Bikaji is one of the largest FMCG brands and the third-largest ethnic snacks company in India. The company’s product range includes six major categories viz. Bhujia, Namkeen, Packaged sweets, Papad, Western Snacks and others which include gift packs, frozen food, mathri range, and cookies. The company was the largest manufacturer of bhujia in the country with an annual production of 29,830 tonnes and also the second largest manufacturer of handmade papad in Fiscal 2022. The company has market leadership in the states of Rajasthan, Assam and Bihar with 45%, 58% and 29% market shares respectively. The company has gradually expanded in 23 other states and 3 union territories. The company also has established an international footprint in 21 countries in North America, Europe, the Middle East, Africa, and Asia-Pacific, representing 3.20% of its sales for the period ending 30th June 2022. It has a pan-India distribution network with 6 depots, 38 super stockists, and 416 direct and 1,956 indirect distributors. The company currently operates 7 manufacturing facilities with four located in Rajasthan, one in Assam, one in Karnataka under its subsidiary Petunt Food Processors Private Ltd and one facility in Bihar held through its other subsidiary Vindhyawasini Sales Private Ltd. It has also recently launched “Bikaji Cafe” and “Bikaji Funkeen” to promote the western segment of the brand.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
- To achieve the benefits of listing the equity shares on the Stock Exchanges.
- Carry out the Offer for Sale of up to 2,93,73,984 equity shares by the selling shareholders
Investment Rationale:
Robust CAPEX with Significant Brand-Building and Advertising Spend
The company has recently incurred heavy capital expenditure with two of the seven manufacturing facilities in Assam and Bihar commissioned in January 2022 and March 2022 respectively. This will help the company to efficiently promote its products in its core markets of Assam and Bihar and will reduce logistics and sales costs. The company has consistently allocated significant resources to Brand-building and advertising. It has roped in a well-known celebrity as its brand ambassador allowing customers to associate with the brand. The company is also intending to roll out special programmes and outdoor promotional campaigns with its “category top-end stores” to increase brand visibility and premiumization.
Improved Growth in Focus Markets
The company is determined to expand its reach in the focus markets viz. Uttar Pradesh, Punjab, Haryana and Delhi in North India and Karnataka and Telangana in South India. It has committed investments to establish a strong distribution base in these markets by adding more super stockists and distributors. The company is also leveraging technology to improve its production and distribution process. The company is in the process of digitalizing its super stockists and distributor network with the use of comprehensive distribution management systems and sales force automation.
Valuation and Outlook:
The traditional snacks market in India is valued at INR 366 billion which is 46% of the total savoury snacks market and has grown significantly in recent years providing Bikaji with an excellent opportunity to grow. The company’s market leadership in core states and growing presence in other demographies combined with heavy CAPEX and brand-building spending help the company to further expand its domestic as well as international footprint. The company is developing a strategy to target states by modifying tastes to the specific needs of the focus state. Also, it has been sanctioned a PLI from the government of approx INR 216 crores which it will receive over the next six years starting FY23. However, an inability to maintain customer loyalty and change in taste preference remains a key risk. On the upper end of the price band, the issue is valued at a P/E of 95.2x based on FY22 earnings which is on the steeper side. However, looking at the brand recognition of the company in the organised snack segment and its long-term prospects we recommend a SUBSCRIBE rating for the benefit of listing gains.
