Broker’s Call: Patanjali Foods (Buy)
Systematix Institutional
Patanjali Foods' management reiterated their projected earnings guidance for FY27, despite inflationary pressures and the forecasted impact of El Nino on rural demand and income trends. During the Q127 earnings call, the company justified incremental price increases across various product categories due to elevated cost inflation in edible oils, crude-linked inputs, packaging, freight, and logistics.
These price adjustments contributed significantly to the expansion of sales in the edible oil segment and normalized growth in foods.
Management emphasized robust growth in the biscuit sector, specifically in smaller packs and premium biscuits like almond cookies. In the edible oil segment, the company holds long positions, which enable it to capitalize on inflationary pressures. Q1 operating margins for the division expanded by 340 basis points, thanks to the price hikes and favorable inflationary environment. However, FMCG businesses, including staple foods, experienced margin contraction due to sharp input cost inflation, particularly in staples.
The management reaffirmed the FY27E-28E earnings guidance, projecting a 12-15 percent increase in EBITDA, and raised FY27E-28E estimates by 3-4 percent, accounting for the Q1 operating margin improvement in edible oils. They have also introduced FY29E estimates, projecting a revenue and EPS CAGR of 10 percent and 23 percent, respectively, for FY26-29E.
Patanjali Foods maintains a BUY rating, has rolled forward the valuation to June-2028E, and values the stock at a price-to-earnings ratio of 30x, resulting in a revised target price of ₹580 (previously ₹600).
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