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Bikaji’s 2QFY24 earnings print was ahead of our estimate, especially on the operating front, primarily on account of positive surprise on gross margin (+82bps vs our est). Revenue growth, although better than our forecast, has seen deceleration (+5.6% vs 15% in 1Q) - due to challenging demand scenario, lower realisation in salty snacks (grammage increase to pass on RM benefit to consumers) and seasonality led impact on Packaged sweets (shift in festive season) & Papad (adverse monsoons). Having said that, ethnic snacks (+10%) growth was resilient in current market context & overall sales performance was better vs peers (Prataap Snacks sales declined by 5%). Management remains optimistic about improvement in revenue trajectory with onset of festive period & the pace of volume recovery in H2 will be key, in our view. Benign RM costs & operational efficiencies, we believe, should help achieve EBITDA margin (ex-PLI benefit) of c.13%+ for FY24. Improved profitability, along with receding capex intensity, should help enhance cash generation & return ratios over FY23-26E. Premium valuations could sustain given superior execution. BUY.

* Revenue growth led by salty snacks, partially offset by muted performance in Packaged sweets & Papad: Bikaji’s consolidated sales, EBITDA and reported PAT grew by 5.6%, 36.6% and 47.3% to INR6.1bn, INR877mn and INR612mn respectively. Revenue growth was tad better than our estimate, which, along with higher gross margin and lower growth in overhead costs, resulted in c.11% beat vs our EBITDA estimate. Revenues were primarily driven by volumes (+5.1%), as realisation per tonne was flattish owing to grammage increases to pass on some benefit of the input costs moderation. In terms of segmental performance, Ethnic snacks (Bhujia & Namkeen) sales grew by 10% while Western snacks grew by 9%. Combined volume growth in these two segments was strong (c.17%) - function of share gains, distribution expansion & 10% grammage increase implemented in certain SKUs during the quarter. Packaged sweet sales, although better than our est, declined by 12.6% due to shift in festive season. Papad sales declined by 6% due to adverse monsoon in Rajasthan. In terms of key markets, core markets grew by 6.3% while focus market growth was relatively higher at 11.2%. Sales from North region grew by 9.6% while East performance was muted at 1.3%. No PLI incentive was booked during the quarter (other op income was down 30% yoy).

* Gross margin surprised positively thereby driving overall earnings beat: Despite weaker mix (lower salience of ethnic snacks/family packs), GPM improved by 550bps yoy (flat qoq) to 32.8%, which was c.82bps higher vs our estimate. This is largely due to benign RM scenario (edible oils and packaging material). Staff costs increased by 14.6%, while other expenses grew 21.5% yoy (at a slower pace vs our estimate and also compared to trend seen in past 2 quarters). However, overall scale deleverage led to lower flowthrough to EBITDA margins (+328 bps yoy); EBITDA still grew 36.6% to INR877mn - c.11% better than our expectation. With input cost environment remaining benign, we believe current gross margin should sustain; which, along with focus on operational efficiencies & expected PLI benefit in 4Q, should aid overall profitability in 2HFY24E.

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