal Namkeen Ltd were traded at the following prices: 29.93% March 4, 2024 Gray Market Premium. The stock in the gray market was trading at Rs 521, giving a premium of Rs 120 per share to the ceiling price of Rs 401.

Gopal Namkeen IPO Review – Key IPO Information

promoter: Bipinbhai Vithalbhai Hadvani, Dakshaben Bipinbhai Hadvani and Gopal Agriproducts Ltd

Book Operations Lead Manager: Intensive Financial Services Pvt Ltd, Axis Capital Ltd and JM Financial Ltd

Proposal registered by: Link Intime India Pvt Ltd

purpose of the problem

The entire IPO will be an offer for sale through which the promoters can achieve a profitable exit for their shares.

conclusion

Gopal Namkeen, a brand that is primarily strong in the northwestern region of India, is a leader in the ethnic snacks segment. Although a significant portion of the company’s revenue comes from the sale of Gathiya and Namkeen, the company is diversifying into Western snacks such as wafers, pellets, etc.

The company enjoys good profitability and returns, and its sales growth has slowed most of the last year. Moreover, the operating rate of the manufacturing facility was less than 30%. These may be some serious things to consider before considering investing in Gopal Namkeen.

Overall, Gopal Namkeen’s IPO is a new entrant in the still emerging snack industry, which is currently dominated by Western snacks. However, the presence of companies like Gopal along with their competitors are steadily regaining their share of Indian snacks.

With everything we pointed out in our Gopal Namkeen IPO review, what do you think about Gopal Namkeen? Are you willing to bet on a company with a P/E ratio of 40x? Let us know in the comments below.

Written by Nasir Hussein

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