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Britannia’s Mar-Q performance was broadly inline with our estimate, though still soft. Volumes grew c.6% (inline) with pricing down 2-3% yoy during the quarter. While FY24 overall has been soft, the depiction of FY25 template by the management (in Varun’s own words ‘getting back to normal way of doing business’) was quite encouraging especially when compared to subdued or cautious optimism sounded by staple peers who have reported so far. Britannia will aggressively focus on driving volume growth - looking at midsingle digit in near term & targeting double digit volume growth post-elections; aided by likely normal monsoons, RTM/distribution led initiatives and scale up in adjacencies. Moreover, commodity outlook for FY25 is likely to be inflationary (post elections) but manageable at c.3-4%, hence negative pricing (c.3% in 2HFY24) is now largely behind; which should also aid overall revenue growth. While company will also step up brand investments to drive volume growth, it expects to sustain current margin trajectory. Britannia’s historically-proven ability to grow SG&A at a very low clip has not played out in FY23/24 and a better execution here can be an additional lever to earnings. We expect stock to remain buoyant; execution on volume growth will be key going ahead.

* Inline quarter, encouraging outlook – targeting double digit volume growth in 2HFY24: Britannia’s 4QFY24 consolidated sales grew 3.1% to INR 40.1 bn while EBITDA and net profit declined by 1.7%/3.6% to INR 7.9bn/INR 5.4bn respectively. Overall revenue for the quarter was inline with our forecasts – with volume growth of c.6% (inline). Volume growth for the quarter was offset by lower realisations – down c.3% yoy - owing to anniversarisation plus some reversals of the steep price-hikes taken during FY23 – these were necessary to improve price-value equation given higher competitive intensity in the space. For FY25, focus will be on driving volume growth aggressively - in the near term, management expects volume growth trend to be similar to current trends; however, post elections & a likely normal monsoons along with RTM related initiatives, it expects trajectory to improve and will be targeting double digit volume growth. Moreover, it expects c.3-4% inflation (post 1Q) for FY25 and hence negative pricing impact is unlikely (RM flattish currently) vs c.3% price cut seen in 2HFY24.

* Positive surprise on gross margins continues to support profitability: Britannia’s gross margin performance surprised positively yet again - consolidated gross margin expanded 107bps yoy to 44.1% (76bps higher vs our expectation), led by softer input-costs environment (inflation in sugar/flour offset by benign palm-oil, laminates, corrugated boxes prices). Interestingly, gross margin expanded by a further 113bps qoq despite pricecorrections of c.2-2.5% taken to help improve price-value equation. Staff costs were controlled well, declining by 5% yoy vs 12% growth in 9MFY24. Other expenses grew at higher rate vs our forecasts – a function of intensified investment behind brands. Other operating income was 58% lower yoy as base quarter benefitted from bunched-up PLI incentives (which had a c.200bps +ve impact on EBITDA in base quarter). As a result, reported EBITDA declined by 1.7% yoy and margin was 96bps lower at 19.6% (JMFe:19.4%). On an intrinsic basis, however, margin was c.90bps higher vs year-ago level resulting in EBITDA growth of c.8.5% yoy, as per our workings.

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