ICICI Securities has initiated coverage on Orkla India with a 'Buy' rating and an INR 800 price target. The brokerage noted a recovery in revenue growth during Q1FY27, led by its spice and convenience food brands. Investors are weighing this growth against recent profit margin pressure caused by rising input costs and ongoing business restructuring.
ICICI Securities has initiated coverage on Orkla India, the consumer goods company known for brands like MTR and Eastern, with a 'Buy' recommendation. The brokerage has assigned a target price of INR 800 per share, citing the company's shift toward achieving sustainable revenue expansion.
Orkla India, which is 75% owned by the Norway-based Orkla ASA, reported its Q1FY27 financial results showing a 10.4% year-on-year revenue growth to INR 6.6 billion. This performance marks the first time in eight quarters that the company has achieved double-digit revenue growth. The brokerage highlighted that this recovery was driven by strong sales momentum in core segments such as spices and convenience foods, alongside a significant 38.1% surge in digital commerce sales and 18.1% growth in the Gulf Cooperation Council (GCC) markets.
While the top-line growth is a positive sign for the company, the brokerage report also highlighted profitability challenges. Orkla India’s gross margins contracted by 125 basis points in the quarter. This dip was primarily attributed to two factors: the rising cost of raw materials, particularly for spices, and higher strategic spending. The company is currently executing a restructuring of its distribution network in Kerala and investing in 'Project Bolt', initiatives aimed at improving long-term efficiency and market reach.
ICICI Securities anticipates that the benefits from this restructuring, combined with operating leverage and growth in digital channels, will likely support earnings in FY27 and FY28. Despite downward revisions to its short-term earnings estimates by about 3% to 5%, the brokerage projects a compound annual growth rate of 9.5% for revenue and 11.5% for profit after tax between FY26 and FY28.
The valuation provided by the brokerage factors in a price-to-earnings multiple of 30 times the projected earnings per share for March 2028. For investors, the long-term potential depends on the company's ability to balance these strategic investments with maintaining healthy profit margins.
Going forward, the key factor to track will be the company’s success in executing its distribution expansion, particularly in Kerala, and its ability to manage volatility in raw material prices. Investors may also look for consistency in revenue growth across these new channels to determine if the company can sustain its momentum amid intense competition in the branded foods sector.