Q4FY23 Review: Britannia Industries: Gross margin skyrockets

8 May 2023 , 10:35 AM

Britannia delivered top-line growth of 14% YoY (adjusted for Cheese business moving to a JV), primarily driven by pricing actions and low-single-digit volume growth. Strong market share gains were led by continuous focus on enhancing direct reach in the distribution network. Margins have expanded on the back of higher pricing; however, upcoming price anniversaries would lead to lower sales growth in FY24.

Significant beat on margins: 

Standalone top-line growth came in at 14% YoY. On consolidated level, top line increase was lower at 11% YoY (4% below our estimates) due to the accounting of BDPL revenues as a JV. Gross margins improved 577bps YoY to all-time highs of 43.1%, driven by pricing actions and moderation in key input prices. Ebitda growth of 45.7%YoY was led by Rs900mn of PLI benefits that the company received in Q4 for the full year FY23, which the company has guided would remain at Rs150-200mn per quarter going ahead. Adjusting to that, Ebitda growth came in at 33% YoY (4% above our estimates). Adj. Ebitda margin came in at 18.8% in Q4 (vs our estimate of 17.3%).

Increasing direct reach:

Britannia has enhanced direct reach by adding 0.2m outlets in FY23, taking its reach to 2.68m outlets. There is still enough headroom for distribution-led growth for Britannia in medium term. The company wants to reach more outlets directly to increase the share of its products in those outlets, to gain volumes. Number of packs sold is up 12% YoY in Q4; but volume growth remained muted due to grammage cuts taken over the last few quarters. With price anniversaries and upcoming price cuts in certain SKUs sales, growth is expected to slow down in near term.

EPS upgrades: 

Analysts of IIFL Capital Services upgrade their EPS estimates for FY24/FY25 by 5%/ 4% for Britannia to factor in the strong beat in margins led by the moderation in inflationary pressure and higher other operating income from PLI benefits coming in. Britannia will focus 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 maintains Add with TP of Rs 5,200.