Once the import duty is reversed, we can see a good correction in this stock. the long-term structural story is developing with respect to the allotment of 5 lac hectare land and planting palm trees for crushing and oil extraction.
the Duty has been extended by another 6 months, probably edible oil stocks will continue to rally
With addition of high margin Food business from Patanjali Ayurveda to Patanjali Foods will provide further tail winds to stock…
Agree. Patanjali foods story is more about food business, which it got at very low valuations from Patanjali group. Valuations is lower than peers and growth plan is ambitious. Let us see how it the story pans out.
If I do a compare P&L of HUL and Nestle, then their PAT to Operating Income ratios are 25-30% where as in case of patanjali foods this ratio is less than 10%. Where comes this gap?. There is advantage in keeping prices low but to become a brand takes time. Lessons learnt from Nano disaster, the product was excellent but not pursued enough.
We cant compare due to edible oil.
Edible oil business is not margin accretive. It is just volume game due to import. If the RM for edible oil is localized ( say in 5 years), then there might be margin on hand.
In that case it would make sense to carve out this business as its eating away the margins. I feel they would do this eventually down the line which would lead to value creation.
What are your views post poor q2numbers from Patanjali ?
Going through the results, I think they would be better off if they demerge the edible oil business and take it private or list it as a separate entity. Edible oil is a low margin essential commodity business with inherent volatility due to macro factors, raw material price fluctuation, govt policies of the exporting countries of CPO(crude palm oil).
The backward integration project of having their own palm oil plantation in India is a long-term project and would not provide any cushion in the short to medium-term to mitigate the risks involved or boost up margins of this business.
Food & Nutraceutical business have huge scope to grow at a rapid pace on its own with much more stability and better margins. In Q2FY23 their Food & other segment generated EBIT of 611 crs on a segment revenue of 2400 crs. EBIT margin = 25.46%. At this rate their food & nutraceutical business can itself generate a PAT of around 2000crs in next 1-2 years. We have to see whether these numbers in the food business are sustainable or it is due to an aggressive credit pushed institutional sales as trade receivables have gone up by 1252 crs in the last 6 months ?
Meanwhile, if you compare the food business of Patanjali with Nestle India then Patanjali look very well placed due to an extensive product portfolio in high growth areas with huge opportunity size, competitive margins, good quality and brand value of products etc.
Nestle India made 20.54% EBIT margin in the quarter ended Sep 2022 vs 25.46% of the Patanjali Food business. In CY21 Nestle India EBIT margin was 21%. In CY21 Nestle India made a PAT of 2145 crs & in CY22 TTM PAT is coming at around 2165 crs.Sales & PAT CAGR of Nestle India in last 3,5,10 years is also not praiseworthy. Still, the market it valuing it at 1.95 lakh crs.
Nestle India CAGR growth (numbers are taken from screener.in)
Tenure Sales PAT
3 years 9% 10%
5 years 10% 16%
10 years 7% 8%
Now just compare the risk-reward of the Nestle India business with Patanjali Food business as a separate entity with its high growth, 20-25% EBIT margin, extensive product SKUs in high growth segments with large opportunity size etc. It is for the market to decide that at what multiple Patanjali Food business should be valued at if it is separated from the edible oil business.
Disclosure : Invested in Patanjali Foods
Company Guidance for the next few quarters is to focus on the “Food Products and Others” Segment consisting of the Soya Foods, Biscuits, Breakfast Cereals, etc. and the Food Business acquired from Patanjali Ayurved Ltd.
Also, noteworthy that the FPO Proceeds (as mandated earlier) have been utilized to repay Consortium Borrowings aggregating to 2664 crores, resulting in Interest Finance Costs reduce from 186 crores in Q1FY23 to 10.7 crores in Q2FY23 and that which also address, albeit partially, the overhanging corporate governance thread of loans refinanced earlier. The following quarters should see a +ve impact on overall margins due to reduced Finance costs.
Disc.: Invested.
I would like to add a FMCG company in my portfolio and shortlisted -Patanjali and Varun Beverage. Appreciate if anyone can guide me in this regard with right analysis.
http://www.ruchisoya.com/financial/Audited_Financial_Results_31_03_2023.pdf
Any views of Q3FY24 Seniors can have a look please.
Sub-optimal results for the quarter; However company on the right track
Two things should be looked in Patanjali’s result for a long term investor →
Rest of the numbers are significantly variable -
If you look at result from the lens mentioned above, it was a good result -
