Mukka Proteins IPO Review – Financing, GMP, and More

Mukka Proteins is facing an IPO issue of Rs. 224 Cr to open on February 29, 2024. The issue closes on March 4 and will be listed on the exchange on March 7, 2024. In this article, we will analyze Mukka Proteins Limited IPO Review 2024 and its strengths and weaknesses. Read on to find out!

Mukka Protein IPO Review

About Us

Mukka Protein is a manufacturer and supplier of fish protein products. We supply fishmeal, fish oil, and fish paste, which are essential ingredients used in the manufacture of fish feed, poultry feed, and pet food. We are a pioneer in the fish oil industry by commercializing insect powder and insect oil as raw materials for fish feed and pet food.

Fish oil manufactured by Mukka also finds application in the pharmaceutical, soap, leather tanning and paint industries. Their products are exported to more than 10 countries across Asia.

The company has six manufacturing facilities operated by the company, four of which are located in India. The remaining two facilities are located in Oman and operated by overseas subsidiaries. Apart from this, the company has three blending facilities and five storage facilities in India. All facilities are located adjacent to the coastline for efficient logistics.

These facilities have the capacity to manufacture 1.15 Lakh metric tonnes per annum (MTPA) of fishmeal, 16,950 MTPA of fish oil and 20,340 MTPA of fish paste. The company has entered into contractual agreements with third party manufacturing facilities located in Karnataka, Gujarat and Maharashtra for supply of fishmeal and fish oil.

The key raw material for the business is pelagic fish sourced from local fishermen. This is then converted into fishmeal and fish oil, which are produced by third-party manufacturers and further blended by the company as per customer requirements.

Industry introduction

India is one of the world’s largest producers of animal feed and the compound animal feed market in India is growing at a rapid pace and is expected to register a CAGR of 3.5-4.0% in value terms between FY22-26.

Fishmeal is an essential element in the compound feed industry, and demand for fishmeal is expected to be strong in the future. Within the animal feed market, aquaculture feed is expected to grow the fastest, at a CAGR (CAGR) of 9-10% over the same period, leading to high growth in protein-rich feeds such as fishmeal and fish oil.

CRISIL MI&A Research estimates that the Indian fishmeal and fish oil industry is unlikely to grow at a CAGR of 4%-5% from Rs 1800 Cr – 2400 Cr in FY18 to Rs 1300 – 1700 Cr in FY22. However, the size and value of the industry are expected to rise significantly in FY23.

It is expected to grow by 130-170% in annual value and 90-130% in volume. This rapid increase is mainly due to increased catches of sardines (the main raw material for fishmeal and fish oil) and increased export traction due to production shortages in the Peruvian region and rising exchange rates in global markets.

Going forward, CRISIL expects the overall industry size to grow at a CAGR of 3-7% in FY22, reaching an overall production of 130,000-170,000 tonnes by FY26. In terms of value, the industry is expected to grow by 5-9% between FY22 and 2026 to reach Rs. 1600-2000 Cr.

Mukka Proteins IPO Review – FinanceS

Mukka Protein reported operating revenue worth Rs. 1177 Cr in FY23, up 53% from Rs. 770 Cr in FY22. Revenues continued to grow at a CAGR of 39% since FY21.

The company derives most of its revenue from fishmeal sales. Exposure to fish oil decreased from 93% but still contributed 83% of revenue. Fish oil performed quite well with revenue increasing from Rs. 32.5 Cr in FY22 to Rs. 165 Cr in FY 2023.

Net profit increased by 738%. 63 Cr in FY22 to Rs. 527 Cr in FY23, increasing at a CAGR of 88% since FY21. The significant increase in net profit can be attributed to increased inventory, which reduced costs and increased net profit.

Cost of goods sold was the company’s largest expense, eating up 86% of its revenue. This resulted in the company’s EBITDA margin of 7.3% and net profit of just 4% of sales.

If you look at the company’s operating cash flow, you will see that it reports net cash outflow from operating activities. This is the result of an increase in inventory assets of more than 100 billion won. 65Cr. Inventories currently recorded on the balance sheet amount to 40% of the company’s total assets.

Mukka Protein – Key Players

Mukka Protein is the third largest company among its peers in terms of revenue. It lags behind Avanti Feeds and Godrej Agrovet. With an EBITDA margin of 7.3%, Mukka lags behind Avanti, Zeal & Waterbase.

In terms of PAT margin. Avanti was the best performer followed by Godrej Agrovet. The rest have very low margins of less than 1%. In terms of value, Mukka Protein is leading as it has a very low retention base compared to its existing competitors.

Mukka Protein above the price range of Rs. Baseline EPS for FY28 and FY23 is Rs. 2.09 values ​​it at a price-to-earnings ratio of 13.4x. In this assessment, the company appears to be reasonably priced compared to its competitors.

Company Strengths

1. Leading manufacturers and exporters of fish protein products: The company is a three-star export company recognized by the Ministry of Commerce. It is a leading manufacturer with 18% market share in Indian fishmeal exports.
2. Established customer base through strong relationships: The company has built strong relationships, with 19.61% of its revenue coming from customers with at least five years of relationships. The company continues to add new customers both domestically and in overseas markets.
3. Strategically located facilities: As the company is engaged in manufacturing fish oil, pelagic fish is the main source of raw materials for the company. Therefore, having a presence on the coastline saves on transportation costs and reduces export costs.
4. Barriers to entry: Because fishmeal and fish oil contribute directly or indirectly to human consumption, manufacturing facilities are subject to rigorous audits by various authorities. Additionally, the Fisheries Export Development Authority imposed a moratorium on new fishmeal and maintenance facilities, blocking new entry.
5. Experienced Promoters: The promoters of the company have around 50 years of experience in the industry. They are involved in manufacturing, procurement and marketing, and their involvement in various organizations and associations allows them to deepen and expand their relationships with other suppliers and customers.

company’s weaknesses

1. litigant: The Company is a party to legal proceedings regarding alleged violations of the Company’s environmental norms. The High Court ordered the Karnataka Pollution Control Board to inspect the manufacturing plant in Mukka and submit a report. The case has been adjourned without further hearing, but if the court rules against them, use of Mukka’s largest facility could be halted.
2. Profit Concentration Risk: The company derived nearly 37% of its revenue from its top two customers and 53% of its revenue from its top five customers in FY23. This shows how much revenue is attributable to a single customer.
3. High working capital requirements: The company is currently utilizing 83% of its working capital, including lines of credit. If the company needed additional capital, it would have to issue debt, which could further strain its earnings. Nevertheless, the company is issuing shares in this IPO and using the proceeds as working capital.
4. Very low margins: The company loses 86% of its revenue in the form of cost of goods sold, which prevents it from earning margins above single digits.

Mukka Proteins Limited IPO Review – GMP

Shares of Mukka Proteins Ltd were trading at a premium of 60.71% in the gray market on February 27, 2024. The stock in Gray Market was trading at Rs 45. This gives a premium of Rs 17 per share to the ceiling price of Rs 28.

Mukka Proteins IPO Review – Key IPO Information

promoter: Qalandan Mohammed Haris, Qalandan Mohammed Arif, Qalandan Mohammed Altaf

Book Operations Lead Manager: FedEx Securities Pvt Ltd.

Proposal registered by: cameo corporate securities company

purpose of the problem

1. Rs 120 Cr will be utilized to finance the working capital requirements of the company.
2. Rs 10 Cr will be used to invest in an associate company Ento Proteins Pvt Ltd for working capital requirements.
3. The remaining amount will be utilized for general corporate purposes.

conclusion

In conclusion, Mukka Protein is a well-established leading manufacturer and exporter of fish protein products. Sales and profits have grown at a healthy pace over the past few years.

The animal feed industry, Mukka’s primary market, is expected to witness strong growth in the coming years, driving the demand for fishmeal and oil. However, business margins are still under significant pressure and it is time for vertical integration.

At the upper end of the price range, Mukka appears to be a reasonable value compared to its industry peers. On the other hand, the company faces the risk of revenue concentration.

Overall, the Mukka Proteins IPO could deliver good listing gains given the strong gray market premium. However, from a long-term perspective, investors should watch the company’s performance before making large investments. IPOs appear to be best suited for investors willing to take on higher risks for higher returns in relatively small markets.

Written by Nasir Hussein

by utilizing stock screener, inventory heatmap, Backtesting Portfolioand stock comparison The tools on the Trade Brains portal give investors access to comprehensive tools to identify the best stocks, stock market newsBe aware and invest well.