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Pricing leads to revenue growth; pressure on margin sustains

• Britannia Industries (BRIT) posted consolidated revenue growth of 10% YoY in 1QFY26 (in line). Volume growth was ~2% (est. 3%), while transaction growth stood at 12%. The 6-8% gap between revenue and volume growth is expected to persist over the next two quarters. Rural markets posted strong double-digit growth, outpacing the high single-digit growth seen in urban areas.
• GM contracted 310bp YoY to 40.3%, impacted by elevated commodity prices on a YoY basis, although prices remained stable sequentially (refer to Exhibit 3). The benefit of the palm oil duty reduction was partially reflected in 1QFY26 and is expected to fully flow through from 2QFY26. Employee expenses rose 20% YoY on account of SAR revaluation, which added INR520m to costs. Other expenses declined 3% YoY. EBITDA margin contracted 140bp YoY to 16.4% (est. of 17.3%), while EBITDA remained flat YoY at INR7.6b. Management indicated that the company remains open to implementing price cuts, if necessary, to stay competitive. We model an EBITDA margin of 18-18.5% for FY26-28.
• BRIT’s focus on innovation, distribution expansion, marketing, pricing actions, RTM 2.0, and dairy capacity expansion is expected to drive growth. With key raw material prices softening and competitive intensity remaining stable in the organized space, BRIT’s profitability could see a recovery, similar to the previous inflationary cycle. However, we await a stable demand recovery in core categories. We reiterate our Neutral rating with a TP of INR5,850 (premised on 50x Jun’27E EPS).

In-line performance; volume growth at ~2%

• Volume growth at ~2%: BRIT’s consolidated net sales (excluding other operating income) rose 10% YoY to INR45.3b (est. INR44.8b) in 1Q. Other operating income declined 27% YoY to INR0.9b (on a high base). Consolidated total revenue rose 9% YoY to INR46.2b (est. INR45.8b). The company delivered ~2% volume growth in 1Q (est. 3%, 3% in 4QFY25).
• Commodity pressure on margin: Consolidated gross margin contracted 310bp YoY to 40.3% (est. 40.8%) due to a rise in commodity prices. Employee expenses rose 20% YoY, while other expenses declined 3% YoY, leading to EBITDA margin contraction of 140bp YoY to 16.4% (est. of 17.3%).
• Muted profitability: EBITDA remained flat YoY at INR7.6b (est. INR7.9b). APAT declined 2% YoY to INR5.2b (est. INR5.5b).

Highlights from the management commentary

• In 1QFY26, five out of seven regions gained market shares compared to FY25. The only region that saw a decline was the East, primarily due to the internal restructuring of the distribution network, where a mega distribution model is being implemented. During this transition, local players gained share; however, the situation has since normalized.
• Overall market share remained largely flat, as regional players gained traction due to pricing advantages in certain markets and categories, especially amid alternating inflationary and deflationary cycles in the industry.
• E-commerce contributes 4% to the overall business, with quick commerce accounting for 75% of total e-commerce sales.
• The company has guided for a capex of INR1b in FY26, lower than the levels seen in the past few years.

Valuation and view

• We largely maintain our EPS estimates for FY26/FY27.
• BRIT’s focus on innovation, distribution expansion, marketing, pricing actions, RTM 2.0, and dairy capacity expansion is expected to drive growth. With key raw material prices softening and competitive intensity remaining stable in the organized space, BRIT’s profitability is expected to see a recovery, similar to the previous inflationary cycle. However, we await a stable demand recovery in core categories. We reiterate our Neutral rating with a TP of INR5,850 (premised on 50x Jun’27E EPS).

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