Chatha Foods coming with IPO to raise upto Rs 33.39 crore

Chatha Foods 

• Chatha Foods is coming out with initial public offering (IPO) of 59,62,000 shares of Rs 10 each in a price band Rs 53-56 per equity share.  
• The issue will open for subscription on March 19, 2024 and will close on March 21, 2024.
• The shares will be listed on BSE SME Platform.
• The face value of the share is Rs 10 and is priced 5.30 times of its face value on the lower side and 5.60 times on the higher side.
• Book running lead manager to the issue is Indorient Financial Services.
• Compliance Officer for the issue is Priyanka Oberoi.

Profile of the company

The company is engaged in the business of food processing in India. It is engaged in frozen and ready to eat meat and vegan foods manufacturer and retails an array of ready to eat and frozen meat and vegan products under the brand ‘Swiss Naturen’ and ‘The Field Grill’. It seeks to differentiate ourselves from its competitors through introduction of new products, including launching innovative flavours targeted at addressing diversified consumer tastes, market trends and providing products which are value for money to the consumers.

All Its products are produced at its Manufacturing Facility, located in District Mohali. This enables the company to have an effective control over the manufacturing process and to ensure consistent quality of its products. Its commitment to quality is demonstrated through its attainment of various certifications and accreditations, including those from the U.S. Food and Drugs Administration, British Retail Consortium (BRC - Issue 9), Halal Certification and Export Inspection Council.

It manufactures and sells non-vegetarian & vegetarian products such as pizza toppings, sandwich fillings, burger patties, snacks and more to leading Quick Service Restaurant’s (QSR), Casual Dining Restaurants’ (CDR) and other Hotel-Restaurant-Catering (HoReCa) segment players. It manufacture and sell plant-based products such as plant-based sausages, salami, pepperoni; Indian snacks like kebabs, tikkas & samosas; plant-based nuggets & burger patties, grilled burger patties to certain QSRs, CDRs and other HoReCa segment players. Additionally, it supplies its products to larger conglomerates and other companies under their own brand names, including Blue tribe (Alkem Group), Shaka Harry (Liberate Foods), Green Bird (Continental Coffee), Plantaway (Graviss Group), and many others.

Proceed is being used for:

• Setting up the proposed manufacturing unit 
• General corporate purposes

Industry overview

The Quick Service Restaurant (QSR) industry in India is classified into two segments, organized and unorganized, based on the following three key parameters: (i) accounting transparency, (ii) organized operations with quality control and sourcing norms, and (iii) outlet penetration. The organized standalone market share in the total QSR market has increased to 29% in 2022 from 24% in 2017, as increasing disposable incomes have encouraged owners and entrepreneurs to open such organized outlets. The current decade is overseeing a shift to a larger organized sector. Customer retention and a higher range and depth of offerings are new goals among organized market players of QSR.

The global QSR market was valued at Rs 25.05 trillion in FY 2022. It is expected to reach Rs 54.53 trillion by FY 2027, expanding at a CAGR of around 17.41% during the FY 2023 - FY 2027 forecast period. The requirement for a wide variety of fast-food items and the growth of the market both contribute to the quick-service restaurants market’s expansion globally. The QSR market in India was valued at Rs 171.90 billion in FY 2022. It is expected to reach Rs 431.27 billion in FY 2027, expanding at a CAGR of around 20.47% during the FY 2022 - FY 2027 forecast period. The current decade is overseeing a shift to a larger organized sector. Customer retention and a higher range and depth of offerings are new goals among the organized market players of QSR.

QSR is more of a macro story play with India’s fast changing ecosystem (internet, mobile, young population, large population, rising hygiene preferences, etc.) driving penetration. India’s food consumption landscape is moving on to the next stage of evolution, driven by rapid urbanization, a rise in disposable incomes, changing consumption habits, a large millennial population (aged 15-34 years), less time to make food, preference for branded players, etc. The millennial population of India (~34% of the total population), being a key driver of the food services industry’s growth, has become more discerning in its consumption habits, both in terms of the frequency at which they eat or order from outside as well as the variety they seek.

Pros and strengths

Strong supply chain and input sourcing for QSR, CDR and other outdoor dining options in India:  Its customer/distributor base is the HoReCa segment players in India mainly the QSR and CDR segments. Given that a customer’s trust, loyalty and affiliation for QSRs, CDRs and other HoReCa segment is a key driver for their brand value and perception, they are very selective and cautious about the vendors they engage with. Its existing relationships help the company to get repeat business from its customers. This has helped the company to maintain a long term working relationship with its customers and improve its customer retention strategy.

High quality manufacturing facility: It has incurred substantial capital expenditure in establishing and operating a modern Manufacturing Facility equipped with high-quality equipment sourced from Germany and Italy. Its comprehensive range of machinery includes mincers, bowl choppers, brine injectors and tumblers for marination. It also have high-capacity cooking combi ovens, forming, coating, and frying lines for customized products, a retort sterilizer for shelf-stable items, dicer and slicer machines, thermoforming machines for vacuum/MAP packaging, as well as metal detectors and precision weighing equipment from Ishida, complying with international standards.

Timely supply of quality products: Timeliness of supplies is a key factor for QSRs, CDRs and other HoReCa segment players and it has over the years established a strong supply chain to ensure that it helps its customers deliver their brand promise to their consumers. Moreover, establishing an efficient supply chain capable of timely delivery also requires immense operational and category expertise and understanding which is developed over time. Not only is it difficult for new entrants to be able to develop this skill but also QSRs, CDRs and other HoReCa segment players are unlikely to entrust new entrants with such aspects which are critical for their continued strong brand perception

Risks and concerns

Maximum revenue from sale of products in non-vegetarian segment: It introduced plant based mock meat products in 2021 and vegetarian products in 2022 with a separate unit having a capacity of 2,278 MT per annum. While it is in the process of continually developing its vegetarian and plant based segment, presently it is dependent on its non-vegetarian segment and derive a substantial portion of its revenue from the non-vegetarian segment which contributes Rs 6,405.89 lakh, Rs 11,220.95 lakh, Rs 8,575.46 lakh and Rs 6,118.06 lakh constituting 89.43%, 96%, 98% and 100% of its total revenue from operations for the six months ended September 30, 2023 and the Fiscals 2023, 2022 and 2021, respectively. Any loss of business from, or any significant reduction in the volume of business with existing customers, if not replaced, could materially and adversely affect its business, financial condition and results of operations. 

Do not have long term agreements with suppliers: Production quantity and cost of its products are dependent on its ability to source raw materials and packaging materials at acceptable prices and maintain a stable and sufficient supply of its major raw materials. Meat is the key raw material used to manufacture most of its products. It has long standing relations with its suppliers and purchase raw materials from them on an on-going basis. It has annual purchase contracts with them which save it from fluctuations in the market rates.

Operate in a highly competitive industry: Its industry is highly competitive and is expects that competition will continue to increase. It faces competition from both domestic and multinational corporations and it expects competition to continue to intensify. If it is unable to change its offerings in ways that reflect the changing demands of taste and end consumer preferences or compete effectively with and adapt to such changes, its business, financial condition, cash flows and results of operations would be adversely affected.

Outlook

The company is engaged in the business of food processing in India. It is engaged in frozen and ready to eat meat and vegan foods manufacturer and retails an array of ready to eat and frozen meat and vegan products under the brand ‘Swiss Naturen’ and ‘The Field Grill’. It seeks to differentiate ourselves from its competitors through introduction of new products, including launching innovative flavours targeted at addressing diversified consumer tastes, market trends and providing products which are value for money to the consumers. On the concern side, its industry is highly competitive and is expects that competition will continue to increase. It faces competition from both domestic and multinational corporations and it expects competition to continue to intensify. 

The company is coming out with an IPO of 59,62,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 53-56 per equity share. The aggregate size of the offer is around Rs 31.60 crore to Rs 33.39 crore based on lower and upper price band respectively. On performance front, revenue from operations had increased by 34.23% from Rs 8,733.41 lakh in Fiscal 2022 to Rs 11,722.77 lakh in Fiscal 2023. Its strong sales growth is attributed to several pivotal drivers, including its expanded customer base and continued growth in the QSR industry. The Company reported a net profit of Rs 245.20 lakh in Fiscal 2023 as compared to a net profit of Rs 67.24 lakh in Fiscal 2022. Meanwhile, it will continues to strive to convert this ability to not only help realize higher and more predictable revenues but also higher margins from its customers. It plans to continue to increase offerings in its current business segments as well as diversify into new products by tapping into segments which in the view of its management have attractive growth prospects.