Strong results benefitted by volume growth
Britannia Industries Limited is a leading food-products company in India. The company sells various brands of confectionaries in India and globally.
* Revenue rose 11.0% YoY, led by higher sales of goods (~9% YoY), supported by higher demand from rural area.
* EBITDA grew 37.2% YoY, with EBITDA margin improving 380bps to 20.1%, owing to decline in raw material prices and lower advertisement and promotion expenses. Further, net profit surged 23.2% YoY to Rs. 499cr in Q2FY21.
* We remain positive on the stock on account of healthy volume growth, rising distribution network and new products launches. Separately, we believe there’ll be a smooth road ahead as lockdown has ended. Hence, we upgrade rating to BUY on the stock, with a revised target price of Rs. 3,960 based on 46x FY22E adj EPS.
Healthy top-line led by rural demand
Britannia recorded a revenue of Rs. 3,354cr in Q2FY21, a healthy 11.0% YoY growth with ~9% YoY growth in volume. It was driven by healthy traction in rural demand coupled with rising distribution network in rural area. Rural distribution has gone up to 22k compared to 19k in Q4FY20. Whereas, direct reach outlets number increased to 22.3 lacs compared to 21.5 lacs Q1FY21. Management expects the rural segment to improve to 35% of total revenue in next 18 month from current level (accounted 30% of total revenue) on account of higher network expansion
Margin expansion continues
Gross margin expanded ~180bps YoY to 41.4% on account of overall decline in raw material prices. Following this, EBITDA grew 37.2% YoY to Rs. 675cr, while EBITDA margin improved 380bps to 20.1%. However, this growth was partially offset by higher other expenses, up 5.8% YoY to Rs. 644cr vs. Rs. 609cr in Q2FY20. Resultantly, net profit rose 23.2% YoY to Rs. 499cr vs. Rs. 405cr in Q2FY20. Advertisement and promotion expenses were soft as company was not selling enough products and also producing ~20% of SKUs owing to lock-down.
Key concall highlights
* Company continues to invest in its three Greenfield facility, including Tamil Nadu, UP and Bihar and two brownfield facility in Odisha and Ranjangaon. These facilities are expected to commence operation by FY22-23.
* Britannia is also planning to democratize some of its premium and non- premium products. Following this, company is also launching more affordable product range to target lower income group and rural market i.e. launched cakes and swiss rolls price at Rs. 10 onwards, layer cake price at Rs. 5/pack.
* Management is evaluating co-packing opportunity in 2 countries in Africa, which will ultimately provide access to 8-10 countries in Africa, thereby, getting an advantage of free trade agreement with these countries.
* Management expects revenue growth to be around ~18% for FY21, following the resilient revenue growth in Q1FY21 and Q2FY21.
We expect Britannia to continue its growth trajectory in upcoming quarters. We believe higher rural demand, rising distribution network and more affordable range of new products are likely to support company’s growth prospectus over the medium term. Thereby, we upgrade our rating to BUY on the stock with a target price of Rs. 3,960 based on 46x FY22E EPS.
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