EUR 120.00 For Business Accounts Only

MOSL: BRITANNIA INDUSTRIES (Buy)-Price increases to support margins

BRITANNIA INDUSTRIES: Price increases to support margins

(BRIT IN, Mkt Cap USD11.8b, CMP INR3622, TP INR4400, 21% Upside, Buy)

 

• Britannia Industries (BRIT)’s 2QFY22 topline came in ahead of our expectations, while EBITDA missed our estimates by 3–4%. Lower other income and higher-than-usual tax rates led to a ~10% miss at the adjusted PAT level.
• While the prices of raw materials are at multi-year highs (despite flat to low-single-digit increases in wheat and sugar costs), ongoing price increases / grammage reduction would support margins going ahead.
• a) The long-term opportunity in Foods, b) rapid distribution expansion by BRIT, c) success in low-unit packs (LUPs), d) an extremely healthy track record on the topline and earnings, e) ongoing market share gains for several years, f) high ROEs of ~40%, and g) inexpensive valuations of 43.6x FY23E lead us to maintain our BUY

 

Flat sales healthy given extraordinary base; lower margins lead to in-line EBITDA and PAT

• BRIT’s consolidated sales rose 5.5% YoY to INR36.1b (est. INR34.9b) in 2QFY22. Consolidated EBITDA / PBT / Adjusted PAT declined 17.3%/22.1%/23% YoY to INR5.6b/INR5.2b/INR3.8b (est. INR5.8b/INR5.7b/INR4.3b).
• Volume growth in the base business is likely to have been 5% in 2QFY22 (est. 4%).
• The consolidated gross margin contracted 500bp YoY to 37.5% (est. 40.5%).
• Higher staff costs (+30bp YoY), but lower other expenses (-110bp YoY) meant that the EBITDA margin contracted 430bp YoY to 15.5% (est. 16.7%).