MOSL: BRITANNIA INDUSTRIES (Neutral)-Hedges boost EBITDA margin, Volume recovery uncertain
Britannia Industries: Hedges boost EBITDA margin, Volume recovery uncertain
(BRIT IN, Mkt Cap USD10.6b, CMP INR3155, TP INR3340, 6% Upside, Neutral)
- Britannia Industries’ (BRIT) 3QFY20 volume growth was below expectations despite a more favorable base compared to previous quarters.
- Hedges boosted operating margins but led to higher interest costs.
- While market share growth continues unabated, the timing of category recovery remains uncertain, thus inhibiting earnings growth. Maintain Neutral on fair valuations.
Highest-ever EBITDA margins, Volumes below expectations
- BRIT’s 3QFY20 consol. sales increased 4.9% YoY to INR29.8b (v/s est. INR30.7b). Standalone sales grew 4.3% YoY to INR28.2b. Volume growth is 3% (v/s est. +4%). Consol. EBITDA grew 11.1% YoY to INR5b (v/s est. INR4.8b). Consol. PBT grew 7% YoY to INR5b (v/s est. INR4.6b), while consol. adj. PAT grew ~22.9% YoY to INR3.7b (v/s est. INR3.5b).
- gross margin contracted by 40bp YoY to 40.9% due to RM cost inflation led by inordinate increase in milk prices. Flat YoY staff cost and lower other expenses (-130bp YoY) meant that EBITDA margin expanded 90bp YoY to 16.8% (highest-ever margins).
- 9MFY20 consol. sales/EBITDA/adj. PAT grew 5.8%/7.2%/20.4% YoY.
Britannia Industries is a food-products corporation based in India. Co.'s principal activity is the manufacture and sale of biscuits, bread, rusk, cakes and dairy products. Co. manufactures and distributes products such as biscuits, high protein foods for children as well as digestive-aided ingredients for older adults, convenience foods such as powdered dairy creamers, breads, cookies, snack-cakes and rusk, crackers, cheese, marine products and other related food products. Co.'s brand of products include Tiger, Mariegold, Treat, 50-50, Good Day, Milk Bikis, Little Hearts, Pure Magic, NutriChoice Bread and Milkman.
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