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Systematix Research Report
Prataap Snacks Ltd.'s Q1 FY24 results were a mixed bag with strong margin expansion offset by continued stress in demand conditions leading to a muted sales growth for the third consecutive quarter.
The company reported revenue growth of 1.4% YoY to Rs 3.85 billion due to sluggish demand from lower-income consumers in both rural and urban markets.
Gross margin expanded 1,100 bps YoY to 33.8%, supported by softening palm oil along with reduction in cost of packing materials. Ebitda margin expanded to 8.5% versus a loss in base quarter with benefits of various measures like initiation of direct distribution model, efficient manufacturing processes and cost optimization measures starting to kick in.
We expect Prataap Snacks to aggressively invest in growth-boosting initiatives like grammage increases, higher trade schemes, advertising and promotion etc. in a bid to stave off competition and drive double-digit growth, which should keep margins stable around 8-8.5% despite operating leverage benefits and higher gross margins.
We are not building in any production linked incentives for now given it looks challenging to reach threshold revenue in FY24 as well, which could lead to EPS upgrades in case the company is able to shift the revenue growth trajectory upwards to required levels.
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