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Topline gains priority for FY25; recovery in demand crucial

Britannia is well poised for volume recovery in the domestic market (Q4 volume grew 6%). After elections, the management hopes to grow volume in double digits, despite the ~4% raw material inflation. Given its thrust on driving topline in FY25, Company is looking to maintain EBITDA margin YoY at ~19%. Its focus on topline is likely to enhance with route-to-market (RTM) 2.0, which is centered on giving wings to adjacencies (1/4th of overall sales) and its thrust on enhancing business in the organized channel (~15% of revenue now). Q4 EBITDA margin (at 19.5%) and PAT stood in line, though higher-than-expected price correction drove a 2% topline miss; market share gains in the biscuits category sustained. We now see 10% topline and 13% earnings CAGR over FY24-26E; maintain ADD with new Mar-25E TP of Rs5,550 based on 48x P/E.

Q4 volume growth at 6%; volume thrust intensified in FY25

Consol. revenue growth stood at ~1%, whereas domestic volume growth was ~6%, which was in line with expectations. Enhanced thrust on driving the price value equation has led to price cuts in part of the portfolio, leading to a 2% net sales miss. Adjacent businesses, which represent 1/4th of domestic revenues have seen a decent show, and are expected to see growth at 1.5x to that of Biscuits. For the core business of Biscuits, Management is positive on the volume recovery, where it expects volumes to grow in double-digits post-election. FY25 is likely to be a year of topline recovery, where Management is attentive toward distribution. Britannia is looking to revamp its route to market with RTM2.0, which will multiply adjacent business revenues, while continuing to build the core. It also strengthened its organized market thrust, now contributing ~15% of domestic sales (~3.5% e-com and ~11.5% MT contribution), with innovation, salience of brand, and quality of brand. It hopes to maintain its NPD contribution at 3.5%.

Topline thrust to limit margin expansion ahead

In Q4, gross margin stood flat YoY at 44.9%, while EBITDA margin contracted 55bps YoY to 19.5% (in line). The company has achieved ~19% EBITDA margin for FY24, which it expects to maintain in FY25 given its thrust on topline recovery. We believe any cost efficiency benefits ahead would be absorbed in higher A&P spends and RTM initiatives. From the raw material perspective, Management foresees inflation in flour and sugar, while palm and packaging material prices are likely to remain soft. For FY25, Management sees ~3% inflation, driven by ~4% inflation post-election. We see sales and earnings CAGR at 10% and 13% over FY24-26E.

Improved execution in the price; maintain ADD

Management’s confidence in demand recovery has been fast-baked in the price. On the back of enhanced Management commentary on growth outlook, we maintain our topline estimates. We maintain ADD with new Mar-24 TP of Rs5,550 vs Rs5,475 earlier, based on 48x P/E (in line with its last 5Y avg. fwd. P/E).

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