Mukka Proteins is coming up with its IPO issue of Rs. 224 Cr which will open on 29th February 2024. The issue will close on 4th March and be listed on the exchange on 7th March 2024. This article will analyze the Mukka Proteins Limited IPO Review 2024 and its strengths and weaknesses. Keep reading to find out!

Mukka Proteins IPO Review

About the Company

Mukka Protein is a manufacturer & supplier of fish protein products. They supply fish meal, fish oil, and fish soluble paste, which are essential ingredients used in manufacturing aqua feed, poultry feed, and pet food. It is a pioneer in the fish oil industry by commercializing insect meal and insect oil as an ingredient for aqua feed and pet food. 

The fish oil manufactured by Mukka also finds applications in pharmaceutical products, soaps, leather tanning, and paint industries. Their products are exported to over 10 countries across Asia.

The Company has 6 manufacturing facilities operated by the Company, out of which 4 are located in India. The other two facilities are located in Oman and operated by its foreign subsidiary. Apart from this, the Company has three blending facilities and 5 storage facilities in India. All facilities are located near the coastline to allow for efficient logistics. 

These facilities have an annual capacity of manufacturing 1.15 Lakh Metric tonnes per Annum (MTPA) of fish meal, 16,950 MTPA of fish oil, and 20,340 MTPA of fish soluble paste. The Company has contractual agreements with third-party manufacturing units situated in Karnataka, Gujarat, and Maharashtra for the supply of fish meal and fish oil. 

The key raw material for the business is pelagic fish, which is sourced from local fish catchers. This is then turned into fish meal and fish oil which is produced by the third-party manufacturers and further blended by the Company as per customer requirements.

About the Industry

India is one of the largest global producers of animal feed and the Indian compound animal feed market is growing at a fast clip and is expected to record a 3.5-4.0% CAGR, in value terms, between FY22-26. 

Fish meal is an essential element of the compound feed industry and, thus demand for fish meal is expected to be strong going forward. Within the animal feed market, during the same period, aqua feed is expected to grow the fastest at a 9-10% CAGR (value terms) driving higher growth for protein-rich feed such as fish meal and fish oil. 

CRISIL MI&A Research estimates that the Indian fish meal and fish oil industry de-grew at a CAGR of 4%-5% from Rs 1800 Cr – 2400 Cr in FY18 to Rs 1300 – 1700 Cr in FY22. However, in FY23, the industry is estimated to see a huge jump in value as well as volume. 

It is likely to see a year-on-year growth of 130-170% in value terms and 90-130% in volume terms. This sudden rise can be majorly attributed to the increase in oil sardine landings (major raw material for fish meal and fish oil) coupled with increased traction in exports led by production shortage in the Peru region and higher exchange rates in the global markets.

Going forward, CRISIL estimates the overall industry volume to grow at a CAGR of 3-7% FY22 to reach an overall production of 130,000-170,000 tonnes by FY26. In value terms, the industry is expected to grow at 5-9% between FY22 and 2026 reaching Rs. 1600-2000 Cr.

Mukka Proteins IPO Review – Financials

Mukka Protein reported revenue from Operations worth Rs. 1177 Cr in FY23, which increased by 53% from Rs. 770 Cr in FY22. Revenues have consistently grown at the rate of 39% CAGR since FY21.

The Company earns a majority of its revenue from the sale of Fish meal. Although its exposure to fish oil has come down from 93%, it still contributed to 83% of the revenue. Fish oil has been quite an outperformer with revenue increasing from Rs. 32.5 Cr in FY22 to Rs. 165 Cr in FY23.

Net Profits increased by 738% from Rs. 63 Cr in FY22 to Rs. 527 Cr in FY23, and have increased at a CAGR of 88% since FY21. The exorbitant rise in Net profits can be credited to the increase in inventory, which has reduced expenses and boosted Net profitability.

The cost of Goods Sold has been the biggest expense for the Company, eating away at 86% of its revenue. This has squeezed the Company’s EBITDA Margins to just 7.3% and Net Profits to just 4% of revenue.

Taking a look at the Company’s operating cash flows we see that it reported a net outflow of cash from Operating activities. This was a result of an extraordinary increase in inventory of Rs. 65 Cr. Currently, the recorded inventories on the balance sheet are worth 40% of the total assets of the Company.

Mukka Proteins – Key Players 

Mukka Protein is the third largest Company in its peer group, in terms of sales. It falls behind Avanti Feeds and Godrej Agrovet. With an EBITDA Margin of 7.3%, Mukka falls behind Avanti, Zeal & Waterbase. 

In terms of PAT Margins. Avanti emerged as the best performer, followed by Godrej Agrovet. The rest have extremely low margins of 1% or less. Return on worth wise, Mukka Protein leads as the Company has a very low reserve base as compared to its established peers.

Mukka Protein, at the higher end of its price band of Rs. 28 and FY23’s Basic EPS of Rs. 2.09 will be valued at a Price-to-earnings ratio of 13.4x. At this valuation the Company does seem to be reasonably priced as compared to its competitors.

Strengths of the Company 

1. Leading manufacturer & exporter of Fish Protein products: The Company is a Three Star Export house, recognized by the Ministry of Commerce. It is a leading manufacturer with a market share of 18% in India’s fish meal exports.
2. Established customer base with strong relationships: The Company has established strong relations with 19.61% of revenue coming from customers that have at least a 5-year relationship. The Company continues to add new customers from domestic as well as foreign markets. 
3. Strategically located facilities: With the Company engaged in the manufacturing of fish oil, pelagic fish is a key source of raw material for the Company. Hence, its presence on the coastlines allows it to save on transportation as well as reduce the cost of exporting.
4. Entry Barriers: As fish meals and fish oil contribute to human consumption directly or indirectly, the manufacturing facilities are subject to rigorous audits by various authorities. Also, the Marine Products Export Development Authority has imposed a moratorium on new fish meal & oil facilities blocking new entrants.
5. Experienced Promoters: The promoters of the Company have around 5 decades of experience in the industry. They are involved in manufacturing, procurement, as well as marketing, having been involved in various organizations and associations allows them to deepen and expand relationships with other suppliers and customers.

Weaknesses of Company

1. Party to a legal proceeding: The Company is a party to a legal proceeding concerning an alleged violation of environmental norms by the Company. The high court ordered the Karnataka Pollution Control Board to submit a report after inspecting Mukka’s manufacturing plant. Although the case has been adjourned without a further hearing, a court ruling against them could stall the usage of Mukka’s biggest facility. 
2. Revenue Concentration Risk: The Company earned nearly 37% of its revenue from its Top 2 customers and 53% of its revenue from its Top 5 customers in FY23. This shows how much revenue impacts a single customer 
3. High Working Capital requirements: The Company is currently utilizing 83% of its working capital including credit limits. If the Company required additional capital, it had to issue debt, which would further strain its income. Nevertheless, the Company is issuing its shares in the IPO to utilize the proceeds as working capital
4. Extremely Low Margins: The Company loses 86% of its revenue in the form of Cost of Goods Sold, due to which it cannot get more than single-digit margins. 

Mukka Proteins Limited IPO Review – GMP

The shares of Mukka Proteins Ltd traded at a 60.71% premium in the grey market on 27th February 2024. The shares in Grey Market traded at Rs 45. This gives it a premium of Rs 17 per share over the cap price of Rs 28.

Mukka Proteins IPO Review – Key IPO Information

Promoters: Kalandan Mohammed Haris, Kalandan Mohammad Arif, and Kalandan Mohammed Althaf

Book Running Lead Manager: Fedex Securities Pvt Ltd.

Registrar to the Offer: Cameo Corporate Securities Ltd

The Objective of the Issue

1. Rs 120 Cr will be utilized for funding the working capital requirements of Company
2. Rs. 10 Cr will be used to invest in its Associate Company, Ento Proteins Pvt Ltd for its working capital requirements
3. The remaining amount will be utilized for General Corporate Purposes

Conclusion

In conclusion, Mukka Protein is a leading manufacturer and exporter of fish protein products with an established presence. Its revenues and profits have grown at a healthy pace over the last few years. 

The animal feed industry, which is Mukka’s key market, is expected to see strong growth going forward, driving demand for fish meal and oil. However, margins of the business remain quite squeezed and vertical integration is the need of the hour. 

At the upper end of the price band, Mukka seems reasonably valued compared to industry peers. Whereas, on the flip side, the company does face revenue concentration risk.

Overall, Mukka Proteins IPO could offer good listing gains given the strong grey market premium. However, from a long-term perspective, investors should wait to see how the company performs before making large investments. The IPO seems best suited for investors willing to take on higher risk for higher returns in a relatively small market.

Written by Nasir Hussain

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