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Earning growth to rebound in FY25 led by volumes

Britannia Industries Ltd. (BRIT) 4QFY24 headline performance was below our estimates even while volume growth was in-line at ~6% YoY. Slightly lower realizations and other operating income versus our estimates meant that topline was below our expectations. Gross margin surprised us positively, improving ~100bps QoQ (80bps ahead of our expectation), largely led by soft commodity basket. High overheads especially A&SP meant that operating margin was in-line. Pricing interventions have also meant that market share trends continued to grow in 4QFY24 post challenges in 1H. Going ahead, as expected, volume growth momentum will improve with BRIT aiming for double-digit growth in FY25. It also expects to maintain margin while not holding back on spends. We upgrade our rating a notch to ADD (NEUTRAL earlier) with a revised target price (TP) of Rs5,570.

4QFY24 Result Highlights

* Headline performance: Consolidated sales was up 3.1% YoY but revenues (including OOI) was only up 1.1% YoY to Rs40.7bn (vs est. of Rs42.3bn) as OOI was down ~58% YoY. Consol. EBITDA was down 1.7% YoY to Rs7.9bn (vs est. Rs8.2bn). Adjusted PAT (APAT) down by 3.6% YoY to Rs5.4bn (vs est. Rs5.6bn).

* Standalone revenues grew by 0.8% YoY to Rs39.2bn (sales up 2.8% YoY) led by 6% volume growth YoY, in-line with our estimate. EBITDA margin stood at 19.6% (down 80bps YoY).

* Consolidated gross margin was flat YoY to 44.9% (up 100bps QoQ). Employee cost was down 30bps YoY while other overheads were up 80bps YoY as a % of revenue. Thus, consolidated EBITDA margin was down 60bps YoY to 19.4% (vs est. 19.5%).

* FY24: Consol. revenues, EBITDA & APAT up 2.9%, 12% & 9.2% YoY, respectively. Gross/EBITDA margin up 220bps/150bps YoY to 43.4%/18.9%, respectively.

Key Conference Call Highlights

(1) BRIT will try to drive topline much faster in FY25 led by volume growth (aiming for double-digit volume growth). (2) Outlook for commodity in FY25 is of slight inflation at ~3%. 1QFY25 will be flattish in terms of inflation and post-election inflation is expected to pick-up. (3) Company will make sure BRIT will spend right on overheads in FY25 while maintaining margins.

View & Valuation

Over FY24-26E, we are currently building revenue CAGR of 9.7% driven by volume growth of 7.6% CAGR. Drivers: (a) Volume growth expected to touch double digits in fY25. Rural recovery and distribution expansion would be key drivers of volume growth. (b) Volume growth in base business will now be supported by some pricing. (c) Sharp growth expected in adjacent businesses (almost 50% higher compared to the base business) led by company’s initiatives will add delta. We build 11.5% EBITDA CAGR over FY24-FY26E (~60bps EBITDA margin expansion as we expect gross margin to expand by 120bps over FY24-FY26E) as company is now looking to grow topline aggressively while maintaining the current peak level of margin profile. The stock is trading at ~48x/44x FY25E/FY26E EPS as we build in 13.8% earnings CAGR over FY24-26E. We upgrade our rating a notch to ADD (NEUTRAL earlier) with a revised TP of Rs5,570 (Rs5,140 earlier) as we roll-forward to March’2026E EPS and valuing it at ~48x (3yr/5yr avg fwd. multiple: ~46x) due to strong volume growth expectation in near term, continues market share gains, decent return ratios and healthy dividend payout.

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