IGI Logo

Delayed commissioning of Modasa capacity hurts recovery

We maintain BUY on Gopal Snacks, while cutting Sep-26E TP by ~9% (on the earnings cut) to Rs500, on 40x P/E, as we factor in the delayed commissioning of the Modasa capacity. Q2 show was weak, on persisting supply-chain issues. With the management expecting gradual ramp-up of the Modasa capacity in Nov-25, we estimate a sales recovery from Q4FY26.The management refrained from guiding on revenue, given that it missed guidance in the past. With apt actions in place for trade (execution key) and roll out of the media campaign, the management sees an execution-driven recovery ahead. With recovery in topline, we see a profitability bounce-back too.

Revenue pick up, with Modasa commissioning key ahead

Gopal Snacks reported 7% YoY decline in revenue, with sales impacted by the GST transition hiccup (to see full recovery in Q3) and supply-chain constraints. The 4-5M delay in commissioning of the Modasa plant led to Gopal losing out on revenue acceleration in Q3, with benefit of the supply-chain improvement likely being restricted to Dec-25 . Gopal is in the process of going on air about its pan-India media roll-out. This, with trade intervention, is likely to help sequential recovery in sales. Amid sustained hiccups, the management refrained from giving topline guidance for 2HFY26; we believe the benefit will now flow from Q4. Execution would be key, with Gopal looking to recover its consumer base in the next six months. To enhance its endeavors in other states, Gopal has entered a 3P arrangement in Uttarakhand and Karnataka which will focus on the North and South markets, respectively. Its new product interventions in popcorn, wafer biscuits, and now Jeera Papad are accretive and seeing business sustainability. Also, to enhance its play in Gujarat, Gopal is looking at M&A opportunities at a budget of Rs2bn.

Margin pressure hurts Q2 earnings delivery; capacity recoup to aid earnings

Gross margin contracted by 255bps YoY to 26.4%. the management has guided for a similar gross margin in 2HFY26. In Q2, Gopal saw deflation of 6% YoY in chana, 18% in udad mogar, and 4% in laminates, while seeing inflation of 26% YoY in palm oil. Potato prices were stable YoY. The company is looking to reduce palm-oil exposure, with nonpalm-oil product salience at 25% in the next 3-5Y. EBITDA margin at 6.4% in Q2 contracted by 520bps YoY, while expanding by 170bps QoQ. A&P spending in Q2 stood at 1.6%. EBITDA declined 48% YoY, given margin pressure, though it stood 3% above our expectations. Earnings declined 86% YoY. With the sales recovery, we see earnings delivery also recovering, from Q3. Factoring in the Q2 delivery and given the guidance, we reduce FY26E earnings by 29%; FY27-28E earnings stand reduced by ~10%.

Valuation to factor in recovery in topline; retain BUY on hope of better execution

Gopal Snacks has been on a recovery journey in topline after the fire incident in Dec-24. Now, with most of its capacity in place, we see the stock factoring in a topline recovery ahead. We maintain BUY on Gopal Snacks and cut Sep-26E TP by 9.1% to Rs500.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354