Lower Import Duties Will Fuel FMCG Expansion

Key Takeaways

• Strategic expansion into branded wellness and health segments leverages urban consumption trends, driving higher-margin growth and market share.
  
• Investments in distribution and product innovation are set to broaden brand reach, boosting revenue and supporting premium pricing power.
  
• Persistent regulatory, competitive, and input cost pressures threaten margins, growth, brand strength, and earnings quality across Patanjali Foods' expanding FMCG portfolio.

Catalysts

Engages in the processing of oil seeds and refining crude oil for edible use in India.

• The recent reduction in import duties on palm, soya, and sunflower oil-from 27.5% to 6.5%-is expected to lower input costs for Patanjali Foods, improve domestic refining margins, and drive stronger cost efficiencies, directly supporting net margin expansion and future earnings growth.
  
• The company's strategic shift to increase the FMCG segment (with premium, branded ayurveda and wellness products) to 50% of total revenue is aligned with rising middle-class incomes and growing preference for health-oriented, natural products in India, positioning Patanjali Foods to accelerate revenue and market share growth in these higher-margin categories.
  
• Urban consumption recovery, aided by easing inflation and increased government support through welfare schemes and favorable fiscal policies, is expected to boost demand for premium and health-oriented offerings, providing an upward catalyst to topline growth.
  
• Continued investment in distribution footprint-including rural initiatives and omni-channel expansion across general trade, e-commerce, and quick commerce-should increase brand penetration and sales volumes, positively impacting future revenue growth and scale-driven margin gains.
  
• High-margin product innovation in nutraceuticals, biscuits, and new plant-based or functional SKUs (targeting preventive health and wellness) is set to meet the rising consumer demand for foods with functional benefits, thereby expanding the addressable market and supporting both revenue growth and premium pricing power.

Patanjali Foods Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Patanjali Foods's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.4% today to 5.3% in 3 years time.
• Analysts expect earnings to reach ₹23.5 billion (and earnings per share of ₹57.27) by about August 2028, up from ₹12.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 44.7x on those 2028 earnings, down from 54.0x today. This future PE is greater than the current PE for the IN Food industry at 20.7x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.73%, as per the Simply Wall St company report.

Patanjali Foods Future Earnings Per Share Growth

Risks

• Intense government intervention in staples (rice, dal, wheat, edible oil) through subsidies, stock disclosures, and price controls creates volatility and may lead to inventory losses or forced margin compression, potentially impacting both revenue and net margins over the long term.
  
• The rapid migration of volumes from general trade to alternate channels (modern retail, e-commerce, quick commerce) is eroding bargaining power and causing margin compression due to stiff competition and shifting consumer preferences, risking both topline growth and overall earnings quality.
  
• Exposure to high input cost volatility (especially butter, milk, sugar, palm oil, and raw materials for nutraceuticals and beverages), compounded by unpredictable climate events and global geopolitical tensions, could keep gross margins under pressure and result in unstable earnings.
  
• Brand dilution risk is emerging as Patanjali aggressively expands its portfolio across numerous FMCG and HPC categories and product SKUs, which could erode customer loyalty and compromise premium pricing power, ultimately affecting future revenue quality and net profitability.
  
• Ongoing competition from regional, new-age, and multinational FMCG players-amplified by low-cost digital entries and regional branding-could lead to market share erosion in core product categories (especially urban, premium, and younger segments), pressuring growth rates, margin expansion, and long-term earnings sustainability.

Valuation

• The analysts have a consensus price target of ₹2022.5 for Patanjali Foods based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹445.4 billion, earnings will come to ₹23.5 billion, and it would be trading on a PE ratio of 44.7x, assuming you use a discount rate of 12.7%.
  
• Given the current share price of ₹1813.8, the analyst price target of ₹2022.5 is 10.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.