Britannia’s standalone Q3 FY13 revenues surpassed our estimates (of Rs13.8bn) by recording 16.8% yoy growth at Rs14.5bn driven by volume (5.5% yoy), price (6.5%) and balance by product mix improvements. This is the first time when Britannia’s Q3 revenues are higher than Q2; generally it is vice a versa. The non-biscuit businesses – bread, rusk, cake, dairy and international grew to Rs1.5bn annually. Britannia’s dairy business recorded ~Rs4bn revenues and has started contributing to the bottomline.
Operating margins for the quarter contracted by 90bps to 5.4% due to sharp 140bps increase in advertising cost. Britannia has taken selective price hikes to mitigate the input cost impact (wheat and sugar). Prices of other commodities like refined palm oil and skimmed milk powder were lower during the quarter. Gross margins expanded by 30bps even after absorbing the high wheat and sugar price impact.
|As a % of net sales||Q3 FY13||Q3 FY12||bps yoy||Q2 FY13||bps qoq|
|Purchase of goods||11.5||11.2||31||10.4||109|
Britannia is setting up plants in different geographic locations (next one planned in Gujarat) to reduce freight cost. This will help reduce lead distance by 100-150kms. The company has also implemented initiatives like alternative fuels to keep costs as low as possible.
Net profit increased by 5.3% yoy to Rs570mn – above our expectations of Rs516mn led by healthy revenue growth and higher other income. Effective tax rate for the quarter was higher at 28.6% against 27.6% in Q3 FY12.
Britannia is the largest player in the fast growing biscuits category with a market share of over 30% with a strong portfolio of brands like – Tiger, 50:50, MarieGold, Good Day, Milk Bikis, Treat and NutriChoice. Britannia is focusing on premiumisation of its product portfolio. We believe it will help the company achieve better margins in the long term. We upgrade the stock to Buy given healthy domestic volume growth, improved performance of subsidiaries and attractive valuations. Increase in competitive intensity, input cost inflation and slowdown in domestic volume growth are the key risks to our call. At the current market price of Rs482, the stock is trading at 21.8x FY14E EPS of Rs22.2. We recommend Buy with a 9-month price target of Rs543 (earlier Rs489).
|(Rs m)||Q3 FY13||Q3 FY12||% yoy||Q2 FY13||% qoq|
|Purchase of FG||(1,674)||(1,394)||20.1||(1,463)||14.4|
|OPM (%)||5.4||6.3||(90) bps||4.3||106 bps|
|Effective tax rate (%)||28.6||27.6||29.0|
|PAT margin (%)||3.9||4.3||(43) bps||3.3||67 bps|
|Ann. EPS (Rs)||19.1||18.1||5.3||15.3||24.9|
|Y/e 31 Mar (Rs m)||FY12||FY13E||
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