Buy Bikaji Foods International Ltd For Target Rs.830 By JM Financial Services Ltd
Bikaji’s 2QFY26 performance was inline with our forecasts. Revenue construct was a mixed bag - Organic sales grew in low double digits as festive-led strong growth in packaged sweets (+32.4%) was offset by weakness in core ethnic snacks (+4.6%, we est. GST transition impact of c.4%) and western snacks (down 5.2%) sales. GM delivery surprised positively led by benign RM and higher salience of sweet business which was offset by higher overhead costs (retail business consolidation), resulting in inline EBITDA. Going ahead, with normalisation of trade operations and grammage increase, we expect ethnic snack sales to revert back to double-digit growth in 2H, which along with benign RM should aid earnings growth. We have tweaked our est. by c.3- 4% factoring weakness in ethnic snacks and higher costs (due to store expansion). We maintain our positive stance as Bikaji’s execution vs. peers in listed packaged snacks space remains superior both on revenue & profitability. Reiterate BUY with revised TP of INR 830 (60x Dec’27E, earlier INR 850). Acceleration in core ethnic snacks will be key for rerating from current levels.
* Revenue performance largely inline, GST transition impacts core ethnic snack sales: Consolidated sales (ex-PLI) grew 16% YoY to 8.1bn (inline), while organic sales grew in low double digits YoY (excl. sales from THF/Ariba foods) with a volume growth of 10.8% YoY (vs. 7.5% in 1Q). Sales growth for the quarter was temporarily impacted due to GST transition-led headwinds, which resulted into distributor de-stocking in the month of September. Excluding this impact, the salty snacks category was likely to deliver high-single-digit growth (higher vs. reported growth of c.3.4%), implying an impact of c.3-4% on overall sales as per our estimates. Sales in core markets softened vs. previous trajectory and grew by 5.6% YoY, while focus markets grew 12.4% YoY. Exports delivered robust growth of 77.3% YoY (led by US market) as presence increased across various geographies. In terms of SKU mix, family packs sales grew by 18.6% YoY, much faster vs. impulse packs (+3.3% YoY, impacted by GST transition). Focus on direct distribution expansion continued – company increased direct coverage by c.18k outlets during 1H, taking direct reach to 3.2L outlets (+18% YoY).
* Packaged sweets surprises positively, while ethnic/western snacks portfolio disappoints: Ethnic Snacks sales grew by 4.5% YoY (GST transition led impact of c.3-4%) while western snacks declined 5.2% YoY (impact of GST transition and increased promotional intensity by competitors). However, the impact of the same was largely offset by better-than-expected performance in packaged sweets (+32.4% YoY, benefiting from early festive season vs. base quarter) and papad (+10.2% YoY). Retail business reported healthy revenue of 280mn (+2.8x vs. LY) led by increase in retail store count to 21 vs. 19 stores in 1QFY26 and 5 stores in 2QFY25.
* Gross margin delivery surprises again; offset by higher staff cost and other expenses resulting in inline EBITDA: Consolidated gross profit (ex-PLI) was up 23.5% YoY with margin expansion of 209bps YoY to 33.8% (JMFe: 33.3%) due to favourable raw material prices and better mix (higher growth in packaged sweets). Staff cost surged sharply by 32.6% YoY and other expenses grew by 17.2% YoY, owing to increase in retail store count. Resultant EBITDA (ex-PLI) grew by 26.1% YoY to INR 1.2bn (largely inline) with margin expansion of 116bps YoY to 14.2% (inline). Reported EBITDA (incl. PLI) grew by 20.1% YoY to INR 1.3bn with margins at 15.7% (+56bps YoY). Quarter had exceptional loss of INR 43.5mn due to fire incident at manufacturing unit. Adjusted PAT grew 18.1% YoY to INR 808m as strong growth in other income (+59% YoY) was offset by higher interest expenses and tax rate for the quarter
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SEBI Registration Number is INM000010361
