Buy Gopal Snacks; target of Rs 375: Emkay Global Financial

Moneycontrol • 1 day ago

Original source

Key Investment Pillars

  • Gopal Snacks' revenue growth is expected to be driven by a combination of factors, including higher distributor throughput in its core state, continued expansion in focus states, new product launches, and distribution automation. The company aims to achieve a run-rate of Rs1bn in Gujarat, but not at the cost of margins.
  • The company's gross margin expanded by 70bps yoy to 27.1% in 2QFY27, aided by price hikes, reduction in grammage, and an improved portfolio mix. EBITDA margin also expanded by 260bps yoy to 9%, led by gross margin expansion and a decrease in staff costs and other expenses.
  • Gopal Snacks' management expects the company to deliver >20% revenue growth in FY27, led by volume growth, and EBITDA margin in the range of 8-9%. The company is also focusing on expanding its non-palm-oil portfolio and launching new products to reduce dependence on palm oil and improve margins.
  • The company's distribution network is expanding, with a focus on adding new distributors and improving servicing of outlets. The company has also started a besan plant at Nagpur, which is expected to save Rs30mn annually in freight costs.

Thesis Validation Checklist

  • Investors should watch for signs of continued revenue growth, driven by volume expansion and new product launches, as well as margin expansion driven by gross margin improvement and operating leverage.
  • The company's ability to manage input costs, particularly palm oil, and maintain its pricing power will be crucial in achieving its EBITDA margin targets.
  • The expansion of the company's distribution network and improvement in servicing of outlets will be key to achieving its revenue growth targets.
  • Investors should also monitor the company's progress in reducing its dependence on palm oil and improving its non-palm-oil portfolio, as well as its ability to manage its working capital and generate cash flows.