Company Overview
Established in 1999 and having an experience of over two decades in the Indian snack industry, Gopal Snacks Ltd. is an FMCG company in India offering ethnic snacks, western snacks, and other products. The company offers a variety of savoury products such as namkeen and gathiya, western snacks such as wafers along with fast-moving consumer goods that include papad, spices, gram flour or besan, noodles, rusk, and soan papdi under the brand name ‘Gopal’. Leveraging its experience and by understanding the preferences of its customers and target markets, the company has developed a variety of products over the years which has enabled the company to strengthen its foothold in the Indian snacks industry. Having a product portfolio of over 84 products and 276 SKUs under various product categories, the company addresses a wide variety of tastes and preferences. To increase its foothold and expand footprint across India, the company has implemented a distribution management system that helps it to coordinate with its distributors and provides visibility on the inventory levels and distributor sales, enabling the company to optimize its distribution network. The company’s products are being sold in over 523 locations in 10 States and two Union Territories and its distribution network comprises of three depots and 617 distributors. The company has three primary manufacturing facilities and three ancillary manufacturing facilities in India. The primary facility focuses on manufacturing finished products and the ancillary facility focuses on producing besan or gram flour, raw snack pellets, seasoning, and spices which are primarily used for captive consumption in the manufacturing of finished products. The aggregate annual installed capacity of the primary facilities stands at 303,668 MT and 101,060 MT in the case of ancillary facilities. In addition to this, the company engages third-party manufacturers on a need basis to produce its products such as chikki, nachos, noodles, rusk, soan papdi, and washing bars. Over the years, the company has put efforts towards building its brand through marketing and brand-building initiatives, resulting in a positive brand recall among its target audience which has helped the company establish a loyal customer base.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Carry out the Offer for Sale of up to 16,209,476 Equity Shares aggregating up to Rs. 6,500 million by the Selling Shareholders; and
- Achieve the benefits of listing the equity shares on the stock exchanges.
Investment Rationale:
Strong distribution network a key enabler for market share gains in future
The company has three depots and 617 distributors, which help the company reach retailers located across 10 States and two Union Territories in India, including Gujarat, Maharashtra, and Uttar Pradesh. The company has developed longstanding relationship with a number of its distributors. The company’s distributors have established sales channels with conventional grocery retailers, supermarkets and hypermarkets which helps the company’s products reach the end consumers located in urban, semi-urban and rural regions efficiently. A majority of products are sold through the general trade channel which includes conventional grocery retailers, supermarkets, and hypermarkets. In addition to this, the company’s products are sold through a retail store chain in Gujarat and e-commerce platforms. The company’s products have also started to gain recognition in international markets. In the last three Fiscals and in the six months ended September 30, 2023, the company sold its products to 37 countries including Australia, Kuwait, Saudi Arabia, UAE, and the USA through direct exports
Diversified product portfolio encompasses taste of a wide range of consumers
The company offers a diversified portfolio of savory snacks, including ethnic savories such as namkeen and gathiya and western snacks such as wafers, extruded snacks and snack pellets, that cater to varied consumer tastes and preferences. The company also offers fast-moving consumer products that include papad, spices, besan or gram flour, chikki, nachos, noodles, rusk, soan papdi, and washing bar. During the past few years, , the organized segment has been consolidating its position in the market for savory snacks through the introduction of new products and product innovations that primarily target urban as well as rural consumers. The company is committed to providing consumers with value products that meet their expectations through quality ingredients and advanced manufacturing techniques. As the company forayed into manufacturing spices and besan or gram flour, which are key ingredients for namkeen and gathiya products, this allowed the company to not only control the quality and consistency of its ingredients but also helped expand its product portfolio by introducing spices and besan or gram flour as standalone products. The expansion into these product categories demonstrates the company’s commitment to advancing its offerings and the dedication to keeping up with industry trends to meet the evolving needs of consumers.
Valuation and Outlook:
Currently, the retail market in India contributes around 10% to the GDP in India which is estimated at Rs. 67.9 trillion in 2023 and is expected to grow at a CAGR of 8.7% to touch approximately Rs. 94.9 trillion by 2027. Among the various retail segments, food and grocery accounts for the maximum share in the retail industry with 63% share and is expected to maintain such dominance. Various factors such as an increase in disposable income, rising middle-class population, growing preference for packaged foods, emergence of consumerism, and rising sales via e-commerce platforms have led to a rise in retail consumption. Increasing disposable income, the rising population of urban middle-class consumers, and the rising population of working women across the country have led to the surging demand for high-value, pre-packed ‘on-the-go’ and ‘ready-to-eat’ products in India. The per capita spending on packaged food stood at Rs. 3,657 in 2023 and is expected to witness an 11% CAGR growth over the FY2023-27 period. Effectively benefiting from such macro and industry factors, Gopal Snacks Ltd. offers a large variety of savory snacks according to the preferences and tastes of its target customer market. Recording a revenue of Rs 13,946 million in FY23, the company has grown its revenue by 11.5% over the FY2021-23 period. Also the constant reduction of debt over the years have led to better PAT margins and improved return on capital employed during FY2021-23. Having committed to providing consumers with value products that meet their expectations through quality ingredients and advanced manufacturing techniques, Gopal Snacks possesses the perfect mix of macroeconomic opportunities and a well-established brand image that will cater to a robust growth story for the company. On the financial performance front, the company’s Revenue/EBITDA/PAT grew at a CAGR of 11.2%/80.3%/130.6% during the FY2021-23 period. On the upper price band, the issue is valued at a P/E of 44.5x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.
