Patanjali Foods shares take pause after strong rally. ICICI Direct gives buy tag

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Baba Ramdev-backed Patanjali Foods share price took a pause today and witnessed some profit booking after climbing to life-time highs on Tuesday and Wednesday sessions. Patanjali Foods share price today opened with a downside gap and went on to make its intraday low of 1,426 on NSE. However, ICICI Direct believes that such dip in the stock is temporary and the stock may maintain its upside momentum. The brokerage has suggested long-term investors to buy this Baba Ramdev-backed multibagger stock for long term target of 1,750 apiece levels.

On valuations and outlook of Patanjali Foods shares, ICICI Direct research says, “Patanjali Foods is one of the large FMCG companies present in edible oil & multiple

foods categories. The company is well set to reap the benefit of tailwinds of healthy, Ayurveda & natural products consumption. Moreover, PFL is likely to scale up edible oil business by increasing existing capacity utilisation, backward integration in palm plantation and increasing proportion of seed extraction business within edible oils. The company is also set to leverage ‘Nutrela’ & ‘Patanjali’ brand to scale up the foods business in multiple categories. Consolidation of foods business, backward integration in palm plantation & leveraging existing brands by foraying into new foods categories is likely to improve PFL’s operating margins, going forward. Further, we believe a foray into high margin categories like nutraceuticals opens up vast opportunities in the health & wellness space for the company, which can aid volumes as well as margins in future.”

“With the fund raising in March 2022, the company has been able to repay its entire debt. Moreover, PFL would be able to meet the working capital requirement of 4000-5000 crore through internal accruals in future. We believe the company would remain debt free with sufficient operating cash flow generation and limited capex requirement. We believe strong free cash flow would help PFL to increase its dividend pay-out,” the brokerage added.

ICICI Direct research report went on to add, “At the current price, the stock is trading at 45.3x its FY23E and 32.3x its FY24E earnings. Given the volumes, sales growth prospects and margin expansion possibilities, the stock is trading at relatively attractive valuation multiples compared to other food companies like Nestlé, Tata Consumer, Varun Beverages. It is also trading at 25% discount to another Ayurveda, Natural play like Dabur in our coverage universe. We remain positive on the packaged foods space in the FMCG sector given lower penetration levels, high opportunity size and acceleration in unbranded to branded consumption shift.”

 

On its suggestion in regard to this Baba Ramdev-backed Patanjali Foods shares, ICICI Direct report says, “We value the stock at 40x FY24E earnings to arrive at a target price of 1750/share with a BUY recommendation on the stock.” The brokerage said that the stock may go up to 1,750 apiece levels in 12 to 18 months time.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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