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
| Subscribe To Our Free Newsletter |
