Mukka Proteins-Newly listed company worth studying

Background

1.Incorporated in 2003, It is an animal protein company, primarily engaged in the production of Fish Meal, Fish Oil and Fish Soluble Paste as well as developing alternative proteins such as Black Soldier Fly (BSF) Insect meal in the animal food segment.

2.Its products are essential ingredients for production of aqua feed (for fish and shrimp), poultry feed (for broilers and layers) and pet food (for dog and cat food).

3.In Fiscal 2023, of the total estimated revenue of the Indian fish meal and fish oil industry of ₹32,000 million to ₹41,000 million, the revenue of their company was ₹10,663.98 million thus, being 25%-30% contributor to the estimated revenue of the
Indian fish meal and fish oil industry for the corresponding period.
Further, fish oil also finds its application in pharmaceutical products Additionally,Omega-3 pills and related products derived from fish oil are gaining importance as high nutrient and healthy dietary supplements), soap manufacturing, leather tanneries & paint industries.

4.Promoters have around 5 decades of experience in the industry

5.They are amongst the first few Indian companies to have commercialised insect meal and insect oil (collectively “Insect Protein”) as an ingredient for aqua feed, animal feed and pet food.

6.It operates in an industry with a large addressable market.Moreover, to capture a larger wallet share, the company is strengthening its foothold in existing markets and is expanding to new geographies.

7.Strengths
a)Strengthening their foothold in their existing markets and expanding to new geographies.

b) The company share a good client relationship with their customers and company receive majority of their business from long-term customers.

c)Company have been able to penetrate into overseas market including China and Japan that are believed to have high standards for manufacturing, social and environmental compliance and food safety and traceability standards

d)Pursue strategic inorganic and organic growth opportunities

e)Expanding their presence in new protein Source(Insect based nutrition)

f)Strategically located Facilities:provides with access to company key raw material, pelagic fishes and thus minimizing company dependency on one particular coastal landing sites and fish catchments. Further, company strategically located Facilities also ensure fresh, adequate and cost-effective supply of pelagic fishes, company key raw material, as well as transportation of company finished products, thereby enabling them to secure supply of raw material, maintain high product quality and optimize on the transport cost.

g)Entry Barriers:Fish meal and fish oil contributes indirectly to human consumption as they are used as feed in aquaculture and livestock raising ,accordingly company manufacturing facilities are subject to audit and inspection by various regulatory authorities and also by company customers. Some of the requisite approvals includes, pollution control, environment clearances, license to export including country specific license,customer validation and approvals, stringent product specifications and high-quality standards. Further, these facilities usually need to be closer to the source of raw material i.e. sea and accordingly, are subject to stringent CRZ restrictions.

8)Key Risk
a)Capacity underutilization or inability to operate facilities could adversely impact business

b)Expansion success depends on timely regulatory approvals and critical raw material availability.

c)Electricity, fuel, and water shortages may disrupt operations, necessitating timely and cost-effective alternatives to avoid adverse effects.

d)Risks from cyclonic storms, unpredictable rainfall, and potential El Nino effects, impacting raw material procurement and processing

e)Failure to provide the specified quality of fish meal, fish oil and fish soluble paste can affect its reputation

f)Any failure to obtain, retain and renew certain approvals and license with such rules and regulations can affect their business performance.

g) MPL continues to remain highly reliant on short-term borrowings owing to the working capital intensive nature of operations.

h)The company remains exposed to forex fluctuation risk, however, the same is mitigated to an extent as it hedges around 50% of its forex exposure through forward contracts.

i)Cash flow from operations continued to remain negative due to an increase in the working capital requirement amid a substantial revenue growth and an increase in the working capital intensity of operations.

Note:
a)MPL has recently won purchase orders worth Rs 50.39 crore.The orders have been received from International entities viz.Ever Light Oil Industrial Co. Ltd. and Uni Best General Trading FZE for the supply of fish meal.

b)Recently released Financial results for Dec 23 Quarter(post IPO) has not been good.There has been an increase of around 30%(YOY) in the revenue numbers but drastic decline in operating profit margins due to hike in material cost.Unsure if the company will release investor presentation on this.

c)Mukka Protein’s recently completed IPO is a complete fresh issue and the company intends to use the proceeds from the IPO towards working capital requirements and towards investment in its associate, Ento Proteins.

(No buy/sell recommendation.I am invested in this company)

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