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Axis Securities Report
Britannia Industries Ltd.'s revenue grew by 1% YoY (flat volume growth) due to a high base of 22% in Q2 FY23, weak rural demand along with higher competitive intensity, and price cuts.
The company's gross margins were up 373 basis points YoY to 42.1%, owing to softer raw material inflation (palm oil and packaging). The company is cautious about raw material prices going ahead due to geopolitical tensions.
Ebitda margins stood at 19.7%, up 343 bps YoY, in line with gross margins expansion. Furthermore, it has maintained stable margin guidance for FY24. Britannia Industries' profit after tax stood at Rs 588 crore, up 19% YoY.
Outlook:
We expect Britannia Industries to deliver market-leading growth from here on as-
raw material prices, while still firm, have or will stabilize at the current levels,
rural continues to remain stronger for Britannia (due to the company's robust distribution expansion strategy in these regions) while other fmcg companies continue to struggle in this section.
Furthermore, the rural revival is expected in the coming quarters, which will be supported by higher government spending and increased urban remittances. Britannia Industries' own initiatives such as robust portfolio planning through new product development in core and adjacencies along with its continued focus on increasing direct reach, rural penetration, and a share of in-house manufacturing would help it improve its overall efficiency moving ahead.
We believe that this will make Britannia Industries stronger in the long run.
Valuation and recommendation:
Based on the above thesis, we estimate revenue/Ebitda/PAT compound annual growth rate of 9%/10%/12% over FY23-26E and maintain our 'Buy' rating on the stock with a revised target price to Rs 5,150/share which implies an upside of 17% from the current market price.
Key risks to our estimates and target price
Increase in competitive intensity; prolonged demand recovery; raw material inflation.
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