Prataap Snacks looks to raise $50-70 million from PE investors3 min read . Updated: 27 Mar 2015, 12:42 AM IST
Existing investor Sequoia Capital may participate in the fund raising along with new investors
Mumbai: Sequoia Capital-backed Prataap Snacks Pvt. Ltd, which sells potato chips and a variety of spicy Indian savouries under the brand name Yellow Diamond, is looking to raise $50-70 million from private equity investors to fund expansion, according to two people aware of the development.
The firm has hired UBS AG to help raise the money, said a banker, one of the two people cited above.
Existing investor Sequoia Capital may participate in the fund raising along with new investors, said the second person, another banker. Both bankers spoke on condition of anonymity.
Indore-based Prataap Snacks plans to use the money to increase manufacturing capacity and expand its geographical presence to tap growing demand for its products in a country where consumption of snacks is increasing. The Indian snacks industry expanded nearly six times to ₹ 47,000 crore in 2013 from ₹ 8,000 crore in 2004, according to market researcher Nielsen India.
In an emailed response Sequoia Capital declined to comment. UBS’s Indian unit said it does not comment on market speculation.
“Things are at the discussion stage and we would not like to comment on the same," Amit Kumat, founder and chief executive officer of Prataap Snacks, said in a phone interview.
Prataap Snacks processes, makes and sells potato-based snacks, extruded snacks (design-specific food) and namkeen (Indian snacks) and last year ventured into the noodles market.
This will be Prataap’s third round of fund raising. In 2011, Sequoia invested around $30 million in the company. The size of the stake it received in return wasn’t disclosed.
According to the company’s filings with the registrar of companies (RoC), the firm raised a further ₹ 25 crore from Sequoia in February 2014 by issuing compulsorily convertible preference shares.
“The objective of the funds raised is to utilize the said amount for the expansion of the company’s manufacturing facilities and in any other manner approved by the board," the snack maker said in a filing to the RoC.
Small snack makers backed by private equity investors betting on the Indian consumption story have been expanding rapidly to tap rising demand.
In March last year, private equity fund Lighthouse Funds invested ₹ 125 crore in Bikaji Foods. In January 2014, WestBridge Capital Partners picked up a nearly 25% stake in listed snack maker DFM Foods Ltd from its founders for ₹ 64.5 crore.
“Increasing disposable incomes, a need for convenience from fast-paced lifestyles and a cultural tradition of snacking between meals have fuelled explosive growth in this sector," said a November 2014 report by Nielsen.
Prataap Snacks’ revenue grew 30% in the financial year 2014 to ₹ 446.9 crore from ₹ 344.3 crore in the previous year. The extruded snacks division contributed ₹ 211.9 crore to revenue, the highest, followed by the potato chips division with ₹ 166.9 crore.
“In terms of opportunity, tier I towns, the rest of urban, and rural areas are the ones that offer the most potential for retailers and manufacturers," the Nielsen India report added.
Regional snack firms such as Prataap, Bikaji Foods International Ltd and Balaji Wafers Pvt. Ltd, which have a strong presence in these markets, have given national brands such as Frito-Lay and Parle a run for their money with their expertise in regional distribution and localization of snacks, said the bankers cited above.
“While the big players are doing well at the top of the pyramid, targeting the urban consumer with innovative flavours, companies like Prataap are doing well in the rural and semi-urban areas," the first banker said.
One key advantage that regional snack makers have over national brands is the lack of high overhead costs such as huge marketing expense and large organizational structures.
“Such companies are generally run by the promoters who take all the decisions on marketing and other functions. With the savings on overhead costs ...these companies can afford to put more content in the package, a fact which is appreciated by consumers, especially in the ₹ 5 and ₹ 10 per packet price points," said the second banker.
According to Amitabh Mall, partner and director at Boston Consulting Group, investment in product quality, packaging and distribution is key for mom-and-pop snack stores to develop a regional presence.
Becoming a national company could be a challenge.
“It’s a difficult business to do nationally, because of the cost structures, transportation costs and so on. But at some point you have to go outside your region and the moment you do that, all the problems of the national players become your problems," Mall said.