ET Exclusive: Advent looks to buy Crax maker DFM Foods as promoters, Westbridge seek exit

Advent International is in advance negotiations to acquire DFM Foods, a homegrown snacking company that was among the first to launch its now cult Crax brand of corn rings in mid 1980s.

Advent, the US headquartered buyout fund, that is looking at announcing two transactions in as many weeks, is expected to buy out the promoters as well as Westbridge, an existing investor that owns almost a quarter of the company, said people aware of the developments.

The board is expected to meet later on Monday or Tuesday to ratify before a formal announcement is made.

The move is likely to trigger an open offer for another 26% of the share capital of the company. If fully subscribed, Advent could end up owning up to 89.12.

The promoters own 38.12 per cent while Westbridge, a public market focussed fund, owns 24.85 per cent held via two entities. DFM Foods’ market cap as on Friday was Rs 1338.39 crore.

Advent is expected to offer a 15-20 per cent premium to market price. That translates to around Rs 320/share. The 52 week high for the stock has been Rs 299/share.

Advent declined to comment. Mails sent to Mohit Jain, Chairman and Managing Director and Rohan Jain, the deputy MD of the company and Sandeep Singhal, MD, Westbridge and a board member of the company, did not immediate generate a response.

DFM Foods was spun off from the Delhi Flour Mills, which was launched by RP Jain in 1993. It is now run by Jain’s son Mohit. The company sells packaged salty snacks such as CRAX Corn Rings that alone contributes half the total sales, CRAX Namkeen and NATKHAT. The firm has a strong presence in North India which contributes 75% of total sales and also sells its products in central, western and southern regions. It has been trying to expand its reach to the eastern region as well. South has been its smallest market.

The product portfolio comprises Corn Rings, Corn Puffs, Wheat Puffs, Cheese Balls, Corn and Potato Sticks and traditional Namkeens in 13 distinct product variants sold through an extensive distribution network. The company has two state of the art processing units located at Ghaziabad and Greater Noida.

Since 2014, Westbridge bought into the company buying from the promoters at Rs 259.1 share. In 2016 it launched a voluntary offer to acquire up to 51 per cent at a purchase price of Rs 1320/share translating to a cumulative price tag of Rs 344 crore. But with shares of the company shooting up five time in 1 year then, the offer was much below the then prevailing price of Rs 1530/share and thereby failed.

Over the last 10 years, the company has grown at a Compounded Annual Growth Rate (CAGR) of 20.9%, with sales increasing from approximately Rs 72.2 crore in 2009-10 to approximately Rs.483 crore in the financial year ending March, 2019 with EBITDA margins also expanding from 11.95% in the previous year to 13.4%, PAT in FY19 was also up 40.5% Y-O-Y at Rs.32.76 crore.

Keeping in mid the growth potential, the company has also announced setting up additional production line by Q2FY20 at Greater Noida to add roughly 5000 metric tons per annum of incremental production capacity translating into an incremental revenue of nearly Rs 100 crore.

The Indian savoury snacks market is estimated at Rs 33,500 crore according to research firm Euromonitor expected to grow a massive 22% over the next five years and is largely restricted to salted snacks category. The high growth has prompted several M&As and consolidation dialogues such as Pepsico’s attempt to buy Gujarat based namkeen maker Balaji or Kellogg’s exploring a strategic in Haldiram’s.

In May, an Avendus fund invested a minority stake in Bikaji Foods International Ltd, one of India’s largest manufacturers of branded ethnic snacks from two existing investors.

Source:- https://retail.economictimes.indiatimes.com/news/food-entertainment/personal-care-pet-supplies-liquor/et-exclusive-advent-looks-to-buy-crax-maker-dfm-foods-as-promoters-westbridge-seek-exit/71050711