Accumulate Britannia Industries Ltd For Target Rs. 5,200 By Elara Capital Ltd
Volume uptick but gross margin disappoints
Despite challenging conditions, Britannia (BRIT IN) has sustained its market share and continues to invest in distribution to drive growth in core and adjacencies. Focus remains on gaining volume market share and retaining profitability. Given a 13% correction in the stock in the past three months, we retain our Accumulate rating, with a lower TP of INR 5,200 from INR 5,380 on 48x FY27E P/E.
Focus States drive Q3 sales:
BRIT posted 7.9% YoY sales growth to INR 45.9bn, 4.2% higher than our estimates, driven by 6.5% value growth and 6.4% volume growth. The biscuits category saw 5.5% volume growth, with management attributing its outperformance in a subdued demand environment to strong branding and expanded distribution. Key focus states — Madhya Pradesh, Rajasthan, Uttar Pradesh, and Gujarat — which contribute 15% of total revenue, grew at 2.6x the pace of the rest of India. These States also account for 35% of BRIT rural sales, with market share less than half of the national average, presenting a significant growth opportunity. Adjacent businesses, including croissants, rusks, and drinks, posted robust growth, supported by innovation and wider distribution reach.
Focus on balanced growth amid challenges:
Amid challenging demand conditions, management acknowledges the potential impact of anticipated price increases on volume but remains focused on retaining a balance between price hikes and volume growth. To navigate this, the company plans a phased price increase of 4.0-4.5% by the end of FY25, with 2% already implemented and an additional 1.5-2% expected in Q1FY26. Meanwhile, its new route-to-market (RTM) initiative, designed to enhance throughput in high growth urban outlets, has shown promising initial results and will be expanded to more regions in Q4. In parallel, the company is strengthening its innovation pipeline to cater to regional preferences and drive premiumization. Additionally, in adjacencies, BRIT is relaunching its cake-and-cheese portfolio with refreshed packaging and improved recipe to accelerate growth.
Focus on sustaining margin:
EBITDA margin stood at 18.4%, down 90bp YoY, for Q3, due to higher inflation, which led to a 520bp YoY contraction in gross margin. Excluding the impact of the INR 750mn provision for employee stock options, EBITDA margin would have been 16.8%, in line with our estimates. BRIT is currently facing raw materials inflation of 11%, driven by rising cost of wheat, palm oil, and cocoa. To counter this, the company plans a total price hike of 6.0-6.5% by Q1FY26. BRIT aims to sustain margin at the current level in the near term.
Price chart
Source: Bloomberg
Reiterate Accumulate with a lower TP of INR 5,200:
We cut our earnings by 2.7% for FY25E, 2.0% for FY26E and 5.3% for FY27E to factor in lower revenue and margin. We reiterate Accumulate, given a 13%+ correction in the stock price in the past three months. We lower our TP to INR 5,200 from INR 5,380 on 48x (unchanged) FY27E P/E, as we roll forward.
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SEBI Registration number is INH000000933
