scorecardresearchBikaji Foods: This stock is trading at over 40% premium to its IPO price;

Bikaji Foods: This stock is trading at over 40% premium to its IPO price; is it a good time to buy?

Updated: 18 Jul 2023, 03:27 PM IST

Brokerage firm Axis Securities has initiated coverage on Bikaji Foods International with a ‘buy’ call and a target price of 500, which reflects an upside of 18% from the stock's current trading price.

The brokerage expects revenue and profit after tax (PAT) CAGR of 18% and 35%, respectively, over FY23–26.

The brokerage expects revenue and profit after tax (PAT) CAGR of 18% and 35%, respectively, over FY23–26.

Bikaji Foods International is currently the third-largest ethnic snacks company in India and is among the fastest-growing companies in its segment. Apart from snacks, Bikaji is also the third-largest player in sweets and the second-largest papad maker in India.

The company's shares got listed on the stock exchanges on November 16, 2022, after raising 881 crore through its initial public offering (IPO). The IPO received a tremendous response from investors, as it was subscribed nearly 27 times.

Since its listing, the stock has maintained a steady upward movement, and it is currently trading at 424 apiece, a 41.3% premium to its IPO price of 300.

Moving ahead, the company's shares have the potential to experience further growth due to its solid foothold in the thriving savory snacks market, robust expansion plan in place, and strong competitive advantage, said domestic brokerage firm Axis Securities in its research note, dated July 17.

Well placed to capture strong opportunity

Bikaji’s strong execution capabilities have enabled it to become the third-largest player in the organized ethnic snack market, with a market share of 9%.

In addition, the company holds a leadership position in key consumer markets such as Rajasthan (45% market share), Assam (58% market share), and Bihar (29% market share), said Axis Securities.

According to the brokerage, the company's strong brand recall in an impulse-driven market, along with its diverse portfolio of over 300 SKUs and extensive pan-India distribution network spanning around 0.9 million outlets, positions the company favorably to capitalize on the anticipated robust growth in the savory snacks and sweets market.

Expansion to strengthen its execution muscle

Axis Securities highlights Bikaji's ambitious plans for expansion, aiming to increase its total distribution reach by more than 25% to 1.2 million outlets within the next two years. The company also intends to digitize its distribution network and enhance its direct reach.

With a differentiated growth strategy in its core and focus markets, including deepening penetration, increasing throughput per store, expanding direct reach, and capacity expansion, Bikaji is expected to achieve a growth rate of approximately 1.3x to 2x compared to the organized industry growth rates in these markets, the brokerage added.

Strong competitive positioning and consistent performance

The company enjoys a strong competitive position in the market and consistently outperforms its peers. Despite commanding premium pricing compared to its competition, Bikaji strategically allocates its resources towards expanding its distribution network and achieving scale rather than focusing solely on margins, the brokerage noted.

Further, the brokerage highlights that Bikaji demonstrates strong and consistent outperformance in terms of revenue growth, EBITDA margin, asset turnover, and RoCE when benchmarked against industry averages.

Outlook and valuation

Axis Securities has initiated coverage on the stock with a 'Buy' rating and a target price of 500 apiece based on a target P/E of 46x Jun’25E consolidated EPS. The brokerage said its target multiple for Bikaji is in line with its target multiple for Britannia Industries.

The brokerage expects revenue and profit after tax (PAT) CAGR of 18% and 35%, respectively, over FY23–26. These growth figures, as per the brokerage, are driven by a strong volume CAGR of around 16% and an anticipated 290 basis points expansion in the EBITDA margin to approximately 14%, aided by RM tailwinds, leverage gains, and PLI benefits.

03 analysts polled by MintGenie on average have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.


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First Published: 18 Jul 2023, 03:27 PM IST