Sequoia-backed Prataap Snacks IPO subscribed 2.2 times on second day

The initial public offering of snack food maker Prataap Snacks Ltd was subscribed 2.2 times on the second day of the offering on Monday, thanks mainly to institutional and individual investors.

The offering of 3.62 million shares, excluding the anchor allotment, has so far received bids for 7.87 million shares, stock-exchange data showed.

Institutional investors bid for nearly four times the 1.02 million shares on offer while the retail portion of 1.79 million shares was covered 2.1 times, the data showed.

The portion set aside for non-institutional investors, comprising corporate bodies and high net-worth individuals (HNIs), was covered 10%. The quota of shares reserved for eligible employees was covered 55%.

HNIs typically bid on the final day of a public offering to keep their IPO financing costs at a bare minimum. In IPO financing, HNIs borrow short-term capital from various avenues, barring banks, to fund their IPO applications.

The IPO of the maker of Yellow Diamond chips was covered 42% on the first day on Friday with support from institutional investors.

On the grey market, the premium on Prataap Snacks’ shares declined. The shares were trading Rs 225-230 apiece higher than the price band compared with nearly Rs 300 quoted last week, two market dealers told VCCircle.

The company is selling shares in a price band of Rs 930-938 apiece.

The grey market is a pseudo, over-the-counter market where IPO shares are traded before the official listing on a stock exchange. The decline on the grey market was due to the fall in Indian shares. The BSE’s 30-share benchmark Sensex fell nearly 1% on Monday, its fifth straight day of decline.

Prataap Snacks’ entry into the public market will expand the basket of listed snacks makers. One of the listed firms, DFM Foods, which operates under the brand Crax, counts PE firm WestBridge Capital as a key shareholder.

Prataap Snacks, which counts Sequoia Capital as its private equity backer, is seeking a valuation of Rs 2,200 crore ($343 million) through the IPO that closes on Tuesday.

The Indore-based company had raised Rs 143.40 crore from a bunch of anchor investors including investment firms Capital Group and Fidelity Investments as well as American investment bank Goldman Sachs on Thursday by selling nearly 1.53 million shares at Rs 938 apiece.

At the upper end of the price band, the company will issue 2.13 million fresh shares while existing shareholders will sell 3 million shares. The total IPO size is Rs 482 crore and will result in a 21.9% stake dilution on post-issue basis.

The company had first filed its IPO proposal with the Securities and Exchange Board of India (SEBI) in October last year. It filed a revised proposal on 21 June when Sequoia got reclassified as a promoter after it converted the compulsorily convertible preference shares into equity shares, thereby changing the overall shareholding structure. It received SEBI nod for the IPO on 11 August.

Edelweiss, JM Financial and Spark Capital are merchant bankers managing Prataap Snacks’ IPO.

Prataap Snacks plans to use the money for retiring debt (Rs 50 crore), setting up new production lines and modernising existing factories at Indore and Guwahati and a contract manufacturing facility at Bengaluru (Rs 72 crore), investing in subsidiary Pure N Sure, repaying debt (Rs 24 crore) and brand building activities (Rs 40 crore).

The company began operations in 2003. It is led by brothers Amit and Apurva Kumat, and Arvind Mehta. It makes and sells potato-based snacks, extruded snacks and namkeen. Five years ago, it acquired the snack foods business of group company Prakash Snacks Pvt. Ltd and brought in the Yellow Diamond brand and the snack foods business under one umbrella.

Sequoia had invested about Rs 265 crore in the company in multiple tranches, with its first investment dating back six years. Half of this quantum was infused into the company while the remaining amount was used to acquire shares from promoters and employees.

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