Britannia delivered top-line growth of 16% YoY, primarily driven by pricing actions and low-single-digit volume growth. Strong market-share gains in rural market, despite weaker consumption sentiment, was led by its continuous focus on enhancing direct reach in rural distribution network. Topline increased by 16% YoY (in line with our estimates) translating into a 3yr Cagr of 11.8%. Gross margins improved 521bps YoY to all-time highs of 42.3%, driven by pricing actions, moderation in palm oil prices and forward covers in wheat flour taken during the beginning of the year. This led to an Ebitda growth of 51.5% YoY (21.9% above our estimates). Ebitda margin came in robust at 19.9% in Q3 (vs 16.4% in Q2).
As the pricing anniversaries in coming quarters, sales growth would reduce, but volume growth needs to pick up. The company plans to pass on the pricing cuts through promotions in certain categories to gain volumes in the next quarter. It has entered into a partnership with Bel SA for the production and sales of Cheese & Cheese products under the brand ‘Britannia The Laughing Cow’; production of the new lines to be done at its Ranjangaon facility.
Analysts of IIFL Securities upgrade their EPS estimates for FY23/FY24 by 6% and FY25 by 5% for Britannia, to factor in the strong pricing actions taken by the company and moderation in inflationary pressure in the commodity prices. Margins in the coming quarters would be lower compared to Q3, with the absence of low-price forward covers in wheat flour. We forecast revenue/Ebitda/ PAT Cagr of 10%/12%/14% over FY23-FY25 for Britannia.
Analysts of IIFL Securities maintain ADD rating with a target price of Rs5,000.
