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* Britannia Industries (BRIT)’s revenue was in line while profitability was slightly below our estimates at ~INR4.5b (est. INR4.7b). GP margin and EBITDA margin expanded YoY due to moderating RM prices while they contracted 300/270bp QoQ because of PLI scheme in 4QFY23 and price cuts taken in 1QFY24.

* In response to the prevailing trend of smaller regional players offering more discounts and promotions due to the moderating RM prices, BRIT also implemented price reductions to maintain competitiveness.

* Volume growth was flattish for the quarter due to slowdown in the traditional markets (both rural and urban). Management focused on cost reduction across verticals (7x targeted in FY24 from FY14 level).

* Although we like the structural investment case accompanied by healthy return ratios, these are priced in at valuations of ~52xFY24E EPS/~45xFY25E EPS. We reiterate our Neutral rating on the stock with a TP of INR4,600 (premised on 45x FY25E EPS).

Sales in line; profitability slightly below estimates

* BRIT’s consolidated sales rose 8.4% YoY to INR40.1b (est. INR40.8b) in 1QFY24. Consol. EBITDA/PBT/Adj. PAT increased 37.6%/33.6%/34.7% YoY to INR6.9b/INR6.2b/INR4.5b (est. INR7.1b/INR6.4b/INR4.7b).

* Tonnage volume growth remained flattish YoY in 1QFY24 (est. +7%).

* Consolidated gross margin expanded 510bp YoY, while contracted 300bp QoQ to 41.9% (est. 41.6%) during the quarter.

* EBITDA margin expanded 360bp YoY, while contracted 270bp QoQ to 17.2% (est. of 17.4%).

* On a standalone basis, sales/EBITDA/PAT rose 9.9%/41.9%/37.7% YoY in 1QFY24 to INR38.7b/INR6.7b/4.4b.

Highlights from the management commentary

* In 1QFY24, local regional players have increased their market share, leading to a further expansion of the gap between largest competitor and BRIT.

* Volume growth was flattish in tonnage terms in 1QFY24. Volumes grew 9% YoY in transaction terms.

* Overall commodity cost remained stable in 1QFY24 as flour & sugar prices slightly increased while, prices of palm oil, laminates and corrugated boxes softened YoY.

* ICD on Jun’23 stood at ~INR7.6b between Bombay Dyeing and Bombay Burmah.

* BRIT is setting up factories in Barabanki, UP and Tirunelveli, Tamil Nadu in 1QFY24. Each will have five product lines.

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