Reduce Britannia Industries Ltd For Target Rs. 5,500 By Emkay Global Financial Services Ltd
Outlook in the price; maintain REDUCE
We retain REDUCE on Britannia with unchanged Mar-26E TP of Rs5,500, on 48x P/E (in line with its last 5Y forward average P/E). With improvement in macro trends, the management is reasonably optimistic about the sector recovery. It endeavors to attain double-digit growth ahead, and expects adjacent business growth at 1-1.5x core-business growth. Price growth is likely to accelerate ahead from ~5.5% in Q4FY25, as new price products land in the market. Given focus on topline, we expect margin to range at 18-18.5% for FY26E, benefitting from the easing in key raw material prices. With 1YF P/E at 53x, above +1 SD 5Y avg at 50x, we see limited upside.
Efforts to achieve double digit growth on possible steady improvement in macro
Britannia reported 9% revenue growth for Q4FY25, with ~5.5% price growth. With part of the price hikes yet to reflect in the numbers, we see growth ahead to be price driven. We build in 3-4% quarterly volume growth in FY26. Though easing raw material prices are a positive, they may induce competition. With innovation, management thrust is on enhancing its premium mix and leveraging ecommerce better. In coming 2-3 months, the company is likely to see noteworthy new launches. FY25-28E revenue CAGR is ~8%.
Thrust on distribution augmentation, which will enhance the portfolio play
As traditional trade remains dominant and would sustain ahead, the company is focusing on steady enhancement in its reach. Of the 9mn relevant domestic outlet universe, the company has a ~6.5mn outlet reach, of which it has direct reach to ~2.87mn outlets. Focus on rural is aided by ~31k rural preferred dealers. The mgmt noted that leveraging 25 sub brands across categories with direct reach is key. On one hand the management aims for width improvement, and on the other focus is on volume per outlet. Ecommerce channel (contributes 4% of sales) has seen 7.5x growth vs other channels in FY25.
Easing in raw material setting to aid; focus to be competitive
The company has lagged in taking effective price hikes, whereas a 5.5% price growth was seen in Q4. Such growth will inch up as some newly-priced products land in the market. Amid key raw materials, the management noted that wheat (30% of RM) prices would remain firm (+12% YoY in Q4; 7% increase in MSP), despite better produce; easing in palm oil (30% of RM) prices is likely to aid margins. The management refrained from giving FY26 guidance, but we see margin bands improving to 18-18.5% from earlier guidance of 17-18%, with some comfort on RM prices.
Recent upmove factors in positives; on limited upside, maintain
REDUCE With high single digit revenue growth and better margin outlook, we see ~13% earnings growth for FY26E. The demand and competition scenarios are key things to watch, as these influence financials. We see one year forward P/E at 53x, factoring in the improving near-term narrative. On limited upside, we retain REDUCE with Mar-25E TP of Rs5,500.
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