Bikaji Foods: Multiple levers of growth

27 Mar 2023 , 09:51 AM

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Target Price: Rs 385

Bikaji is the third largest Ethnic Snacks company in India, operating in the Packaged Snacks & Sweets categories after ‘Haldirams’ and ‘Balaji’, with a well-diversified product portfolio of 300+ products across six principal categories. With ~64% of the market still remaining unorganized and the fragmented nature of even the organized market, Bikaji plans to drive sales via distribution expansion in six ‘focus’ states, in addition to mid-high teen growth in core states. Moreover, margins should expand with a combination of input cost deflation, operating leverage and PLI benefits.

Exploiting the large growth opportunity

Bikaji has a well-diversified product portfolio of 300+ products across six categories, which caters to the varying tastes and preferences of Indian consumers. It is the market leader in the Family Packs segment (~60% of revenue) that has better pricing power and margins. With ~64% of the Indian Savoury Snacks, Sweets and Papad markets still remaining unorganized, and ~30-40% of the organized market with players less than 3% market share — there is ample room for growth. Sales CAGR of 21% over FY19-22 shows that Bikaji has the execution skills needed to exploit this opportunity.

Ramping up distribution

Bikaji is expanding aggressively in its focus markets of UP, Punjab, Haryana, Delhi, Karnataka and Telangana where it has moved on to a direct distribution model so as to penetrate deeper into the markets. Focus states have grown at higher growth of ~30% CAGR over FY19-22 (versus overall CAGR of 21%). It targets to expand its total reach from 0.9mn outlets in FY23 to 1.2mn by FY25. The optimum product mix of low (western snacks) and high dense (sweets) products and manufacturing facilities closer to the target markets, keep its logistic cost (~3.8% of FY22 revenue) as one of the lowest in the industry.

Return profile to improve

With the increase in direct coverage, especially in the focus states, Bikaji would be able to continue the double digit growth across all its segments to record an overall sales growth of 20% over FY22-25. Analysts at IIFL Capital Services expect EBITDA margins to improve to ~12% levels, with easing of commodity prices resulting in ROE/ROIC of 18.9%/22.6% by FY25.