ICICI Securities believes that the consensus was generous in the previous rerating cycle but will now require more concrete evidence for sustained rerating.
“Britannia continues to benefit from strong brand positioning, direct distribution expansion and execution edge. Going forward, we believe 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,” it said while suggesting a target of Rs 3,400 for the stock.
Britannia Industries reported a 23 per cent year-on-year decline in its consolidated net profit to Rs 384.22 crore, which was below analysts’ expectations of Rs 447 crore. Revenue rose 5.5 per cent on-year to Rs 3,607.40 crore for the quarter, which was largely in line with estimates.
Gross margin was down sequentially for the third quarter running to 36.6 per cent now from 42 per cent in December quarter, despite a 4-5 per cent price hike undertaken during the September quarter.
Analysts noted that peers like Nestle and Hindustan Unilever (HUL) have managed margins better. Britannia’s Ebitda margin compressed 428 bps YoY. This is against 86 bps drop in Ebitda margin for Nestle India. Hindustan Unilever’s food EBIT margin, on the other hand, expanded 179 bps to reach 5-quarter high.
The FMCG maker said it is witnessing “unprecedented inflation” in market prices of key ingredients like palm oil, industrial fuel, and packaging material.
While it was able to partially mitigate the impact through strategic forward covers and accelerated cost efficiency programs, it also initiated necessary price increases across the portfolio.
Nomura said Britannia’s profit fall was higher than the 13 per cent drop in bottom line that it expected. PAT decline was steeper than the Ebitda decline due to lower other income and higher tax rate, it said.
This brokerage has not changed its target of Rs 4,000 on the stock and said it was awaiting further details on demand and margin in a conference call scheduled today.
Edelweiss too was awaiting the conference call where it would have wanted to know more about the outlook on inflation, cost optimisation measures, reaction of peers to price hikes, market share and the performance of new launches.
JM Financial said more price hikes may follow, but if intensity of cost pressures persists, the same is unlikely to help take margin back to recent levels even in FY23.
“Earnings delivery is currently lagging pre-pandemic expectations by a year but we expect FY24 to provide the re-balancing. Stock is likely to be lackluster over short-term but valuation is relatively reasonable and a deteriorated near-term margin-profile is by now well-known,” it said while suggesting a target of Rs 3,980.
