Post its listing, the stock hit its high of Rs 1,319 on the NSE and Rs 1,317 on BSE. The stock pared some intraday gains to settle 25% higher at Rs 1,178 against its issue price, and 5% lower against opening price.
The Rs 482 crore IPO of Prataap Snacks was subscribed 47.29 times, data from stock exchanges showed. The portions reserved for qualified institutional buyers (QIBs) and retail investors were subscribed 77 times and 8 times, respectively. The portion set aside for high-net-worth investors saw 101 times subscription.
The proceeds from the fresh issue will be used by the company for repaying borrowings, funding capital expenditure requirements for setting up new production lines, modernization of existing manufacturing facilities, and investment in subsidiary Pure N Sure, and marketing and brand-building activities.
Prataap Snacks is one of the fastest growing snacks company in organized market in India. Over the years, the company has been gaining market share and its market share increased from 1% in 2010 to 4% in 2016 in the organized snacks market in India.
“At 202 times of its FY17 earnings, the issue is richly valued at upper end of its price band i.e. Rs 938. Ignoring its lower profitability in FY17 and valuating the issue on FY16 EPS still yields a high P/E of 73.0 times. Its peer in exactly same industry i.e. DFM Foods, also has good margins (10% in FY17) and handsome return profile (~20%). For Prataap to justify this high valuation, remarkable improvement in profitability is required which may come at the cost of lower growth,” Angel Broking said in IPO note.
On valuation front on a P/E metric, PSL is trading at a premium to its peer. Given the lower profitability and return ratios, higher valuation demanded by PSL is not justified. The management has indicated that it has taken some corrective measures like reducing the grammage per packet, entering into forward contracts with oil suppliers and efficient & adequate procurement of potato for full year consumption. With these initiatives, margin improvements are anticipated, analyst at Choice Equity Broking said in a note.