MUMBAI
:
A key striking feature of Britannia Industries Ltd’s June quarter results is its high single-digit volume growth, estimated at 8% year-on-year, a multi-quarter high. However, pricing was weak, so revenue growth has lagged volume growth yet again. Britannia’s consolidated operating revenue increased by 4% year-on-year in the three months ended 30 June (Q1FY25) to ₹4,130 crore as pricing declined. Other operating revenue surged as much as 195% to ₹120 crore, mainly owing to the incentive received from the company’s Ranjangaon plant, which has now qualified as an ultra-mega plant. Thus, total operating revenue growth was 6% in Q1.
Britannia said its biscuit market share is rebounding after the challenges seen in FY24. This is driven by distribution expansion, consistent brand investments and appropriate pricing actions. Plus, the rural markets are looking a shade better, with their share growing at a faster clip than urban markets. As such, Britannia has a higher share in urban than in rural. In Q1, the company’s adjacent businesses, such as cakes, rusks and bread performed well. Cakes clocked sequential volume growth and rusks recorded a healthy double-digit volume growth despite a harsh summer. The company introduced the Pure Magic Stars and Golmaal variants in the March quarter. Driving efficiencies and distribution, Britannia’s direct reach is now at 2.82 million outlets. Its rural distributor reach stands at 30,000.
Profitability prospects
Coming to profitability, a relatively slower pace of annual increase in total raw material costs meant gross profit margin rose 147 basis points (bps) year-on-year to 43.4%. One basis point is one-hundredth of a percentage point.
But higher other expenses and employee costs meant Ebitda margin expansion was curbed to 56bps to 17.7%. Q1 Ebitda margin missed some analysts’ expectations and is also lower compared to FY24 when the measure had expanded 154bps to 18.9%. Ebitda is earnings before interest, tax, depreciation and amortization.
To be sure, margin prospects are not particularly exciting. The outlook for milk, flour, cocoa and sugar prices is inflationary. Britannia may take slight price increases to offset this. “The company is operating at a peak margin; we do not see any margin catalysts in the near-term,” said a 5 August report by Motilal Oswal Financial Services. They estimate Ebitda margin of 19-19.5% for FY25/FY26. “Packaged food companies have outperformed personal care companies over the last two years since they have maintained positive volume growth despite a steep price increase,” said the broking firm, adding that it does not foresee such growth divergence going forward.
It is encouraging that Britannia’s management said in the Q1FY25 earnings call that volume growth is now coming close to double digits. “Towards the end of the last quarter, we were almost at double-digit volume growth,” the management said. In general, the overall rural demand recovery augurs well for Britannia and helps boost market share gains.
However, investors seem to be factoring in the brighter picture adequately. Britannia’s shares have risen by 9% so far in 2024, but returns over the past year are higher at 21%, making valuations pricey. Nomura Global Markets Research values Britannia at a price-to-earnings multiple of 50 times on twelve months ended September 2026 forecasted earnings per share (EPS), which is in line with its five-year trading average. The broking firm has projected an EPS CAGR of 11% over FY24-FY27, arriving at a target price of ₹5,800 apiece. “Britannia trades at two-standard deviation above its five-year trading multiple,” wrote Mihir P. Shah, an analyst at Nomura, in a 6 August report. On Tuesday, the Britannia stock closed at ₹5,839 on the National Stock Exchange, up 2.89% against the 0.26% decline in the Nifty 50.
