Prataap Snacks’ IPO opens. What are brokerages saying about the issue?

Multiple brokerages recommend subscribing to the issue with a long term perspective as valuations could be higher from some perspective. But the business has a strong potential to grow ahead, they said.

Spa Research | Rating: Subscribe

The brokerage house said that the company’s sales CAGR growth of 27 percent in the last 4 years implants confidence in the company's ability to drive growth. “However, volatility in margins and limited pricing power at Rs 5 price point (80 percent of sales) has been a big concern for the company,” the brokerage house said in its report. Furthermore, high sales growth and operating leverage to play out resulting in margin expansion of 8 percent can result in sharp increase in profitability and improvement in ROE going forward, it added. On valuations, it said that the issue is priced at P/E of 218x but a P/S of 2.4x.

Geojit Financial Services | Rating: Subscribe

The broking firm observed that Prataap Snacks’ story should be considered based on its product launch plans, strong, sustained revenue growth and strengthening market position in the last few years.

“The company intends to foray into relatively untapped high margin chocolate-based confectionary, the market for which is estimated to grow at 15-18% annually over the next four to five years,” the report added. With this, it recommends the subscribe rating to the issue.

Angel Broking | Rating: Neutral

Angel Broking said that the issue’s valuation is rich at the upper end of the price band. It highlighted that the FY16 EPS yields a PE of 73 times. “FMCG companies commanding such high P/Es have a very strong profitability and returns profile such as Britannia,” it said in a report.

The company has to justify this valuation by showing remarkable improvement in profitability, which may come at the cost of lower growth, it added.

Aditya Birla Money | Rating: Subscribe

The broking firm said that the company’s revenue has grown at a CAGR of 27 percent over FY13-17. Further, after the issue, the market capitalization is expected to be Rs 2,200 crore. The firm recommends having a long term view on the stock with possible listing gains.

ICICI Securities | Rating: Subscribe

The broking firm said that the stock’s valuation is seen at 2.4x FY17 MCap/sales. It believes that Prataap Snacks’ is attractively placed compared to its peers.

“With expansion plans in place initiative to penetrate the weaker markets and strengthening of brand image & recall through Rs 40 crore investment over coming three years, the company would be able to post sustainable operating margin and also record better earnings going forward,” the brokerage said in its report.

Hem Securities | Rating: Subscribe

Hem Securities said that the company has a pan-India distribution network, but looking at the valuation, the issue is overpriced. Hence, it recommends a long term subscribe on the issue.