Motilal Oswal has reaffirmed its 'Buy' rating on Prataap Snacks with a target price of Rs 1,265, even as the company posted a net loss in the second quarter. While revenue climbed 26% year-on-year, rising raw material costs significantly impacted profit margins. Investors are currently tracking how the company manages debt for its upcoming capacity expansion amidst sector-wide margin pressure.
Motilal Oswal has maintained its 'Buy' rating on Prataap Snacks, setting a price target of Rs 1,265. This brokerage outlook follows the release of the company's financial results for the second quarter of the 2027 fiscal year, which highlighted a mix of strong revenue growth and significant profitability challenges.
Financial Performance and Margin Pressure
Prataap Snacks reported a revenue of Rs 540.95 crore for the September 2026 quarter, marking a 25.9% increase compared to the same period last year. However, this topline growth did not translate into profit. The company posted a standalone net loss of Rs 2.50 crore, a decline from the Rs 4.64 crore profit recorded in the second quarter of the previous fiscal year.
The decline in profitability was primarily driven by rising input costs. Gross margins contracted by 430 basis points to 25.5%, while the EBITDA margin fell to 2.4%. This drop was largely attributed to a 33.7% surge in the cost of raw materials, specifically items like palm oil and packaging laminates, which squeezed the company's ability to retain earnings from its sales growth.
Strategic Expansion and Debt Implications
To drive future growth, the company is moving forward with plans for a new greenfield manufacturing facility near Indore. The project involves a capital expenditure of Rs 4.2 billion. To fund this, the company plans to use a mix of internal cash and Rs 2.5 billion in term debt. For investors, this expansion is a double-edged sword. While it is intended to support future production capacity, the associated debt and potential execution risks are factors that require monitoring, particularly when the company is already dealing with volatile input costs.
Market Risks and Monitorables
The packaged snacks industry continues to face intense competition from both large multinational corporations and regional players, which limits the company's ability to easily pass on rising costs to consumers. Because Prataap Snacks relies heavily on commodities like edible oil and packaging materials, fluctuations in these prices have a direct impact on its bottom line.
Looking ahead, the recovery of profit margins will be a key factor for the company. Investors may track the company's ability to optimize costs, the progress of the new manufacturing plant, and whether future product pricing adjustments can successfully offset the pressure from raw material inflation. The timeline for capacity expansion and the associated impact on cash flows will remain important updates to follow in the coming quarters.