Q1FY24 Review: Britannia Industries: A subdued quarter

8 Aug 2023 , 11:00 AM

Britannia delivered a top-line growth of 9% YoY driven by pricing actions with volume growth remaining flat in Q1. The Company took price corrections and increased Ad-spends to stay competitive as local competition intensified during the quarter which led to margin miss. The upcoming price anniversaries would lead to lower sales growth in FY24. Analysts of IIFL Capital Services downgrade their EPS estimates by 6%/3% for FY24/FY25 but keep FY26 unchanged. Maintain ADD rating with a TP of Rs5250. 

Miss on margins: 

Revenue growth came in 8.6% driven by price hikes taken in past quarters. The volume growth for the quarter remained flat. Gross margins improved 528bps YoY to 41.3% (vs analysts of IIFL Capital Services estimate of 42%) due to moderation in key input prices. The Ebitda growth came in 37.6%YoY, 6% below estimates, due to price corrections (grammage increase) and increase in Ad-spends. The Ebitda margin came in at 17.4% in Q1 (vs Ebitda margin, adjusted for PLI, of 18.8% in Q4). 

Competition intensifies: 

The deflation in commodity costs was larger for competitors in Q1, as Britannia had forward covers last year and had seen lower inflation. Due to this, smaller regional players have emerged, gaining market shares from larger players with price cuts in their packs. The company has also taken pricing actions to remain competitive in this environment. With the price anniversaries and further price cuts in certain SKUs, sales growth is expected to slow down in near term, also denting the margins. The number of packs sold by the company is up 9% YoY in Q1. The company has launched new products such as Jim Jam-Pops (a first of its kind open cream biscuit and Multi grain Rusk in Q1 to drive future growth. The dairy business has shown high double-digit growths. NPDs contributed ~4% of the revenues in Q1. 

EPS cut of 3-6%: 

Analysts of IIFL Capital Services cut their EPS estimates for FY24/FY25 by 6%/ 3% but keep FY26 unchanged to factor in the margins miss. Going ahead, top-line growth would be primarily driven by volumes and margins are expected to be at the Q1 levels in the medium term. The company is focussing on increasing market share in biscuits and also expanding share of non-biscuit revenue in its portfolio to drive growth. Analysts of IIFL Capital Services expect an EPS Cagr of 11% over FY23-26. Maintain ADD with TP of Rs5250.