What you must know about Mukka Proteins IPO?

Mukka Proteins Ltd – About the company

Mukka Proteins Ltd was incorporated in the year 2003 to manufacture fish protein products. The principal vertical of the company is the production and supply of fish meal, fish oil and fish soluble paste. These are the essential ingredients for the production of aqua feed (fish and shrimp). In addition, they also go into poultry feed (broilers and layers) and pet food (dog and cat food). Mukka Proteins Ltd operates 6 production facilities. Out of these, 4 production facilities are located in India while the remaining 2 are located in Oman in the Middle east. These Oman facilities are owned trough the global subsidiary, Ocean Aquatic Proteins LLC. Apart from these production facilities, Mukka Proteins also operates 3 blending plants and 5 storage facilities so that the production process is fully forwards and backward integrated. All these blending and storage facilities are located in India.

The company, Mukka Proteins Ltd, has a very strong export franchise too. In fact, that is the reason, most of its blending storage facilities in India are also located very near to the coast. Today, Mukka Proteins Ltd exports its products to more than 10 countries, including Bahrain, Bangladesh, Chile, Indonesia, Malaysia, Myanmar, Philippines, China, Saudi Arabia, South Korea, Oman, Taiwan, and Vietnam. As of the close of the last financial year ended March 2023, the company employed 385 persons across its technical, production, marketing, sales, and operations divisions. The company also outsources some its production on a contract basis. For instance, Mukka Proteins already has such contractual manufacturing facilities in Sasihithlu (Karnataka), Udupi (Karnataka), Taloja (Maharashtra) and Ratnagiri (Maharashtra) for the supply of fishmeal and fish oil.

The IPO will entirely be a fresh issue and the fresh funds will be used to invest in its associates, Ento Proteins Private Ltd, to fund its working capital needs. Part of the funds will also be utilized for meeting the working capital needs of Mukka Proteins and for general corporate expenses. Promoters currently hold 100% in the company, which will get diluted post the IPO to 73.33%. The IPO will be lead managed by Fedex Securities Private Ltd, while Cameo Corporate Services Ltd will be the registrar to the IPO.

Highlights of the Mukka Proteins IPO issue

Here are some of the key highlights to the public issue of Mukka Proteins IPO.

• Mukka Proteins IPO will be open from February 29th, 2024 to March 04th, 2024; both days inclusive. The stock of Mukka Proteins IPO has a face value of ₹1 per share and the price band for the book building IPO has been set in the range of ₹26 to ₹28 per share.
   
• Mukka Proteins IPO will be entirely a fresh issue of shares with no offer for sale (OFS) component. A fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership.
   
• The fresh issue portion of the Mukka Proteins IPO comprises the issue of 8,00,00,000 shares (800 lakh shares), which at the upper price band of ₹28 per share will translate into a fresh issue size of ₹224 crore.
   
• In the absence of any offer for sale, the fresh issue will also double up as the overall issue size of the IPO. Therefore, the overall IPO of Mukka Proteins Ltd will also comprise of the issue of 8,00,00,000 shares (800 lakh shares) which at the upper end of the price band of ₹28 per share aggregates to total issue size of ₹224 crore.

Mukka Proteins IPO will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor allocation quota

The company was promoted by Kalandan Mohammed Haris, Kalandan Mohammad Arif and Kalandan Mohammed Althaf. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and parent company quota, if any. There is no employee quota that has been communicated by the company, in its final RHP filed with SEBI. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately, by the number of anchor shares allocated, a day ahead of the IPO opening.

Lot sizes for investing in the Mukka Proteins IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Mukka Proteins Ltd, the minimum lot size is 535 shares with upper band indicative value of ₹14,980. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Mukka Proteins Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Mukka Proteins IPO and how to apply?

The issue opens for subscription on 29th February 2024 and closes for subscription on 04th March 2024 (both days inclusive). The basis of allotment will be finalized on 05th March 2024 and the refunds will be initiated on 06th March 2024. In addition, the demat credits are expected to also happen on 06th March 2024 and the stock will list on 07th March 2024 on the NSE and the BSE. Mukka Proteins Ltd will test the appetite for such agri stocks in India. The credits to the demat account to the extent of shares allotted will happen by the close of 06th March 2024 under ISIN (INE0CG401037). Let us now turn to the practical issue of how to apply for the IPO of Mukka Proteins Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Mukka Proteins Ltd

The table below captures the key financials of Mukka Proteins Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Mukka Proteins Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been robust with the sales nearly doubling in the last 2 years. This shows the strong sales traction in growth in the last two years. Over the last 2 years, the net profits have grown five-fold, which has also led to the PAT margins improving to above 3.5% in the last 2 years.
    
2. While the net margins have been robust in the latest year at 3.74%, it is the return on equity (ROE) at 28.28% that is really attractive. Even the return on assets (ROA) is relatively strong at 7.66% and they have stabilized at a higher level in the last two years.
    
3. The company has a very robust sweating of assets at more than 2.0X in the last two years and this gets further magnified by the return on assets (ROA) at 7.66%. This promises much more robust growth in ROE in the coming years.

Let us turn to the valuations part. On the latest year diluted EPS of ₹2.00, the upper band stock price of Rs28 gets discounted at a P/E ratio of 14 times. This is very reasonable P/E for the industry, but a lot will depend on how the margins are maintained in the coming quarters for the company. Also, the EPS has come in at ₹1.47 for H1-FY24 and the annualized P/E would be less than 10X, which makes the stock all the more attractive.

Here are some qualitative advantages that Mukka Proteins Ltd brings to the table.

• It has a strong strategic position in the industry and also an established client base that is spread across the key global markets.
   
• Its integrated business model also makes the business create a lot of entry barriers, which will be hard to breach for competition.

However, this does remain a high risk business with strong quality cyclicality in global demand. These products are often subjected to routine product embargos by foreign countries, and these can have a deep influence on the business volumes. However, the sustained track record is testimony to the potential of this business. Investors with a higher risk appetite and willing to wait for a longer time frame can consider investing in this IPO.