Buy Bikaji Foods International Ltd for the Target Rs 650 by Emkay Global Financial Services Ltd
Bikaji’s 2QFY27 was a mixed bag, with revenue broadly in line with consensus’ estimates, EBITDA 4% above expectations, and Adj PAT 2% below estimate. Revenue grew 13% yoy, with 5% volume growth, as the shift of Diwali to 3Q weighed on packaged sweets and gifting; snacking grew ~22% (volume: >15%), with Ethnic/Western snacks up ~20%/44%. Gross margin (ex-PLI) declined by 50bps yoy as the company maintained prices through the festive season despite commodity inflation; EBITDA margin (ex-PLI) contracted by 260bps on higher A&P spends and opex. Management now expects >17% revenue growth in FY27 (vs >15% estimated earlier), implying ~20% growth in 2H. Also, it plans ~3% price hikes from mid-Nov; 3Q margins should remain under pressure before normalizing in 4Q (EBITDA margin: 13-13.5%). We lower FY27-29E earnings by 4-7% due to lower assumptions for margin; also, we cut our valuation multiple by ~15% to factor in the rising uncertainty from macro headwinds (El Niño, rising inflation, etc). We expect sales/earnings CAGR of 14%/24% over FY26-29E and maintain BUY while cutting our TP by ~19% to Rs650 from Rs800 (43x Sep-28E EPS).
2QFY27 result summary
Revenue grew 13% yoy, broadly in line with consensus’ estimate, on 5% volume growth; the shift of Diwali to 3Q impacted packaged sweets and gifting. Ethnic/Western snacks grew ~20%/44% yoy, while packaged sweets declined 11% (festive timing) and Papad declined 6% (supply issues in handmade papad). Core/focus/export markets grew ~18%/8%/10% yoy, while other markets declined 13%; the retail business grew 58%. Gross margin declined by 60bps yoy to ~34.4% (ex-PLI: -50bps to ~33.5%) owing to inflation across key commodities. EBITDA declined 7% yoy (ex-PLI: -8%), 4% above estimate; EBITDA margin fell by 280bps yoy to ~12.6% (ex-PLI: -260bps to ~11.3%), due to higher opex (+190bps, largely A&P) and staff costs (+30bps). Adj PAT declined 11% yoy, 2% below expectations, due to higher finance costs and lower other income.
Earnings call highlights
1) Snacking grew ~22% in value (>15% volume); overall volume growth was 5% due to the shift of sweets and gifting to 3Q.
2) Management now expects >17% revenue growth for FY27 (vs >15% earlier), implying ~20% growth in 2H; October grew >50% yoy.
3) Focus markets should grow 20-23% in 2H; sweets salience in focus states is ~25% (vs ~12.5% for the company).
4) Bikaji upheld prices through the festive season despite inflation (standalone GM hit of ~1.7-2%); a ~3-3.5% price hike (incl ~1gm grammage cut in Rs5/10 packs) from 15-Nov should suffice till March.
5) 3Q margins to remain under pressure; 4Q EBITDA margin seen at 13-13.5%, aided by softening edible oil and packaging costs along with the new pulse crop.
6) A&P budgeted at ~2% of sales; standalone ad spends up by ~70bps yoy.
7) Retail grew 58% (64% in 1H); THF revenue expected at Rs1.6-1.7bn in FY27 (FY26: Rs1bn), with 6-8% same-store growth.
8) Impulse packs (Rs5/10) grew >20%, aided by a Paytm cashback campaign at no cost to Bikaji; ~20,000 outlets added in 2Q.
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