Buy Britannia Industries Ltd For Target Rs. 5,941 - Prabhudas Liladhar Capital Ltd
Sales and margins recovery underway
Quick Pointers:
* Relaunched Cheese, Cake & Rusks with change in recipe & packaging design along with standardized pricing across channels
* 4Q25 volume growth ~6%; No further price hikes expected
BRIT has sustained 6% volume growth in 4Q while EBIDTA margins are down 20bps as 140bps gain from lower RM costs have neutralized by higher manpower costs (Stock options writeback in 3Q25). FY26 outlook seems promising as an expected uptick in consumer demand and peaked out input costs will drive profitability. We remain positive on BRIT given 1) Sustained leadership in Biscuits and Bakery (volume growth of 8/6/6% in 2Q/3Q/4Q25) 2) little threat from B2C players given long history of presence of local, and regional players 3) rising scalability in Milkshakes and Croissants (~Rs.2bn sales) 4) strong Innovation pipeline with focus on region/ channel specific products & premiumization and 5) cost savings (2.5% of sales in FY26) and GTM initiatives. We expect a pickup in growth as benefits of new launches, uptick in demand and bottomed out GM will enable double digit profit growth over FY25- 27. We estimate 13.7% EPS growth over FY25-27. We value the stock at 50x Mar’27EPS and assign a target price of Rs5941 (Rs5881 earlier). Retain BUY.
4Q volumes up 6%; Price hikes & initiatives lead to cost savings -3% of revenue.
* Consolidated Revenues grew by 8.9% YoY to Rs44.3bn (PLe: Rs44.3bn). Gross margins contracted by 479bps YoY to 40.1%. (Ple: 40.3%). EBITDA grew by 2.3% YoY to Rs8.1bn (PLe: Rs7.6bn); Margins contracted by 118bps YoY to 18.2% (PLe:17.2%). PBT grew by 2.5% YoY to Rs 7.6bn (PLe: Rs 6.8bn). Adjusted PAT grew by 4.3% YoY to Rs5.6bn (PLe: Rs5.1bn).
* Standalone Revenues grew by 9.1% YoY to Rs42.8bn (PLe: Rs42.46bn). Gross margins contracted by 501 bps YoY to 38.2%. (Ple: 40.1%). EBITDA grew by 1.1% YoY to Rs7.8bn (PLe: Rs7.5bn); Margins contracted 145bps YoY to 18.2% (PLe:17.7%). PBT grew by 2.7% YoY to Rs 7.5bn (PLe: Rs 6.8bn). Adjusted PAT grew by 5.1% YoY to Rs5.6bn (PLe: Rs5.01bn).
Concall Takeaways: 1) BRIT has indicated a revenue-volume delta of~ 5.5%. and expect to maintain current level of margins 2) BRIT does not anticipate further pricing actions. However, this will ultimately depend on how market and commodity trends evolve 3) The innovation pipeline remains strong, featuring new launches like Winking Cow Grow, relaunch of Cheese, Layers Cake and Cake Gobbles, Rusk, with enhancements spanning recipes, products, and packaging design. 4) Post-relaunch of products, pricing has been standardized across channels to align with unorganized sector players, resulting in 40%+ growth in traditional trade channels. 5) Croissants have reported 3x growth than biscuits and wafers segments. 6) Rusk category has returned to high single-digit growth, with plans to scale it to double digits through a nationwide rollout. 7) In adjacent categories, wafers have surpassed Rs. 100cr in sales, while croissants and milkshakes have each crossed Rs. 200cr. Cake Rusk, Dairy, and Bread segments each have sales of ~USD 100mn. 8) wheat and oil are 30% of raw materials while sugar is 20% of costs. 9) Q-commerce/E-comm contributes 4% of sales currently, with plans to scale this to 8% over the next 3–4 years. Some categories already see a 30–35% share from this channel. 10) No new units are being established under the PLI scheme, current facilities are in TN, UP, Orissa, Bihar, and Pune. Ranjangaon facility incentives will continue till 2037–38. 12) Growth ratio between biscuit and non-biscuit segments stands at 1:1.5x.
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