Mukka Proteins
- Mukka Proteins is coming out with a 100% book building; initial public offering (IPO) of 8,00,00,000 shares of Rs 1 each in a price band Rs 26-28 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open for subscription on February 29, 2024 and will close on March 4, 2024.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 1 and is priced 26 times of its face value on the lower side and 28 times on the higher side.
- Book running lead manager to the issue is Fedex Securities.
- Compliance Officer for the issue is Mehaboobsab Mahmadgous Chalyal.
Profile of the company
As a manufacturer of Fish Protein products, Mukka Proteins manufactures and supplies fish meal, fish oil and fish soluble paste which is an essential ingredient in the manufacturing of aqua feed (for fish and shrimp), poultry feed (for broiler and layer) and pet food (dog and cat food). 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. It sells its products domestically and also export them to over 10 countries, including Bahrain, Bangladesh, Chile, Indonesia, Malaysia, Myanmar, Philippines, China, Saudi Arabia, South Korea, Oman, Taiwan and Vietnam.
With, many decades of successful track record of its Promoters in the Fish Protein industry, the company is one of the pioneers of the industry. It is also amongst the first few companies to have introduced the steam dried process in India for manufacturing of fish meal. Its Promoter Directors, namely Kalandan Mohammed Haris, Kalandan Mohammad Arif and Kalandan Mohammed Althaf are actively involved in the business and amongst themselves have, in-depth knowledge and vast experience in the marine sector, Fish Protein, aqua feed and alternative protein industry. Its Promoter Directors share various functional responsibilities amongst themselves for effective management and are well supported by qualified and experienced professionals.
The company maintains its facilities along the coastline to minimize its dependency on any particular coastal landing sites and fish catchments and thus providing it with fresh, adequate and cost-effective access to its key raw material i.e. pelagic fish, such as sardine, mackerel, anchovy, etc. Its strategically located Facilities also enable it to maintain high product quality and optimize on the transport cost. Further, the company also sources fish meal, fish oil and fish soluble paste as its raw materials from partnership firms, namely Ullal Fish Meal and Oil Company, Mangalore Fish Meal and Oil Company, Progress Frozen and Fish Sterilizetion, and Pacific Marine Products, where the company has made substantial capital contribution (collectively Partnership Facilities) and also from third party manufacturing units. The fish meal, fish oil and fish soluble paste, as raw materials are further processed and blended at its Blending Facilities in order to cater the demand of its customers.
Proceed is being used for:
- Funding working capital requirements of the company.
- Investment in its Associate, viz. Ento Proteins Private Limited, for funding its working capital requirements.
- General Corporate Purpose.
Industry overview
The agriculture, forestry and fishing segment has been a key contributor to the total GVA. The segment’s GVA has grown 3.5% from fiscals 2012-22. The segment contributed 15.6% of the total GVA in fiscal 2022. In terms of GVA, fisheries have been fastest growing segment in AFF. Its GVA grew around 8.0% during fiscal 2012 to 2022. This segment contributed 6.9% share in the AFF sectoral GVA as of fiscal 2022, and 1% to overall GVA. India has a coastline of 7,516.6 km (including mainland, Lakshadweep and Andaman & Nicobar), which helps India’s fishing population. Export of fish and fish products from India has grown at 13% CAGR from Rs 166 billion in fiscal 2012 to Rs 576 billion in fiscal 2022. Of the total exports in fiscal 2022, frozen shrimp occupied the highest share at 74%, followed by frozen fish at 6%. In fiscal 2022, exports of fish and fish products were highest from Vishakhapatnam port, at Rs 156.5 million by value and 27% by share of fish and fish products. Kochi and Kolkata ports followed closely, with a share of 11%, each. Meanwhile, India occupied 8% share of global fish production in CY 2021. The share has grown from 5.4% in CY 2011. Fish production in India has grown at 6.2% CAGR from CY 2011 to CY 2021 while the global fish production has grown at 2.1%.
Fish meal and fish oil are produced from i) fish considered as industrial catch (those caught specifically for making fish meal and fish oil) and ii) surplus stock from by-catch of fisheries for human consumption. Sometimes offal and trimmings from sea-food processing industries are used along with whole fish, to produce fish meal - the proportion of this mixture varies between large players and small players with large players using smaller proportion of offal and trimmings to produce fish meal when compared to that of small players. Industrial catch are high protein edible species of fish such as sardines, which are the major source of protein in the aqua feed protein chain. While industrial catch comprises edible species of fish, they are not majorly favoured for direct human consumption. On account of the economical price of the raw material (fish), wild species from sea are generally used in the fish meal and fish oil industry rather than aquaculture species. According to the International Fish meal and Fish Oil Organisation (IFFO), now known as IFFO - The Marine Ingredients Organisation, 30-35% of the wild catch goes into the production of fish meal and fish oil.
The fish meal and fish oil industry is seasonal in nature as the production during a period is majorly dependent upon the fish landings (fish availability) during that period. The landings of Indian oil sardines - the major raw material used in production of fish meal and fish oil - has seen a fluctuation over the years. These fluctuations in landings that bring in seasonality in the industry is majorly influenced by various factors which include environmental factors such as sea surface temperature, salinity, rainfall, upwelling, food availability; environmental events such as El Nino with a reduced rainfall and high temperature along with excessive fishing on the stock beyond the maximum sustainable yield, and excessive capture of juveniles. Going forward, overall industry volume is estimated to grow at a CAGR of 3-7% from the base of fiscal 2022 reaching an overall volume of 130,000 - 170,000 tonnes by fiscal 2026. In value terms the industry is expected to grow at of 5-9% between fiscal 2022 and 2026 reaching Rs 16-20 billion. In fiscal 2023, the value growth is supported by both price and volume. The production shortage in Peru has supported the growth in exports leading to rise in prices for the fiscal which expects to see a moderate growth over the longer term.
Pros and strengths
Positioned as a leading manufacturer and exporter of Fish Protein products: Consistently being awarded by MPEDA, during the last 7 years for its export performance, including as an outstanding performance in export of fish meal, fish oil and allied products for Fiscal 2021, Fiscal 2020 and Fiscal 2019, the company is one of the key players of the Fish Protein industry in India. In Fiscal 2023, of the total estimated revenue of the Indian fish meal and fish oil industry of Rs 32,000 million to Rs 41,000 million, the company is one of the key players of the Fish Protein industry being 25%-30% contributor to the estimated revenue of the Indian fish meal and fish oil industry during the corresponding period. The company is also amongst the first few Indian companies to have commercialised insect meal and insect oil as an ingredient for aqua feed, animal feed and pet food.
Established customer base and strong relationships: The company has long established relationships with its key customers who are the major producers of aqua feed, poultry feed and pet food. One of the key factors differentiating it from its competitors is the quality of its products and customer centric approach by offering products meeting the customers’ specifications. This approach has helped it to not only grow its business since inception but has also nurtured and expanded its market presence in the industry in which it operates. During the Fiscal 2023, Fiscal 2022 and Fiscal 2021, it served around 84, 46 and 52 customers, respectively and 51 customers during the six-month period ended September 30, 2023. As of September 30, 2023, the company has on-going business relationships of more than five years with 19.61% of its total customers who contributes 52.90% of the revenue from operations. During the 3 preceding Fiscals and for the 6-month period ending September 30, 2023, it has expanded its customer base by adding 59, 23 and 33 and 21 new domestic and overseas customers, respectively.
Strategically located Facilities: The company is engaged in the business of manufacturing of fish meal, fish oil and fish soluble paste. Its key raw material is pelagic fish, which it sources from the local fish catchers. Pelagic fish and fish remains are its raw materials for manufacturing of fish meal, fish oil and fish soluble paste. It also procures fish meal, fish oil, insect meal and insect oil as its raw material, which it further blend to its final product and as per customer specification. It procures its raw material based on quality, pricing and market availability. Its suppliers of raw materials include local fish catchers, fish processing units and fish meal suppliers. The company also imports fish meal from overseas suppliers, including its Foreign Subsidiary, namely Ocean Aquatic Proteins LLC.
Entry barriers: Fish meal and fish oil contributes indirectly to human consumption as they are used as feed in aquaculture and livestock raising, accordingly its manufacturing facilities are subject to audit and inspection by various regulatory authorities and also by its 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, since these facilities usually need to be closer to the source of raw material i.e. sea and accordingly, are subject to stringent CRZ restrictions. As a manufacturer of Fish Protein products, it is imperative that its products are pre-approved by its customers, as its customers’ end products contribute indirectly to human consumption and are typically subject to stringent regulatory and industry standards.
Risks and concerns
Maximum revenue comes from few customers: For the six-month period ended September 30, 2023 and during the Fiscal 2023, Fiscal 2022 and Fiscal 2021, its top 5 customers contributed Rs 3520.73 million and Rs 6248.99 million, Rs 6,188.26 million and Rs 4,619.10 million, respectively comprising of 58.09% and 53.09%, 80.31% and 76.50%, respectively, of its revenue from operations. Further, for the six-month period ended September 30, 2023 and during the Fiscal 2023, Fiscal 2022 and Fiscal 2021, its top 2 customers contributed Rs 2555.77 million and Rs 4344.36 million, Rs 4,796.04 million and Rs 4,170.28 million, respectively, comprising of 42.17% and 36.91%, 62.25% and 69.06% respectively, of its revenue from operations. If its customers are able to fulfil their requirements through captive or in house manufacturing or any of its existing or new competitors providing products with better quality, or cheaper cost, or any competitor providing alternate source of protein products, the company may lose significant portion of its business and revenue.
Majority of topline comes through the sale of fishmeal in India, China, Vietnam and Japan: The company generates a majority of its revenue through the sale of fishmeal in India, China, Vietnam and Japan. Any adverse developments or changes in the demand for its products, consumption patterns, government regulations in India may have a material adverse effect on its business, financial condition and results of operations. The revenue from operations from the sale of fishmeal for the six-month period ended September 30, 2023 and Fiscals 2023, 2022 and 2021 accounted for 86.16%, 81.73%, 92.42% and 90.56%, respectively, of its revenue from operations. Any adverse change in demand for its products, consumption patterns, prices or government regulations including substantial increase in the levy of duties on fishmeal, introduction of trade barriers in other countries may adversely affect its business, financial condition and results of operations.
Dependent on limited number of suppliers for raw material: The company is dependent on third-party suppliers and manufacturers for the supply of its raw materials. The key raw material that it uses for its manufacturing operations is pelagic fish (raw fish), which it sources from the vendor, agents and local fish catchers and its raw material suppliers are primarily located in India. Pelagic fish and fish remains are used as its raw material to manufacture fish meal, fish oil and fish soluble paste. It also procures fish meal, fish oil, insect meal and insect oil as its raw material, which it further process and blend as its final product to meet its customer needs. It procures its raw material based on quality, pricing and market availability. Its suppliers of raw materials include local fish catchers, fish processing units and fish meal suppliers. For the six-month period ended September 30, 2023 and for the Fiscal 2023, Fiscal 2022 and Fiscal 2021, its top 5 suppliers contributed 35.05% and 33.28%, 35.41% and 35.10%, respectively of its total purchases. Further, supply from its Associates for the six-month period ended September 30, 2023 was 0.36% of its total purchases. The company cannot assure that it will be able to procure its raw materials at favourable terms than its competitors. Also, while in the past it has not faced any significant instances wherein there have been any deficiencies in the supply of its raw materials by its suppliers, it cannot assure that such deficiencies will not arise in the supply of its raw materials.
Directors have limited exposure to management of affairs of the listed company: The Directors of the Company do not have the experience of having held directorship of public listed company. Accordingly, they have limited exposure to management of affairs of the listed company which entails several compliance requirements and scrutiny of affairs by shareholders, regulators and the public at large that is associated with being a listed company. As a listed company, the Company will require to adhere strict standards pertaining to accounting, corporate governance and reporting that it did not require as an unlisted company. The Company will also be subject to the SEBI Listing Regulations, which will require it to file audited annual and unaudited quarterly reports with respect to its business and financial condition. If the Company experiences any delays, it may fail to satisfy its reporting obligations and/or it may not be able to readily determine and accordingly report any changes in its results of operations as promptly as other listed companies.
Outlook
Mukka Proteins manufactures fish protein products. The company produces and supplies fish meal, fish oil and fish soluble paste, which are essential ingredients for the production of aqua feed (for fish and shrimp), poultry feed (for broilers and layers) and pet food (for dog and cat food). The company exports its products to over 10 countries, including Bahrain, Bangladesh, Chile, Indonesia, Malaysia, Myanmar, Philippines, China, Saudi Arabia, South Korea, Oman, Taiwan and Vietnam. The company is certified by NQA and UKAS to ISO 22000:2018 and ISO 9001:2015 management system standards. On the concern side, a significant majority of its revenues from operations are derived from a limited number of customers. Loss of any of these customers or a reduction in purchases by any of them could adversely affect its business, results of operations and financial condition. Moreover, the company generates a majority of its revenue through the sale of fishmeal in India, China, Vietnam and Japan. Any adverse developments or changes in the demand for its products, consumption patterns, government regulations in India or in such countries may have a material adverse effect on its business, financial condition and results of operations.
The company is coming out with an IPO of 8,00,00,000 equity shares of face value of Rs 1 each. The issue has been offered in a price band of Rs 26-28 per equity share. The aggregate size of the offer is around Rs 208 crore to Rs 224 crore based on lower and upper price band respectively. On performance front, total revenue increased by 52.52% to Rs 11,838.04 million for the Fiscal 2023 from Rs 7,761.45 million for the Fiscal 2022 due to increase in revenue from operations and other income. Moreover, the company recorded an increase of 84.07% in its profit for the year from Rs 258.19 million in Fiscal 2022 to Rs 475.25 million in Fiscal 2023.
The company’s Manufacturing Facility and capacity, approved manufacturing capabilities, long standing customer relationship and customer centric approach have enabled it to scale up its operations while maintaining the quality of its products. It has 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. As a result of the same, its revenue from operations have grown at a CAGR of 39.62% from Fiscal 2021 to Fiscal 2023. It had a market share of around 25% - 30% of the fish meal and fish oil industry in India for Fiscal 2023. It aims to increase its market share by meeting its customer demand for fish meal and fish oil. The company further aims to deepen its presence in its existing export markets such as, China, Chile, Japan and facilitate its entry into new markets. It targets to enter new market such as, USA and Turkey directly and/or through its Foreign Subsidiary. In order to strengthen its foothold in its existing markets and expanding its customer base, the company intends to deploy additional working capital funds which will enable the company to procure raw material at a competitive rate by making payments upfront there by reducing cost and improving margins.
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