Gopal Snacks

Savoury snack maker

Generated 76.49% of its revenue from Gujarat in H1 FY2024

Founded in 1999, Gopal Snacks is an FMCG company dealing in ethnic snacks, western snacks, and other products. The company offers a wide variety of savory products under its brand ‘Gopal’, including ethnic snacks such as namkeen and gathiya; western snacks such as wafers, extruded snacks and snack pellets; and fast-moving consumer goods including papad, spices, gram flour or besan, noodles, rusk and soan papdi. In H1 FY2024, ethnic snacks contributed 56.08% to total revenue, western snacks 31.12%, and others 12.80%.

As of September 30, 2023, the product portfolio comprised 84 products, with 276 SKUs across various product categories, thereby addressing a wide variety of tastes and preferences. The products are sold in over 523 locations in India across 10 states and two Union Territories.

In FY2023, the company had approximately 20% market share in the ethnic savouries, approximately 8% in western snacks, and approximately 6% in the papad industry in Gujarat, including the organized and unorganized sectors. The company intends to continue to gain market share and strengthen its position in the core market of Gujarat.

The company intends to accelerate expansion in its focus markets, comprising Maharashtra, Rajasthan, Madhya Pradesh, and Uttar Pradesh. it has selected its focus markets based on geographical proximity to existing manufacturing facilities and the potential for expanding its product portfolio in those regions.

The company has a wide distribution network comprising three depots and 617 distributors, complemented by a sales and marketing team comprising 741 employees as of September 30, 2023. In addition, it owns a fleet of 263 logistics vehicles to support its distribution network.

The company relies on channels such as ecommerce, modern trade, and exports to sale its products.

The company operates six manufacturing facilities, comprising three primary manufacturing facilities and three ancillary manufacturing facilities. Its three primary manufacturing facilities are located at Nagpur, Maharashtra; Rajkot, Gujarat; and Modasa, Gujarat. These facilities primarily focus on the manufacturing of finished products. Its three ancillary manufacturing facilities focus on producing besan or gram flour, raw snack pellets, seasoning and spices, mainly used for captive consumption in the manufacturing of finished products such as gathiya, namkeen, and snack pellets.

As of September 30, 2023, the aggregate annual installed capacity of its six manufacturing facilities was 404,728.76 tonnes. Of this, the aggregate annual installed capacity of the three primary manufacturing facilities was 303,668.76 t and the aggregate annual installed capacity of three ancillary manufacturing facilities (excluding the annual installed capacity for papad) was 101,060.00 t.

In H1 FY2024, the capacity utilization of primary manufacturing facilities was 28.64% and the utilization of ancillary manufacturing facilities was 51.10%.

The company plans to add new products to its portfolio, expand the wallet share, and grow the consumer base.

Offer and its objects

The IPO is entirely an offer for sale, aggregating up to Rs 650 crore, by Bipinbhai Vithalbhai Hadvani, Gopal Agriproducts, and Harsh Sureshkumar Shah.

The price band for the IPO is Rs 381 to Rs 401 per equity share of face value Re 1 each.

The company will not directly receive any proceeds from the offer. All the offer proceeds will be received by the selling shareholders in proportion to the offered shares sold by them.

Promoters of the company are Bipinbhai Vithalbhai Hadvani, Dakshaben Bipinbhai Hadvani, and Gopal Agriproducts. The promoters and promoter group hold an aggregate of 11,65,05,126 equity shares, aggregating 93.50% of the pre-offer issued and paid-up equity share capital. The post-IPO shareholding for the same is expected to be around 81.49%.

The issue, through the book-building process, will open on 6 March 2024 and close on 11 March 2024.

Strengths

The company recorded an increase in its revenue from Rs 1128.86 crore in FY2021 to Rs 1394.65 crore in FY 2023 at a CAGR of 11.15%. Additionally, due to its strategic location of manufacturing facilities, the company had the lowest transportation cost as a percentage of revenue in FY2023 in the snacks sector.

The company has a diversified product portfolio capable of capturing the growing Indian snacks market. As of September 30, 2023, the product portfolio comprised 84 products, with 276 SKUs across product categories, including 31 and eight products in the namkeen and gathiya categories, respectively.

Over the years, the company developed an understanding of the preferences and tastes of consumers, enabling to strengthen foothold in the Indian snacks industry.

The company has developed relationships with many distributors. As of September 30, 2023, 69 distributors in Gujarat were associated with the company for more than 10 years, representing 24.73% of total distributors in Gujarat.

The growing popularity of gathiya as a snack presents opportunities to expand in the gathiya segment. In FYs 2021, 2022, 2023 and the six months ended September 30, 2022 and 2023, sales of gathiya accounted for 32.10%, 33.01%, 30.39%, 31.80% and 27.64% of revenue, respectively.

The company’s manufacturing operations are vertically integrated, including in-house manufacturing capabilities of certain key ingredients such as besan or gram flour, raw snack pellets, spices, and seasoning. This allows the company to control the production process enabling it to manage costs, achieve increased operational efficiency, and exercise control over the quality of its ingredients.

The company is led by a qualified and experienced management team. It promoter, Bipinbhai Vithalbhai Hadvani, is also the Chairman and Managing Director. He has over 29 years of experience in the snacks industry.

Weaknesses

The company generates most of its revenue from Gujarat. In FY 2021, 2022 and 2023 and the six months ended September 30, 2022, and 2023, its revenue from sale of products in Gujarat accounted for 74.31%, 76.27%, 79.08%, 79.06% and 76.49% of total revenue, respectively. Any adverse development affecting operations in Gujarat could have an adverse impact on the business.

The company has received eight notices under the relevant provisions of the Food Safety and Standards Act, 2006, (i) declaring its products to be allegedly substandard; (ii) alleging misbranding or deficient packaging; and (iii) issuing misleading advertisements. An adverse outcome in any of these matters or inability to comply with food safety may adversely impact the business.

The company’s manufacturing facilities are under-utilized. The capacity utilization of primary manufacturing facilities declined in FY 2023 as compared to FYs 2022 and 2021. In H1 FY2024, the capacity utilization of primary manufacturing facilities was 28.64%. Under-utilization of manufacturing facilities may have an adverse impact on the business.

The company is dependent on the sale of small pack SKUs for its revenue. Revenue from the sale of SKUs available at Rs 5 accounted for 82.68%, 80.74%, 75.48%, 77.31% and 70.41% of the revenue in FY 2021, 2022 and 2023 and the six months ended September 30, 2022, and 2023, respectively. If the cost of commodities rises and the company is unable to pass on the increased costs, which is difficult to pass in small pack categories, its business may be adversely affected.

As of September 30, 2023, the company had contingent liabilities worth Rs 45.43 crore, representing about 82% of its PAT in H1 FY2024. If these liabilities materialize, they could have an adverse effect on the business.

The company, its promoters and directors are involved in certain legal and regulatory proceedings (including criminal proceedings). Any adverse decision in such proceedings may have an adverse effect on the business.

The company’s products are semi-perishable in nature. The average shelf life of its products ranges from three to six months. Any inaccuracies in predicting demand could result in excess inventory and wastage.

In the past, corporate promoter Gopal Agriproducts had pledged its entire shareholding representing 95.00% of the share capital to avail a term loan aggregating to Rs 540 crore. The shares were released from the pledge prior to the filing of RHP.

Valuation

In H1 FY2024, consolidated sales decreased 3.30% to Rs 676.20 crore as compared to H1 FY2023. The OPM increased by 56 bps to 13.94%, leading to a 0.76% increase in OP to Rs 94.27 crore. Other income increased 38.80% to Rs 1.78 crore, while interest cost fell 34.17% to Rs 4.07 crore and depreciation decreased 3.92% to Rs 17 crore. PBT increased 5.66% to Rs 74.98 crore. Tax expense was of Rs 19.41 crore as compared to tax expense of Rs 19.01 crore. Net profit rose 6.94% to Rs 55.57 crore.

In FY2023, consolidated sales were up by 3.14% to Rs 1394.65 crore as compared to FY2022. The OPM increased by 706 bps to 14.07%, leading to 106.98% increase in Op to Rs 196.22 crore. OI decreased 9.94% to Rs 3.89 crore, while interest cost fell 22.12% to Rs 10.84 crore. Depreciation increased 20.20% to Rs 37.42 crore. PBT went up 180.88% to Rs 151.85 crore. Tax expense was Rs 39.48 crore as compared to tax expense of Rs 12.52 crore in FY2022. Net profit rose 170.49% to Rs 112.37 crore.

The TTM EPS on post-issue equity works out to Rs 9.31. At the upper price band of Rs 401, the P/E works out to 43.

As of 4 March 2024, listed peers such as Bikaji Foods International traded at TTM P/E of 69 and Prataap Snacks at 40.

For FY2023, Gopal Snacks’ OPM and ROE stood at 14.07% and 38.63%, respectively, as compared to 10.84% and 13.36% for Bikaji Foods International and 3.78% and 3.13% for Prataap Snacks, respectively.