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Yellow Diamond chips maker files for IPO; Faering takes a bite, Sequoia to part-exit

01 October, 2016

Prataap Snacks Ltd, the maker of Yellow Diamond Chips, has filed its draft red herring prospectus (DRHP) with capital market regulator SEBI for its initial public offering (IPO).

The Indore-based company plans to raise Rs 250 crore through a fresh issue of shares besides an offer for sale by its private equity investor Sequoia Capital.

This adds up to around a dozen odd firms that are waiting in the queue for SEBI’s approval to go public. This week, around half dozen firms filed their DRHPs. Additionally, around 16 firms are sitting with a green signal to float their IPO.

Prataap Snacks has also disclosed that it roped in a second private equity investor as a shareholder. Mid-market private equity firm Faering Capital picked 2.93% stake in the company in June through stake purchase from promoters. It paid around Rs 45 crore for the stake, valuing the company at Rs 1,536 crore.

Faering Capital’s investment in Prataap Snacks was first reported by VCCircle on 15 July.

The company’s entry into the public market would expand the basket of listed snacks makers. One listed firm, DFM Foods, which operates under the brand Crax, counts another PE firm WestBridge Capital, as a key shareholder.

Balaji Wafers is also planning to go public. It was earlier in advanced discussions with PE firms such as Capital International, Blackstone and Actis to raise capital, but the terms of the proposed deal turned off the promoters.

Here’s a snapshot of the IPO

Issue: Fresh issue of shares to raise Rs 250 crore and an offer for sale of 2.2 million by Sequoia Capital and 0.75 million shares by the promoters.

Bankers: Edelweiss, JM Financial and Spark Capital are managing the issue.

Use of proceeds

The firm plans to use the money for retiring debt (Rs 50 crore); capex for setting up new production lines and modernising existing manufacturing facilities at Indore and Guwahati and a contract manufacturing facility at Bengaluru (Rs 72 crore); investment in subsidiary Pure N Sure, repayment of debt (Rs 24 crore) and brand building activities (Rs 40 crore).

Company

Prataap Snacks was launched in 2003 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 its group company, Prakash Snacks Pvt. Ltd and brought in the Yellow Diamond brand and the snack foods business under one umbrella.

According to a report by research agency Frost & Sullivan, Prataap was one of the top six Indian snack food companies in terms of revenues in 2015, and among the fastest growing companies in the Indian organised snack market between 2010 and 2015. The report pegged the size of the snacks market in India at approximately Rs 50,000 crore, growing at a CAGR of 16% between 2011 and 2015. A large part of the market is under unorganised players but there is a gradual shift in the market towards branded players.

Prataap is present in three major categories in India and all products are sold under the Yellow Diamond brand.

Financials

The company’s sales have grown four times in the last four years to Rs 757.2 crore for the year ended 31 March, 2016. In FY2015-16, extruded snacks brought bulk of the revenues (65.85%) with potato chips (22.33%) and namkeen (10.31%) making up for the balance.

However, net profit is up a modest 65% in the same five-year period. Prataap took a major hit on the bottomline in FY2013-14 and though it started growing profit again the following year, it managed to surpass the previous best only last year with Rs 20.8 crore PAT.

DFM Foods, which was just half its size, churned out a higher (Rs 25 crore) net profit last year. DFM is currently valued 77 times its FY2015-16 net profit and 40 times EBITDA. By this benchmark, Prataap should be valued between Rs 1,600 crore and Rs 2,300 crore.

Investors

Sequoia has invested Rs 264 crore in multiple tranches in the company, of which Rs 135 crore was used to purchase shares from the promoters and the rest was invested in the firm. It owns around 65% effective stake in the firm though it’s voting rights in the company is restricted to 49%. Faering Capital has not offered to sell any stake.

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Yellow Diamond chips maker files for IPO; Faering takes a bite, Sequoia to part-exit

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