Mid-market-focused private equity firm Lighthouse Funds has invested Rs 90 crore ($15 million) in Rajasthan-based snacks maker Bikaji Foods International Ltd to buy 12.5 per cent equity stake in the company, sources familiar with the development told VCCircle.

This transaction, which values it at Rs 720 crore, represents the first round of private equity investment in the privately held company.

Earlier media reports citing sources had said Lighthouse Funds may pick 25 per cent in Bikaji Foods for Rs 120 crore.

An email query sent to Lighthouse Funds partner Sachin Bhartiya and Deepak Agarwal, managing director of Bikaji Foods, did not immediately elicit a response.

Bikaji Foods, headquartered in Bikaner, Rajasthan, is a leading manufacturer of packaged Indian snack foods, trading mainly under the ‘Bikaji’ brand. Bikaji Foods makes snacks like bhujia, papad, namkeen and sweets. It also exports its products. Bikaji Foods also runs quick-service restaurants in Mumbai under the Bikaji Food Junxon brand name.

Law firm Majmudar & Partners represented Bikaji Foods and its promoters, the Agarwal family, for this transaction, it is learnt.

According to the company website, Bikaji Foods plans to have retail outlet presence inside all major airports in India and double the production capacity in five years. The brand has presence in international markets like South Africa, Mauritius, Malaysia, Congo, Singapore and Nigeria.

In a statement on the company’s website, Deepak Agarwal, managing director of the company, has indicated that he intends to take Bikaji Foods from a Rs 330 crore firm to a Rs 1,000 crore company.

The firm had been growing at the rate of 30 per cent for the last few years and ended FY13 with revenues of Rs 327 crore with net profit of Rs 13.2 crore.

Besides its existing products, it is eyeing a presence in areas like frozen foods, instant food, instant soups and heat & serve snacks and meal. It is also looking at different retail formats.

According to consultancy firm Technopak, the branded salty snacks market is estimated to be worth Rs 10,000 crore ($1.68 billion), and is projected to grow at a CAGR of 15-18 per cent over the next few years.

This market can be broadly divided into two segments. First represents western snacks potato chips, extruded snacks like kurkure, etc. And the other is traditional snacks namkeen, bhujia, bhakarwadi, khakhra, banana chips, etc.

PepsiCo leads the western snacks market, and, together with other prominent players in this segment (ITC, Balaji, Parle Products, Prakash Snacks, and Haldiram’s), holds a share in excess of 70 per cent of the market.

In the traditional snacks space, Haldiram’s and the regional player, Balaji Wafers, together account for over 50 per cent. The rest of the market is fragmented, and understandably so, given that the market is driven by strong regional tastes and preferences.

“For regional brands, growing outside their ‘home turf’ and connecting with consumers in other regions will be a challenge. Players will need to be prudent and understand the regional palate and pulse. Moreover, maintaining product price points and margins is crucial given the fluctuations in raw material costs and the investment in manufacturing, limiting the creation of economies of scale,” says Pragya Singh, associate director of retail at Technopak.

She said despite these challenges, branded salty snacks will remain an attractive market opportunity in times to come.

Early this year, WestBridge Capital Partners had picked up nearly 25 per cent stake in DFM Foods, the maker of salted snacks under the ‘Crax’ brand from its promoters for Rs 64.5 crore or a little over $10 million.

In another impending deal, Balaji Wafers is reportedly in talks with private-equity funds to raise up to $125 million.

(Edited by Joby Puthuparampil Johnson)

(As published in VC Circle on Tue, 15 Apr 2014)