Buy Prataap Snacks; target of Rs 801: Khambatta Securities

Khambatta Securities' research report on Prataap Snacks

A significant part of Prataap Snacks Limited’s (PSL’s) sales originates in catchment areas around schools and colleges, and the travel segment. As educational institutions stay shut and travel activities remain sluggish, strong growth revival is still some distance away. Having said that, PSL has undertaken a number of initiatives, which include (a) compressing the distribution structure to increase direct reach to distributors/megadistributors by bypassing super-stockists with a potential of 200 bps to 300 bps margin accretion; (b) setting up a distributed manufacturing model comprising regional hubs across the country; (c) enhancing the distribution network through efforts such as tele-calling support to distributors to deepen their distribution reach; (d) strategic additions to the product portfolio suited to in-home consumption; and (e) cost rationalisation and efficiency enhancement. The company is also implementing steps towards deepening its rural distribution by appointing distributors at the taluka level. The sharp increase in edible oil prices dented PSL’s profitability in 4Q FY21 as palm oil prices moved up from Rs 70 to touch Rs 120 levels.

Outlook

As the longer-term margin accretion is not captured in our forecasts, we assign a higher target P/E multiple of 32.0x (vs 30.0x is the last report) to arrive at a price target to Rs 801 with an upside of 15%, maintaining a BUY rating.

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