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Mixed revenue growth: Britannia posted mixed growth with revenue at Rs 4,011cr, up by 8.4% YoY and on sequential basis, growth was flat. Further, during the quarter, the company’s mixed growth suggested that on one hand investment in brands and growth from urban states were strong. However, on the other hand, volumes remained flattish and also they took grammage addition and price reduction of certain products to sustain competition from local players which impacted revenue growth to certain extent

Margins improved YoY while muted QoQ: The company’s gross profit grew by 23.2% YoY while de-grew by 6.9% QoQ to Rs 1,682cr while margins at 41.9%, up by 506bps and down by 298bps QoQ as there was some easing in raw material cost as compared to last year while prices of commodities like flour and sugar remain at elevated level as compared sequentially which impacted profits. Further, EBITDA stood at Rs 689cr, up by 37.6% YoY while declining by 14% QoQ while EBITDA margins was at 17.2%, up by 365bps YoY and down by 273bps QoQ. We witnessed rise in employee cost, advertisements & promotional activity which impacted EBITDA growth sequentially but as compared YoY better topline and gross profit did not lead to impact its operating performance. PAT came in at Rs 455cr, up by 35.7% YoY and down by 18.3% QoQ while PAT margins were at 11.4%, an improvement of 228bps YoY and a decline of 250bps QoQ.

Concall highlights: 1) Innovation now contributes ~more than 10% and launched & upgraded products in brands such as Jim-Jam, toastea, 50-50 as well as for dairy it transited to PET bottles. 2) Steady growth from International business. 3) Direct outlet growth was flat and was at 26.7 lakh outlets while rural dealers stood at 28,000. 4) High double digit growth in drinks in Dairy and plan is scaling up dairy division with strong growth likely from cheese (laughing Cow) and drinks (Winkin Cow) division. 5) Scaled up two factories with 5 product lines in UP at Barabanki and another at Tamil Nadu to Tirunelveli which would aid in reducing product time to reach the market. 6) Sluggishness is there in rural markets but expected to recover gradually. 7) Britannia has lost some market share to local players. 8) Volume growth remains flattish and to sustain local competition the company took grammage addition and price reduction for certain products. 9) Medium to long term growth outlook of management remains positive as their strategy would be innovations, scaling up adjacent segments and continuing scaling distribution. Further, commodity prices will be key monitorable.

Outlook & Valuation: For Britannia Q1FY24 was a mixed quarter, as on the positive side, innovations, focus on growing adjacent, improved traction from urban states (Rajasthan, Gujarat, Madhya Pradesh & Uttar Pradesh and increasing promotional activity to help in branding. While on the flip side, volumes were flat, rural areas are yet to pick-up pace and also it faced stiff competition from local players and lost some share, which were negatives. We believe there would not be any immediate improvement seen however from medium to long term perspective growth is expected to be driven by volumes and recovery in demand from rural. Besides, focus on operating efficiency, increasing distribution reach and further decline in raw material would enhance margin improvement. We expect revenue/EBITDA to grow by 15%/20% CAGR over FY23-25E and maintain a Buy rating with a target price of Rs 5,348.

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