The share price of Baba Ramdev-backed Patanjali Foods paused today and experienced some profit taking after reaching all-time highs on Tuesday and Wednesday sessions. The share price of Patanjali Foods today began with a negative gap and eventually reached its intraday low of ₹1,426 on the NSE.
However, ICICI Direct thinks that this stock price decline is only transitory and that the stock may continue to rise. The brokerage has advised long-term investors to purchase this multibagger stock, which is endorsed by Baba Ramdev, in order to reach long-term levels of ₹1,750 a share.
According to ICICI Direct Research’s analysis of the share prices and prospects for Patanjali Foods, “Patanjali Foods is one of the large FMCG firms present in edible oil & numerous food categories. The firm is ideally positioned to gain from consumer trends toward natural, healthy, and Ayurvedic products.
Additionally, PFL is projected to expand its edible oil business by using more of its current capacity, integrating backward into the palm plantation, and increasing the percentage of seed extraction business in its operations. The company plans to expand its food business across a number of sectors by using the “Nutrela” and “Patanjali” brands. Future improvements to PFL’s operational margins are projected to result from the consolidation of the food industry, backward integration into the palm plantation, and leveraging current brands by entering new food categories.
Furthermore, we think the firm will have a lot of chances in the health & wellness sector as a result of entering high margin categories like nutraceuticals, which will help future growth and margins.
“The corporation has been able to pay off its full debt thanks to the capital raising in March 2022. Additionally, PFL would be able to satisfy its future internal accruals demand of ₹4000–₹5000 crore for working capital. We think the business would continue to be debt-free if it generated enough operational cash flow and had few capital expenditure needs. Strong free cash flow, in our opinion, would enable PFL to raise its dividend payout, the brokerage continued.
The research report from ICICI Direct said, “The stock is now trading at a multiple of 45.3 times FY23E earnings and 32.3 times FY24E earnings. In comparison to other food firms like Nestlé, Tata Consumer, and Varun Beverages, the company is selling at comparatively favourable valuation multiples given the volumes, sales growth expectations, and margin improvement opportunities. In our coverage area, it is also selling at a 25% discount to another Ayurveda, Natural play like Dabur. Given the low levels of penetration, the significant opportunity, and the acceleration of the move from unbranded to branded consumption, we continue to be optimistic about the packaged food space in the FMCG industry.”
According to ICICI Direct’s analysis, “We value the stock at 40x FY24E profits to arrive at a target price of ₹1750/share with a BUY rating on the Patanjali Foods stock,” regarding the Baba Ramdev-backed Patanjali Foods shares. According to the brokerage, the stock might increase to levels of ₹1,750 per share in 12 to 18 months.