Prataap Snacks: A Tale of IPO Hype and Financial Headwinds

In the vibrant landscape of India’s snack industry, Prataap Snacks Limited (PSL), known for its popular brands “Yellow Diamond” and “Avadh,” entered the market with high expectations during the 2017 Bull Run. However, the company’s performance post-IPO serves as a compelling lesson for investors on the perils of overpaying for initial public offerings.

The Rise and Fall:

Prataap Snacks went public at a hefty price of Rs 1270 per share, boasting a price-to-earnings ratio exceeding 90. Fast forward more than six years, and the stock is lingering around Rs 950, showcasing minimal capital appreciation. Despite strong sales growth of 84.90% and a commendable 46.51% rise in operating profits post-listing, alarming negative trends emerge in the financials.

Profit before Tax (PBT) took a substantial hit, plummeting by -86.67%, and Profit after Tax (PAT) growth turned negative at -4.76%. These red flags raise concerns about the company’s profitability and overall financial health. The stock’s inability to surpass its listing price, currently at Rs 831.6, reflects the market’s scepticism towards its future growth.

Prataap Snacks, despite its promising start, faces headwinds in the market. The stock, as of November 19, 2023, is down by 34.52% from its listing price of Rs 1270. A closer look reveals a consistent decline in promoter holding, along with reduced stakes of Foreign Institutional Investors (FII) and Domestic Institutional Investors (DII), signalling a lack of confidence from major stakeholders.

A Cautionary Tale:

The Prataap Snacks saga serves as a reminder that IPO success doesn’t always translate into sustained market performance. Investors who overpaid during the IPO phase may find themselves in a challenging position despite the company’s robust sales growth and operational profits. It underscores the importance of prudent valuation and thorough due diligence before investing in IPOs.

Let’s take a glimpse at the best and worst-performing IPOs of 2023:

In conclusion, the trajectory of Prataap Snacks Limited post-IPO offers a crucial lesson for investors, emphasizing the significance of cautious valuation and avoiding overpayment. Despite robust sales growth and operational profits, the stock’s stagnant performance underscores the hazards of excessive IPO pricing. The contrasting tales of success and struggle in the 2023 IPO landscape further illuminate the importance of meticulous research and due diligence before investing.

As the market continues to present opportunities, the moral remains clear that in this dynamic world of IPOs, prudent assessment and a judicious approach to pricing are fundamental to securing long-term gains and mitigating risks for astute investors.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.