Buy Gopal Snacks; target of Rs 375: Motilal Oswal

Moneycontrol • 1 day ago

Original source

Key Investment Pillars

  • Revenue growth: Gopal Snacks' revenue grew 23% YoY to INR4.6b, led by a robust 40% YoY growth in wafers, while gathiya and pellets & extruded snacks followed with 25.6% and 23.0% YoY growth, respectively.
  • Distribution expansion: The company added 50 distributors in 2Q, out of which 49 were added in focus states, improving market penetration and product availability.
  • Margin improvement: Gross margins expanded 70bp YoY to 27.1%, despite raw material inflation, and EBITDA margins grew 260bp YoY to 9%, driven by operating leverage and cost optimization.
  • Cost optimization: The commissioning of a besan manufacturing unit at Nagpur is expected to reduce transporting costs and improve margins.

Thesis Validation Checklist

To validate the thesis, watch for:

  • Sustained revenue growth: Continued growth in wafers and other snack categories, driven by distribution expansion and market penetration.
  • Margin expansion: Improvement in gross and EBITDA margins, driven by operating leverage, cost optimization, and pricing actions.
  • Distribution network expansion: Addition of new distributors, particularly in focus states, to improve market coverage and product availability.
  • Raw material cost management: Ability to manage raw material costs, particularly palm oil, to maintain margin stability.