Shares of Britannia Industries Ltd. rose as analysts hiked price targets after the consumer goods maker's fourth-quarter earnings surpassed estimates.
The maker of Good Day and Tiger biscuits reported a 47% jump in net profit over the previous year to Rs 558.6 crore in the quarter ended March. Revenues rose 13% to Rs 4,023.2 crore, driven by price hikes.
Ebitda margin expanded 440 basis points to a near all-time high of 19.9%, sharply above analysts' expectations. Margin was aided by a production-linked incentive of Rs 90 crore, part of which was attributable to FY22 and FY23. Even adjusting for this, Ebitda margins widened 330 basis points to 18.5%, still above estimates. Britannia, however, guided for lower margins in FY24.
It expects both gross and Ebitda margins to remain close to FY23 levels as it projects 3% year-on-year inflation in FY24, with lower prices of edible oil and packaging offset by inflation in wheat, milk, and sugar. More so because the company in FY23 benefited from low-cost wheat as a result of strategic buying, which may not recur.
Competitive intensity has also gone up in the category, and the company plans to take pricing action to drive market share.
Britannia's volumes grew 1% year-on-year in Q4. Analysts expect the biscuit maker to continue outperforming in the quarters ahead as the challenges of low volume growth fade away with cooling raw material prices. The company is making investments in both greenfield and brownfield projects to expand its capacity, further aiding volume growth.
The management indicated that Britannia has been consistently increasing its market share and has widened the gap with its immediate rival. Much of this is attributed to its distribution expansion.
The company's transformation to a total food company is on track, with its portfolio beyond biscuits growing consistently. The non-biscuit portfolio grew 1.5 times faster in FY23, with all four categories— cake, rusk, dairy, and bread—now at Rs 600–700 crore in revenue each. Croissant is also a Rs 100-crore portfolio, while Winkin Cow is now a Rs 150-crore brand.
Shares of Britannia rose 0.79% as of 9:35 a.m. on Monday.
Of the 39 analysts tracking the company, 28 have a 'buy,' nine recommend a 'hold,' and two suggest a 'sell,' according to Bloomberg data. The 12-month consensus price target implies an upside of 9.1%.
Here's what brokerages have to say about Britannia's Q4 results:
Jefferies
Retains 'buy' rating with a target price of Rs 5,300 per share (earlier: Rs 5,200), implying a potential upside of 15%.
FY24 guidance at a flat YoY margin appears conservative, but revenue maximisation is high on the agenda as the management focuses on the long term.
Transformation into a total foods company appears to be underway, as many of its segments beyond biscuits are nearing the $100 million mark.
Phillip Capital
Maintains 'buy' rating with a target price of Rs 5,600 (earlier: Rs 5400), implying a potential upside of 21%.
The brokerage has upgraded its earnings per share estimate by 4–5% each for FY24–25 owing to strong Q4 results coupled with a healthy outlook.
Investors with a long-term bias will be highly rewarded as formalisation will be more visible in the food space, given the higher share of the unorganised sector, which is grappling with supply chain woes.
The company's larger and more integrated manufacturing facilities will benefit from economies of scale; distribution infrastructure will improve the salience of the dairy business; and a focus on low-unit packs will increase penetration.
The company's focus on expanding direct reach, particularly in the weak Hindi heart belt areas, is also a key positive.
InCred Equities
Maintains 'hold' rating with a higher target price of Rs 4,700 apiece, implying a potential upside of 1.6%.
The company's thrust on expanding its distribution reach, going deeper in rural markets, scaling up the non-biscuit portfolio, and recovering volume growth are key catalysts for sustained sales growth.
Pricing premiums vis-Ã -vis competitors is expected to narrow, while the benefits from forward cover may not accrue sustainably.
Nirmal Bang
Maintains 'buy' rating with a target price of Rs 5,565 crore per share, implying a potential upside of 20.3%.
While other FMCG companies have called out rural slowdowns, Britannia has not seen much of an impact due to rural distribution expansion fueling market share gains.
Over the medium term, Britannia should continue to deliver double-digit earnings growth, led by a long runway for growth in the Indian packaged foods industry and continued market share gains, especially as it leverages its enhanced distribution reach in recent years.
A sharper focus on smaller towns, the addition of new products and categories, premiumisation and cost optimisation would also aid earnings momentum.
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