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MOSL: BRITANNIA INDUSTRIES (Buy)-Sales momentum healthy; ICD reduction a significant positive

BRITANNIA INDUSTRIES: Sales momentum healthy; ICD reduction a significant positive

(BRIT IN, Mkt Cap USD11.4b, CMP INR3504, TP INR4370, 25% Upside, Buy)

 

• Britannia Industries (BRIT) reported flat sales and volume growth YoY in 1QFY22, despite an extremely high base of ~27% sales growth (and 21% volume growth), well ahead of expectations. Importantly, it achieved this despite no major pantry loading during the second COVID wave lockdowns.
• While margins were below expectations – leading to in-line EBITDA and PAT, despite a significant sales beat – the outlook is better going forward, with calibrated price increases.
• The key positive in the post-results call was the announcement of a sharp reduction in group inter-corporate deposits (ICDs) to INR4.7b at end-Jun’21 from INR7.9b in Mar’21 – these levels were last seen in FY18. Given that higher group ICD levels were a significant overhang on the stock, such a sharp reduction, if sustained, would lead to a re-rating.
• The stock trades at inexpensive multiples of 39.7x FY23E EPS, a significant discount to the domestic Staples peer average – despite BRIT’s superior earnings track record, a stronger potential for topline and earnings growth, and significantly higher RoE levels (over 40%). Maintain BUY.