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BRIT’s Q1FY25 print was in line with our estimates; Consolidated revenue/EBITDA/PAT grew 6.0%/9.4%/16.3%, supported by ~6% volume growth YoY. Despite elevated food inflation, heat wave impacting OOH consumption, and a high base BRIT saw rural market performing better. BRIT has widened gap in market share to Parles further. Management alluded growth to, (1) rural (35% sales) outperformed the urban by 1.25x, (2) with 30K rural distributors, direct reach now stands at 2.82mn, largely driven in focus markets, (3) DD growth in MT/E-commerce, and (4) strong traction in international markets led by Nepal (Rs1.8bn). Gross margins inched up to 43.4% (+147bp). Higher employee/other expense +7.2%/+10.5% EBITDA grew to Rs7.5bn (+9.4%) settling EBITDA margins at 17.7% (+56bp) YoY. RTM 2.0 is expected to enhance penetration of high margin adjacencies. BRIT targets high single digit volume growth along with 2-3% increase in pricing in FY25 and increase market share in focus states. We tweak earnings and retain BUY with a revised DCF-based TP Rs6,400 (implying 48.3x avg. FY26/FY27E EPS).

Faster growth in rural led by distribution expansion saw 6% growth in value/volume

BRIT’s Q1FY25 consolidated revenue grew to Rs42.5bn (+6.0%) led by ~6% volumes growth. Given high base, management alluded growth to, rural (35% sales) outperformed urban by 1.25x. With 30K rural distributors, BRIT’s direct reach now stands at 2.82mn. Company saws DD growth in MT/E-commerce, while strong traction in international markets was led by Nepal (Rs1.8bn). We note strategic growth pillars are led by, (1) distribution expansion in rural with sustained marketing investments, (2) lead innovation in non-biscuits and snacking portfolio, (3) maximizing cost efficiencies, and (4) expand adjacent business to deliver consistent profitable growth. In Q1FY25, BRIT launched Pure Magic Stars, 50:50 Golmaal Butter Garlic and Good Day Butter Jeera. With 90k direct procurement for milk (total 300k), BRIT remains optimistic on dairy portfolio to clock +Rs7-8bn revenues led by Cheese block, Cubes, Cheddar cheese as it lowered prices to remain competitive.

Despite calibrated price cuts/grammage increases, BRIT held its margin profile

Gross margins inched-up to 43.4% (+147bp). Despite higher employee/other expense +7.2%/ +10.5%, EBITDA grew to Rs7.5bn (+9.4%) settling EBITDA margins at 17.7% (+56bp) YoY. With PLI incentive included PAT grew 16.3% to Rs5.3bn. Further rising cocoa prices (+34%), Sugar (+8%), Flour (+7%), Milk and Corrugated Boxes (+1%) YoY, Palm Oil/Laminate prices declined by 7%/4%. Management cited with inflationary costs for wheat flour, sugar it may execute 2-3% price increases soon. BRIT expects driving cost efficiencies and rising contribution of high margin NPD to help maintain operating margin at ~18-19%. BRIT received Ultra mega food park status in Apr’24 and it would continue to receive PLI benefits helping sustained margins.

Valuation and risks

We had argued in the past, BRIT’s strategy driven by balancing growth vs profitability also echoed in Q1FY25 results. We expect BEL SA JV to drive drinks/dairy and cheese portfolio. BRIT has grown 1.5x in last 5 years in focus states and expect to narrow the market share gap with the market leader. Though Parles lead with 50% share in the hindi belt, BRIT generates ~18% sales, hence remain focus area to enhance distribution and reduce gap. Management said to continue to invest in innovation and support NPD with ad-spends, while tech –enabled sales transformation could improve throughput driving HSD volume growth and balancing operating margins. With delayed pricing action we cut our earnings for FY25E/FY26E by 3.5%/4.4% and introduced FY27. We retain BUY, with a revised DCF-based TP Rs6,400 (implying 48.3x avg. FY26/FY27E EPS). Risks – higher input costs, competition, NCD given to group companies.

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