Q1FY24 Review: Bikaji Foods: Distribution-led growth

3 Aug 2023 , 02:01 PM

Bikaji delivered a top-line growth of 15% YoY, primarily driven by a volume growth of 15.2%. Ebitda margin expanded 630bps YoY to 13.6% (vs analyst of IIFL Capital Services estimate of 13%), driven primarily by softening of raw material prices, better sales mix and operating efficiencies. Bikaji is on a strong footing to deliver high-teen top-line growth in the medium term, driven by distribution expansion in focus states, cross selling of 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 21% for FY24 and 6-7% for FY25- 26 and forecast EPS Cagr of 32% over FY23-26. Maintain BUY with a TP of Rs525. 

Beat on margins: 

Top-line growth came in at 15% YoY, driven by volume growth of 15.2% in Q1. Gross margins improved 844bps YoY to 32.8%, driven by softening of raw material prices and better sales mix. Ebitda margin came in at 13.6% (vs analysts of IIFL Capital Services estimate of 13%). Contribution from high-margin products sales in the Namkeen category contributed to ~13% in the overall revenue, in Q1 (vs 12.5% in Q4). Operational efficiencies led to an Ebitda margin improvement of ~60bps. 

Distribution expansion: 

The company is shifting from a super-stockist to a direct distribution model by adding CFA agents to reduce dependency on super-stockists. It has increased direct reach by 13k outlets in Q1 to 162k. By change of distribution model, the company expects a net savings of 0.5%-1%. It has added 150 frontline sales personnel on ground (largely in the focus states), and plans to add 150-200 more over the next 2 quarters. In Q1, core states growth stood at 14.7% and focus states growth stood at 16.3%. 

EPS upgrades:

The company is well poised to deliver high-teen top-line growth, led by volume growth in the medium term driven by distribution expansion. Analysts of IIFL Capital Services upgrade their EPS estimates for FY24 by 21% and FY25-26 by 6-7%, to factor in the large beat on gross margin. The company will be realising ~Rs500mn of PLI benefits for FY22 & FY23 in Q4FY24, which will flow directly into the Ebitda leading to a larger upgrade to FY24. Analysts of IIFL Capital Services forecast revenue/Ebitda/PAT Cagr of 16%/27%/32% over FY23-26. Maintain BUY with TP of Rs525.