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Decent performance in Q4

Britannia Industries Limited is a leading food-products company in India. The company sells various brands of confectionaries in India and globally.

* Revenue grew 8.2% YoY in Q4FY21, owing to recovery in volumes, coupled with an upbeat in rural demand during the quarter.

* EBITDA margin expanded 40bps YoY to 16.6%, however contracted 310bps sequentially owing to higher operational expenses. Adj. PAT was down 2.8% YoY impacted by lower other income and higher taxes.

* Company has been running and has plans for several new campaigns as part of its strategy to expand its existing south Indian portfolio in the northern belt and also for its upcoming launches.

* Company’s long term outlook looks promising with new launches, improved market share and focus on operational efficiencies. We hereby reiterate our BUY rating on the stock with a revised target price of Rs. 3,940 based on 44x FY23E adj. EPS.

Topline grows on continued demand

Q4FY21 consolidated revenue grew 8.2% YoY (-2.2% QoQ) to Rs. 3,038cr, owing to continued demand for company’s products across both rural and urban demographics. Direct reach outlets during the quarter rose to 23.7 lacs (vs. 14.9 lacs in Q4FY20). Meanwhile, ongoing focus on rural sales led to robust increase in Rural Preferred Dealers (RPDs) at 23.5k (vs. 19.3k in Q4FY20), with gross sales value (GSV) per month improving to Rs. 273cr (vs. 223cr in prior year period). E-commerce business continued to benefit, quadrupling in size to 4.1x in FY21 from 1x levels in FY19.

Margin expands YoY on operational efficiencies

EBITDA for the quarter rose 11.3% YoY to Rs. 505cr on improved operating costs, however declined 17.3% QoQ impacted by rise in commodity prices, esp. that of red palm oil (RPO) and milk. As a result, EBITDA margins expanded 40bps YoY, but shrank 310bps sequentially to 16.6%. Adjusted PAT stood at Rs. 364cr (vs. 375cr in Q4FY20 & 456cr in Q3FY21), impacted by lower other income (-19.1% YoY) and higher taxes.

Key concall highlights

* Management plans to set up two factories during FY22, one each in Egypt and Uganda through contract manufacturing to tap into local potential and to penetrate in nearby countries. Company is also evaluating plans to expand presence in other countries via export growth model.

* Management expects high-single digit to double digit growth in demand over the next 2-3 quarters as people get back to normal consumption.

* Company went live with S4 HANA as its new dealer and vendor management platform, which should help improve efficiencies in material resource planning.

Valuation

Headwinds arising out of the second wave of ongoing pandemic may continue to put pressure on margins over the next few months. Additionally, inflation in commodity prices remains a concern and may impact profitability in the near-term. However, company’s growth strategy led by an experienced management has helped the company generate decent profits despite operating in a low gross margin territory.

Britannia has been steadily gaining market share and the focus on improving operational efficiencies coupled with planned new launches ensure that the company will get back on a double digit growth trajectory sooner than later. We continue to maintain a positive outlook on the company’s long term performance and reiterate our BUY rating on the stock with a TP of Rs. 3,940 based on 44x FY23E adj. EPS.

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