Prataap Snacks namkeen-led growth supports gradual margin recovery through FY28

Investment View and Valuation

Motilal Oswal Financial Services (MOFSL) reiterates its Buy view on Prataap Snacks (PSL), with a target price of Rs 1,350 versus the current market price of Rs 1,160. The broker’s thesis is based on sustained revenue growth led by namkeen, followed by extruded snacks and potato chips, along with a gradual recovery in profitability through distribution and manufacturing changes.

The target price is derived using a discounted cash flow valuation and implies a 45x price-to-earnings multiple on March 2028E earnings.

Q1 FY27 Financial Performance

Prataap Snacks reported revenue of Rs 492.5 crore in Q1 FY27, up 20 per cent year on year and 12 per cent above MOFSL’s estimate of Rs 439.8 crore. Performance was supported by improving consumption in key markets, stronger traction for newly launched products, continuing momentum in namkeen and potato chips, expansion of the distribution network and growing traction in emerging channels, particularly quick commerce.

Namkeen delivered double-digit volume growth, followed by potato chips and extruded snacks.

Profitability and Cost Pressures

Profitability remained under pressure despite the revenue growth. Q1 FY27 gross margin declined 138 basis points year on year and 145 basis points quarter on quarter to 27.2 per cent, as raw-material costs increased. Raw materials account for about 73 per cent of revenue.

EBITDA increased 10 per cent year on year to Rs 20.3 crore, but EBITDA margin declined 35 basis points year on year to 4.1 per cent. EBITDA was 6 per cent below MOFSL’s estimate of Rs 21.5 crore. Adjusted PAT rose 257 per cent year on year to Rs 2.5 crore, marginally above the broker’s estimate of Rs 2.4 crore.

Growth Outlook and Margin Recovery

Management expects double-digit revenue growth in FY27, led by namkeen and followed by extruded snacks. Margin pressure in Q1 FY27 reflected around 20 per cent year-on-year inflation in palm oil, which represents about 18–20 per cent of raw-material cost, and packaging laminates, which represent about 15–16 per cent. Freight costs also increased during the period.

MOFSL expects EBITDA margin to expand to about 7–8 per cent by FY28 through cost optimisation and calibrated price hikes. Revenue growth of about 12–13 per cent is expected to be supported by a shift to a two-tier distribution model, plant consolidation, a higher contribution from owned manufacturing and expansion in East India.

The broker estimates FY26–28 revenue CAGR of 13 per cent and EBITDA CAGR of 42 per cent. MOFSL made no changes to its FY27E or FY28E revenue, EBITDA, PAT or EPS estimates.

Corporate Developments

• Arvind Kumar Mehta resigned as Chairman and Executive Director.
• The Board approved the acquisition of RLOP Food Processing, which currently has no operations, for cash consideration of up to Rs 16.5 crore.
• The acquisition is intended to secure leasehold land for a greenfield expansion.

Key Risks

• Supply-chain disruptions could affect production.
• Plant consolidation could involve execution risks.