Buy Patanjali Foods, target price Rs 1602: HDFC Securities

HDFC Securities has buy call on Patanjali Foods with a target price of Rs 1602. The current market price of Patanjali Foods is Rs 1357.7. Time period given by analyst is 6 months when its price can reach defined target.

Patanjali Foods, incorporated in the year 1986, is a small cap company (having a market cap of Rs 49227.68 Crore) operating in Agro Processing sector.

Its key products/revenue segments include Oil, Seed Extraction/Meal, Vanaspati, Food Products, Others, Power Generation for the year ended March 31, 2021.

Financials
For the quarter ended June 30, 2022, the company has reported a standalone total income of Rs 7370.08 crore, up 10.39 per cent from last quarter total income of Rs 6676.20 crore and up 39.16 per cent from last year same quarter total income of Rs 5295.99 crore. Company has reported net profit after tax of Rs 241.26 crore in latest quarter.

The company’s top management includes Mr.Acharya Balkrishna, Mr.Ram Bharat, Mr.Swami Ramdev, Mr.Gyan Sudha Misra, Dr.Tejendra Mohan Bhasin, Dr.Girish Kumar Ahuja. Company has Chaturvedi & Shah LLP as its auditors. As on June 30, 2022, the company has a total of 36 Crore shares outstanding.

Investment Rationale
The powerful competitive edge which PFL gets from parentage given its strong brand equity, pan-India distribution network, its capabilities and product synergies has been further enhanced by the company’s acquisition of Patanjali’s complete foods portfolio.

Over the medium term, the brokerage expects the company to witness a transformation from commodity based company to a large FMCG & Wellness company facilitated by focusing on important strategic priorities, creating seamless integrated organisation structure where all BUs and functions operate in coherent manner to achieve larger objectives, investing in talent and capacity building, focus on leveraging digital technology, putting in place stringent corporate governance framework.

Given the predominance of oil business even after 2 years from now, the valuations of PFL may still be short of its peer FMCG companies. However, it may grow much faster than its peers over the next two years.

The brokerage have taken this into account while arriving at the price targets. They think the base case fair value of the stock is Rs 1490 (32.5x FY24E EPS) and the bull case fair value of is Rs 1602 (35x FY24EEPS). Investors can buy the in stock Rs 1341-1363 band (29.5x FY24E EPS) and add more on dips in Rs 1180-1200 band (26x FY24E EPS)band.