Gopal Snacks Limited IPO : Subscribe or Avoid

IPO Note : Gopal Snacks Limited  – Subscribe (Price Band: ₹ 381-401)

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India's leading snack manufacturer: Gopal Snacks (GSL) is a prominent snack manufacturer in India with 2nd largest ethnic namkeen manufacturing in Gujarat and 4th largest ethnic savouries brand in India. The company has ~31% market share in the organized gathiya market in India. It has ~8% and ~20% market share in western snacks and total ethnic savouries market (incl. gathiya) in Gujarat.

Extensive Distribution Network with diversified portfolio: The company has a diversified product portfolio capable of capturing the growing Indian snacks market which includes ethnic snacks (namkeen & gathiya), western snacks (wafers, extruded snacks & snack pellets), FMCG goods like papad, spices, gram flour/besan, noodles, rusk and soan papdi. It has a presence across 10 states and two Union Territories and had 276 SKUs along with 84 products as of Nov'23. Its core market i.e. Gujarat contributes 76% of total revenue as of 2QFY24.

Enhancing presence in the core market of Gujarat: The company is focusing on capturing market share in the wafers/chips category which dominates the Western snacks market and has an estimated market size of ₹30 -35 bn in Gujarat as of FY23 (organized + un-organized). Its in-house cold storage facility, its ability to procure RM, and leveraging its existing distribution network would help to deepen its penetration in Gujarat.

Financials: EBITDA/PAT has grown robustly at 80%/130% CAGR over FY21-FY23. The EBITDA margin has improved from 5.3% in FY21 to 13.9 in 1HFY24, while RoE stood healthy at 48% in FY23.

Issue Size: ₹6.5bn IPO entirely consists of an Offer for Sale by promoters and other shareholders. The market cap post listing would stand at ~₹50bn.

View: GSL's strong footing in its core market and extensive distribution network along with backward integration provides them with a competitive edge. With Indian Savoury Snacks Market poised to grow at 11% CAGR over FY23-27, we believe the company is well established to capture the growth opportunities. The issue is valued at 45x FY24 P/E on an annualized and diluted basis, which is in line with its listed peers. Hence, we recommend Subscribe.