Britannia Q2 Review: Shares Fall On Q2 Missing Estimates
Shares of Britannia Industries Ltd. fell the most since December 2020 after the Good Day biscuit maker missed analysts' estimates in the second quarter of the ongoing fiscal.
The company has been facing “unprecedented” inflation and supply-led constraints for various raw materials, it said in an exchange filing.
There is high inflation in market prices of palm oil at 54%, industrial fuel at 35% and packaging materials at 30%, leading to an overall inflation of 14% in the quarter, it said. That caused the consolidated gross margin to contract to the lowest in eight years at 37.5%.
But margins, Britannia said, should recover, led by recent price hikes and grammage reduction. This year there has seen higher growth in market share and the focus continues to be on increasing direct distribution and enhancing rural footprint, it said.
Domestic volume growth came in at 2%, implying price/mix (value-led) growth of 4.6%. The company has launched Milk Bikis Classic biscuits in Tamil Nadu, Treat Stix (wafers), and Marble Cake in the second quarter.
Shares of Britannia fell nearly 5% to Rs 3,535.15 apiece as of 11:41 a.m. on Tuesday. Of the 41 analysts tracking the company, 27 maintained a 'buy', 10 suggest a 'hold' and four recommend a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 14.1%.
Here’s what brokerages have to say about Britannia's Q2 FY22 results:
Maintains ‘reduce’ but hiked target price to Rs 3,400 from Rs 3,200 apiece.
Success of (at least few) new segments — salty snacks, wafers, croissants; and ramp-up of adjacent categories — dairy, rusks, cakes and now Milk Bikis in biscuits are imperative for re-rating.
Cuts earnings estimates by 9-6% for FY22-23, modelling revenue, Ebitda, PAT CAGR of 9%, 5%, 4% over FY21-23E.
Key upside risk is faster-than-expected revenue growth in core biscuits.
While there was benefit of price/mix growth, grammage reduction in price-point packs would also have weighed on volume growth print (a typical issue with price-point product portfolio).
Maintains ‘neutral’ with a target price of Rs 4,000, implying a 7.6% upside from the current market price.
Values the company at a P/E of 45x Sep-23F EPS.
Key (downside/upside) risks include slower/faster volume growth in biscuits.
Demand holding up well, but margins not so much.