Nirmal Bang: Britannia Industries Q1 Reports Sharp Beat On Margins; Near Term Outlook Remains Good

Nirmal Bang Report

Britannia Industries Ltd.’s Q1 FY21 consolidated revenue including other operating income (OOI) grew by 26.7% YoY to Rs 34.2 billion (versus our estimate 22% growth to Rs 32.9 billion). Standalone revenue (including OOI) grew by 24.8% YoY to Rs 32.2 billion with volume growth of 21.5% (versus. our est. 20% growth). Consolidated Ebitda grew by 81.7% YoY to Rs 7.2 billion (versus our est. 34.5% growth to Rs 5.3 billion). Adjusted profit after tax (PAT) grew by 105.4% to Rs 5.4 billion (versus our est. 52% growth to Rs 4 billion).Gross margin was up 120 basis points YoY (up 200 basis points QoQ) to 41.7% (versus our est. 41%), led by moderate inflation and better mix from subsidiaries.

Inflation in the prices of key raw materials is expected to be stable going forward. Ebitda margin was up 630 basis points YoY at 21% (versus our est. 16.1%) as other expenses as a % of sales were down sharply by 460 basis points YoY due to cost efficiencies through extraction of supply chain efficiencies, reduction in wastages, fixed costs leverage and rationalization of media spends. Staff cost was down 50 basis points YoY as a % of sales.

FY21 for Britannia has started on a strong note. Both topline and margin have grown strongly and are expected to sustain in the near term. During the quarter, direct distribution was brought back to normalcy and the company also focused more on increasing its rural reach by adding approximately 3,000 rural preferred dealers (RPD’s).

We remain positive on the opportunity that Britannia offers from earnings growth perspective (we build in approximately 20% PAT compound annual growth rate (CAGR) over FY20-22). The stock has had a decent run-up from its recent low (up approximately 77% from March 23, 2020 levels) and now trades at 45 times FY21/FY22E earning per share (EPS), which is only at 13% discount to the sector leader Hindustan Unilever Ltd. whose return ratios are far superior than Britannia.

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