Q3FY24 Review: Britannia Industries: Volumes are back on track

8 Feb 2024 , 11:52 AM

While the headline sales and profits were below estimates, volume growth at 5.5% was encouraging. The sales grew by 2.2% on the back of price cuts taken across its key portfolio to pass on the benefits of input cost deflation as well as due to increased competitive intensity. The consumption trend in rural markets remained subdued, despite which Britannia has focussed on increasing its distribution footprint in the rural markets (29k outlets currently vs 28k as at March’23). With commodity prices remaining stable, the company does not envisage any further price action and hence the sales growth will be driven by volumes. With gradual recovery in rural demand sentiment, the volume growth trajectory is likely to improve. Maintain ADD, TP ₹5200 (4% upside). 

Miss on estimates:

The top-line grew by 2.2% against analysts of IIFL Capital Services estimate of 7%, whereas the volumes grew by 5.5%. The company had to take price reduction across its portfolio due to the increased salience from regional and local players. The GM expanded by ~70bps on account of softening of commodity prices, however higher than expected staff cost (11% increase vs analysts of IIFL Capital Services estimate of 6% decline) ensured that the Ebitda remained flat (vs theur estimate of 3%). The Ebitda margin contracted by 35bps and stood at 19.6%. Adj. PAT declined by 11% vs analysts of IIFL Capital Services estimate of 3% decline. 

Gradual recovery expected: 

The rural demand has been under stress, however with moderating inflation and rise in rural incomes, the demand sentiment is expected to improve. Britannia has focussed on expanding its distribution footprint in the rural markets which currently stands at 29k outlets vs 28k outlets in Mar’2023. The company does not envisage any further price actions provided the input costs remain stable and hence volume recovery remains a key factor for strong top-line performance. 

EPS downgrade for FY24/25/26 by ~3-4%: 

Analysts of IIFL Capital Services cut their sales estimate for FY24/25/26 by ~2%/5%/5% to factor in the performance of Q3FY24 and slowdown in the consumption trends (though expected to recover gradually). The Ebitda margin seems to have peaked at ~19% with Britannia focussing on aggressively growing the top-line and increasing its market share while keeping the margins stable. Analysts of IIFL Capital Services downgrade their EPS estimate for FY24/25/26 by ~2%/3%/4%. Maintain ADD, TP ₹5200.