Mukka Proteins IPO review (Apply)

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Review By Dilip Davda on February 26, 2024

•    MPL is one of the leading company for manufacturing and marketing of fish meal, fish oil and allied products in domestic as well as global markets.
•    It has around 25-30% market share in India that has two-third coastal land.
•    The company posted growth in its top and bottom lines, that indicates future prospects.
•    Based on FY24 annualized earnings, the issue appears reasonably priced. 
•    Investors (who have no reservation for the segment) can lap it up for the medium to long term rewards.

PREFACE:
Here is the another case of short time between releasing the offer document/conducting a road show and the issue opening date. This is really ridiculous and depriving the investors at large to evaluate the offer document and conclude their investment plans. Let us hope that the concerned regulators and authorities does something in this regard.

ABOUT COMPANY:
Mukka Proteins Ltd. (MPL) is Consistently being awarded by MPEDA, during the last 7 (seven) years for its export performance, inter alia, including as an outstanding performance in export of fish meal, fish oil and allied products for Fiscal 2021, Fiscal 2020 and Fiscal 2019 (Source: https://mpeda.gov.in/?page_id=557)., MPL is one of the key players of the Fish Protein industry in India. In Fiscal 2023, of the total estimated revenue of the Indian fish meal and fish oil industry of Rs. 3200 cr. to Rs. 4100 cr. the revenue of the Company was Rs. 1066.40 cr., indicating their niche place being 25%-30% contributor to the estimated revenue of the Indian fish meal and fish oil industry for the corresponding period (Source: CRISIL Report). 

The Company is also amongst the first few Indian companies to have commercialized insect meal and insect oil (collectively "Insect Protein") as an ingredient for aqua feed, animal feed and pet food. Fish Protein and Insect Protein are hereinafter, collectively, referred to as "Animal Protein".

As a manufacturer of Fish Protein products, it manufactures and supplies fish meal, fish oil and fish soluble paste which is an essential ingredient in the manufacturing of aqua feed (for fish and shrimp), poultry feed (for broiler and layer) and pet food (dog and cat food). Further, fish oil also finds its application in pharmaceutical products (additionally, Omega-3 pills and related products derived from fish oil are gaining importance as high nutrient and healthy dietary supplements), soap manufacturing, leather tanneries & paint industries. 

MPL sells its products domestically and also export them to over 10 countries, including Bahrain, Bangladesh, Chile, Indonesia, Malaysia, Myanmar, Philippines, China, Saudi Arabia, South Korea, Oman, Taiwan and Vietnam. As on the date of this Red Herring Prospectus, it had 6 (six) manufacturing facilities operated by it out of which 4 (four) manufacturing facilities are located in India and 2 (two) manufacturing facilities, held through its Foreign Subsidiary, namely Ocean Aquatic Proteins LLC is located in Oman. Further, the Company operates 3 (three) blending facilities and 5 (five) storage Facilities located in India. All its facilities are strategically located within the close proximity to the coastline.

The company maintains its Facilities along the coastline to minimize dependency on any particular coastal landing sites and fish catchments and thus providing it with fresh, adequate and cost-effective access to key raw material i.e. pelagic fish, such as sardine, mackerel, anchovy, etc. Its strategically located Facilities also enable it to maintain high product quality and optimize on the transport cost.

As of September 30, 2023, its annualized aggregate manufacturing capacity is 115050 MTPA of fish meal, 16950 MTPA of fish oil and 20340 MTPA of fish soluble paste. As of September 30, 2023, it has also entered into contractual arrangement with third party manufacturing units, situated at Sasihithlu (Karnataka), Udupi (Karnataka), Ullal (Karnataka), Taloja (Maharashtra), Porbandar (Gujarat) and Mangrol (Gujarat), for supply of fish meal and fish oil. The third-party manufacturing units at Udupi (Karnataka) and Ullal (Karnataka) are on job work basis where the raw fish are supplied by the Company and are converted into fish meal and fish oil. These third-party manufacturing units are close to the source of its key raw material i.e., pelagic fish, thus increasing MPL's presence across the western coastline of India. The Company continuously seeks to identify new manufacturing units, on job work basis or similar arrangements, to achieve operational efficiency and also to have access to key raw material, i.e., pelagic fish. As of September 30, 2023, it had 414 employees on its payroll. 

According to the management, it's the first company to enter in Ento Protein products which has huge global demand. This product has a high margin and will get reflected in the coming years performance. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of 80000000 equity shares of Re. 1 each to mobilize Rs. 224.00 cr. at the upper cap. It has announced a price band of Rs. 26 - Rs. 28 per share. The issue opens for subscription on February 29, 2024, and will close on March 04, 2024. The minimum application is to be made for 535 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE land NSE. The issue constitutes 26.67% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 120.00 cr. for working capital, Rs. 10.00 cr. for investment in associate i.e. Ento Proteins Pvt. Ltd.  and the balance for general corporate purposes. 

The sole Book Running Lead Manager to this issue is Fedex Securities Pvt. Ltd. and Cameo Corporate Services Ltd. is the registrar of the issue. 

Having issued its initial capital at par, the company also issued bonus shares in the ratio of 3 for 1 in January 2022 (on the basis of Re. 1 FV). The average cost of acquisition of shares by the promoters is Rs. 0.98 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 22.00 cr. will stand enhanced to Rs. 30.00 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 840 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total revenue/net profit of Rs. 609.95 cr. / Rs. 11.01 cr. (FY21), Rs. 776.15 cr. / Rs. 25.82 cr. (FY22), and Rs. 1183.80 cr. / Rs. 47.53 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 32.98 cr.  on a total revenue of Rs. 612.88 cr. This indicates its growth pattern in top and bottom lines and prospects ahead. 

For the last three fiscals, the company has reported an average EPS of Rs. 1.44 and an average RoNW of 28.66%. The issue is priced at a P/BV of xx based on its NAV of Rs. 7.23 as of September 30, 2023, and at a P/BV of xx based on its post-IPO NAV of Rs. xx per share (at the upper cap)

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 12.73.

For the reported periods, the company has reported a PAT margins of 1.82% (FY21), 3.35% (FY22), 4.04% (FY23),5.44% (H1-FY24), and RoCE margins of 5.86%, 13.86%, 17.62%, 9.41% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 Avanti Feeds, Godrej Agrovet, Zeal Aqua, and Waterbase as their listed peers. They are trading at a P/E of 19.9, 31.5, 22.2, and 00 (as of February 26, 2024). However, they are not comparable on an apple-to-apple basis. According to the management, in fact, all these peers are their customers. 

MERCHANT BANKER'S TRACK RECORD:
This is the 27th mandate from Fedex Securities in the last four fiscals. Out of the last 10 listings, 1 listed at discount, 1 at par and the rest with premiums ranging from 1.67% to 140.82% on the date of listing. 

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