ITC is evaluating the purchase of a 47% stake held by Peak XV Partners (formerly Sequoia Capital) in listed Prataap Snacks, said people with knowledge of the matter. This follows the failure of talks with Haldiram’s owing to a valuation mismatch. Prataap is best known for Yellow Diamond chips and traditional Indian namkeen under the Avadh brand. Listed Bikaji Foods, another large snacks company, had also looked at the deal but those negotiations also fizzled out, said people in the know.
Buyout funds KKR, TA Associates and Apax are among others that have been tapped since Peak XV initiated a plan to fully exit its nearly 13-year-old investment in Prataap and hired Deutsche Bank to sell the company.
The transaction if successful will trigger an open offer for an additional 26% of the Indore-based company, which has been a laggard ever since its stock market debut in 2017 when it listed at a 33% premium. Prataap ended 1% down at Rs 1,174.45 for a market value of Rs 2,802.19 crore on Wednesday.
ITC, which sells Bingo chips and namkeen among other products, sees Prataap giving it significant headroom in regional pockets, especially when its own brands haven’t been able to win a significant share in those territories due to stiff local competition.
An ITC spokesperson said: “We do not comment on market speculation.” Prataap Snacks managing director Amit Kumat didn’t respond to queries and neither did TA Associates. KKR declined to comment.
An email query sent to Peak XV remained unanswered.
According to the FY23 annual report, Prataap Snacks operates 15 manufacturing facilities, of which seven are company owned and eight are contract manufacturers.
A report by market research company IMARC Group estimated the Indian snacks market at Rs 42,694.9 crore last year and saw it more than doubling to Rs 95,521.8 crore by 2032. Despite a rapidly growing market, snacking remains fragmented and intensely competitive.
National players include PepsiCo, which sells Lay’s, Doritos and Kurkure, along with ITC, Haldiram’s, Bikaji Foods, Balaji Wafers, Too Yum and new entrant Reliance Consumer Products, which has partnered with General Mills to sell Alan’s Bugles snacks.
PE funds, however, are said to be lukewarm as the company has failed to grow in the premium segment.
“It operates in the Rs 5 segment where the margins are wafer thin. Unless you hit the sweet spot, Rs 10 per packet and above, there is not much juice left for a fund to buy a listed company and transform it,” said a PE executive who has been approached. “It’s losing market share and distribution too and it’s an unhealthy category for a PE to bite into.”
For the quarter ended December 2023, Prataap Snacks reported standalone net sales of Rs 408.31 crore, up 8% from Rs 377.79 crore in the year-ago quarter. The snack maker’s quarterly net profit more than trebled to Rs 10.79 crore from Rs 3.42 crore. It clocked sales of Rs 1,652.93 crore in FY23 and net profit of Rs 20.26 crore.
Executives citing NielsenIQ data said ITC Foods overtook Britannia, Parle Products and Britannia to become the country’s largest foods maker in the nine months to September 2023. It clocked food FMCG sales of Rs 17,100 crore in the duration, ahead of Britannia, Adani Wilmar, Parle Products and Mondelez.
ITC’s foods and staples brands include Yippee noodles, Sunfeast biscuits, Bingo chips, Aashirvaad atta and MasterChef frozen foods. As with Tata Consumer, ITC too have been looking at acquisitions, having bought Yoga Bar last year.
The ITC Next strategy articulated by chairman Sanjiv Puri focuses on a future-ready portfolio of products that serve evolving consumer needs. While Yoga Bar was on one end of the spectrum, ITC can use its distribution muscle to push Prataap’s brand portfolio, said people with knowledge of the matter.
Source: Economic Times