The struggle is real with Patanjali’s quarterly numbers amongst the analysts on concall.
Patanjali Foods seem to be making losses on their original Ruchi Soya’s Oil business but they compensated by making incredible profits from their acquired food business which caught the watchful eyes of the analysts.
We wanted to dig in and check the presentation (PPT) but couldn’t be found on their website (as of 18-Nov). In the exchange notification only had a link to the website but no presentation attached.
Lets start with the concall transcripts opening comments,
“some of the main highlights and where we stand in the business today. We had revenue of ₹8,500 thousand Crores. We had an EBITDA of about ₹205 Crores and a PAT of ₹112 Crores. This breakup broadly some of the big businesses I will speak about. In the oil and vanaspati segment, we had ~₹5,900 Crores of revenue. I am just rounding of the numbers. We had a negative EBITDA of ₹450 Crores which is about 7.63%. In the foods business we clocked ~₹2,400 Crores which was very substantial uptick. This was largely driven by one big factor that the foods business from Patanjali Ayurved which got integrated from July 1st came into unfold on which we did about ₹1,600 Crores of revenue. We had an EBITDA of ₹460 Crores and we had a margin construct of 28.8% on this. Nutraceuticals also was a big uptick we did ₹400 Crores of revenue, ~₹140 Crores of EBITDA about 35% of margin and then of course we have other businesses like biscuit and consumer business etc. So they have rounded to ₹620 Crores of EBITDA and about 25% margin on EBITDA. Then it was followed by some of the other business like extraction and wind”
Long story short, they made losses in their main business (oil) where as they made up for it in their new businesses which were acquired from within their group earlier this year. The new business margins (28.8% for foods business & 35% for Nutraceuticals) raised more than few eyebrows with the analyst community present in the concall.
These doubts were exacerbated when Mr. Sanjeev Asthana started to justify the same via additional opening comments. Even the sleepy analysts woke up. (Comments in {{double brackets}} are mine)
On the food business we had very good overall margin.{{how?}} We had very good sales momentum. This was of course aided by two things. One is that we had acquired in the food business a fresh into the company so that is why the overall food business portfolio shot up to 2,400 Crores.{{ but usually when one acquires, it takes few months for synergies to pass thru?}} There was a big push in terms of the new channels which were opened up for sales which we continue to push and drive towards. {{The SGA expenses don’t seem to show a big push ?}} We maintained very healthy EBITDA margin at the back of high demand and the ability to price to the consumers which gave us a very good margins ..
The analysts got their sleuth hats on and started asking some relevant questions:
Ankush Agarwal: So, Sir how sustainable is this number especially in terms of margin because when we applied for the food business that time we were talking about ₹1,200 Crores kind of quarterly run rate but now we are almost touching ₹2,400 Crores.
Mr. Sanjeev Asthana: Your second question was that the sustainability of both the revenues and the margins on this. I mentioned that you were aided by two big events one was Diwali it was getting celebrated for the first time after a longest gap with full gusto so that was a huge benefit that we had and lot of pricing benefit that the company had and similarly the sales bump that we got, one time bump and the new channels that opened up that gave us a huge benefit so to answer your question specifically that overall margin of 25.9% or thereabout that we have on the food business will this be sustained probably the answer is that it will be to huge challenge to maintain this kind of momentum. So, there will be some tapering off and I think we should get back to about 15% to 18% margin run rate . {{Wow, so diwali season gives 25.9% margins whereas usual run rate is 15-18%. We haven’t seen this with Brittannia, Dabur etc}}
Mr. Bharat Shah: Sir, as you have mentioned about distribution and new sales initiative so if you can throw light on the same.
Mr. Sanjeev Asthana: Patanjali has a large base of yog karikarthar a direct channel who have got direct access to the consumers so there is a lot of effort which is going in two areas especially on the foods and nutraceuticals that going through the traditional channels is obviously a route which is available but also building that channel up to push for sales directly to the consumers since they interact and if my number is right it is almost 1 lakh plus are the number of people who directly interact and interface with a very large base of consumers themselves who are followers of everything that Patanjali does so that is a new channel which is was mentioning. {{ 1 Lakh plus yog karikarthar selling their goods ? How are they paid ? Would love to their sales costs and incentives shown separately in P&L }}
The disbelief of superlative margins (and revenues) from the food business continues amongst the questioners :
Ketan Gindoria from Alfa Accurate Advisors : ... can you help me again with the margin on the acquired food business the ₹1,600 Crores revenue
Mr. Kumar Rajesh: So the acquired food business from PAL in the current quarter contributes revenue of ₹1,241 Crores and after including honey and atta and TSP and buddy this is near about 1600 Crores and contributes to a margin of ₹1,600Crores. {{ is this a typo on transcript or is he dodging the question? }}
The disbelief is not just on the margins, it’s also on the revenue numbers. The foods business was acquired for ₹690 crore and in the same year makes a turnover of ₹1,241 Crores in this quarter ? Ketan continues to probe more
Mr. Ketan Gindoria from Alfa Accurate Advisors ... just wanted to understand what is the corresponding number of revenue in the previous year for this acquired business just wanted to know what is the growth in the acquired business compared to last year.
Kumar Rajesh: See previous year it was not a part of our company. This was in the segment of Patanjali Ayurved Limited but overall run rate of this acquired food business including nutrela, oil for a year was near about ₹4,000 Crores so run rate is ₹1000 Crores per quarter. {{ 4000 crore revenue business making 25% margins was acquired for ₹690 crore ? hmm.. }}
Questioning continues with the same scepticism of superlative margins of the acquired food business ..
Mr. Ajay Sharma: Okay so when was this supposed to be acquired, the EBITDA was 15% which is now 25%.
Mr. Kumar Rajesh: 15 to 20% it was at that point of time.
Mr. Ajay Sharma: I think it was around ₹600 Crores on turnover of ₹4,000 Crores right. I am just wondering Asthana Sir did say something about festive and all that but what explains margin expansion from 15%, 16% to 25% is that like a one-off benefit on the raw material side or what basically.
Mr. Sanjeev Asthana: We got a big benefit on the ability to pass on at a premium to the consumers because the Diwali demand was exponential this year and the last year it was unprecedented we were just opening up, number one.
<to be continued>
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