How may Patanjali Foods’ acquisition of PAL’s food portfolio act as the growth engine for the company?

In this article, we will be discussing the expansion of the product portfolio of Patanjali Foods into the food category and how this expansion may act as the growth engine for the company. So, let’s get started!

Patanjali Foods Limited and it Brand Portfolio:

Patanjali Foods is a part of the Patanjali Group – one of India’s leading Fast Moving Consumer Goods (FMCG) and Fast-Moving Health Goods (FMHG) companies. The company is one of the largest fully integrated edible oil refining companies in India. The Key brands of the company include Patanjali, Nutrela, Mahakosh, Sunrich, etc.

Key Business Verticals:

Source: Patanjali Foods Limited- FY22 Annual Report

Acquisition of Food Portfolio:

Patanjali Foods acquired the entire food retail business of Patanjali Ayurved (PAL) as a going-concern on a slump sale basis for Rs. 690 Cr. in May 2022 (transfer from July 1, 2022).
The company aims to strengthen Patanjali Foods’ product portfolio and contribute to long-term growth and profitability.
The acquisition includes manufacturing, packaging, labeling, and retail trading of certain food products, along with manufacturing plants located at Padartha, Haridwar, and Newasa, Maharashtra.
The acquired business with 500+ SKUs that are spread across eight major product categories, like staples, edible oils, beverages, spices and condiments, cow ghee, honey, herbal products, and dry fruits.
The portfolio has some marquee products like cow ghee, chyawanprash, aloe vera juices, and Patanjali Honey which have a strong positioning in their respective categories and strong brand equity.

Foods Product Portfolio of Patanjali Foods:

Category Mix of Patanjali Foods Limited:

Edible Oil is the largest category, while Edible Oil & Ghee contributed 66% of the revenue
Other categories contributed 34% to the revenue, Consists of both high-margin, high-growth products along with high-volume, moderate-growth products which shall have a positive impact on the margin profile of the company.

Patanjali Foods- Food Business Market Size

The company entered the biscuits, cookies, and rusks segment in May 2021 by acquiring it from Patanjali Natural Biscuits Private Limited (“PNBPL”) at a consideration of Rs. 60 crores
Further, Patanjali Foods acquired breakfast cereals and atta (wheat) noodles product category, in June 2021 from Patanjali Group which gave access to 4 contract manufacturing units in Rajasthan, Uttarakhand, and Haryana under the “Patanjali Assignment Agreement”

Acquisition of Patanjali Foods Portfolio as a Growth Engine

The acquired business recorded a turnover of Rs. 41,170 Cr, in FY22, and over the last two years, it has grown in strong double digits. The company would maintain strong growth momentum on the back of distribution expansion and new product launches.
Since the pandemic, the demand for natural/ ayurvedic products has accelerated, Immunity-boosting products like chyawanprash, honey, ghee, over-the-counter ayurvedic products, etc. have witnessed a surge in demand, which should continue going ahead. The Patanjali brand name coupled with its association with Swami Ramdev has a ‘right to win’ in the FMCG categories.
PAL’s distribution reach of 55 Lakhs is in line with major FMCG companies, with cumulative reach (PAL + Patanjali Foods) of more than 60 Lakh retail outlets. The company has got 100 depots across the country and 4,700 distributors. The company aims to increase its reach by 50% in the next three years from the current retail access point
In the biscuit business, Patanjali Foods continues to expand across every town with a 20,000+ population, which is through distributors and retail touch points.
The acquired foods business commands operating margins of 16% whereas edible oil is a low single-digit commoditized business. Hence, the high scope of growth in margins with the acquisition of the food portfolio.

What Should Investor Do?

Patanjali Food has been expanding its brand portfolio to diversify its product portfolio and boost the company’s margins from the current levels. The company is open to organic as well as inorganic growth opportunities to gain market share in the FMCG Industry. Patanjali Foods is having some strong expansion plans which the company is slowly taking steps toward as well hence investors should keep this stock on their radar.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.