Britannia Industries' near-term revenue, profit growth outlook modest: Report

Britannia Industries outlook: Fast moving consumer goods (FMCG) company Britannia Industries' December quarter (Q3FY24) earnings met expectations with a slightly stronger-than-anticipated revenue performance, although still subdued, analysts noted. 

Despite a 5 per cent increase in volumes, pricing experienced a 2-2.5 per cent year-on-year (YoY) decline during the quarter, following a period of crucial pricing growth from late financial year 2022 (FY22) to early financial year 2024 (FY24). 

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The company’s management highlighted a gradual recovery in demand, yet noted subdued rural demand and ongoing challenges posed by heightened competition.

Gross margins continued to expand impressively, exceeding expectations by 50 basis points (bps), despite price reductions during the quarter. This expansion was supported by a favourable input-cost environment, the brokerage firm JM Financial said in a note.

While staff costs exceeded recent levels, the impact was mitigated by disciplined control over other expenses, which rose by just 1.4 per cent, possibly aided by rationalisation in advertising and promotional spending.

Meanwhile, the brokerage firm said that the near-term growth prospects for Britannia's revenue and profits appear modest. 

Consolidated sales for December quarter (Q3FY24) grew by 2.2 per cent to Rs 4,190 crore, with earnings before interest, depreciation and amortisation (EBITDA) and adjusted net profit remaining relatively flat at Rs 820 crore and Rs 560 crore, respectively. 

The standalone sales increased marginally by 3.1 per cent, potentially influenced by reclassification, while consolidated figures were affected by changes in accounting for the Cheese business.

The quarter saw volume growth outpace expectations, though lower realisations offset some of these gains due to pricing adjustments aimed at enhancing the price-value equation amidst intensified competition. 

Despite subdued rural demand, Britannia's strategic focus markets demonstrated resilience, buoyed by initiatives to expand direct reach in these areas. Improved gross margin performance, driven by a softer input-cost environment, notably palm oil and laminates, contributed to profitability, the brokerage firm highlighted.

Despite a major increase in staff costs, the impact was counteracted by enhanced gross margins and prudent cost management, resulting in a reported EBITDA margin of 19.6 per cent, slightly lower than the previous year. 

However, on an intrinsic basis, margins were approximately 51 basis points higher compared to the same period last year, according to internal assessments. 

Additionally, the company’s other operating income declined 32 per cent year-on-year (YoY) due to the absence of previously accrued production-linked incentive (PLI) incentives, influencing reported earnings.

Therefore, considering these factors, JM Financial analysts recommend a ‘buy’ rating with a target price of Rs 5,380 per share.