Very interesting post on Twitter by Ashish (InvestorAshishK) on Annapurna
Annapurna Swadisht’s Sweet Deal: How Acquiring Madhur Confectioners Could Triple Their Revenue!
Annapurna Swadisht Ltd. has recently acquired Madhur Confectioners Private Limited (MCPL), a well-known manufacturer in the confectionery sector, for ₹180 crores. MCPL specializes in a diverse range of products including flavored candies, lollipops, and toy chocolates.
Distribution Network Expansion: This acquisition has expanded Annapurna’s distribution network by adding 300 new distributors to its existing 550.
Improved Unit Economics: Annapurna, which previously operated at an EBITDA margin of approximately 11%, will now benefit from MCPL’s higher adjusted EBITDA margin of 17.6%. This improvement in margins at a consolidated level enhances overall profitability.
Cash Flow Advantage: MCPL operates on a model where it secures 90% advance payments from its clients, resulting in negative working capital. This ensures robust cash flow, supported by an average monthly order book of ₹7-10 crore.
Capacity Utilization and Revenue Growth: Currently, MCPL operates at only 30% of its capacity, generating sales of around ₹107 crore in FY24. Annapurna aims to significantly increase this capacity utilization, targeting a revenue peak of approximately ₹400 crore by FY27.
What is the catch?
Annapurna’s management previously missed its revenue target of ₹300 crore by FY24. This suggests a need for cautious optimism regarding future growth projections.
Let’s estimate the growth:
Assuming Annapurna’s current business grows conservatively at 10% annually, its revenue by FY27 would be around ₹350 crores. If MCPL achieves a revenue of ₹300 crores (instead of 400 crores guided by management) by FY27, the consolidated revenue for Annapurna would be approximately ₹650 crores, which is 2.45 times the current revenue.
Important point to note is that acquisition is expected to lower the consolidated PE ratio due to MCPL’s better unit economics, which should further improve with increased capacity utilization.
Also, don’t forget the significant potential for cross-selling between Annapurna’s existing distributors and those newly acquired from MCPL, enhancing market penetration and sales.
My view: Given that there is less downside for PE, and conservatively, sales will become 2.45 times the current revenue, you can calculate the value you want to assign now. I believe that if executed well, management can achieve sales of around ₹900 crores by FY27, which is 3.4 times the current sales.
Shared on Twitter by Ashish
InvestorAshishK
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