The Britannia story is one in every of important contrasts throughout COVID-19. When the disaster started, it shocked with robust Q1 gross sales (26% y-o-y) as the remainder of the sector handled lockdowns. However now tailwinds have waned, and Q3 progress of 6% is beneath expectations at a time the economic system is recovering.
Britannia says that its market share has elevated, rural progress stays robust, and disruption in Fashionable Commerce and Institutional channels is non permanent – because the scenario normalises, income progress ought to get better.
We are inclined to agree. Its operational excellence is commendable, distribution enlargement continues, its manufacturers are formidable and income progress has the potential for imminent revival, which might be the important thing catalyst for inventory efficiency. Valuation is undemanding: Britannia has been a sector laggard previously 12 months.
Income miss, margins led earnings beat
(i) Britannia’s consolidated gross sales/Ebitda /clear PAT grew by 5.8%/21.8%/22.3% y-o-y (ii) gross margin expanded (209bp) as a result of benign enter prices and higher combine whereas value effectivity achieved in Q2 sustained, resulting in 259bp y-o-y enlargement in Ebitda margins to 19.7%. Gross sales had been 4% beneath consensus estimate whereas Ebitda/PAT had been 4-7% above consensus; (iii) though the early COVID-19 tailwinds of pantry loading, and so on. have now waned, common commerce continues to develop at a great tempo, led by the agricultural economic system and restoration in city markets. Fashionable Commerce and Institutional companies stay impacted and have largely been the explanation for the income miss; (iv) outlook for margins stays benign and gradual however imminent demand revival for MT, institutional channels recommend that earnings progress outlook ought to stay robust.
We keep Purchase on the inventory
(i) We like Britannia for its main place in biscuits and bakery, the place it has dominant share within the rising premium and mid-premium biscuits and cookies segments; (ii) Britannia is persistently deepening its rural penetration and in Hindi heartland the place its market share is lower than half the nationwide common, which must also increase structural progress; (iii) Britannia is now intensifying its innovation-led new product launches; (iv) it’s among the many sector laggards (up 8% within the final yr vs 12% acquire in Nifty FMCG index) and presents a beneficial risk-reward at present valuations.
TP revised to Rs 4,000 (from Rs 4,300): Britannia’s present share value implies long-term earnings progress expectations of c12%, which in our view is a surmountable hurdle. We reiterate Purchase with a decrease TP of Rs 4,000. Quantity revival will likely be a key near-term catalyst for the inventory.