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Execution to aid topline; RM inflation to limit margin

Bikaji’s Q1FY25 management commentary reassured us on the topline trajectory, but margin outlook for FY25 looks bland. The management is aiming for 13-15% volume growth for FY25, and expects product prices to increase by ~2-3%. Bikaji effected 70-80bps price hikes in Q1, and is mulling a 150bps price-hike in Q2, to pass on the impact of sequential inflation in key raw materials. We now build in flat gross margin for FY25E (32.5%, adj. for PLI benefits), while EBITDA margin expansion is likely to be limited to ~40bps YoY (at 13.7%). This leads to a 2-3% earnings cut for FY25-27E. We maintain ADD on Bikaji, and revise down Jun-25E TP of Rs760/sh (from Rs775), on 55x P/E. We see Bikaji’s healthy structural prospects and better managment execution being gradually factored into valuations (54x P/E for FY26E, adj. for PLI).

Thrust on topline growth reassuring

The management is likely to remain focused on its topline aspirations, and has guided to 13-15% volume growth. Q1 volume growth at 16.2% stood ahead of the guided range. The management is looking to drive consumption in core markets and gain a share in focus markets. Return of Rural demand is likely to aid overall demand recovery, with concentration of Western snacks being high. Bikaji has already achieved expansion to 21k outlets, of its FY25 distribution expansion target of 50k outlets. As of Jun-24, it has a direct outlet reach of 272k, of which 135k outlets are in focus markets and 107k in core markets. We largely maintain our growth assumptions, and see 17% revenue CAGR over FY24-27E.

Gross margin to be flat for FY25; EBITDA to see a moderate 40bps expansion

Key raw-material prices (particularly of channa, potato, and dry fruits) have been stable YoY, but seen inflationary pressure sequentially, which is likely to persist for the rest of the year. As such, the company has proactively effected 70-80bps price hikes in Q1, and is mulling a 1.5% price hike in Q2, through reduction in consumer and trade promotions. We now build-in flat gross margins for the year. This, along with higher employee costs, would limit EBITDA margin expansion to 40bps YoY, at 13.7%. Based on stable rawmaterial price expectations, we see strategic action being undertaken to optimize costs, which would reflect in EBITDA margin. We now see 28% FY24-27E earnings CAGR, adjusted for PLI benefits.

Risk-reward seems balanced; maintain ADD; await entry opportunity

Bikaji remains an execution-led, savory snacks play, wherein it has created a relative edge over peers. This reflects in its performance and is also being gradually baked into valuations (54.5x P/E for FY26E, on PLI adj. EPS of Rs13.1). As we cut our margin assumptions, our earnings estimates reduce 2-3% over FY25-27E. We maintain our ADD rating on Bikaji, with new Jun-25E TP of Rs760/sh (vs Rs775/sh earlier), on 55x P/E.

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