Gopal Snacks Launches ₹650 Crore IPO Amid Promising Growth Prospects

The Gujarat-based FMCG major Gopal Snacks Limited hit the capital markets this week with its ₹650 crore initial public offering (IPO). The company, known for its popular 'Gopal' brand of ethnic and Western snacks, is swinging high on the rising demand for packaged foods in India and aims to utilize the IPO proceeds to fuel its expansion plans.

The Snack Attack

The Indian industry has seen a remarkable surge in recent years, driven by rapid urbanisation and changing consumer preferences. Gopal Snacks, with its diverse range of products that include papads, spices, noodles and gram flour, has emerged as the fourth-largest packaged ethnic namkeen manufacturer in the country.

"Gopal Snacks has successfully established its 'Gopal' brand as a household name, resonating with consumers across diverse regional tastes," said Rajan Shinde, the research analyst at Mehta Equities, while recommending a "subscribe" rating for the IPO.

Gopal Strengths and Weaknesses

The company's strengths lie in its operational efficiency, vertical and horizontal integration and its strong brand recognition. According to the IPO prospectus, Gopal Snacks boasted the highest fixed assets turnover ratio of 6.86 among its key peers as of March 31, 2022, indicating high operational efficiency.

However, the FMCG segment is highly competitive, with multiple big players vying for market share. Also the company's revenue is heavily concentrated in the states of Gujarat and Maharashtra, with the former accounting for a staggering 73% of total revenue.

Financial Performance

Gopal Snacks has demonstrated robust financial performance in recent years. Its revenue grew at a compound annual growth rate (CAGR) of 11.2% between FY21 and FY23, while its profit after tax compounded at an impressive 130.7% during the same period.

The company's three-year average return on equity (ROE) and return on capital employed (ROCE) stood at an impressive 25.9% and 25.1% respectively, indicating efficient utilization of capital.

IPO Details and Valuations

The ₹650 crore IPO is entirely an offer for sale (OFS), with no fresh issue of shares. The price band has been set at ₹381 to ₹401 per equity share, valuing the company at a P/E of 43.1 times and a P/B of 14.4 times. 

While the P/E multiple appears reasonable compared to its peers' median P/E of 52.5 times, the P/B ratio is on the higher side, with peers trading at a median P/B of 7.8 times.

Subscription and Listing

The Gopal Snacks IPO opened for subscription on March 6, 2024, and will remain open until March 11, 2024. According to the latest subscription data available on the BSE website, the issue has been subscribed 2.01 times in the first two days of bidding.

The shares are commanding a premium of ₹41 in the grey market, indicating strong investor interest. The IPO allotment is expected on March 12, 2024, with the shares likely to commence trading on the BSE and NSE on March 14, 2024.

Analysts Perspectives

Anand Rathi, a leading brokerage firm, has also assigned a "subscribe" rating to the Gopal Snacks IPO, citing the company's plans to accelerate expansion in focus markets like Maharashtra, Rajasthan, Madhya Pradesh and Uttar Pradesh. "Gopal Snacks Ltd is one of the largest and prominent FMCG players in India, offering Indian ethnic snacks and other products," said the report. "This move will not only enable them to increase their topline growth but will also rationalize its operating expenses."

While the IPO's success will ultimately depend on investor demand, Gopal Snacks' strong brand equity, growth prospects, and efficient operations make it an attractive investment opportunity in the burgeoning Indian snacking industry.