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Palatable offering; initiate with BUY

We initiate coverage on Bikaji Foods International (Bikaji) with a BUY and Mar25E TP of Rs650/sh (25% upside), on 48x P/E. An enhanced brand image and better pack-mix place Bikaji at an advantage to leverage the swiftly evolving Indian savory snacks story (mkt size: Rs1.4trn as of FY22) set for double-digit growth. We build-in mid-teens sales growth, likely to elevate further, backed by Company’s distribution drive across core & focus markets. Bikaji has built capacity in the Frozen Foods space, which is not only fast gaining acceptance in India but holds opportunities to enhance exports too. With scale, Bikaji is likely to meet its aspirations, gaining access to India’s QSR segment. Given Bikaji’s better sales mix, operating leverage, and cost efficiency, we see its margin (ex PLI) rising by 220bps, thus aiding ~32% earnings CAGR over FY24-26E.

‘Bhujia king’ aspires to become a pan-India food play

Bikaji has emerged as a strong savory snacks & sweets brand. The company is wellplaced to address demand on the back of quality products and its brand popularity. Based on its current portfolio, Bikaji’s TAM stands at Rs1.4trn, which is set to grow in low double digits. Bikaji, with its distribution prowess, is likely to drive a faster mid-teens net sales growth. It targets gaining scale across half of India (in identified core & focus markets), primarily in the North (57% of sales), East (34% of sales), and South (~2% of sales), where it is looking to develop categories amid fast formalization. Ahead-of-time capacity (utilization at 46–48%) is likely to help it address demand more efficiently. Given that 85% of sales are concentrated in general trade (GT), we see throughput at a healthy >Rs2,000/month/outlet. With capacity ramping up for Frozen snacks (now largely focused on exports), the company aspires to venture into the Indian QSR space.

Healthy growth with a better mix aids margins, strengthens balance sheet

Unlike most traditional players, Bikaji's share of the bulk pack is ~60%, which shields the company from any major raw-material volatility risks. We expect gross margin (GM; ex-PLI) to remain steady at ~33% in the near term, and see 35% GM potential over the medium term. EBITDA margin is expected to expand to 15.6% by FY26E, from 13.5% in FY24, benefiting from leverage and cost efficiency. On the balance sheet front, we expect asset turns to see steady expansion (with better utilization) and the return profile getting a lift, bolstered by improving margins.

Healthy earnings visibility; initiate with BUY; 25% upside

We initiate coverage on Bikaji with a BUY recommendation and Mar-25E TP of Rs650/sh, based on 48x P/E (3-stage DCF also offers a similar target price). Our target price factors in earnings adjusted for the PLI benefit, which will expire in FY27. With Bikaji aiming to become a total foods company, we see optionality in its QSR and export opportunities, which are largely built into the valuation premium. Key downside risks: RM volatility; regulatory noise around health.

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