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Buy Britannia Industries Ltd For Target Rs.4,265

Muted performance; anticipating demand recovery

Britannia Industries (BRIT) posted a muted set of numbers for Q1FY22. Its revenue was down 0.5% YoY to Rs 3,403.5cr. Its EBITDA and PAT de-grew by 22.8% and 28.7% YoY. The company’s EBITDA and PAT margins too were severely impacted as it declined by 469bps and 449bps due to high expenses. In the near term, high raw material prices and slowing demand will continue to impact the performance. However, going forward, its focus would be on innovating products, improving margins via cost efficiency measures and gaining market share. Maintain Buy.

Result Update Q1FY22

* BRIT’s revenue was down 0.5% YoY while domestic volume grew by 1%. Consumer preference was towards well-known brands and Britannia was one of them but demand is yet to pick up pace as compared to last quarter. On the international front, Nepal continues to grow in double digits and has become a market leader, while in the Middle East the company revamped its distribution network.

* The increase in crude oil and palm oil price impacted the margins of the company. Gross profit de-grew by 7.6% YoY to Rs 1,317cr, while margin declined by 296bps. Rise in overall expense (up by 7.8%) led to a decline in EBITDA by 22.8% YoY to Rs 553.8cr. Its margin came in at 16.3%, down by 469bps. Further lower other income (down 35.5%), rise in interest cost (up 33.6%) and higher base effect impact profit for the company. PAT de-grew 28.7% YoY with a decline in the margin by 449bps.

* Concall Highlights: 1) During the quarter, the company reintroduced Good day Chocochip, launched 50-50 Potazos in the North East and plans to roll out in the rest of the country in the coming months. 2) Flat Wafers and Rolls plant to be operational in the coming quarter. 3) Focus on growing in the Nepal region. 4) Due to Covid second wave, new launches got delayed and launches are expected in Q2 as it has a pipeline ready. 5) Contribution from online sales is 2% and is expected to reach 5% in coming quarters. 6) In the next 6-12 months, products such as Wafer Sticks, Milk Biki Classics and Nutri Choice products are expected to be launched.

Outlook & Valuation

BRIT is one of the leading FMCG brands in India with a strong focus on innovation, brand building and expanding distribution reach. It is continuously gaining market share via product launches and re-launches in domestic and international markets. Besides, to manage profitability and margins, the company will drive cost efficiencies and take price increase once the demand scenario stabilizes. On the financial front, the company has a strong balance sheet and decent cash flow which is positive. From a long term perspective, we maintain “buy” rating with a target price of Rs 4,265.

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