Q2FY24 Review: Britannia Industries: Margins expand

3 Nov 2023 , 10:34 AM

Britannia Industries reported a disappointing quarter in terms of top line seeing a mere 1% YoY value growth. This was mainly due to a high base, poor demand sentiment especially in the rural markets as well as regional competition. The company took price corrections in its key brands and SKUs to stay competitive as local competition intensified during the initial months of this quarter. The margins expanded on account of softening of commodity prices. Analysts of IIFL Capital Services build in gradual recovery in volumes and volume led sales growth. The company has margin levers and they expect Ebitda to grow by ~10% for FY24/25. Maintain ADD;TP Rs5200. 

Flattish top-line growth; Margin beat: 

The sales reported a 1% YoY growth as against analysts of IIFL Capital Services

 estimate of 5%, whereas the volume growth reported was around 0.2%. The volumes were largely affected by the poor rural demand sentiment as a result of inflation and erratic monsoons. The gross margin (GM) expanded by 373bps YoY on account softening of commodity prices and as a result the Ebitda margin expanded by 335bps and stands at 20% (IIFLe 17.5%). PAT increased by 19% as against analysts of IIFL Capital Services estimate of 13%. 

Expect gradual recovery in volumes: 

The softening of commodity prices saw competition intensify and some pricing activities by competitors in certain categories. In order to remain competitive, Britannia took strategic price corrections in some of its key brands and SKUs. As a result, its market share recovered during this quarter. With inflation moderating and increased government spending on infrastructure (especially rural areas), analysts of IIFL Capital Services expect the demand sentiment to improve and volume growth to pick-up from the current trajectory. 

EPS upgrade for FY24 by ~3%: 

Analysts of IIFL Capital Services cut their sales estimate for FY24/25/26 by ~2% on account of a weak Q2FY24 result. Despite the sales cut, analysts of IIFL Capital Services expect an upgrade in Ebitda estimate for FY24 by ~3% on account of a strong operating profit growth reported this quarter. There is no change in Ebitda estimates for FY25/26. Analysts of IIFL Capital Services estimate the Ebitda margin to remain in the range of ~18.5-19% for FY24/25/26.