Prataap Snacks Research Report By IIFL

Prataap Snacks (Prataap), popularly known for its brand Yellow Diamond, is an emerging player in the Indian Snacks industry with ~6% market share. It is attractively placed to tap the huge opportunity in Rs22,000cr organized snacks industry given the scale of business.

We estimate Prataap to report revenue and PAT CAGR of 19% and 107% respectively over FY17-20E with an EBITDA margin expansion of ~520bps.

Encouraged by strong traction in profitability led by gross margin improvement, introduction of premium products and strong expansion in footprints, we recommend BUY on Prataap Snacks with target price of Rs 1,720, valuing at 2.5x FY20E EV/Sales.

Enough revenue drivers in sight: With both, scalability and market opportunity in place, we are factoring 19% revenue CAGR over FY17-20E. This would be driven by (a) premium product launches (in sweet and healthy categories), (b) market share gain through geographical expansion and its value offering proposition and (c) increased exposure to the high growth categories (focus on extruded snacks and namkeens).

Premium & aspirational products to aid operating margin: Prataap has witnessed drastic swing in EBITDA margin over years; it nosedived in FY14 and in FY17 to 4.5% in both these years. However, the company has undertaken various initiatives to support profitability. We are estimating ~520bps EBITDA margin expansion over FY17-20E led by (a) access to dynamic grammage offering, (b) long term raw material contracts, (c) benefit of scaling up of newly launched products, (d) favorable product mix, and (e) rationalization of dealers’ margin.

Attractively placed at 2.0x FY20E EV/Sales: We believe company’s current profitability doesn’t capture its true potential given the wide range of offerings and opportunity to rationalize cost structure. At an EV/Sales of 2.0x for FY20E, Prataap is attractively valued vis-à-vis its nearest listed competitor, DFM Foods