Patanjali Foods’s shares have been on a falling trajectory recently. Interestingly, the stock has been in the corrective mode ever since reporting its December quarter results in December 2022 quarter on January 25 and Hindenburg’s report was released on January 24, 2023.
The company reported a mixed bag of results in the quarter ended on December 31, 2022. Analysts suggest that the stock has been hit hard on the back of due to multiple factors including company’s financial, pressure on margin business, overhang on promoter’s stake sale to comply with Sebi’s norms being the main ones.
Patanjali Foods reported 15 per cent increase in net profit at Rs 269 crore for the quarter ending December 31, 2022 as against Rs 234 crore in the year-ago period. The company’s revenue from operations rose 26 per cent to Rs 7,929 crore in Q3FY23 as against Rs 6,280 crore in Q3FY22.
However, the numbers were below analysts’ estimates as pressure could be seen in high margin business. Its operational performance remained under pressure due to higher cost of raw material and other expenses.
Shares of Patanjali Foods hit a lower circuit of 5 per cent on Friday to Rs 903.35. The scrip had settled at Rs 950.85 on Thursday. The scrip is down 25 per cent since announcing its Q3 earnings. The stock is down 40 per cent from its 52-week high at Rs 1,495, hit in September 2022.
Abhishek Jain, Head of Research, Arihant Capital said that weaker performance of the company in Q3 saw lower margins especially in the food and oil segment. The food segment margin was very disappointing to 11 per cent. Management expressed that 15-18 per cent margin seems sustainable in their earnings call, he said.
“The market has been hammering high PE stocks and selling should largely be from the HNI segment. There has been a lack of institutional interest especially in the midcap names. This has also led to a fall in prices,” he said. “Other than this, overhang of Offer for sale (OFS) is also another factor weighing on the stock.
Baba Ramdev led Patanjali Ayurveda acquired Ruchi Soya and renamed it as Patanjali Food, merging its FMCG business into the edible out player. In March 2022, the company raised Rs 4,300 crore via follow-on public offering to become a debt free entity.
Patanjali Foods had to bring its non promoter and public shareholding to the minimum threshold of 25 per cent by December 2022, but the deadline for the same has passed. The company management has said that this will be completed in another month or two.
Commenting on muted results in the December 2022 quarter, Deepak Jasani, Head of Retail Research, HDFC Securities said that EBIT margins were also under pressure due to unfavorable product mix and carry-over of previous quarter. Oil business margin recovered sequentially, but was still below the average due to volatility in raw material prices.
On the FMCG front, management has guided for high-teen revenue growth driven by distribution expansion and expanding product portfolio. FMCG contribution is now 20 per cent of revenue and is expected to reach 50 per cent in next five years with a margin at 15-18 per cent over the medium to long term, he said.
Jain from Arihant Capital suggests that investors can add the stock in tranches close to Rs 800-900 for the long term with expectations of better performance from all three segments.
Given the predominance of oil business even after 2 years from now, the valuations of Patanjali may continue to be short of its peer FMCG companies despite guided faster topline growth, said Jasani from HDFC Securities.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)
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