Incorporated in March 2003, Mukka Proteins manufactures fish protein products. The company produces and supplies fish meal, fish oil and fish soluble paste, which 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).

The company is one of the key players in the fish protein industry in India. In Fiscal 2023, the total estimated revenue of the Indian fish meal and fish oil industry was between Rs 3200 crore to Rs 4100 crore, while the revenue of Mukka Proteins was Rs 1066.39 crore, thus contributing 25%-30% to the estimated revenue of the Indian fish meal and fish oil industry.

The company sells its products domestically and exports to over 10 countries, including Bahrain, Bangladesh, Chile, Indonesia, Malaysia, Myanmar, Philippines, China, Saudi Arabia, South Korea, Oman, Taiwan, and Vietnam. In H1 FY2024, the domestic market represented 32.25% of sales and exports 67.75%.

The company’s key raw material is pelagic fish (raw fish), which is sourced from the local fish catchers. Pelagic fish and fish remains are used to manufacture fish meal, fish oil and fish soluble paste. The company also imports fish meal from overseas suppliers, including its foreign subsidiary, Ocean Aquatic Proteins.

Import of raw materials by the company accounted for 1.13% and 0.83%, 3.74%, and 20.79% of the revenue from operations for the six months period ended September 30, 2023, and for Fiscal 2023, Fiscal 2022 and Fiscal 2021, respectively.

As of September 30, 2023, fish meal contributed 86.16% to total sales, fish oil 8.85%, fish soluble paste 2.25%, and others 2.74%. Its product fish oil finds application in soap manufacturing, leather tanneries, paint industries and pharmaceutical products. Additionally, Omega-3 pills and related products derived from fish oil are gaining importance as high nutrient and healthy dietary supplements.

The company operates six manufacturing facilities, of which four are in India and two are held through foreign subsidiary Ocean Aquatic Proteins located in Oman. Further, the company operates three blending facilities and five storage facilities in India. As on September 30, 2023, its annualized aggregate manufacturing capacity was 115050 tpa of fish meal, 16950 tpa of fish oil, and 20340 tpa of fish soluble paste.

Mukka manufacturing facility I holds international certifications such as GMP+, Halal, HACCP, EIA, MPEDA and it is a member of IFFO. Further, the Oman Manufacturing Facility I is ISO 9001:2015, ISO 22000:2018 certified by Times NQA, UKAS Management Systems and GMP+.

The company is evaluating opportunities for setting-up new state-of-the art manufacturing facilities in the eastern coastal states of India as a strategy to have seamless access to raw materials i.e. pelagic fish and diversify the over dependency on the western costal fishing catchments.

The company also manufactures and sells insect meal and insect oil (insect protein) through EPPL, its associate. In terms of revenue contribution from partnership firms, Ullal Fish Meal and Oil contributed 8.73% to sales in H1 FY2024, Mangalore Fish Meal and Oil 4.02%, Pacific Marine Products 1.19%, and Progress Frozen and Fish Sterilizetion 6.55%.

The company sources fish meal, fish oil and fish soluble paste as raw materials from partnership firms Ullal Fish Meal and Oil Company, Mangalore Fish Meal and Oil Company, Progress Frozen and Fish Sterilizetion, and Pacific Marine Products. The company has made substantial capital infusion in them and in third-party manufacturing units.

Mukka Proteins is among the first few companies to have introduced the steam-dried process in India for manufacturing of fish meal.

The company aims to deepen its presence in existing export markets such as China, Chile, and Japan. Additionally, the company plans to enter new markets such as USA and Turkey.

Offer and its objects

The IPO is entirely a fresh issue of 8,00,00,000 equity shares aggregating up to Rs 224 crore.

The price band for the IPO is Rs 26 to Rs 28 per equity share of face value Re 1 each.

The objectives for the fresh issue includes Rs 120 crore for funding working capital requirement, Rs 10 crore for investment in associate, and remaining amount for general corporate purpose.

The promoters of the company are Kalandan Mohammed Haris, Kalandan Mohammad Arif, and Kalandan Mohammed Althaf. The promoters and promoter group hold an aggregate of 22,00,00,000 equity shares aggregating to 100% of the pre-offer issued and paid-up equity share capital. Their post IPO shareholding is expected to be around 73.33%.

The issue, through the book-building process, will open on 29 February 2024 and close on 4 March 2024.

Strengths

The company’s revenue registered CAGR of 39.62% from Rs 603.83 crore in Fiscal 2021 to Rs 1177.12 crore in Fiscal 2023. Further, the company had a market share of 25% - 30% of the fish meal and fish oil industry in India for Fiscal 2023.

All its facilities are strategically located within proximity to the coastline, enabling easy access to fresh, adequate, and cost-effective key raw material. Additionally, it helps optimize transport costs.

The company 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.

The company has been consistently awarded by MPEDA, during the last seven years, for its export performance, inter alia, including outstanding performance in export of fish meal, fish oil and allied products for Fiscal 2021, Fiscal 2020 and Fiscal 2019.

The company has good relationships with its customers and receives most of the business from long-term customers. For instance, the company has a relationship of more than five years with 19.61% of total customers, contributing 52.90 % to its revenue.

The company maintains a high standard of quality along with complying with stringent specifications for its products. It has received quality certifications such as GMP+, ISO 9001:2015, ISO 22000:2018 certified by NQA, UKAS Management Systems. It holds license from AQSIQ (Administration of Quality Supervision, Inspection and Quarantine), China.

In view of growing industry demand, the company is expanding its presence in a new protein source (insect-based nutrition). The company holds 50% of the total paid-up equity share capital of EPPL, manufacturing insect proteins.

Weaknesses

The company’s operations are weather-sensitive and face risks from cyclonic storms, unpredictable rainfall, and potential El Niño effects, affecting raw material procurement and processing.

The company derives most of its revenue from a limited number of customers. In the six months period ended September 30, 2023, and in Fiscal 2023, Fiscal 2022 and Fiscal 2021, its top 2 customers contributed 42.17 % and 36.91%, 62.25% and 69.06%, respectively.

The company and some of its subsidiaries, promoters, directors, and group companies are party to legal proceedings (including criminal proceedings). Any adverse outcome of the proceedings could have an impact on the company’s operations.

The company is exposed to risks arising from exchange rate fluctuations as a substantial portion of the revenue is generated from exports. In Fiscal 2021, Fiscal 2022, Fiscal 2023 and in the six months period ended September 30, 2023, exports contributed 52.72%, 20.05% and 52.61% and 62.68% to revenue, respectively.

The company recorded negative cash flows from operating activities in the six months period ending September 30, 2023, and FY2023. If the company continues to post negative operating cash flows, its business could be materially affected.

The company is unable to properly utilize its capacity. For the Fiscals 2023, 2022 and 2021, the overall capacity utilization of manufacturing facilities in India was 24.02%, 29.31%, 20.71% and 17.36%, respectively, and that of its manufacturing facility in Oman was 16.06%, 15.96%, 26.73% and 36.73%, respectively.

The company majorly supply its products to aqua feed, poultry feed and pet food industry. Outbreaks of any livestock diseases in general, and shrimp and poultry disease in particular, can significantly restrict the company’s ability to conduct operations.

There have been instances of non-compliance with certain regulatory filings. Moreover, there have been instances of delays in filing certain GST returns and making payments under the Employees Provident Fund. Consequently, the company may be subject to regulatory actions and penalties.

Valuation

Consolidated sales were up by 52.77% to Rs 1177.12 crore in FY 2023 as compared to FY2022. The OPM increased by 114 bps to 7.32%, which led to an 81.09% increase in OP to Rs 86.17 crore. OI increased 18.41% to Rs 6.68 crore, while interest cost increased 70.22% to Rs 16.48 crore and depreciation jumped 38.62% to Rs 11.89 crore. PBT increased 83.28% to Rs 65.95 crore. Tax expenses were Rs 18.42 crore as compared to Rs 10.16 crore in FY22. Minority interest increased 114.15% to Rs 3.45 crore. Net profit rose 82.07% to Rs 44.08 crore.

The FY2023 EPS on post-issue equity works out to Rs 1.47. At the upper price band of Rs 28, the P/E works out to 19.

There is no listed company in India strictly comparable with Mukka Proteins. Hence, aqua feed companies are considered for comparison, as these companies are the largest customers of fish meal.

As of 27 February 2024, listed peers such as Avanti Feeds traded at TTM P/E of 20, Godrej Agrovet at TTM P/E of 30, and Zeal Aqua at TTM P/E of 21. For FY2023, Mukka Protiens’ OPM and RoE stood at 7.32% and 36.71%, respectively, as compared to 7.73% and 13.29% for Avanti Feeds, 5.58% and 12.91% for Godrej Agrovet and 5.23% and 9.96% for Zeal Aqua, respectively.