Smallcap Stock That was Shattered After IPO, Could Now Jump 38% as Consumption Rises
For the investors who bought Prataap Snacks stock in its IPO in 2017, its share price has been a major disappointment. Although the company made a remarkable stock market debut at Rs 1,470, a 35% premium to the issue price of Rs 938 apiece, its prices have been constantly falling since April 2018. The stock is now trading at Rs. 648 apiece after its downfall of over half its price during the past three years. But ever since the economy has become free and impulse consumption has returned, analysts at JM Financial are saying that this could prove advantageous for Prataap Snacks, since they are expecting the stock to jump 38% from its current level.
“We expect the coming fiscal year to be more productive for the company as a gradual increase in mobility would start benefiting impulse consumption and higher RM prices would get in the base,” the report said.
Before being listed on the stock exchanges, Prataap Snacks delivered revenue CAGR in excess of 25% over the fiscal years 2013-2017. With the implementation of Goods and Services Tax (GST) and competitive issues being faced in its flagship ‘Rings’ product, after being listed, their revenue trajectory saw a sharp decline during the financial year 2018-2019. The company was already working to counter these issues before the pandemic struck. JM Financial added “As the impact of pandemic fades and mobility normalises, we expect the company to revert back to mid-teens growth rates (basis its efforts as stated above) which would act as a catalyst for share price in our view,”.
The company's revenue and EBITDA have been better than DFM Foods, another peer listed, the report noted. However, if you talk about gross margins, DFM Foods has an edge. According to analysts, “this owes to higher freight costs and commissions for Prataap Snacks which has a Super Stockist in its supply chain. Prataap is currently streamlining its distribution model which should help in reducing freight costs and could lead the operating margin at a higher place by 1-1.5% over next couple of years”, said the report.
.Analysts at JM Financial noticed that besides the expected increase in consumer spending and consumption, the stock trading at fairly attractive multiples, even when the market seems to be stretched. JM Financial said that the stock trades at 14x on NTM EV/EBITDA relative to the average of 25x since listing.
Prataap Snacks’ stock price has gained 13% since the end of October but is still very much below the IPO issue price. JM Financial has set a target price of Rs 900 per share for Prataap Snacks, increasing its earlier target of Rs 890 apiece. This would mean a 38% rise from current level.