Turkish Cost Pressures Will Choke Margins But Efficiency Will Help

Key Takeaways

• Significant exposure to inflation, commodity price volatility, and domestic market concentration increases risks to profitability and earnings stability.
  
• Expansion and product innovation support growth, but operational and regulatory challenges threaten future margin and revenue improvements.
  
• Overdependence on domestic and traditional product lines, compounded by input cost volatility and shifting consumer preferences, threatens profitability and long-term growth amid ongoing macroeconomic instability.

Catalysts

Manufactures, markets, and sells biscuits, chocolates, chocolate coated biscuits, wafers, and cakes in Turkey and internationally.

• While the company continues to benefit from rising disposable incomes and urbanization trends in Turkey and emerging markets-supporting resilient demand for branded snacks and biscuits-the business is highly exposed to persistent inflation, commodity cost surges (especially cocoa and packaging materials), and currency volatility, which could continue to compress margins and erode net profit growth if these input pressures remain elevated.
  
• Although Ülker has seen positive impacts from new product launches and a robust innovation pipeline that reinforce its competitive positioning and drive incremental revenue, its core revenue base remains heavily concentrated in the domestic market (72% of sales), making overall earnings susceptible to ongoing macroeconomic instability, political risks, and contraction in Turkish consumer purchasing power.
  
• Despite making operational advances in procurement and supply chain optimization-such as AI-powered initiatives and disciplined sourcing intended to lower production costs-volatile raw material markets and escalating energy expenses may continue to be a drag on gross profit margins, limiting the company's ability to drive sustained improvements in net margins absent further pricing power or cost reduction.
  
• While Ülker's expansion into regional geographies such as North Africa and Central Asia offers long-term growth opportunities due to favorable demographics and evolving consumer habits, results remain mixed, with export EBITDA down over 20% and Middle East margins under pressure from increasing competition, aggressive promos, and higher input costs-raising risks to international earnings stability and revenue diversification.
  
• Apart from evolving consumer trends towards premiumization and health-focused products, which Ülker has begun to address through biofortified product launches, there is an ongoing risk that the company's limited exposure to the fast-growing healthy snacks segment and intensified ESG regulations could dampen long-term top line and margin expansion if product and portfolio innovation falls short of shifting market expectations.

Ülker Bisküvi Sanayi Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Ülker Bisküvi Sanayi compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Ülker Bisküvi Sanayi's revenue will grow by 24.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.7% today to 10.0% in 3 years time.
• The bearish analysts expect earnings to reach TRY 16.7 billion (and earnings per share of TRY 44.94) by about September 2028, up from TRY 5.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 7.0x on those 2028 earnings, up from 6.7x today. This future PE is lower than the current PE for the TR Food industry at 19.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 30.37%, as per the Simply Wall St company report.

Ülker Bisküvi Sanayi Future Earnings Per Share Growth

Risks

• Ülker's heavy reliance on the Turkish market, which accounts for 72 percent of total revenue, exposes the company to significant risks from Turkey's persistent macroeconomic volatility, including high inflation at 35 percent, slowing GDP growth, currency devaluation, and political instability, all of which could limit revenue growth and compress net margins if economic pressures worsen.
  
• Escalating input costs, especially the surge in cocoa prices reaching up to GBP 9,500 per ton and rising packaging and hazelnut costs, have already led to a sequential decline in gross profit margins and a 14.9 percent decrease in EBITDA margin for Q2, signaling that sustained commodity price volatility could undermine profitability and earnings over the long term.
  
• The growing trend toward healthier eating and regulatory scrutiny of high-sugar and processed foods represents a secular threat, as Ülker's core revenue drivers remain traditional biscuits, cakes, and chocolate products, making it vulnerable to evolving consumer preferences and possible regulatory headwinds that could erode both revenue and gross margin.
  
• Margin pressure in international markets, particularly the Middle East and North Africa, is being driven by structural market contraction, intense promotional competition, rising input and energy costs, and weaker market demand, leading to double-digit EBITDA margin declines and heightened risk of ongoing international earnings volatility.
  
• High working capital requirements and inventory fluctuations-as evidenced by all-time high inventory turnover and temporary spikes from procurement phasing-could strain free cash flow generation and limit future financial flexibility, especially if normalization takes longer than planned or macroeconomic challenges persist.

Valuation

• The assumed bearish price target for Ülker Bisküvi Sanayi is TRY142.9, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ülker Bisküvi Sanayi's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of TRY265.0, and the most bearish reporting a price target of just TRY142.9.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be TRY167.4 billion, earnings will come to TRY16.7 billion, and it would be trading on a PE ratio of 7.0x, assuming you use a discount rate of 30.4%.
• Given the current share price of TRY105.6, the bearish analyst price target of TRY142.9 is 26.1% 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.