FMCG, Trending in the Economy

Prataap Snacks Ltd – Beneficiarly of growing Snacks demand?

Prataap Snacks is a market leader in Rings, Top 2 in Extruded Snacks, and Top 5 in Western Savoury Snacks.

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(A) About

Prataap Snacks_PA Wealth_logo

PrataapSnacks Limited (PSL) is an Indian snack food company engaged in manufacturing and marketing of multiple product variants like potato chips, extruded snacks and namkeen (traditional Indian snacks) under the Yellow Diamond brand and also has sweet snacks under the Rich Feast brand.

Company is a market leader in Rings, Top 2 in Extruded Snacks, and also Top 5 in Western Savoury Snacks. Moreover, it has presence in 27 states and 4 union territories. The company further sells about 12 million packets daily, translating to more than 8000 packets sold every min.

(B) Snack Food Market

  • Indian snack food market include nankeen, potato chips, extruded snacks, popcorn, nut mixes, granola bars, biscuits, cake and dried fruits, among others.
  • Moreover, Indian Savoury snacks organised market size stood at Rs 41957 Cr in 2022 as against Rs 34874 Cr an annual groth of 20.3%.
Prataap Snacks_PA Wealth_Snack food market

(C) Journey

(D) Board of Directors

Prataap Snacks_PA Wealth_Board of Directors

(E) Shareholding Pattern

Prataap Snacks_PA Wealth_Shareholding Pattern
Prataap Snacks_PA Wealth_Shareholding

(F) Product Segment

Prataap Snacks_PA Wealth_Product Portfolio

(G) Revenue Segment

Prataap Snacks_PA Wealth_Product Wise Revenue

(H) Cost Structure

Prataap Snacks_PA Wealth_Cost Structure

(I) Financials

Prataap Snacks_PA Wealth_Financial Trend

Company has grown its revenue at 14% in past 10 years, while PAT grew from Rs 5 Cr in FY14 to Rs 20 Cr in FY23. Moreover in H1FY24 ROCE stood at 12.2% compared to 1.1% in FY23. Improvement in ROCE is expected due to:

  • Measures undertaken to increase revenue.
  • Further improvement in EBITDA margin due to operating leverage.
  • Moderate incremental capex requirement.
Prataap Snacks_PA Wealth_Du Pont Analysis

(J) Management Discussion & Concall Highlights

  • Indian snacks food industry has been growing steadily due to changing demographic and lifestyles, higher disposable incomes and consumer demand, greater workforce availability and envolving consumption pattern.
  • Company's EBITDA Margin improve from 4.8% in Q2FY23 to 8.8% in Q2FY24. This is due to improved margins primarily through the structural improvement in the margins primarily through the structural improvement in the business model due to the compressed distribution structure achieved on the back of efforts over the last 3 years.
  • Company belief that their H2 should be better than H1 with sustained operating margins.
  • Moreover, company is targeting to take its Namkeen share to somewhere between 20% to 23% in the coming years.
  • Further, its J&K plant will be commercially operated by Jan,24, while its Rajkot facility will be operational by the end of this financial year. After the commercialization of these plants the revenue potential for the company will be about Rs 2600 Cr to 2700 Cr.
  • Additionally, 70% of the company's revenue comes from West & North region.
  • Company has hired Jethalal for Avadh promotions in Gujrat. Meanwhile, for Dimond brand promotions, company will hire a brand ambassador once they reach 9.5 to 10% margins in the coming quarters.
  • The company is targeting a revenue growth of ~15%, with having an EBITDA margin of >10% and also maintaining a ROCE of 15-20%.

Initiatives

  • Company has also expanded its product offerings and remains committed to introducing innovative nnew products for consumers of all demodraphics. Moreover,the company wishes to increase the 3P model in the Future, as it is profitable in terms of rapid expansion without significant capex.
Prataap Snacks_PA Wealth_Distribution model
  • Decentralized manufacturing footprint allows the company to supply directly to distributore. Due to reduced distribution cost its EBITDA margin improved by ~3%.
  • Moreover, company is seeking efficiencies to unlock cashflows and improve returns.

(K) Strengths & Weakness

Strengths

(i) Extensive experience of promoters in FMCG industry

The promoters of Prataap Snacks have more than two decades ofexperience in the snack food industry and manage the day-to-day operations in the business.The company commenced operations in trading snack foods from 2003 and, subsequently, began its manufacturing operations from 2007.

(ii) Strong distribution network and strategically located manufacturing facilities

Prataap Snacks has a strong supply chain and integrated network of more than 5000 distributorand sub-distributorsensuring effective market penetration.The company has a strong presence in the market where it operates.

(iii) Well-diversified product portfolio

Prataap Snacks also has a well-diversified product portfolio with over 125stock keeping units (SKU)across four segments,including a wide range of savoury and sweet food items, flavours and SKUs addressing a large consumer base.

Weaknesses

(i) Volatility in margins associated with seasonality of agro-based raw materials

Prataap Snacks major raw materials are all agricultural productsand include edible oil (refined palm oil), potatoes, rice, corn and gram. Dependency on monsoons and weather conditions also exposes the company’s margins to fluctuations in raw material prices.

(ii) Competition from organised and unorganised players

Prataap Snacks operates in the food industry, wherein it also faces competition from large multinationals and local/regional players and in turn, is exposed to pricing pressure.Having a moderate brand presence and operating in the small-sized pack segment, which consumers typically buy on an impulse, it is challenging for the company to pass on the increase in raw material pricesamid the intense competition.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets and Management Interviews, Industry Publications.

Disclaimer: The report only represents the personal opinions and views of the author. No part of the report should be considered a recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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