Britannia Q1 Review: Analysts Cautious On Margin Miss, Competition Woes

Britannia's first-quarter earnings have drawn mixed reactions from Jefferies and Morgan Stanley with both highlighting concerns about competitive intensity impacting margins.

While noting healthy product sales growth, Jefferies expressed concern over the management's comments on heightened competition and awaited clarity on flat gross margins. Morgan Stanley pointed to a margin miss due to stiff competition and maintained an 'Underweight' rating with a target price of Rs 4,850.

Both brokerages acknowledged the company's focus on sustaining growth through brand investments and product innovation, but maintained a cautious outlook on profitability.

The first quarter results were largely in line with the brokerage's estimates, with growth momentum remaining largely in line with the fourth quarter. They noted that the gross margin saw lower-than-expected sequential expansion. This resulted in Ebitda falling below estimates.

Jefferies highlighted Britannia's healthy 9.8% product sales growth, but expressed concern over the management's remarks on the heightened competitive landscape across product categories.

Analysts estimate that the underlying first quarter volume growth was around 4%. Britannia saw double-digit growth across the four focus states and in bakery categories such as rusk, wafers, and croissants.

The company said it remained focused on sustaining a healthy growth trajectory while protecting margins amid intensified competition across product categories.

"We await clarity on the reasons for the QoQ flattish gross margin performance. Further, we look for details on underlying demand trends," Jefferies said.

Following its Q1 results, Britannia's management reported a marginal uptick in consumption in both urban and rural segments.

The brokerage's stance on the company remained unchanged post the earnings. They noted a modest shortfall in the company's numbers as compared to their estimates. The management said it expected to sustain growth with continued brand investments and product innovation, while managing margins. The brokerage is also waiting further clarity from the earnings concall on Aug. 6.