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Q2 earnings surprised positively

We maintain REDUCE on Britannia, with a Sep-26E TP of Rs5,750, on 48x P/E (in line with its last 5Y average forward P/E). Q2 net sales grew at ~4%, 1%/4% below our estimate/consensus expectation. We see volume decline at ~2% (affected by the GST transition). Q2FY26 earnings (up 23% YoY) surprised (a 15% beat), driven by the phantom stock option’s accounting. Absolute employee spending reduced by 22% YoY (down 150bps as a % of sales); adjusted for the ~Rs500mn payout in Q2FY25, employee spending reduced by 1% YoY. Lower employee spending and opex aided the 295bps expansion in EBITDA margin to 19.7%. The management’s commentary (postGST rate reduction) would be key; we see growth acceleration for low unit packs (LUPs). The company has onboarded Rakshit Hargave as the new CEO; he will be joining on 15-Dec-25.

Revenue growth at 3.7%, with an estimated 2% volume decline .

Britannia’s Q2FY26 revenue grew 3.7% YoY to Rs47.5bn. However, it lagged our estimate by 1% and consensus expectations by 4%. We estimate a 2% YoY volume decline, affected by GST-driven disruption. The management noted that transitional challenges in Q2 arose from GST-related changes in the supply chain, trade, and channels. The management expects this situation to normalize in the coming quarter. The company continues to do well in adjacencies, where Rusk, Wafers, and Croissant sustained doubledigit growth momentum. This portfolio fits well with e-commerce, where the company is seeing faster growth. The management is looking to focus on healthy, volume-driven growth ahead. Post GST rate reduction for biscuits from 18% to 5%, we expect growth acceleration for low unit packs; however, this benefit will largely neutralize at EBITDA level. We seek the management’s clarity on this during the earnings call on 7-Nov-25.

Margin surprise continues – this time on the positive side at 19.7%

For Q2FY26, the company posted 23% earnings growth, which was 15% above our estimate and 11% above consensus expectations. Gross margin at 41.7% was in line, up 20bps YoY. The EBITDA margin at 19.7% expanded by 295bps YoY. This expansion was driven by a 125bps reduction in employee costs and a 150bps reduction in opex. Employee spends reduced by 22% YoY; in the base quarter, the company had phantom stock-related payout of Rs500mn; adjusted for it, absolute spends reduced by 1%. In Q2FY26, stock price appreciation was 2%, which ideally results in a negligible payout for phantom stock; we will seek clarity on this from the management.

Growth acceleration ahead to help valuation; clarity from the management key

We await clarity from the management on optical sales growth acceleration (for LUPs, given GST rate cuts) and its effect on the EBITDA margin. The appointment of Rakshit Hargave as the new CEO is positive for succession planning. We expect the company to enhance its innovation funnel and align its portfolio with the requirements of the youth. Additionally, we expect the company to expand its share of modern retail channels, aligning with food peers.

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