Gopal Snacks Ltd IPO

Published by Sharekhan Education | March 6, 2024

Introduction

Gopal Snacks Ltd IPO has an issue size Rs. 650 Cr and Price Band Rs.381-401. The issue opens on Wednesday, 6th March 2024 and closes on Monday, 11th March 2024.

Gopal Snacks Ltd. Company Overview:

Gopal Snacks Ltd. actively produces a diverse range of ready-to-eat packaged snacks, encompassing products such as ethnic namkeen, gathiya, wafers, noodles, spices, and flour. Categorized into besan-based, mixture, and pulses-based products, the company stands as the largest gathiya manufacturer and the second-largest ethnic packer in Gujarat.

As of 1HFY24, the company boasts an extensive distribution network, comprising three depots and 617 distributors. Their products reach consumers through an impressive 7,00,000 retail touchpoints across India. In terms of production, the company operates three primary manufacturing facilities and three ancillary manufacturing facilities, all strategically located in western India.

Objectives of Gopal snacks ltd IPO Issue:

The entire IPO constitutes an offer for sale, with no proceeds accruing to the company. Despite this, the company anticipates that the listing of its equity shares will bolster visibility and enhance its brand image. Furthermore, liquidity is poised to be furnished to existing shareholders, and a public market for its equity shares within India is set to be established through the listing.

For interested investors in Gopal snacks ltd IPO, the minimum application is set at 37 shares, with subsequent multiples permitted. Subsequently, following the allotment process, the shares will be officially listed on both BSE and NSE, providing investors access to multiple trading platforms.

Industry Overview:

Frost and Sullivan projects that the Indian savory snacks market likely to achieve an 11% Compound Annual Growth Rate (CAGR) during FY23-27E. It comprises two major segments: Western snacks and ethnic savories, or traditional snacks. Unorganized players largely dominate the traditional snacks segment, reflecting regional snacking habits through diverse product segments. With the expansion of offerings into new markets, this segment has experienced a resurgence in demand.

Post-GST implementation, the organized savory snacks market rapidly expanded, now claiming around 43% of the total market share.

Competitive Strength:

With 84 products encompassing 276 SKUs across diverse categories, the company actively caters to a broad spectrum of tastes and preferences. The company’s backward integration strategy plays a pivotal role in cost reduction and elevating product quality. Leveraging capabilities in cold storage, infrastructure, and logistics, they efficiently access an extensive consumer market, delivering quality and fresh products.

The implementation of automation and strategic machinery placement is a key driver of production efficiency. Furthermore, the integration of distribution management systems (DMS) has significantly enhanced the overall efficiency of the supply chain. Notably, the company expanded Gathiya’s appeal beyond Gujarat, showcasing its resonance with consumers on a broader scale.

Business Strategy:

The company has a strategic objective to enhance its market share in Gujarat, its core market. Simultaneously, it seeks to extend its footprint in recently entered markets such as Jharkhand, Chhattisgarh, Odisha, Telangana, and Karnataka. To fortify its presence in key markets like Maharashtra, Rajasthan, Madhya Pradesh, and Uttar Pradesh, the company plans to augment its distribution touchpoints.

The company’s dedication to launching region-specific products, meeting diverse consumer preferences, reflects its focus on innovation. This active approach is expected to drive the company’s future growth.

Key Concerns:

With approximately 79% of revenue concentrated in Gujarat for FY23, the company is notably dependent on its core market. Any adverse developments in this market would directly impact the company’s fundamentals. However, the departure of one of the promoters, who previously spearheaded sales and front-end operations, arose due to an estranged relationship between the promoters. The company’s challenges in reviving the sales team now pose a potential obstacle to future growth.

Adding to the complexities, the promoters have currently pledged around 51% of their holdings with the bank. This introduces an additional layer of financial consideration and a potential impact on the company’s strategic decisions.

Financials:

Demonstrating robust financial performance, the company achieved a remarkable 11.1% Compound Annual Growth Rate (CAGR) in revenue over the period FY21-23. During the same timeframe, EBITDA experienced a substantial growth of 80.2% CAGR. Concurrently, Profit After Tax (PAT) witnessed an impressive increase of 130.8% CAGR. Notably, the EBITDA margin expanded significantly, rising from 5.3% to 14.1%. Furthermore, Return on Equity (RoE) surged from 15.6% to 38.6%.

However, at the upper end of the price band (₹381-401), the issue appears to be richly valued, with a multiple of 44.9x annualized FY24 earnings. This valuation consideration prompts a closer examination of the potential risk and reward associated with the investment.

Source: IPO Red Herring Prospectus

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