Q4FY23 Review: Bikaji Foods: Well-poised to deliver robust growth

Bikaji delivered a top-line growth of 15% YoY, primarily driven by 13% volume growth (15% in FY23). Ebitda margin expanded 249bps YoY to 13.4% (vs IIFL Capital Services estimate of 10%), driven primarily by softening raw material prices and better sales mix. Bikaji is on a strong footing to deliver high-teens top-line growth in the medium term, on distribution expansion in focus states, cross selling Western Snacks in both core and focus states and improving mix of higher-margin products within Ethnic Snacks. Analysts of IIFL Capital Services upgrade their EPS estimates by 5-6% and forecast EPS Cagr of 29% over FY23-26ii.

Significant beat on margins: 

Top-line growth came in at 15% YoY, driven by 13% volume growth in Q4. Gross margins improved 514bps YoY to 34.2%, driven by softening of raw material prices. Ebitda margin came in at 13.4% (vs analysts of IIFL Capital Services estimate of 10%). The company has received a PLI cash benefit of Rs198.4mn, which is yet to be recognised in revenues. The company incurred a capex of Rs865mn and added 3 manufacturing plants (Bikaner, Kanpur and Muzaffarpur) in FY23.

Robust margin expansion in FY24/25: 

Prices of major commodities such as edible oils and packing materials have corrected 30%/16% vs peak of Q1FY23, which has primarily driven 514bps gross margin expansion in Q4. Even as the company has taken price cuts to pass on some of the benefits of lower prices, we expect steady expansion of 210bps over FY23-25 (Ebitda margin of 13.0% in FY25). With major capex projects completed, ROIC is expected to improve to 25%+ by FY26 (vs 16% in FY23).

EPS upgrades: 

Even as analysts of IIFL Capital Services lower their sales growth estimate for FY24 to factor in price deflation, their EPS estimates are upgraded by 5%/6% in FY24/25. This is driven by gross margin expansion. Bikaji is well-poised to deliver high-teens top-line growth in the medium term on distribution expansion in focus states (15% of sales), cross-selling western snacks (8% of sales) across both core and focus states, and improving the mix of higher-margin products. Analysts of IIFL Capital Services forecast revenue/Ebitda/PAT Cagr of 17%/25%/29% over FY23-26. While valuations are rich at 42x FY25 EPS, there is high visibility on medium-term growth. 

Analysts of IIFL Capital Services upgrade their rating to BUY with a TP of Rs450.