Patanjali Foods - Remodelling As A Formidable Competitor To Its FMCG Peers; Systematix Initiates With A Buy

Systematix Research Report

We initiate coverage on Patanjali Foods Ltd. with a Buy rating and target price of Rs 2,259 valuing the company at 40 times FY26E price/earning, at 20% discount to FMCG sector average.

Patanjali Foods is set to become a key player in India’s FMCG market post acquisitions. First, it acquired the erstwhile Ruchi Soya followed by acquisition of biscuits, breakfast cereals business, the foods business and eventually the home and personal care businesses of its parent, Patanjali Ayurved Ltd. which includes haircare, skincare, dentalcare, and homecare products.

In addition to being a number two player in the edible oil market with market leadership in palm oil category and a large player in the oil palm plantation segment, the company has created a meaningful place in key categories like biscuits, oral care, cow ghee and other FMCG products.

With the revenue contribution of FMCG products estimated to expand from 7% in FY22 to 41% in FY27E, we expect Patanjali Foods to command superior valuation multiples, in line with mid-sized FMCG peers with ~80% Ebitda contribution coming from that part of the business.

The company’s strong brand equity and distribution network should boost its aggressive forays into emerging categories like nutraceuticals, spices, HPC, etc.

We expect Patanjali Foods’ industry leading distribution led growth in core categories and robust margins in new premium categories to drive 10.3%/41.3%/48.9% CAGR in revenue/Ebitda/PAT, respectively, over FY24- 27E.

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