Annapurna Swadisht Ltd - A Swadisht FMCG investment?

Stock Opportunities
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Company Details:

Annapurna Swadisht Limited is a manufacturer of snacks and food products, namely, Fryums, cakes, candy, namkeen, chips, and Gohona Bori. Company was incorporated in the year 2015, and over the years, it is being able to establish itself as a brand name in the Eastern India. They have a unique price point of Rs. 5 which makes them the dominant player in Rural Areas.
Annapurna Swadisht Limited sells 12 Lakh+ packets of products daily. The company is one of the largest FMCG players in Eastern India in fast growing segments in Fryums, Cakes, Candies, Namkeen, and Potato Chips.
Company’s products are marketed under own brand names Jackpot, Chatpata Moon, Balloon, Finger, Rambo, Makeup Box, Dhamaka, Phoochka, Jungle Adventures, Ringa, Bachpan Ka Pyaar, Kurchure, Cream Filled Cake Vanilla, Cream Filled Cake Litchi, among others.
They have been certified by Food Safety and Standards Authority of India (FSSAI) for the quality management systems.

Products and Distribution:

  • Currently they have 38 SKUs across 6 product lines
  • 300 plus distributors in West Bengal, Bihar, Odisha, Jharkhand and Assam
  • 80 plus Super stockists in key markets (5 states mentioned above)
  • 5,00,000 plus retail touchpoints across 200+ towns & 70,000+ villages

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Manufacturing Capacity:

Currently they have 2 Manufacturing Units in West Bengal. Capacities are built in proximity
to markets of consumption to reduce freight costs.
(1) in Asansol with a constructed area of approx. 50,142 sq. ft. and
(2) in Siliguri with a constructed area of approx. 35,000 sq.
Daily production capacity of Asansol unit is 15 MT of Fryums and daily production capacity of manufacturing unit at Siliguri is 10 MT of Fryums. (Total 25 MT of capacity)
Currently, both facilities are operating at ~100% utilization as on June 30, 2022.

Capacity expansion plans:

They are more than doubling their capacities to 60 MT by December 2022. They are adding two more manufacturing units in West Bengal (Gurap and Dhulagarh). They are aiming to secure backward integration in Gurap unit with flour mill.
Currently total Capex of approx. INR 21 crore+ is underway for above (Funding mainly from funds raised in IPO).

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Financials:

Annapurna Swadisht Ltd has been growing rapidly in last 3 years on lower base. They have grown from topline of 13.75cr in 2019-20 to 61.05cr in 2021-22.
Furthermore, they have clocked 29cr revenue in Q1 of 2022-23 and looks to maintain similar growth trajectory.

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They have grown 15% MoM from April 2020 till June 2022, which is nothing short of an incredible growth journey!

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Geographical Revenue Breakup (2021-22)
West Bengal – 68.5%
Bihar – 7.6%
Jharkhand – 22%
Odisha – 0.9%
Assam – 0.7%

Investment Thesis:

*They are in highly growing Indian Snacks Market:
The snacks industry of India is the most promising and booming segment of the FMCG category. There is a rise in demand for snacks in India; it is driving the companies to grow and operate in this segment lucratively. According to Renub Research latest report, the India Snacks
Market is expected to reach US$ 23.36 Billion by 2026.
The packed snacks such as instant and ready-to-cook snacking food items act as the primary growth drivers for the snacks industry in India. The consumption of package snacks is growing in India due to hygienic factors, easy availability, numerous choices, and a rise in its citizens’ personal disposable income. Study suggests that the Indian Snacks Market size is expected to grow with a double-digit CAGR of 13.24% from 2020 to 2026.

*They are adding new flavours and products to nearly double their SKUs to 50 by December 2022. They are also aiming at expanding presence across price points to mitigate any potential customer concentration risk.

*Annapurna Swadisht Ltd is growing at a phenomenal rate and plans to grow similarly in future (atleast for next couple of years with enhanced capacity). Management is expecting to close the current financial year (2022-23) at around 180-200cr of revenue (which is 3x of their 2022 revenue of 60cr).

*OPM has been increased from 5.5% in 2020 to around 8% in 2022. With scale, expect OPM to further improve.

*With current capacity of 25MT, they can clock up to 15cr per month (as per management). With 60MT capacity (most likely to be from Jan 2023), they can clock up to 30-35cr per month and around 360-420cr per annum. If they can penetrate other eastern states as they have with West Bengal, they can grow very well for next 2-3 years atleast with current enhanced capacity.

Risks:

*This is a microcap company which was recently listed and is only listed in NSE SME board. Investing in a SME stock without due diligence can erode your capital quickly.
*At current market price, company is trading at 2.2 Market cap to Sales (considering same runrate of Q1 2023) and P/E of around 50, which is not cheap by any means. (We could argue that an FMCG company growing at such rate could command such valuations).
*Geographical concentration risk: 68.5% of the revenue was from West Bengal. Need to keep this in mind. (Though management is trying to penetrate Bihar, Jharkhand, Odisha and Assam)

Disclaimer: Invested 1 lot. This is not an investment advise. Please do your own diligence before taking buy/sell decision.
If anyone else is tracking the company, please provide your valuable inputs.

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Couple of Management Interview/discussions available:

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@Chethan_Ck

Thank you for initiating this thread; I am also invested here.

Key strengths: a. Focus on East / North East markets, traditionally underserved by big, organised FMCG players. Their major competition seems to be unorganised players.
b. Being able to cater to the tail end of the distribution chain, again those small ticket distributors who are difficult-to-service for big FMCG.

However, this is (very) recently listed company, without a single quarter of results post listing. I am waiting for the HY results, due in a week’s time. Disclosures (or lack there of!) should be helpful; let’s see.

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Investor presentation:

ANNAPURNA_10102022145903_IntimationtoSEforInvestorMeetsigned (1).pdf (4.9 MB)

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Good set of results by the company!

Growth continues! Expect good increase in revenue of H2 2022-23 as new capacity would be online by December this year.

H1 2022-23 Revenues at 65.7crs Vs 24.32crs (250% increase YoY)
H1 2022-23 PAT at 2.87crs Vs 1.25crs (125% increase YoY)

Q2 2022-23 Revenues at 36.7crs Vs 29crs Q1 2022-23 (26% increase QoQ)

Q2 2022-23 PAT at 1.56crs Vs 1.31crs Q1 2022-23 (19% increase QoQ)

ANNAPURNA_11112022162118_OutcomeofBoardMeeting_Sept2022signed.pdf (1.5 MB)

Disclosure: Invested

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“Start of Packaging and Marketing of Edible Oil in
the State of West Bengal, Jharkhand, Bihar, Orrisa and Assam”.

ANNAPURNA_07122022185057_AnnapurnaPressRelease_EdibleOil.final.pdf (1.6 MB)

I am not sure why they are getting into edible oil. I believe the margins are less in that segment. Does anyone have an idea on this?

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New investor presentation.

ANNAPURNA_07122022123351_ANNAPURNA_INVESTORPRESENTATION.pdf (3.4 MB)

Few notes:

Total capacity to be 68MT by Sep 2023. Current capacity is 35MT. (Increased from 25MT)
One thing I observe is in the previous investor presentation, they had mentioned that capacity would be 60MT by December 2022. Little worried that they moved the dates to September 2023.

475 distributors (from 300) and 90 super distributors (from 80) across 5 states.

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My understanding / take-aways from the recent investor presentation (Dec. 2022)…

  1. Focus continues to be on the East / North East. West Bengal accounts for more than 50% of revenue; looking to expand in Assam, Bihar and Jharkhand. Looking to get a foothold in Odisha.
  2. Fryums account for most of their sales. However, they are making a play for Namkeen, potato chips, cakes and candy. Per their recent press release, they have launched edible oil (packaging and sale), using the same distribution network. Have close to 60 SKUs.
  3. Seem to be putting their fixed assets to good use, as reflected by a healthy asset turnover ratio.
  4. Price points of Rs. 5 & Re. 1 – strategy seems to be to cater to people with low disposable income, with a focus on quality and branding.
  5. Plan is to augment capacity to 68MT (both own and contract) by Sep. 2023.

Key monitorable: Promoter / senior management quality is untested. Integrity, attitude towards non-control shareholders, capital allocation skills and ability to execute & scale need to be tracked. However, I have not come across significant concerns / red flags so far.

Disc: Invested; views biased.

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I have a few concerns about the “Olonkar” brand:

  1. The company talks about entering into D2C business with a BigBasket tie-up for their Olonkar brand of local delicacies like papad, gohona bori, pickles etc. But I have not been able to find any of their products on Big Basket.

  2. Their business mainly targets consumers with low disposable income. Their business model works on the same principle. They supply goods to dealers on low ticket size of order and the price of the products are also between ₹1 - ₹5. However, the “Olonkar” brand seems to be a premium product, with prices of products ranging between ₹190 - ₹700.

  3. Has any one been able to do a channel check about the company’s products?

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Annapurna Swadisht Limited (NSE Emerge: ASL): We are pleased to inform you that we have
successfully completed the trail run on January 23, 2023 at our new manufacturing Plant at
Siliguri, West Bengal. The additional daily production capacity of the new plant is 15 MT per day of fried extruded snacks and 10 MT per day of Cakes and Rusks aggregating to 25 MT per day. The new plant is expected to start commercial production w.e.f. February 15, 2023.

We are also pleased to share that we have achieved a turnover of Rs. 10,852.94 Lakhs for the
nine months period ended December 31, 2022 and Rs.4,291.04 Lakhs during the quarter
ended December 31, 2022.

ANNAPURNA_24012023152159_Intimation_SE_ASL.pdf (1.4 MB)

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Good to see that the overall capacity would be 60MT from Feb 15.

Also good 16% increase in sales to 42.9crs for Q3 compared to 36.7crs sales of Q2.

Once they utilise complete capacity, we can see very good amount of sales numbers.

Disclaimer: Invested, biased

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Do read my previous posts in this thread for context.

The IPO was in September of last year. The management has executed on multiple fronts; more specifically 1. marketing & sales, and 2. the distribution channel. This is commendable as most of the SKUs are priced at Rs. 10/= or less – FMCG giants usually struggle to crack this market. They now have a significant presence outside of WB, and expanding geographically with every quarter. Management has been able to widen the product portfolio and convince private label manufacturers to partner with them. All this has been done prudently and with a sharp eye on profitably – as reflected in the FY23 numbers.

Right from the time of the IPO, the focus was on the East / North East. In this context, the recent “exclusive contract manufacturing agreement” with Gopal Foods, Mathura is a potential gamechanger. This facility will give them access to all of Delhi, Haryana and Uttarakhand, and large parts of UP, MP and Rajasthan. According to the press release, the unit has a capacity of more the 1200 MT (biscuits, namkeen and snacks); how much of this is exclusive to Annapurna is unclear. If the management can customize, execute and scale in this “uncharted territory”, it will be an asset-light template for profitable growth.

Disc: Continue to remain invested; have bought in the last 30 days. Views biased.

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What is the current capacity utilization?
How much Revenue can they generate with this capacity?

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(Annapurna Swadisht Ltd on LinkedIn: #noodles #noodle #annapurnaswadisht)

They launched another a new product catagory, noodles

(Annapurna Swadisht Ltd on LinkedIn: #annapurnaswadis #snacksensation #annapurnaswadishtltd #exoticflavors…)

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Hi guys - very interesting set of numbers.

Quick question - has anyone taken a look why CFO is negative right now ? Apart from investment in capex & capital WIP (which is fair), wanted to understand if it’s an acceptable trade practise to also use share proceeds to fund recievables (probably to the trade channel to incentivize them to stock the Annapurna brand), invest in inventory & give loans & advances - the amount invested in these 3 items look pretty sizeable. Or maybe they have used a part of their proceeds to fund their liabilities for now (I see Debtor days & Invetory days have gone down YoY).

Apologies if my question is a little naive, would be great to get some perspective on whether I am reading this right.

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Annapurna Swadisht - Few pointers from Annual Report

  • We set the second facility (Unit 1) in Siliguri, West Bengal, in 2022 and followed it up with Unit 2 at the same location. This addition has helped us to manufacture biscuits (Rusk), cakes and cream roll which were earlier outsourced. Further, we added new product lines to our Asansol facility, shoring up production volumes significantly.
  • We are working with five white-label players to manufacture our five product segments which include potato chips, cakes, namkeen, ready- to-drink beverage (Gluco Water) and Noodles
  • We entered into an exclusive contract manufacturing agreement with Gopal Food Product. The manufacturing facility, located at UPSIDC in the Kotwan Industrial Area of Mathura, Uttar Pradesh, has a production capacity of 1000 MT of biscuits, 60 MT of namkeen, and 150 MT of snacks per month.
  • The new facility is well-positioned to serve the regions of East and North Rajasthan, Haryana, West, and Central Uttar Pradesh, the Delhi National Capital Region (NCR), North Madhya Pradesh, South and West Uttarakhand, and more.
  • We have invested in two large greenfield units at Dhulagarh & Gurap in West Bengal. While the Gurap unit has started commercial production, our Dhulagarh facility will commence operations later in FY24.
  • FY24 heralds a promising performance with the commissioning of our large greenfield facilities and multiple new product launches. In addition to our new facilities, we will partner with white-label manufacturing partners.
  • To move close to consuming markets and grow output. While we remain exceedingly stringent on product quality, we will sharpen our focus on optimizing costs with a particular emphasis on logistics.
  • In FY 23, the Company enhanced its presence by going beyond the RS. 5
    price point. It forayed into the RS. 10 market with cakes, rusk and gluco water. Additionally, it entered into the biscuit segment with RS. 30 as the highest product price point.
  • The Company will add new product categories to its product offering, including popcorn and jhalmuri. In addition, it will further rejuvenate its existing product categories with newer SKUs in flavors and sizes to widen its opportunity horizon.
  • The Company has entered into Uttar Pradesh and plans to extend its footprint to other contiguous northern states.
  • Barring unforeseen circumstances, I am confident that we will continue to report an industry-beating performance over the years to come and deliver significant value for all our stakeholders.
  • It is expected that the Company will achieve sound operation and financial performance in FY 2023-24. We aspire to be the best and to protect the interest of our customers, society and all the stakeholders.
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Did anyone attended AGM yesterday ? If someone can share the notes/key highlights that would be great.

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Nothing much happened in AGM. There were only 2 questions asked.
from Vivid memory: Annapurna is a Bharat story and not India story. They would continue to grow in rural India. Per management, there is huge scope (vacancy by bigger peers) ahead in rural areas, so their focus would be mostly in that.
Noodles SKU would be their prime focus this year.
UP would be their next big market. Mathura plant (contract manufacturing) would be the growth driver.

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Thanks Nalini for sharing some insights from AGM. Much appreciated. I was going through the concall of Bikaji foods and it seems that they are also investing heavily and focusing on rural India (Bharat) in the likes of UP, Bihar and Eastern part with Rs 5 packets products (Impulsive category). So i wanted to understand from learned people on this forum that:

  1. What’s the right to win for Annapurna in these new markets vis a vis their peers. Is it the product mix/differentiation in terms of higher SKU’s or is it some other factor ?
  2. Biggies are now shifting their focus on impulsive buying category so don’t think that Annapurna can claim price point as their only value proposition to gain market share.
  3. In terms of “Noodles” as a category, as mentioned that this would be their focus area for FY 24, does it mean that they are able to compete with Maggi and their product is getting traction in existing market. This seems to be a bit unreal but if yes then definitely it speaks something about their product quality.

Happy to be proven wrong and hear some different perspective from the learned members.

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  1. For east and north-eastern markets: Annapurna mentions that they have customized their products are the taste/needs for the market. Not just only 1 pan India product in a category.
  2. Competition (fierce) competition will always be there in this segment. Either with Big players or with local manufacturers. Annapurna’s plan is to have as much SKUs as possible and have as much as possible products in a shop. They want to fill the smaller shops with their products (Jo dikhta hai wahi bikta hai). In a sense, they are trying to increase their visibility to gain wider acceptance (may be some kind of exclusive deals as well).
  3. In Noodles, they have just started. 1 year back they had got few executives from Nestle. Let’s see how they are able to gain the market share.
  4. All in all, execution of Annapurna has been too good. And still they are only in a few states. Opportunity size is still very big. So, with pricing, localized tastes, and better execution, they can grow very well. Let’s see how they progress.
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