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Bikaji’s 1QFY24 performance was broadly inline on revenue front but missed our optimistic profitability estimates owing to lower than envisaged expansion in gross margins. Revenue growth was completely led by volume growth (+15.2%), which, although lower than management’s expectation, is still healthy in our view, especially given the challenging operating environment. Core ethnic snacks (Bhujia & Namkeen) segment continues to do well, which is a positive, with growth seen in both core & focus markets. Bikaji’s gross margin progression since 2QFY23 has been quite strong and we expected some inventory benefit to help sustain 4Q margins in the current quarter also; however, the same did not play out. Having said that, gross margins at 32.8% are still higher vs what we were factoring for full year, thereby driving upgrade to our overall earnings estimates. With core categories delivering well, along with Bikaji’s focus on distribution expansion, we expect volume trajectory to remain healthy. This, along with stable RM scenario, should help achieve EBITDA margin (ex-PLI benefit) within its targeted range of c.12.5-13% for FY24. The stock has seen sharp run-up recently; however, given the superior earnings growth & improving return metrics, premium valuations are likely to sustain. ? Revenue growth largely driven by double-digi

* Revenue growth largely driven by double-digit volume growth across ethnic segment: Bikaji’s consolidated sales, EBITDA and reported PAT grew by 15.1%, 113.6% and 157% to INR4.8bn, INR658mn and INR416mn respectively. Revenue growth was broadly inline with our estimate; however, gross margins were lower than our optimistic assumptions resulting in 8-9% miss on our profitability estimates. Revenues were primarily driven by volumes (+15.2%), as pricing growth completely tapered off compared to previous quarter (c.2% in 4QFY23) owing to price cuts/grammage increases to pass on some benefit of the input cost moderation. In terms of segmental performance, Ethnic snacks (Bhujia & Namkeen) sales grew by 16.1%. Western snacks grew by 19.3% while packaged sweets sales were up 10.5%. Papad sales growth was muted at 1.1% yoy. In terms of key markets, both core and focus states sales grew in mid-teens for the quarter. There was no PLI incentive booked in the quarter (other op income was down 43% yoy) and same is expected to be realised in 4Q, which should provide additional kicker to overall EBITDA margins for FY24.

* Healthy GM expansion drives overall earnings growth: GMs improved by 850bps yoy but were down 132bps qoq to 32.8%, which was lower than our estimate as we were envisaging low cost inventory benefit to continue. YoY expansion can be attributed to softening of input prices (edible oils and packaging material); given that base quarter had peak inflationary pressure. RM prices are typically lower due to fresh crop season from Dec-Feb month; the same sees some uptick from March onwards, hence there was qoq moderation in the GM. Staff cost increased by 10.9% while other expenses grew 38.7% yoy, faster than sales growth of 15.1%. As a result, flowthrough to EBITDA margins was lower (+630 bps yoy to 13.7% vs JMFe: 14.6%). Sequentially, EBITDA margins were up 26bps, despite drop in GM, led by savings on power/fuel costs and lower A&P.

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