Bikaji Foods International coming with an IPO to raise upto Rs 873.72 crore

Bikaji Foods International

• Bikaji Foods International is coming out with a 100% book building; initial public offering (IPO) of 2,91,23,984 Equity Shares of face value of Rs 1 each in a price band Rs 285-300 per equity share.
  
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
  
• The issue will open for subscription on November 03, 2022 and will close on November 7, 2022.
  
• The shares will be listed on BSE as well as NSE.
  
• The face value of the share is Rs 1 and is priced 285 times of its face value on the lower side and 300 times on the higher side.
  
• Book running lead managers to the issue are JM Financial, Axis Capital, IIFL Securities, Intensive Fiscal Services and Kotak Mahindra Capital Company.
  
• Compliance Officer for the issue is Divya Navani.
  

Profile of the company

The company is the third largest ethnic snacks company in India with an international footprint, selling Indian snacks and sweets, and are the second fastest growing company in the Indian organised snacks market. In Fiscal 2022, it was largest manufacturer of Bikaneri bhujia with annual production of 29,380 tonnes, and it was the second largest manufacturer of handmade papad with an annual production capacity of 9,000 tonnes in Fiscal 2022. It is also the third largest player in the organised sweets market with annual capacity of 24,000 tonnes for packaged rasgulla, 23,040 tonnes for soan papdi and 12,000 tonnes for gulab jamun. It has given a novel twist to classic Indian snacks with a contemporary taste along with maintaining the regional flavours to address the evolving consumer preferences in India and internationally.

The company’s history and lineage traces back to Gangabishan Agarwal, founder of Haldiram brand. His grandson, Shiv Ratan Agarwal, its founder and one of its Promoters, continued his legacy and developed extensive experience in the Indian ethnic snacks industry. Shiv Ratan Agarwal launched the Bikaji brand in the year 1993 with an indepth understanding of Indian tastes and preferences. It has over the years established market leadership in the ethnic snacks market in its core states of Rajasthan, Assam and Bihar with extensive reach, and has gradually expanded its footprint across India, with operations across 23 states and four union territories as of June 30, 2022. In the three months ended June 30, 2022, it has exported its products to 21 international countries, including countries in North America, Europe, Middle East, Africa, and Asia Pacific, representing 3.20% of its sales of food products in such period.

The company has seven operational manufacturing facilities that are operated by it, with four facilities located in Bikaner (Rajasthan), one in Guwahati (Assam), one facility in Tumakuru (Tumkur) (Karnataka) held through of one its subsidiary Petunt Food Processors to cater to the southern markets in India and one facility in Muzaffarpur (Bihar) held through the other subsidiary Vindhyawasini Sales Private Limited to cater to its core market of Bihar, respectively. In addition, it has entered into a contract manufacturing agreement on a nonexclusive basis with a contract manufacturing unit in Kolkata (West Bengal), that helps it primarily cater to certain parts of eastern India, and two contract manufacturing agreements on an exclusive basis with one of its Group Company, Hanuman Agrofood for a contract manufacturing facility located at Bikaner and with another third-party contract manufacturer for a contract manufacturing facility located at Kanpur, Uttar Pradesh. It also have one small facility in Mumbai to manage its Mumbai restaurant sales.

Proceed is being used for:

• Achieving the benefits of listing the Equity Shares on the Stock Exchanges.
  
• Carry out the Offer for Sale of up to 293,73,984 Equity Shares by the Selling Shareholders.
  

Industry overview

India’s packaged food business is currently valued at Rs 4,240 billion. It has grown significantly in last five years on account of changing lifestyles, rising incomes and urbanization. In Fiscal 2015, the packaged food retail revenue was worth Rs 2,434 billion and has registered a CAGR of approximately 8.3% from Fiscal 2015 to Fiscal 2022. It is estimated to grow at CAGR of 8% in next five years to reach at Rs 5,798 billion. In 2022, the packaged food industry was valued at approximately Rs 4.24 trillion. Dairy products contribute to 38.8% i.e., Rs 1.64 trillion followed by snacks and sweets and biscuits segments at 32.3% and 14.5% respectively. Increasing product and packaging innovation, emphasis on healthy foods and increasing demand for convenience foods will continue to drive the demand for packaged foods at over 31% over the next few years, as well.

Indian Savoury Snacks market is valued at Rs 751 billion in 2022 and is expected to reach Rs 1,227 billion by 2026 at CAGR 13%. Indian savoury snacks market can be broadly segmented into western snacks and traditional snacks. Traditional snacks market which is valued at Rs 366 billion, contributes around 48% to the total savoury snacks market. Traditional snacks market comprises of namkeens, bhujia and ethnic snacks such as dry samosa, kachori, chakli, etc. Western snacks market is valued at Rs 385 billion in 2022 and consists of chips, extruders and a new variety of snacks called as “bridges” which has local taste but western look. Snacking in between the meals has always been traditional in Indian culture and COVID-19 forced lockdown has increased this habit of snacking multi-fold and is the driving the growth of this industry. Further in 2022, footfall and activity levels across all touchpoints (retails, institutional, etc) have returned to pre-COVID levels. This trend seems to continue in Indian market. The Indian savoury snacks market is estimated to reach Rs 1,227 billion (as per above) by 2026 with the organized players capturing major market share due to increased concerns of hygiene and safety.

Pros and strengths

Well-established brand with pan-India recognition: The company sells all of its products under its well-established Bikaji brand, focusing on a diverse range of quality products, authentic ethnic Indian taste, innovative packaging, and effective pricing strategies covering all key price points. These qualities have enabled it to develop strong brand recognition and consumer loyalty in its key markets in India and abroad. A significant part of its sale of food products is derived from sales of family packs (i.e., SKUs priced above Rs 10), which were Rs 6,407.36 million, Rs 8,185.86 million, Rs 9,705.11 million, Rs 1,940.42 million and Rs 2,236.23 million and accounted for 59.76%, 62.64%, 60.57%, 58.43% and 53.64% of its sale of food products in Fiscal 2020, 2021 and 2022, and in the three months ended June 30, 2021 and June 30, 2022, respectively. This reflects the strength of its brand as a home consumption and planned purchase product. Amongst its competitors, it is the market leader in family pack segment, with family pack segment constituting 60.57% of its sale of food products in Fiscal 2022, as compared to its other SKUs of Rs 5 and Rs 10 packs.

Diversified product portfolio focused on various consumer segments and markets: The company’s understanding of the Indian taste palate complements its product development capabilities, which has allowed it to develop a comprehensive portfolio of a variety of Indian snack foods and sweets. As of June 30, 2022, its diversified product portfolio included more than 300 products across all its product segments. It has launched packages of various sizes for its products. It generally maintains a consistent product pipeline at its manufacturing facilities and its relationship with its raw ingredient suppliers enable it to ensure that its manufacturing facilities operate efficiently. Its focus on developing quality and diversified Indian snacks allows it to differentiate its offering from its competitors, as well as offering market and consumer-relevant products.

Strategically located, large scale sophisticated manufacturing facilities with stringent quality standard: The company’s existing manufacturing facilities are built for large scale operations and are strategically located in proximity to its key raw ingredient supplies; and improve its distribution and supply of finished products, which results in reduced freight and logistics related time and cost. Its facilities in Bikaner are located with easy access to cow milk, dew bean (moth dal) and moong dal, which are primary ingredients for its bhujia, sweets and namkeen products. Its manufacturing facility in Guwahati (Assam) commissioned on January 14, 2022 with capacity to produce namkeen and western snacks is strategically located in its core market which will help it to reduce logistic costs and build sales in its western snacks category. It operates two facilities through its Subsidiaries with one facility at Tumakuru (Tumkur) (Karnataka) held through Petunt Food Processors Private Limited to cater to the southern markets in India and the other facility at Muzaffarpur (Bihar) held through Vindhyawasini Sales to cater to its core market of Bihar which was commissioned on March 31, 2022. 

Consistent financial performance: The company’s continued focus on efficiency, productivity and cost rationalization has enabled it to deliver consistent financial performance, despite the recent increase in the cost of certain of its raw ingredients, and packaging material. For example, despite the price of palm oil increasing significantly in Fiscal 2022 and increase in inflation resulting an increase in raw material prices in the three months ended June 30, 2022, it has managed to maintain consistent EBITDA margins by passing on the increase in raw ingredients cost to its consumers, which reflects the strength of its brand. Its sales of food products has grown at a CAGR of 22.25% from Rs 10,721.80 million in Fiscal 2020 to Rs 16,022.88 million in Fiscal 2022 and was Rs 3,320.71 million and Rs 4,168.87 million in the three months ended June 30, 2021 and June 30, 2022 despite the impact of the COVID-19 pandemic. Its strong operational and financial performance will allow it to capitalize on significant growth opportunities in the Indian snacks industry in India.

Risks and concerns

Rely on a limited number of super-stockists and direct distributors: A portion of the company’s revenues from operations is derived from a limited number of super-stockists and distributors. In Fiscal 2020, 2021 and 2022 and for the three months ended June 30, 2021 and June 30, 2022, the Company had two super-stockists, which contributed more than 10.00% of its sale of food products. Revenue from such customers/super-stockists were Rs 2,292.94 million, Rs 2,844.46 million, Rs 3,846.32 million, Rs 885.18 million and Rs 1,240.51 million contributing 21.39%, 21.76%, 24.01%, 26.66% and 29.76%, respectively of its total sale of food products in such periods. These two super-stockists cover Assam and Bihar regions, respectively. Its arrangements with such super-stockists prohibit them to work on any other assignment other than with the Company without its prior permission. However, it cannot assure that it will continue to do the same quantity of business with these super-stockists in the future. A significant decrease in business from such super-stockists may materially and adversely affect its business, results of operations and financial condition.

Rely on third-party transportation providers: The company depends on various forms of transportation to either receive raw materials for its manufacturing purposes or to deliver the finished products to its super-stockists, distributors and other parties, including for export sales. For these purposes, it typically use third-party transportation providers. Further, it undertake its export activities from Nhava Sheva Port, Mumbai to which its products are delivered primarily through road transport from its manufacturing facilities and thereafter exported. It is therefore significantly dependent on transportation and logistics companies that it engage with. The disruption of transportation services due to natural factors such as weather conditions particularly during monsoon or flood seasons, or man-made factors such as strikes, accidents, or other inadequacies in the transportation infrastructure, or any other factor that could impair the ability of its suppliers to deliver raw materials to it and its ability to deliver its products to its super-stockists and distributors and their ability to deliver products to the end retailer in a timely manner, which may adversely affect its sale of food products.

Operate in a competitive market: The company faces intense competition in the Indian snack food market, from various domestic and multinational companies in India. It expects competition could increase with new entrants coming into the FMCG industry, who may have more flexibility in responding to changing business and economic conditions, and existing players consolidating their positions. Some of its competitors may have access to significantly greater resources, including the ability to spend more on advertising and marketing and hence the ability to compete more effectively. It faces competition across its business activities from varied peers. Further, although e-commerce is not currently a major competitor in the FMCG sector, it may face increased competition from e-commerce in the future.

Required to obtain certain approvals, registrations, permissions and licenses: The company is required to obtain certain approvals, registrations, permissions and licenses from regulatory authorities, to carry out/ undertake its operations. These approvals, licenses, registrations and permissions may be subject to numerous conditions. If it fails to obtain some or all of these approvals or licenses, or renewals thereof, in a timely manner or at all, or if it fail to comply with applicable conditions or it is claimed that it has breached any such conditions, its license or permission for carrying on a particular activity may be suspended or cancelled and it may not be able to carry on such activity, which could adversely affect its business, results of operations, cash flows and financial condition.

Outlook

Bikaji Foods International is one of India's largest fast-moving consumer goods (FMCG) brands. The company's product range includes six principal categories: bhujia, namkeen, packaged sweets, papad, western snacks as well as other snacks which primarily include gift packs (assortment), frozen food, mathri range and cookies. In the six months that ended June 30, 2022, the company sold more than 300 products under the Bikaji brand. The company was the largest manufacturer of Bikaneri bhujia with an annual production of 29,380 tonnes, and it was the second largest manufacturer of handmade papad with an annual production capacity of 9,000 tonnes in Fiscal 2022. The company has an international footprint, selling Indian snacks and sweets, and is among the fastest-growing companies in the Indian organised snacks market. On the concern side, the company sells its products on its websites as well as list its products on certain third-party websites and ecommerce platforms. As a result, it encounters risks and difficulties frequently experienced by retailers who use e-commerce to sell their products. Although it reports its results of operations in Indian Rupees, a minor portion of its revenue are denominated in currencies other than Indian Rupees. Therefore, changes in the value of the Indian Rupees against other currencies will affect its revenue.

The issue has been offered in a price band of Rs 285-300 per equity share. The aggregate size of the offer is Rs 830.03 crore to Rs 873.72 crore based on lower and upper price band respectively. On performance front, total income increased by 22.63% from Rs 13,222.12 million in Fiscal 2021 to Rs 16,214.51million in Fiscal 2022, primarily due to increase in volume and realisation of products. It recorded a profit after tax for the year of Rs 760.27 million in Fiscal 2022 compared to Rs 903.36 million in Fiscal 2021. Meanwhile, it intends to leverage certain of its products such as bhujia, namkeen and drive western snacks categories to develop products to cater to local tastes. In addition, it also intends to prioritize its focus on building its distribution network in the large metropolitan markets and cities with significant growth opportunities, before further expanding into smaller cities and rural areas in these states. It intends to leverage modern trade channels (such as e-commerce) in these markets to ensure consumer awareness and reach. It plans to increase its feet on the ground to strengthen its sales team in these regions which will drive and assist in managing its distribution network and increase reach.