Prataap Snacks: Too costly for the investment palate

Post-demonetisation, there was a cash crunch in the country, yet more than 120 firms (including SMEs) managed to raise more than Rs 28,300 crore through IPOs from January 2017 till date.

Today, Indore-based savoury snacks maker, Prataap Snacks Ltd hit the secondary market at a premium of ~33 per cent compared to issue price of Rs 938 per share. The issue was oversubscribed by ~47.4 times. The issue size of ~Rs 532 crore consisted of fresh issue of Rs 250 crore and OFS (offers for sale) of Rs 282 crore. The fresh issue proceeds would be utilised for funding its expansion plan.

The company markets its products under its flagship brand “Yellow Diamond”. Its range of products include extruded snacks (63% of sales), potato chips (24% of sales) and namkeens (12%).

In this IPO euphoria, many retail investors are ignoring the fundamentals of the company, which has helped many firms to raise money at relatively high valuation. Looking at valuation of Prataap Snacks, the company's stock post listing is valued at ~260x P/E on FY17 EPS. Compared to its peer DFM Food, which is trading at ~92x P/E on TTM EPS, it seems that investors are just pouring money into IPOs no matter how highly these are priced.