Buy Bikaji Foods International Ltd For Target Rs. 790 By JM Financial Services
Resilient performance, margin delivery surprises positively
Bikaji’s 4QFY25 earnings print was above our forecasts on revenue and profitability. Organic revenue (Ex of THF/Ariba Foods acquisition) grew in low-double-digit led by c.11% growth in Ethnic Snacks. The key surprise in the quarter was gross margin – sequential improvement (led by price hikes and moderation in certain key input costs) was ahead of our forecasts, which led to c.5% beat on EBITDA (ex-PLI). Going ahead, management expects revenue trajectory to improve led by internal initiatives as well as gradual recovery in underlying macro. Further, with recent moderation in key raw materials along with benefit of price hikes and operating leverage, company is well on track to revert back to erstwhile margin trajectory in 2HFY26E. While sales/EBITDA delivery was ahead of our est., factoring higher depreciation, we have cut our est. by c.4% for FY26/27E. We believe Bikaji’s brand strength positions it well to navigate this challenging phase and accelerate when demand conditions (urban) improve. Moreover, its recent acquisitions (Frozen Foods & entry in QSR) point towards its focus on expanding TAM. Maintain BUY rating with revised TP of INR 790 (58x Jun’27E EPS). Acceleration in core business sales along with scale up in newer business will be key monitorables in near term, given that stock trades at a premium valuation.
* Organic revenue growth tad better then expectation: Sales (ex-PLI) grew 14.6% (11.2% organic growth) to INR 6bn, while EBITDA and adjusted PAT declined sharply by 53.9% and 61.9% to INR 743mn and INR 443mn respectively. EBITDA ex-PLI declined 12.9% to INR 594mn and was 5.7% ahead of our estimate. Underlying volume growth of 8.9% was healthy given urban markets are still facing headwinds. In terms of segmental performance, overall Snacks category grew 12.5% - Ethnic Snacks sales grew by 11.4% yoy while Western Snacks grew 21.5%. Packaged Sweets declined 1.4% yoy while Papad sales grew 5% yoy. Packaged Sweets were impacted by a weak demand season (grew 13.2% in FY25) due to lower wedding dates; Papad remained impacted by supply side constraints. Western Snacks (chips) recovered to healthy growth after a flattish Q3 when the company took conscious call to forgo sales given high potato prices. Sales for Core States grew 10.1% while Focus States grew at a much faster pace of 38.6% yoy. Exports were up 29.4% yoy. In term of SKU mix, growth in family packs sales grew by 13.8% yoy, faster vs. impulse packs (+9.3%). Focus on distribution expansion continued – the company increased direct coverage by c.22.9k outlets during the quarter, taking direct reach to 3.1L outlets (+24% yoy).
* Gross margin delivery surprises positively: Consol. GM (ex-PLI) fell 143bps yoy to 31.6% (better than our estimate of 30.5%), though improved sequentially by 444bps due to price hikes taken (c.2.5% in 2HFY25) and some moderation seen in prices of pulses and flour. Staff costs grew 57.9% yoy, on account of low base and impact of reclassification of certain other expenses. Other overheads grew by 14.7% yoy, in line with revenue. Resultant EBITDA (ex-PLI) declined by 12.9% yoy to INR 594mn with margin compression of 315bps to 10%, still better than our estimate of 9.6%. Higher than expected depreciation and finance cost led to miss on adjusted PAT by 7.8%. Reported PAT stood at INR 446mn (-62% yoy, mainly due to bunched up PLI income in base quarter).
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SEBI Registration Number is INM000010361
