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Revenue above our est.; inflation clouds margin outlook

* Britannia Industries (BRIT) reported consolidated revenue growth of 17% YoY to INR55.4b in 2QFY27 (beat), led by 13% volume growth (est. 10%; 2QFY26: -3%, 1QFY27: 9%). GST transition in the base contributed only 1.5- 2.0% to growth, indicating a strong underlying demand recovery. Rural and semi-urban markets remained key growth drivers. General trade growth improved to 2.6x FY26 levels, while alternate channels grew 1.8x faster than GT. Adjacent bakery categories also delivered >20% growth, complementing the core biscuit business.

* Gross margin contracted 200bp YoY to 39.6%, while EBITDA margin declined 150bp YoY to 18.3%. EBITDA grew 7% YoY to INR10.2b. Elevated input costs, particularly palm oil (+17% YoY), milk (+16%), laminates (+18%) and sugar (+6%), continued to weigh on margins. BRIT implemented price increases of ~3.5% in 2Q, largely through grammage reduction, which covered only part of the cost inflation. Further pricing actions are in the pipeline, although additional grammage cuts could weigh on volume growth.

* BRIT delivered a strong volume-led recovery in 2Q, supported by improving rural demand, GT recovery, and healthy growth across adjacencies. However, elevated input costs and incomplete pricing pass-through continued to weigh on margins. We believe further pricing actions and cost optimization should support gradual margin recovery. That said, near-term inflationary pressures and potential volume impact from grammage cuts remain key monitorables. Strong growth in alternate channels, premiumization, and the expanding adjacent portfolio provide incremental growth levers. We model a revenue and PAT CAGR of 11% and 13%, respectively, over FY26-29E and reiterate our BUY rating with a TP of INR5,650, based on 40x Sep'28E EPS

Highlights from the management commentary

* The GST transition last September (2QFY26 base) contributed at most 1.5-2.0% to 2QFY27 growth. Most of the growth came from resilient consumption, particularly in semi-urban and rural markets.

* BRIT took ~3.5% pricing in 2Q, mostly through shrinkflation. Since a large part of the portfolio sells at INR 5 and INR 10, grammage cuts take 1.5-2 months to reach the market.

* That said, this pricing covered only part of the cost inflation. Further price increases are in the pipeline to close the gap with inflation. Upcoming grammage reductions may weigh slightly on volume.

* Input costs remained elevated in 2QFY27. Flour was up 9% QoQ but down 4% YoY. Refined palm oil was up 11% QoQ and 17% YoY, driven by food prices and weak rainfall in producing markets. Sugar was up 4% QoQ and 6% YoY, and remains elevated after a volatile quarter. Milk was up 2% QoQ and 16% YoY. Prices have continued to rise into Oct’26 instead of easing seasonally, and large dairies are implementing price increases. Laminates rose 7% QoQ and 18% YoY. Industrial fuel was down 21% QoQ due to geopolitical relief but still up 45% YoY.

* E-commerce contribution rose to ~7% of sales, from ~6% in FY26. Excluding INR 5/10 packs, the share is already in double digits.

Valuation and view

* We largely maintain our EPS estimates for FY27-29. ? We expect BRIT's growth momentum to strengthen over the coming quarters, supported by:

1) normalization in LUP pricing

2) recovery in GT

3) execution of the "Winning in Many Indias" strategy

4) rapid scaling of E-com/QC supporting premiumization

5) continued product innovation and brand investments. While commodity inflation remains elevated, further pricing actions and cost optimization initiatives should help mitigate margin pressure.

* We model a revenue and PAT CAGR of 11% and 13%, respectively, over FY26-29E. We reiterate our BUY rating with a TP of INR5,650, based on 40x Sep'28E EPS.

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