Jefferies Bullish On Patanjali Foods; Starts Coverage At Buy
The brokerage says the company is well-placed to expand its foods and home & personal care franchise and become a more diversified FMCG play
(The Corner Office Journal) -- Jefferies initiated coverage on Patanjali Foods Ltd. with a Buy call, saying the company is well-placed to expand its foods as well as home & personal care (HPC) franchise and become a more diversified fast-moving consumer goods (FMCG) play.
The brokerage set a target price of 2,050 rupees per share on the Indian consumer goods maker, based on its base case scenario assumptions. The stock closed at 1,718.60 rupees on the National Stock Exchange of India on Thursday.
The Journey & Progress
The company's journey started in 2019 with the acquisition of Ruchi Soya Industries Ltd. via the insolvency resolution process, followed by transfer of large portfolios from parent, Patanjali Ayurved, at low valuations (<3x EV/EBITDA) in phases, over FY22-FY24, Jefferies said in an investor note.
Patanjali Foods has emerged as a diversified franchise, growing beyond edible oil into foods and HPC, which is now around 35% of revenue versus 7% in FY22, it added.
The brokerage noted the company’s flagship brand Patanjali is complemented by other brands such as Nutrela, Sunrich and Doodh.
Edible Oils
Jefferies said Patanjali Foods is the Number 2 player in branded oils, a low-growth category but with opportunity to gain market share, given 25% of industry volumes are still unorganized and organized industry too is quite fragmented.
The company’s volumes grew steadily over FY22-FY24, but profitability was volatile due to commodity fluctuations albeit it has recovered in FY25, it added.
Food & FMCG
The brokerage said its food and FMCG segment is mix of diverse categories such as staples (flour, rice, pulses), biscuits, ethnic foods (ghee, honey, juices), soya proteins and nutraceuticals.
The portfolio has scaled up over FY22-FY24 led by a mix of organic growth and mergers & acquisitions, it noted.
“We forecast near-double-digits revenue growth with around 10% EBITDA margin in the medium term,” equity analysts Kunal Shah and Vivek Maheshwari wrote in the note.
HPC & Palm Plantations
Jefferies said the company’s most recent acquisition in HPC from its parent in July 2024 has added a sizeable high-margin business. Patanjali Foods is the Number 4 player in oral care (Number 2 in naturals), and aims to further scale-up in home, skin and hair care, it added.
The brokerage projected a 15% CAGR over FY25-FY27 in HPC.
Jefferies also said the company’s palm plantations segment is a fast-growing asset-light business where Patanjali Foods incubates plantations in tie up with the government and farmers. It projected over 20% top-line CAGR, with 16%-18% EBITDA margin during the period.
Growth Drivers & Outlook
The brokerage said the management focus is on distribution expansion, new launches and premiumisation. Patanjali Foods’ aspiration is to grow higher-margin foods & HPC, with a target to reach 50:50 salience in the coming years from 65:35 currently, it added.
Jefferies projected the company’s revenue to grow at 10%-11% CAGR over FY25-FY27, with more than 100 basis points (bps) margin expansion led by HPC acquisition. This would enable a 20%-24% EBITDA and EPS CAGR over FY25-FY27, it said.
Upside Scenario Target
The brokerage has a target price of 2,400 rupees on Patanjali Foods, based on its upside scenario view.
The assumption considers a 12% revenue CAGR over FY25-FY27, with 150bps margin expansion, and a 29% EPS CAGR during the period.
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