Founded in 1997, Chatha Foods Limited (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, they are deeply connected with the Indian food services/dining out industry and this accounted for almost the 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 the revenues in that period/ Fiscal. In addition, the brands, which sells under 'Chatha Foods' are distributed through the network of 29 distributors covering 32 cities across India and catering to the needs of 126 mid segment & standalone small QSR brands. All the products are produced at the Manufacturing Facility, located in District Mohali, with a production capacity of approximately 7,839 MT for all the frozen food products, over 2 shifts on an annual basis. The commitment to quality is demonstrated through the attainment of various certifications and accreditations, including those from the U.S. Food and Drugs Administration, British Retail Consortium (BRC - Issue 9) and Export Inspection Council. The business model is based on the following approaches. (a) Concept Manufacturing: CFL owns the product formula made for all brands and ensures that customers are provided with complete turnkey solutions. Based on extensive research and testing methods, CFL offers customisable options at competitive prices. The Company utilises its skilled team of food technologists & product designers in conceptualising the products' unique brand identity. (b) Concept Sharing Manufacturing: The customers share the product formula and ideas and work with them to develop products suitable for the customers' brands. (c) Own Brands: They sell the own brand products through the distribution network across industry comprising of mid segment & standalone QSR brands. The diversified product portfolio includes three categories: (a) Non-Vegetarian: They manufacture and sell non-vegetarian products such as pizza toppings, sandwich fillings, burger patties, snacks and more to leading QSR’s, CDR’s and other HoReCa segment players. (b) Vegetarian: They manufacture and sell vegetarian products such as pizza toppings, sandwich fillings, burger patties, taco fillings to leading QSR’s, CDR’s and other HoReCa segment players. They ventured into vegetarian products in the year 2022. 102 (c) Plant-Based: They manufacture and sell plant-based products such as plant-based sausages, salami, pepperoni; Indian snacks like kebabs, tikkas & samosas; plant-based nuggets & burger patties, grilled burger patties to certain QSRs, CDRs and other HoReCa segment players. Additionally, they supply the products to larger conglomerates and other companies under their own brand names, including Bluetribe (Alkem Group), Shaka Harry (Liberate Foods), Green Bird (Continental Coffee), Plantaway (Graviss Group), and many others. They ventured into plant-based mock meat products in the year 2021. As per financial performance, Chatha Foods Limited has posted total income / net profits of Rs 61.19 Cr / Rs (4.00) Cr (FY21), Rs 87.40 Cr / Rs 0.67 Cr (FY22), Rs 117.24 Cr / Rs 2.45 Cr (FY23) and Rs 70.78 Cr / Rs 3.41 Cr (upto Q2 FY24). So as per previous financials data, company has shown good growth. But sudden rise in net-profit just before IPO raises doubts. Company has posted an average EPS of Rs 0.47 and average RoNW of 11.95% for last three fiscals. Issue is priced at a P/BV of 2.15 as per NAV of 26.03 as on post issue. If we attribute latest earnings of FY22, FY23 and annualised FY24 on fully diluted equity post issue, then asking price is at a P/E of around 187.47, 51.38 and 18.47 respectively, which looks fully priced. As per RHP, comparison between listed peers is shown in above table. On BRLM's front, Indorient Financial Services Limited is associated with this SME IPO and handled 6 SME IPOs in last 3 year. From last 6 SME IPOs, one opened below issue price and remaining opened above issue price or at par on the day of listing. As of now from last 6 SME IPOs, three are trading below issue price and remaining are trading above or at par issue price. ( As on 14.03.24 ) As per financials, Chatha Foods Limited has shown good results, RoNW is 11.95% and P/E is respectively 187.47, 51.38 and 18.47 as per FY22, FY23 and annualised FY24 earnings. So, issue looks fully priced. Company is in business of frozen food processing, which is highly competitive and fragmented segment. Performance of BRLM is average. So, we give NEUTRAL rating for this IPO. Readers must consult a qualified financial advisor prior to making any actual investment decisions.
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