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In-line revenue; encouraging commentary for FY25E

* Britannia Industries (BRIT)’s revenue grew 3% YoY in 4QFY24 (in line), impacted by price cuts and grammage increase. Volume (grammage) grew 6% YoY; we expect the pack volume growth to be ~3.5% (in line).

* The non-biscuit portfolio (rusk, cake, bread, etc.) remained the key growth driver, and contributed 25% to the total revenue. Rusk delivered doubledigit volume growth, with cheese reporting double-digit growth in revenue. Management remains positive on the non-biscuit growth outlook and expects it to outperform the biscuit portfolio by 1.5x.

* GM remained flattish YoY to 44.9%, while EBITDA margin contracted 50bp YoY to 19.4% (in line). EBITDA declined 2% YoY. We model an EBITDA margin of ~19% for FY25/26.

* Management has guided double-digit volume growth in FY25 along with 2- 3% price hikes. The commentary appears quite promising for BRIT and the staple companies, which were reeling under pressure after weak revenue growth during the last 12-18 months. The volume recovery in FY25E will be in line with our opinion for staple companies (mentioned in our consumer thematic). We raise our EPS by 2% for FY25-26E. Reiterate Neutral with a TP of INR5,250 (premised on 45x FY26E EPS).

Muted 4QFY24 performance; revenue weak in FY24 too

* Muted revenue growth: BRIT’s consolidated net sales (excluding other operating income) rose 3% YoY to INR40.1b (est. INR40.5b). Other operating income declined 58% YoY; consequently, consolidated total sales rose 1% YoY to INR40.7b (est. INR41.3b). The four-year sales CAGR stood at 9%. Volume growth (grammage) was at 6% YoY in 4Q and at 4% YoY in FY24. The focus states (the Hindi belt, etc.) continue to outperform and are growing at 2.4x the rate of growth in the rest of India.

* EBITDA contracted 2% YoY: Consolidated gross margin was flat YoY but up 100bp QoQ to 44.9% (est. 44.1%). EBITDA margin contracted 50bp YoY to 19.4% (est. of 19.5%). EBITDA margin for FY24 stood at 19%. EBITDA declined 2% YoY in 4QFY24, but grew 12% YoY in FY24. PBT/APAT declined 3%/4% YoY to INR7.4b/INR5.4b (est. INR7.5b/INR5.6b) during the quarter.

* In FY24, BRIT’s net sales/EBITDA/PAT grew 3%/12%/10% to INR167.7b/ INR31.7b/INR21.4b.

* The BOD has proposed a final dividend of INR73.5/share.

Highlights from the management commentary

* Management is anticipating a gradual recovery in volume and expects to achieve double-digit volume growth for FY25 along with 2-3% price hikes.

* The overall commodity costs remained benign during the quarter. Flour and sugar have seen inflation, offset by a softening in the prices of palm oil, laminates, and corrugated boxes.

* EBITDA margin is likely to sustain at FY24 levels in FY25.The new launches are Good Day – Fruit & Nut cookies, Cake rusk, and Bourbon milk shake. NPD contributed ~INR2.75b in revenue on an annualized basis (1.5-2.0% contribution). Management aspires to achieve 3.5% of revenue from NPD in FY25.

* The revenue contributions from cake, rusk, bread, and dairy were similar. Each category generated ~INR8-9b in revenue.

Valuation and view

* We broadly retain our FY25/FY26 EPS estimates.

* BRIT focuses on expanding distribution, primarily in the Hindi belt, innovating products, and scaling up in related categories. Rural demand is yet to revive, but with higher consumer offers and low inflation, it should gradually start driving volume growth in FY25. We model a gradual volume recovery in FY25.

* The company is operating at a peak margin; we do not see any margin catalysts in the near term. We model an EBITDA margin ~19% for FY25/FY26.

* Packaged food companies have outperformed personal care companies over the last two years, since the former has maintained positive volume growth despite a steep price increase. We do not foresee such growth divergence going forward. Reiterate Neutral with a TP of INR5,250 (premised on 45x FY26E EPS).

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