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Review By Dilip Davda on March 15, 2024
• CFL is in the business of frozen food processing and supplying to QSRs/CDRs.
• After posting dismal performance for FY21, it marked growth in its top and bottom lines.
• The sudden spurt in its bottom line for H1-FY24 is due to addition of veg food supply chain.
• Based on FY24 annualized super earnings, the issue appears fully priced.
• Investors may park funds for the medium to long term rewards.
ABOUT COMPANY:
Chatha Foods Ltd. (CFL) is a frozen food processor, serving top QSRs (Quick Serving Restaurants), CDRs (Casual Dining Restaurants), and other players in the HoReCa (Hotel-Restaurant-Catering) segment. As such, it is deeply connected with the Indian food services/dining out industry and this accounted
for almost entire revenue for the six months ended September 30, 2023. For six months ended September 30, 2023 and Fiscal 2023, (i)Domino's India franchise accounted for 44.41% and 51.53%, (ii) Subway's India franchise accounted for 27.09% and 31.16%, respectively (ii) Café Coffee Day accounted for 1.24% and 1.40%, (iv) Chili's & Pauls India accounted for 2.26% and 1.64%, (v) Wok Express accounted for 3.45% and 1.91% and (vi) Burger Singh accounted for 0.76% and 0.58%, of its revenues in that period/ Fiscal.
In addition, its brands, which sells under "Chatha Foods" are distributed through own network of 29 distributors covering 32 cities across India and catering to the needs of 126 mid segment & standalone small QSR brands. CFL seek to differentiate itself from competitors through introduction of new products, including launching innovative flavours targeted at addressing diversified consumer tastes, market trends and providing products which are value for money to the consumers.
All its products are produced at CFL's Manufacturing Facility, located in District Mohali, with a production capacity of approximately 7,839 MT for all its frozen food products, over 2 shifts on an annual basis. This enables it to have an effective control over the manufacturing process and to ensure consistent quality of products. CFL's commitment to quality is demonstrated through its attainment of various certifications and accreditations, including those from the U.S. Food and Drugs Administration, British Retail Consortium (BRC - Issue 9), Halal Certification and Export Inspection Council.
As of September 30, 2023, it had 327 employees on its payroll. On the said date, it had total 37 customers.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 5962000 shares of Rs. 10 each to mobilize Rs. 33.39 cr. at the upper cap. The company has announced a price band of Rs. 53 - Rs. 56 per share. The issue opens for subscription on March 19, 2024, and will close on March 21, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 24.11 cr. for setting up of proposed manufacturing facility, and the rest for general corporate purposes.
The issue is solely lead managed by Indorient Financial Services Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Alacrity Securities Ltd. is the market maker for the company.
Having issued initial equity capital at par, the company issued further equity shares at a fixed price of Rs. 33.82 per share in September 2023 and January 2024. It has also issued bonus shares in the ratio of 1 for 3 in September 2023. The average cost of acquisition of shares by the promoters is Rs. 3.81, Rs. 8.44, Rs. 12.17, and Rs. 13.33 per share.
Post-IPO, company's current paid-up equity capital of Rs. 16.54 cr. will stand enhanced to Rs. 22.50 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 125.98 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit/ - (loss) of Rs. 61.19 cr. / Rs. - (4.00) cr. (FY21), Rs. 87.40 cr. / Rs. 0.67 cr. (FY22), and Rs. 117.24 cr. / Rs. 2.45 cr. (FY23). For H1 of FY2 ended on September 30, 2023, it earned a net profit of Rs. 3.41 cr. on a total revenue of Rs. 70.78 cr. Last 18 months boosted profits are the result of contribution of their vegetarian ready to eat food supply business.
According to the management, FY21 and FY22 dismal performance is attributed to the Pandemic period and it started improving from FY23. Till FY22 they were in Non-Veg ready to eat food processing and supplying to B2B category. It started veg food segment in FY23 that gave boost to its top line as well as the bottom lines. Considering the good scope and demand supply gap, the company is not expanding its veg segment business. Post completion of this expansion, the company that has 90% (non-Veg) - 10% (Veg) ready to eat foods supply will translate in 30% (non-veg) - 70% (veg) ratio. The management is confident of maintaining the tempo going forward for growth in top and bottom lines with rising list of customers. The company is operating on B2B model and will add B2C model going forward.
For the last three fiscals, it has reported an average EPS of Rs. 0.47, and an average RONW of 3.92%. The issue is priced at a P/BV of 3.68 based on its NAV of Rs. 15.22 as of September 30, 2023, and at a P/BV of 2.15 based on its post-IPO NAV of Rs. 26.03 per share (at the upper cap).
If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 18.48, making it a fully priced issue. Based on FY23 earnings, the P/E stands at 51.38. Thus the issue appears fully priced.
For the reported periods, the company has posted PAT margins of - (6.54) % (FY21), 0.77% (FY22), 2.09% (FY23), 4.82% (H1-FY24), and RoCE margins of - (15.85) %, 6.11%, 13.43%, 14.81% respectively for the referred periods.
DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Tasty Bite as their listed peers. It is trading at a P/E of 66.9 (as of March 15, 2024). However, they are not comparable on an apple-to-apple basis.
MERCHANT BANKER'S TRACK RECORD:
This is the 7th mandate from Indorient Financial in the last three fiscals, out of the last 6 listings, 1 opened at discount, and the rest with premiums ranging from 1.16% to 51.06% on the listing day.
Review By Dilip Davda on March 15, 2024
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of Chatha Foods Limited offers an early investment opportunity in Chatha Foods Limited. A stock market investor can buy Chatha Foods IPO shares by applying in IPO before Chatha Foods Limited shares get listed at the stock exchanges. An investor could invest in Chatha Foods IPO for short term listing gain or a long term.
Read the Chatha Foods IPO recommendations by the leading analyst and leading stock brokers.
Chatha Foods IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Chatha Foods IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for Chatha Foods IPO is to subscribe.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe to the Chatha Foods IPO.
The Chatha Foods IPO allotment status will be available on or around March 26, 2024. The allotted shares will be credited in demat account by March 27, 2024. Visit Chatha Foods IPO allotment status to check.
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