Buy Britannia Industries Ltd for the Target Rs 6,200 by Emkay Global Financial Services Ltd
Britannia’s 1QFY27 revenue was in line with expectations, but EBITDA/PAT were slightly below estimates. Standalone sales grew 10% yoy (highest in the last few years) on the back of strong volume growth of 9% (lower impact from dual-pricing). The company reported mid-teens exit growth rate for its key categories which bodes well for 2Q (also on a favorable base). Gross margin was up by 120bps (down by 60bps qoq) mainly due to strategic covers in palm oil and benign wheat prices. EBITDA margin expansion was lower at 40bps yoy mainly due to higher A&P spends. Margin is expected to see pressure in 2Q due to inflation in several RMs (sugar, milk, laminates, etc). We slightly reduce our margin estimates as we expect the company to increase media investments. Overall, we expect BRIT to deliver double-digit growth on both sales and earnings over the next three years and maintain BUY on the stock; our TP is unchanged at Rs6,200 (47x Jun-28E EPS).
1QFY27 result summary
Revenue grew 8% yoy on a 9% base (vs 6.5% in 4QFY26) and was in line with consensus’ estimates. Volume growth was strong at ~9% (5.5% in 4QFY26 and 2% in 1QFY26). Gross margin expanded by 120bps yoy (60bps down qoq) to ~41.5%, led by lower input costs (wheat, palm oil) and pricing through shrinkflation. EBITDA grew ~11% yoy, albeit on a low base, though 4% below consensus’ estimates; it was in line with our estimates. EBITDA margin expanded by 40bps yoy to ~20.7% (down by 130bps qoq), led by increase in other expenses (up by 180bps yoy) and partially offset by the decrease in staff costs (down by 100bps yoy). Adj PAT grew 14% yoy and was 2% below consensus’ estimates, due to higher other income and lower interest.
Earnings call KTAs
1) Demand remained strong, with volume growth accelerating to 9% yoy in 1QFY27 (5.5% in 4QFY26; 2% in 1QFY26); the business logged mid-teens growth at end-1Q, driven by elimination of dual pricing and resilient organic demand.
2) Pricing growth was ~1% in 1Q, with another 1.5–2% expected in coming quarters.
3) Channels remained healthy, with GT demand building up at 1.5x FY26 growth levels, Ecom delivering strong double-digit growth, and QC accounting for >80% of E-commerce, growing rapidly with negligible LUP mix.
4) Key states grew at ~1.8x FY26 rates, while other states delivered double-digit growth at ~1.3x key-state growth; eastern India/Bengal and Bihar remained strong, with six states along with Tamil Nadu identified as key states.
5) International remained mixed in the Middle East/America, while Africa continued to perform well and is expected to return to growth from 2QFY27.
6) Margins remained exposed to inflation, with ~50% of RM inflation mitigated in 1Q, while A&P spends increased ahead of sales growth.
7) Adjacencies remained strong, with Croissants growing >30% and ARR at >Rs2bn. Phantom-stock impact was ~Rs10mn in 1Q, while no PLI was recognized in FY26 or 1QFY27 due to non-fulfilment of growth requirements.
8) Health and Wellness is a key opportunity
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