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Beats estimates; valuation factors in improving margin outlook

We maintain REDUCE on Britannia, with ~13% upgrade in Mar-26E TP to Rs5,500 (on 48x P/E), as we factor in the improving margin outlook and the company’s better competitive position. The stock has seen an ~11% run-up in the last 3M, on the back of an easing raw material price situation, where price of wheat (25% of RM) fell ~19% in the last 3M, and of palm oil (15% of RM) fell 15% in the last 1M. Q4 results beat expectations, with sales growth at 9% (domestic volume growth at 3%, a tad lower than our expectation of 4%), while lower employee spending and other expenses drove a 7% beat on EBITDA and earnings. We see 1Y forward P/E at 52.5x factoring in the positives, now near +1SD 5Y average at 52x. With pricing hikes in place, we see Britannia better positioned vs peers. We lift our target P/E from 45x to 48x (in line with 5YF avg P/E). On improved margin outlook, our EPS is upgraded by 6% over FY26-27E

Better topline show, driven by price hike guidance

Britannia has reported 9% consol sales growth with ~6% price growth. Volume growth at 3% was lower than our expectation of ~4%. In Q4, the management guided to 6% price-hikes till Q1FY26 in a staggered manner which were actioned in Q4FY25, amid steady inflation in raw material prices. We were skeptical on the increased promotion absorbing the price growth, but competition seems practicing constraint on price actions. Other operating income, after seeing 100% growth in 9M, saw 4% growth in Q4 (missing our estimate). Overall revenue from operations, at Rs42.8bn (grew 9% YoY), was in-line. With price hikes now in place, we see Britannia better placed to protect its market share.

Lower staff costs and opex aid margin beat; RM easing enhances outlook

Britannia posted Q4FY25 EBITDA margin of ~18.2%, which contracted by 120bps YoY, but came in better than consensus/our estimate of 17.1%. Better than expected margin in Q4 is owing to lower-than-expected employee spends (+1% YoY in Q4; -1% YoY in FY25) and other operating expenses (-8% YoY; -335bps YoY as a % of sales at 18.2%). Gross margin at 40.1% in Q4 fell by 480bps YoY. Given the price hikes, we see comfort emerging from Q1FY26, as key RM prices have started softening. Better margin aided EBITDA growth of 2%, a ~7% beat. Earnings growth was higher than estimated at 4% YoY, with 130bps YoY reduction in effective tax rate (now 25.5%). Factoring in the easing raw material prices, we lift margin expectations; this leads to a 5% upgrade in FY26E27E EBITDA. Overall, we now see 8% sales and 10% earnings CAGR over FY25-28E.

Recent re-rating factors in the positives; on limited upside, we maintain REDUCE

We await management commentary on the demand setting and its strategy ahead, with the earnings call scheduled on 12-May-2025 (9am). As we lift earnings by 5% for FY26E/FY27E and raise target valuation multiple to 48x (from 44x), our TP is revised up by 13.4%, from Rs4,850 to Rs5,500. We maintain REDUCE on limited upside. Varun Berry will take charge as CEO, along with his current role as Executive Vice-Chairman and MD.

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