Private equity investor Lighthouse to buy 25% in Bikaji Foods

CIPEF may buy 15% in Balaji Wafers

Stake sale talks are in an advanced stage and the transaction may be closed within a month, says company official

FIRST PUBLISHED: FRI, MAR 21 2014. 12 26 AM IST

Mumbai: Balaji Wafers Pvt. Ltd is in advanced talks with Capital International Private Equity Funds (CIPEF) to sell nearly 15% in the snacks maker according to two people familiar with the development, who did not want to be named. One of them is directly involved with the transaction.
“It is the decision of the next generation and since they have to run the business in future I have left the decision (of stake dilution) to them,” said Chandubhai Virani, managing director and founder, Balaji Wafers. Virani confirmed that talks were at an advanced stage with CIPEF. “We are looking at closing the deal with Capital International in a month’s time. We are looking at diluting close to 15% stake at a valuation of about Rs.4,000 crore for the company,” said a top official of Balaji Wafers who asked not to be named because of a non-disclosure agreement with the PE fund.
Emails sent to the media relations team as well as to a US-based spokesperson of CIPEF on Wednesday did not elicit any response. A singapore official of the firm on Wednesday also declined to comment.

In December, Mint reported that investment firms Actis Capital and CIPEF were the frontrunners to buy the stake in Balaji Wafers and that EY was advising the seller on the transaction.
“Apart from the money that will be used for setting up new plants, Capital International will also bring their rich global experience to our management. We have seen in the past how other homegrown companies like Paras Pharma have turned around and grown with the help of PE firms,” said the Balaji Wafers official cited above.

In 2006, Actis acquired a minority stake in Paras Pharmaceuticals Ltd; by 2008, it held 63% in the company. In 2010, Reckitt Benckiser Group Plc agreed to buy Paras Pharmaceuticals for about Rs.3,260 crore, acquiring Actis’s shareholding. Actis made more than a threefold gain on its 2006 investment in Paras, Bloomberg reported in December 2010.
Balaji Wafers, with revenues of about Rs.1,000 crore in 2013-14, initiated talks with PE and strategic investors last year to raise capital. Founded in 1976, Balaji Wafers is one of the country’s largest makers of potato chips. The regional brand has a presence in states such as Gujarat, Madhya Pradesh, Rajasthan, Maharashtra and Goa. The company claims it has a 60-65% share in the wafers and snack market in Western India, and is eyeing entry into the Northern and Southern markets.

The stake sale is in line with the company’s plan to generate sales of Rs.1,500 crore by 2015, Keyur Virani, director of Balaji Wafers, told Mint in July.
Investors can’t get enough of the food business in India. In February, Mint reported that three private equity firms, Kedaara Capital, TA Associates and Carlyle, were separately in talks for a substantial stake in the bakery business of Cremica Group, a Ludhiana-based company.
Last month, Singapore based agri-commodity firm Wilmar International picked up 27.5% stake in the first phase of a larger deal in Shree Renuka Sugars for Rs.517 crore. In January, WestBridge Capital Partners bought nearly 25% stake in DFM Foods, which makes salted snacks under the Crax brand, from its promoters for over $10 million (around Rs.60 crore). The same month, DSG Consumer Partners invested Rs.10 crore to buy an undisclosed stake in Vadodara-based freeze dried agricultural products company Saraf Foods Ltd. In January, Europe’s biggest dairy company Groupe Lactalis SA agreed to acquire a controlling stake in Tirumala Milk Products Pvt. Ltd for $250 million to $300 million.

Private equity and strategic investors have always been keen on these firms, said Siddharth Bafna, partner and head of the corporate finance and transaction services practice at Lodha and Co. Processed foods is a well-accepted growth story and the demand for such products is expected to only go up in the future, he added
“Indians consume a very small percentage of processed food as compared to the rest of the world. With an increase in nuclear families and working women, longer work hours and a younger population, consumption of these products will only go up,” Bafna said. “There have just not been enough investment opportunities available as successful processed or packaged food brands have very healthy cash flows and the need for capital is typically limited.”

Mentioned below is 3 Years' CAGR in Sales attained by 8 major Indian Organised Snack Food companies. Key thing to note here is that these eight companies constitute ~70 % of Indian Sweet & Savoury Snacks Market :

	3 Years' CAGR in Sales
Pepsi [ Snacks ]	19.93 %
Haldiram [ All Geographies Combined ]	25.58 %
Balaji Wafers	33.15 %
ITC	N.A.
Bikaji Foods	28.39 %
Bikanervala	17.29 %
Prataap Snacks	30.56 %
DFM Foods	46.13 %

Also interesting to note here is the EBITDA & PAT Margins (4 years' Avg. & of FY13) of each company :

	4 Years' Average	FY13
Pepsi [ Snacks ] EBIT Margin PAT Margin	4.52 % N.A.	2.93 % N.A.
Haldiram [ All Geographies Combined ] EBIDTA Margin PAT Margin	10.61 % 5.79 %	10.03 % 5.36 %
Balaji Wafers EBITDA Margin PAT Margin	18.55 % 12.07 %	19.45 % 12.41 %
ITC EBITDA Margin PAT Margin	N.A. N.A.	N.A. N.A.
Bikaji Foods EBITDA Margin PAT Margin	7.39 % 3.71 %	7.49 % 4.07 %
Bikanervala EBITDA Margin PAT Margin	8.33 % 4.02 %	8.53 % 4.26 %
Prataap Snacks EBITDA Margin PAT Margin	8.83 % 4.63 %	7.99 % 3.72 %
DFM Foods EBITDA Margin PAT Margin	11.94 % 5.42 %	10.58 % 2.80 %

Key things to note from above :

DFM Foods has registered highest 3 Years' CAGR in Sales over FY10-FY13. It has outperformed all the peers quite handsomely.

EBITDA margins of DFM are at par with Haldiram & just second best to Balaji Wafers which is a very satisfying thing. Its important to note here that Haldiram's major sales come from Sweets & Namkeen and Extruded Snacks forms only a small portion of its sales. Similarly, Balaji Wafers' major Sales contributors are Chips (Wafers) & Namkeens. Its only Pepsico & Prataap which have major contributions coming from Extruded Snacks.

DFM Foods' Scale of Operation (FY13) is smallest amongst all the companies mentioned with Pepsico & Haldiram at 2500+ cr. and Balaji at 913 cr. with ITC, Bikaji, Bikanervala and Prataap at 500 cr., 325.5 cr., 350.2 cr., and 343.8 cr. respectively.

Out of these 8 companies, Prataap has got Sequoia backing (51 % stake), Bikaji recently got Lighthouse PE backing (25 % stake), DFM got Westbridge backing (24.90 % stake) and Balaji is in final talks with Capital International PE (15 % stake). Pepsico and ITC are capable conglomerate while Haldiram has each family fraction catering to respective region. Its only bikanervala which is the weakest amongst the lot that is looking for a funding partner since last many years but has not got anyone yet.

Since four out of eight companies have got (or about to get) PE investors, its worthwhile to note here the valuations at which each respective PE-investment deal was stuck :

	EV/Sales TTM	EV/EBITDA TTM	PE Deal Happened in Year
Prataap Snacks	1.05	15.47	2011
Bikaji Foods	1.56	20.82	2014
DFM Foods	1.41	13.32	2014
Balaji Wafers	4.37	22.50	Most Likely in 2014

Originally posted by footy Why are ITC details not available?

Some additional Data Points for members' ref. :

( Growth YoY )	2013	2012	2011	2010	2009
Indian Packaged Food Segment	19.50 %	18.98 %	17.87 %	19.26 %	15.71 %
Indian Sweet & Savoury Snacks Segment	24.94 %	23.92 %	26.99 %	30.63 %	24.93 %
Western Snacks	25.75 %	25.15 %	27.42 %	32.79 %	22.99 %
Traditional Snacks	23.42 %	21.90 %	26.35 %	27.07 %	28.06 %
Chips / Crisps	23.37 %	23.06 %	29.14 %	33.62 %	29.63 %
Extruded Snacks Segment	28.69 %	27.83 %	25.29 %	31.78 %	15.71 %

 

 

Projected Growth :

 

( Growth YoY )	2014	2015	2016	2017	2018
Volume Growth :
Chips / Crisps ( Volume Growth )	11.64 %	10.82 %	9.19 %	8.22 %	7.96 %
Extruded Snacks ( Volume Growth )	19.54 %	17.92 %	16.42 %	15.49 %	15.10 %
Value Growth :
Chips / Crisps ( factoring-in normal price increase based on price trend till 2013 )	20.78 %	19.38 %	17.21 %	15.90 %	15.10 %
Extruded Snacks Segment ( factoring-in normal price increase based on price trend till 2013 )	26.57 %	24.54 %	22.62 %	21.31 %	20.65 %

 

 

 

 

 

Key Players in Indian Sweet & Savoury Snacks Segment

( Note – These Players together control 90 % + marketshare of the segment )

Large Players ( by FY13 Annual Sales )	` 500 cr. +	Pepsico Balaji Wafers Haldiram ITC
Mid-Size Players ( by FY13 Annual Sales )	` 200 – 500 cr.	Parle Products Prataap Snacks Bikaji Foods Bikanervala DFM Foods
Small Players ( by FY13 Annual Sales )	` 100 – 200 cr.	Parle Agro Cavinkare Venkataramana Food Specialities Agrotech Foods
Micro Players ( by FY13 Annual Sales )	` 1 – 100 cr.	Perfetti Van Melle Jabson Food Euro India Fresh Foods Atop Food Products

 

 

Crax Brand Key Marketshare Figures

	Sweet & Savoury Snacks Segment	Extruded Snacks Segment	Corn-based Extruded Snacks Segment
CRAX MarketShare ( 2013 )	2.03 %	5.61 %	9.19 %

 

 

 

 

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Extruded Snacks Marketshare Trend of Key Brands

	2013	2012	2011	2010	2009
Kurkure & Cheetos ( Pepsico )	52.7 %	55.2 %	53.8 %	49.2 %	52.9 %
Bingo ( ITC )	10.8 %	10 %	11 %	11.9 %	11.5 %
Yellow Diamond ( Prataap )	5.9 %	4.7 %	4.6 %	4.9 %	4.8 %
CRAX ( DFM )	5.6 %	5.3 %	5.1 %	4.1 %	3.9 %
TakaTak ( Haldiram )	4.3 %	4.3 %	4.2 %	3.8 %	3.3 %
Peppy & Piknik ( Venkataramana )	2.7 %	3,3 %	4.0 %	4.8 %	6.0 %