What you must know about Gopal Snacks IPO?

Gopal Snacks Ltd (Gopal Namkeen) – About the company

Gopal Snacks Ltd (Gopal Namkeen) was founded in the year 1999 to deal in Indian ready-to-eat-snacks with a strong Indian ethnic flavour. However, the stock also deals in Western snacks and its products are well received in India and also internationally. Some of its popular Indian snack products include ethnic varieties like namkeen and gathiya, as well as western snacks like wafers, extruded snacks, and snack pellets. The company also offers snack-related FMCG products like papad, spices, gram flour or besan, noodles, rusk, and soan papdi. Gopal Snacks Ltd (Gopal Namkeen), as of last record, has a total of 84 products in its portfolio with nearly 276 stock keeping units (SKUs). These cater to a wide gamut of tastes, preferences, ethnicities and also to distinct markets. The snack products of Gopal Snacks Ltd (Gopal Namkeen) are currently sold across 523 locations spread across 10 states and two Union Territories.

The company has a massive feet-on-street sales force for push sales. Its sales and marketing team comprises 741 employees. The marketing network is enhanced with 3 depots and 617 distributors. Gopal Snacks Ltd (Gopal Namkeen) also has a fleet of 263 logistics vehicles to fully support and service its vast network of offices and distribution centres. The company has a total of 6 manufacturing units, of which 3 are primary manufacturing units and 2 are ancillary manufacturing units. While the primary manufacturing units are located in Nagpur, Rajkot, and Modasa (Gujarat). The two ancillary units are located at Rajkot and Modasa. The total installed capacity of Gopal Snacks Ltd (Gopal Namkeen) is 404,729 MT. It also has a long standing relationship with its distributors.

The company is entirely an offer for sale, so there are no fresh funds coming in. Promoters currently hold 93.50% in the company, which will get diluted post the IPO to 80.49%. The IPO will be lead managed by Intensive Fiscal Services, Axis Capital, and JM Financial, while Link Intime India Private Ltd will be the IPO registrar.

Highlights of the IPO issue of Gopal Snacks Ltd (Gopal Namkeen)

Here are some of the key highlights to the public issue of Gopal Snacks IPO (Gopal Namkeen).

• The IPO of Gopal Snacks IPO (Gopal Namkeen) will be open from March 06th, 2024 to March 11th, 2024; both days inclusive. The stock of Gopal Snacks Ltd (Gopal Namkeen) has a face value of ₹1 per share and the price band for the book building IPO has been set in the range of ₹381 to ₹401 per share.
   
• The IPO of Gopal Snacks IPO (Gopal Namkeen) will be entirely an offer for sale (OFS) with no fresh issue component in the IPO. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership.
   
• The offer for sale (OFS) portion of the Gopal Snacks IPO (Gopal Namkeen) comprises the sale / offer of 1,62,09,476 shares (162.09 lakh shares approximately), which at the upper price band of ₹401 per share will translate into a fresh issue size of ₹650 crore.
   
• Out of the OFS size of 162.09 lakh shares, two promoter shareholders and one investor shareholder will sell the shares to the public. While the total capital of the company remains the same, the promoter stake gets diluted in the company.
   
• Since there is no fresh issue, the OFS portion will also double up as the overall size of the IPO of Gopal Snacks Ltd (Gopal Namkeen). Therefore, the total IPO of Gopal Snacks Ltd (Gopal Namkeen) will comprise of the sale of 1,62,09,476 shares (162.09 lakh shares approximately) which at the upper end of the price band of ₹401 per share aggregates to total issue size of ₹650 crore.

Promoter holdings and investor quota allocation quota

The company was promoted by Bipinbhai Vithalbhai Hadvani, Dakshaben Bipinbhai Hadvani and Gopal Agriproducts. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and promoter quota, as indicated above. There is an employee quota of up to ₹87,282 crore that has been communicated by the company as the shares reserved for employees in the red herring prospectus (RHP). The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the Gopal Snacks IPO (Gopal Namkeen)

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Gopal Snacks Ltd (Gopal Namkeen), the minimum lot size is 37 shares with upper band indicative value of ₹14,837. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Gopal Snacks Ltd (Gopal Namkeen).

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Gopal Snacks IPO (Gopal Namkeen) and how to apply?

The issue opens for subscription on 06th March 2024 and closes for subscription on 11th March 2024 (both days inclusive). The basis of allotment will be finalized on 12th March 2024 and the refunds will be initiated on 13th March 2024. In addition, the demat credits are expected to also happen on 13th March 2024 and the stock will list on 14th March 2024 on the NSE and the BSE. Gopal Snacks IPO (Gopal Namkeen) will test the appetite for such digital marketing stocks in India. The credits to the demat account to the extent of shares allotted will happen by the close of 13th March 2024 under ISIN (INE0L9R01028). Let us now turn to the practical issue of how to apply for the IPO of Gopal Snacks Ltd (Gopal Namkeen).

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Gopal Snacks Ltd (Gopal Namkeen)

The table below captures the key financials of Gopal Snacks Ltd (Gopal Namkeen) for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Gopal Snacks Ltd (Gopal Namkeen) which can be enumerated as under

1. In the last 3 years, revenue growth has been robust although the sales were almost flat in the latest year. However, the costs have been managed well, which led to the net profits jumping more than 5-fold in the last 2 years. The impact is also evident in the net profit margins of the company.
    
2. The net margins at 8.06% in FY23 is sharply higher than the net margins in the last two years. This is supported by the return on equity (ROE) also robust at 38.63% and the return on assets (ROA) at 24.36%. All these ratios have shown very robust growth in the last 3 years.
    
3. The company has a sweating of assets ratio that is consistently above 3, which is extremely healthy. In addition, the ROA is also very healthy and this should be able to justify a high level of ROE as well as better valuations in the future.

Let us turn to the valuations part. On the latest year diluted EPS of ₹9.02, the upper band stock price of ₹401 gets discounted at a P/E ratio of 44-45 times. However, this sort of high P/E ratios are normal in the FMCG industry especially where the company has built a strong brand and a distribution franchise that acts as an entry barrier to new players.

Here are some qualitative advantages that Gopal Snacks Ltd (Gopal Namkeen) brings to the table.

• The combination of ethnic savouries and Western snacks positions the company to be able to cater to the entire gamut of customers.
   
• The company has derisked by leveraging its distribution networks for snacks and for FMCG products, which enables easy brand extension for the company.
   
• The business operations of the company are vertically integrated giving them a strong control of the production process from end to end.

The nature of the FMCG business is one of higher risk and higher upfront costs in the initial phase and then a replication model in later phases, once the roll out is completed. That is what the investors can bet on in the IPO. However, investors in the IPO must be prepared for a longer wait period as that is the fundamental nature of the business. The industry is not too cyclical but competition from the unorganized sector remains high. It can be a good FMCG bet on the Indian markets.