Buy Bikaji Foods International Ltd for the Target Rs 800 by Emkay Global Financial Services Ltd
Bikaji’s 1QFY27 results were in line with expectations on revenue and EBITDA while missing PAT estimates. Revenue grew 12.5% yoy (in-line) while EBITDA growth was modest at 3% yoy (in-line). Gross margin (ex-PLI) expanded by 90bps yoy, helped by price hikes offsetting the input cost inflation and increasing salience of retail (THF). However, EBITDA margin (ex-PLI) declined by 110bps yoy to 12% mainly due to higher A&P spends and overheads (crudelinked). Focus states continued to grow much faster than core states. Going forward, Management expects overall growth to improve sequentially (target of >15% for FY27) led by stronger growth in focus states, festive demand, and retail expansion. PLI benefit will end in FY27, though Management plans to offset this with price hikes. We adjust our estimates slightly post-1Q results and expect sales/earnings CAGR of 14%/26% over the next three years led by strong growth in core as well as focus states, along with retail expansion. We maintain BUY on Bikaji and TP of Rs800 (52x Jun-28E EPS).
1QFY27 result summary
Revenue grew ~12.5% yoy (in-line) on a base of 14%. Volume growth was moderate at 7.7% yoy (vs 18% in 4QFY26 and 7.5% in 1QFY26). Gross margin (ex-PLI) expanded by 90bps yoy (up by 10bps qoq) to ~34.6% due to scale-up of the retail business. EBITDA growth was modest at ~3% yoy (in-line). EBITDA margin (ex-PLI) declined by 110bps yoy to 12% (up by 140bps qoq) mainly due to higher A&P spends. Adj PAT was flat yoy and 5% below our and consensus’ estimates, owing to both depreciation and effective tax rate being higher, though partially offset by higher other income
Earnings call KTAs
1) Management described 1Q as a 'story of two halves', with the first 45 days impacted by factory closure and migrant workers moving back to Bengal for the elections (impact of 4-5 days of sales). June saw strong recovery with strong double-digit growth that also continued into July, per Management.
2) the company took two price hikes to offset the commodity inflation but has no plans for any further hike.
3) Bikaji continues to expand distribution and decentralize Bhujia manufacturing to improve supply-chain resilience.
4) Focus states, led by UP, continued to outperform core markets (>30%), quick commerce grew >100% with Bikaji keeping pace with or outperforming category growth.
5) Bikaji added 2 THF (The Hazelnut Factory) stores in 1Q and expects to add 10 more in FY27 (to achieve store count of ~50 in 3 years). Store-level EBITDA of THF stores is >25%.
6) Export declined 2% yoy due to impact of US tariffs and higher freight rates (2-3x increase). Bikaji targets to triple the US business over coming 2 years, while overall exports should reach 5-6% of sales in 3-4 years vs 3-4% currently.
7) The commercial scale-up of the Bakery business is expected from FY28. 8) Management aspires to improve the EBITDA margin to ~15% over the next three years.
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