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Better realisations & cost savings drive earnings beat

Britannia Mar-Q earnings print was operationally better than expectations. Revenue growth was tad better although construct was different as volume growth of 3% was below our forecasts (c.5-6%), more than offset by a much higher price/mix growth. GM improved qoq with benefit of price hikes coming thru which along with much lower overhead costs led to 9/12% beat on EBITDA/PAT. For FY26E, we believe high single digit sales growth should sustain with price hike benefit flowing thru and recovery in volumes. Further, the input cost basket is seeing signs of moderation with prices of key inputs coming off (palm oil, laminates, sugar) – which will aid qoq improvement in gross margins. This apart, continued execution on cost saving measures (aiming for savings of 2.5% of sales) should aid double-digit EBITDA growth with high teen margins from 2QFY26E onwards, in our view. Factoring 4Q beat, we have raised our FY26/27E by c.4%. With earnings visibility remaining healthy, we maintain BUY with revised TP of INR 5,960 (50x June’27 EPS). Any sharp dips should be used as opportunity to add.

* Volume growth lower than estimate more than offset by better realisations: Britannia’s 4QFY25 consolidated revenue (excl. other op income) grew 9% yoy to INR 43.8bn. Volumes grew 3% (lower than our expectations of +5%), while price-mix growth of 6% (JMFe: +3%) drove revenue growth – price increases were actioned to counter inflation. Gross margins declined 481bps yoy (largely inline) due to high input costs. This was largely offset by tightly controlled staff and other expenses, limiting EBITDA margin compression to 122bps at 18.4% (JMFe: 17%). EBITDA and net profit grew 2.3% and 4% to INR 8.1bn and INR 5.6bn respectively (c.9-12% above JMFe). Adjacent categories continued to perform well (Croissant, Drinks grew DD; Rusk grew HSD). Management does not expect material price hikes going forward and anticipates delta between revenue and volume at c.5%. It endeavours to get back to DD revenue growth with higher profit growth.

* Weaker gross margins to large extent offset by lower than expected overheads, driving overall earnings beat: Britannia’s consolidated gross margin contracted 481bps yoy to 39.3% (inline with estimate), as its key commodities (palm oil/cocoa/milk) continued to remain inflationary. Sequential improvement (GPM up 238bps qoq) was driven by price hikes and some moderation in certain raw materials (sugar, milk, cocoa, laminates). As guided, management undertook some pricing actions during the quarter and is necessitated to take some more in 1QFY26 to counter input cost inflation. In the near term, if RM environment continues to moderate, management will not take any further upward pricing action. Impact of weak gross margins was largely offset by lower staff costs (+1.5% yoy) and savings in other overheads (-8% yoy) driving robust earnings beat. Britannia’s cost leadership strategy continued to yield favourable results, as cost improvement across verticals was 9x (vs. FY14, overall savings of 2.5% of revenue), better than its target of 8x for FY25. Resultant EBITDA grew 2.3% yoy to INR 8.1bn with margin compression of 122bps to 18.4% (above our estimate of 17%). Lower depreciation and higher other income led to PAT growth of 4% yoy to INR 5.6bn.

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