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This SME Has A Lesson For Cash-burning Startups - Slow & Steady Wins the Race

Started with a seed capital of INR 15 lakh, the company is now aiming at INR 950 crore turnover.
This SME Has A Lesson For Cash-burning Startups - Slow & Steady Wins the Race
Image credit: Entrepreneur India

Having invested almost a decade of perseverance resulting in an escalating turnover with each passing year, this snack company now ranks among the top #6 in India.

Prataap Snacks, which sells snack foods under Yellow Diamond brand in India and exports to Canada, is finally going to launch its initial public offering.

In conversation with Entrepreneur, Amit Kumat, promoter of the company said excessive demand led the company, which was bootstrapped from its inception in 2003 to 2010, to bring an investor on board.

Started with a seed capital of INR 15 lakh in 2003 in an office space of 10*10 square feet, Prataap Snacks made a maiden turnover of INR 22 lakh. Second year we did a crore of rupees in 2004-05, says Amit Kumat, the promoter of the Sequoia Capital-backed company.

From INR 15 Lakh, the company is now aiming at INR 950 crore turnover.

Luck Favoured Us

In 2003, we had no work; my brother said we should start something in food. We caught hold of a second-hand chip line ad With a very small capital, we started this line in 2005-06. Once we started, luck favoured us, says Kumat.

“The first year turnover was INR 7 crore then INR 17 crore and then INR 37 crore.”

In 2011-12, we added 2-3 more product lines and some drinks. The company’s most popular product, Motu-Patlu, its flagship product was started three years ago and has a 500-crore career till date.

From Bootstrapped to Investor-backed

From 2006 to 2010, we were never able to fulfill the demand of the market. We were always short supplied says Kumat.

When Sequoi approached Prataap Snacks, the promoters were not very interested but the opportunity to get some professional management and good investors who could help them formulate policies and get a good amount to expand at a faster pace lured the company.

“They bring in lot of professionalism in the system and definitely the money.”

Kumat says Sequoia Capital’s assistance on three grounds is game-changing.

“They help us in three grounds - recruitment, they have a great team.  Housekeeping, they are very good in marketing and help in formulating our strategy, both Sequoia capital promoters have a good consumer market background, which helps in guidance. But practically its zero interference from their side,” says Kumat.

East, West, North And Now The South

The company, which boasts of almost 1.2 million outlets, says it is robust in east, north and west and is now looking to tap into the untapped south market.

“We are planning to launch two flavours that will be only for Southern India. We also want to start a full-fledged started either in Andhra Pradesh or Telangana,” says Kumat.

Prataap Snacks is currently working in four categories - potato chips, chulbule which is something like PepsiCo’s Kurkure, Indian ethnic snack which is namkeen and rings for kids with a toy in the packet.

“Rings kids product has become the maximum part of our business. And the maximum volumes are coming from rings. Potato chips used to be 75 percent of our business, which has come down to 22 percent currently,” says Kumat.

Going forward, the company intends to add some sweet confectionary snacks which will be launched in the coming financial year.

Prataap Snacks has filed for the DRHP and awaiting approval.

Competition

Kumat sees no competition from the fastest growing FMCG brand in India, Patanjali, to whom the company sold its noodles business.

“In the snack food business, I see a real big problem for Patanjali to succeed. It’s already a value business, overcrowded with stiff competition. I don’t think they can shape up this market.” says Kumat.

He even feels great gratitude towards PepsiCo’s Frito Lay and Kurkure, who he believes have somehow lost the plot in the last five years.

“If you talk about western snacks, all thanks to Frito Lay for bringing our product to this level,” says Kumat. It is because of Frito Lay and Kurkure that Indian snack market has increased considerably last year. “In the last five years, somehow they have lost the plot. They are almost vacating the bottom of the pyramid.”

Kumat claims Prataap Snacks is much bigger than Frito Lay in the INR 5 category in Delhi & Mumbai.

“They are going up the ladder, and they are growing A-class outlets where we are not present currently. I think it’s easy for us to get into the lower market. Slowly and gradually we are trying to capture A-class outlet,” says Kumar.

If you talk Indian ethnic snack, we are much behind Haldiram, Bikanerwala or Bikano. It’s a new business for us; it will take some time for us to catch up. But this looks to be a very fit business in India.

Kumat believes the company’s fortunes will only change for the better owing to the changing Indian palette.

“It is not that people have started eating more, it is just that people have started shifting to organized sector from unorganized sector, which is great for us.”