Why Patanjali Foods Share Price is Falling

The fast-moving consumer goods (FMCG) sector witnessed a notable upswing today, with the S&P BSE FMCG sector index rising by 1.6%, emerging as the top-performing segment.

This surge was largely driven by a significant rally in the shares of ITC, which climbed by 7.6% to reach Rs 438.

The catalyst behind this surge was the announcement that British American Tobacco (BAT) Plc plans to divest approximately 3.5% of its stake in ITC through block deals on Wednesday.

Further, the optimism surrounding the FMCG sector stems from its defensive characteristics, enabling many FMCG giants to withstand various economic challenges.

Despite facing hurdles such as high energy costs, escalating freight expenses, and surging raw material prices, FMCG companies have managed to maintain and even increase their sales and profits.

However, amid this overall bullish trend, one FMCG stock that is experiencing a downturn is Patanjali Foods.

Over the past months, the company's shares have witnessed a decline of 13%.

Here's why...

#1 SC's Contempt Notice

Shares of Patanjali have been on a downtrend since the Supreme Court served a contempt notice to Ramdev-owned Patanjali Ayurved and its managing director Acharya Balakrishna for issuing misleading advertisements about health cures in violation of an earlier order.

The apex court also barred Patanjali from promoting products claimed to cure diseases such as heart ailments and asthma.

The court prohibited Patanjali and its officials from making any public statements against any medical system in any form of media.

During the hearing of a writ petition filed by the Indian Medical Association (IMA), the bench, comprising Justice Hima Kholi and Justice Ahsanuddin Amanullah, initially contemplated a blanket ban on all product advertisements.

However, after considering Patanjali's extensive product range and the potential impact on business interests, the court restricted the curbs on the advertisement of products related to diseases and ailments under the Drugs and Magic Remedies Act 1954 for the time being.

The court also sought a detailed affidavit from the union government for the steps taken to remove these advertisements.

This ruling came after the IMA presented evidence in court, including a Patanjali advertisement in The Hindu newspaper and a press conference where the company claimed to have completely cured sugar and asthma with the help of yoga.

The court found Patanjali in violation of the previous court order, which prohibited Patanjali from issuing misleading advertisements and making misleading claims.

In its 21 November 2023 ruling, the court reprimanded Patanjali Ayurved for continuing to publish misleading claims and advertisements against modern systems of medicine and issued a stern warning of imposing Rs 10 million (m) in case such promotions continued.

The IMA had filed a writ petition in 2022 seeking direction from the centre, Advertising Standards Council of India (ASCI), and the Central Consumer Protection Authority of India (CCPA) to take action against advertisements promoting the Ayush system by disparaging the allopathic system.

The petition raised concerns about the systematic spread of misinformation disparaging allopathy and modern medicine.

#2 Weak Sectoral Outlook

Another reason weighing on Patanjali Foods' performance is the challenging outlook for the company. It is expected to face difficulties in the near term, similar to other FMCG companies, as the overall demand environment remains tough.

Looking ahead, the FMCG sector is anticipated to experience sluggish growth in 2024 until the September quarter

The recent estimates for Kharif crops indicate lower yields due to uneven rainfall, likely impacting the first half of 2024. However, the sector is expected to show improvement in the latter part of the year.

Although scorching summers might boost sales in categories like soft drinks, ice creams, sunscreens, and laundry, the overall impact on FMCG consumption is projected to be negligible.

What Next?

Going forward, Patanjali is working to increase the share of the FMCG in overall business to 50% within the next 3-4, faster than the previously estimated five years.

In the first half of FY24, the food and FMCG business segments contributed around 28% to the overall sales, while edible oils contributed the remaining 72%.

The steady-state blended margin for the food business is projected to range between 15% and 16%.

The listed entity's revenue is expected to range between Rs 360 billion (bn) and Rs 380 bn in the financial year 2023-2024, while for Patanjali Group, the revenue is projected at around Rs 450 bn.

In the edible oils business, which had been facing pricing pressures, Asthana anticipates margin to return to the normal range of 2-4% in the remaining two quarters of the current year, on 6% revenue growth.

How Shares of Patanjali Foods have Performed Recently

Patanjali Foods share price is down 4% today. Over five days, the shares are trading lower by 15%.

The company touched its 52-week high of Rs 1,713 on 9 January 2024 and its 52-week low of Rs 853 on 20 March 2023.

About Patanjali Foods

Patanjali Foods Limited, formerly Ruchi Soya Industries Limited, is the leader in edible oil and soya food businesses in India.

It is engaged in the manufacturing and marketing healthy range of edible oils and soya foods in India.

The company is the first exporter of Soya Bean Meal from India. They are the also leading manufacturer of Textured Soya Protein and Vanaspati.

It is also engaged in the trading of products and the generation of power from wind energy.

The company produces oil meal food products from soya nutraceutical products, biscuits, and value-added products from downstream and upstream processing.

For more details about the company, you can have a look at see the Patanjali Foods company fact sheet and quarterly results on our website.

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