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On expected lines

Britannia’s Dec-Q earnings were broadly inline with our estimates with a tad better-thanexpected topline, though still soft. Volumes grew c.5% with pricing down 2-2.5% yoy during the quarter after the steep pricing growth seen from end-FY22 to early-FY24. Management commented that demand scenario is progressively recovering, but rural demand was generally subdued and challenges relating to heightened competition remained. Gross margin continued to expand well and surprised positively again (50bps beat vs our forecast) - up yoy and also qoq despite the price-cuts undertaken during the quarter - a rather benign input-costs environment helped in this regard. Staff costs were significantly above recent runrate but the impact from the same was partly offset by very well-controlled ‘Other Expenses’ which rose just 1.4% - likely helped by some rationalisation in ad-spends as well. We expect Britannia’s topline and profit growth to remain soft over the near-term.

Revenue performance tad better than expected; market context remains challenging: Britannia’s 3QFY24 consolidated sales grew 2.2% to INR 41.9bn while EBITDA and adjusted net profit were broadly flattish at INR 8.2bn and INR 5.6bn respectively. Standalone sales growth was tad higher at 3.1% - likely helped by some re-classification with some part of Dairy sales moving to the standalone entity; on the other hand, consolidated figures have some impact of the Cheese business now being accounted as ‘share of profits from JV and associates’ vs a line-by-line consolidation earlier. Revenue for the quarter was a tad better than we expected – with volume growth of c.5% vs our forecast of 4% - Britannia’s 4yr volume CAGR has been in the 4-4.5% ballpark over the past three quarters. Volume growth for the quarter was offset by lower realisations – down 2-2.5% yoy - owing to anniversarisation plus some reversals of the steep pricehikes taken during FY23 – these were necessary to improve price-value equation given higher competitive intensity in the space; management had earlier alluded to pricingactivity by competition in certain categories in response to which the company did some strategic pricing corrections in some of its key brands and SKUs. While rural demand remained subdued, Britannia’s focus markets outperformed other regions led by its initiatives around expanding direct reach in these markets.

Better gross margin delivery and strong control on overheads helped profitability performance: Britannia’s gross margin performance surprised positively yet again - consolidated gross margin expanded 66bps yoy to 43% (50bps higher vs our expectation), led by softer input-costs environment (palm-oil, laminates). Interestingly, gross margin expanded by a further 94bps qoq despite price-corrections of c.2-2.5% taken to help improve price-value equation given the rise in competitive intensity in the space. Steep rise in staff costs (11% higher yoy and 24% higher qoq) was a surprise but impact of the same was offset by better gross margin and savings in Other Expenses which grew by just 1.4% yoy (2.4% lower qoq) – possibly helped by some rationalisation in A&P spends as well. Other operating income was 32% lower yoy as base quarter benefitted from bunched-up PLI incentives. As a result, reported EBITDA margin was 35bps lower yoy at 19.6% (vs JMFe:19.8%); on an intrinsic basis, however, margin was c.51bps higher vs year-ago level, as per our workings.

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