Buy Gopal Snacks Ltd for the Target Rs 425 by Emkay Global Financial Services Ltd
Gopal Snacks’s 1QFY27 results were strong (though on a low base), with revenue up 31% yoy and EBITDA doubling yoy. Growth was volume-led, with ~4.2% pricing growth (including shrinkflation). Gross margin (GM) expanded 90bps yoy due to price hikes and better mix, but was down 80bps qoq on higher input costs (mainly of palm, laminates). EBITDA margin improved sharply by 270bps yoy to 7.4% due to a low base (base quarter impacted by a fire incident at the Rajkot facility). Management expects >20% revenue growth in FY27 (volume-led) and EBITDA margin to range at 8-9%, implying strong doubledigit EBITDA growth. The revenue growth is likely to be led by higher distributor throughput in its core state (we expect high-teens growth), continued expansion in focus states (expect >25% growth), new product launches, and distribution automation. Margin is likely to expand, led by operating leverage, lower transportation cost, and cost control. While we keep our revenue estimate unchanged, we increase our margin estimate (in line with Mgmt guidance). We expect sales/earnings CAGR of 18%/59% over FY27-29E and reiterate BUY; TP is unchanged at Rs425, given Gopal’s strong earnings growth outlook.
1QFY27 result summary
Revenue grew ~31% yoy, but on a favorable base (vs 29% growth in 4QFY26). GM expanded 90bps yoy (down 80bps qoq) to ~26.9%, aided by price hikes. EBITDA grew ~2x yoy in absolute, though on a favorable base. EBITDA margin expanded by 270bps yoy to ~7.4% (down by 25bps qoq), led by gross margin expansion (90bps), and decrease in staff costs (150bps) and other expenses (30bps). Adj PAT came in at Rs128mn (vs Rs25mn in base) and flat qoq led by lower effective tax rate.
Earnings call KTAs
1) Mgmt reiterated guidance for ≥20% FY27 revenue growth and ~80% volume growth. On Western Snacks, core market grew 15% yoy with UP up 41% yoy; Mgmt targets >Rs1bn core run-rate; the ~65% still unorganized Gujarat Gathiya market grants more headroom.
2) Bi-weekly service coverage/DMS driving growth; 38% of outlets receive bi-weekly service; distributor run-rate improved 20-25%.
3) Distribution expanded to 567 focus-state/129 other-state distributors; DMS reach: 424k; total outlets: ~520k; targets 600k by FY27-end, incl ~15k new core outlets.
4) Focus states include western UP, Kashipur (~Rs20mn/mth), Chhattisgarh via a JV, Jharkhand, and MP; Maharashtra focus is on Marathwada/Nagpur and still weak for Mumbai/Pune.
5) Inflation: ~5% RM inflation, 4.2% passed-on; another 0.2-0.3% expected in 2Q, with price hike/grammage correction. Margin: trade spends now at 2.5% from 3.5%; 7 new products in 2H (5 nopalm); better product mix and DMS efficiency support 8-9% FY27 EBITDA margin (double-digits); targets 11-11.5% sustaining over time.
6) Rs5 SKU salience declining only for Gopal, but packs profitable; new distributors focus on hero SKUs.
7) 1Q A&P: 1% of sales vs 2.2% of annual budget; rise if inflation eases; e-com rose to Rs27.9mn vs Rs20mn in 4Q, modern trade was at par, and balance fire-loss claim is expected in 2Q
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