Britannia Industries Q2 Results Review: Earnings Estimates Cut On Weak Rural Sentiment

Most brokerages have trimmed their earnings per share estimates for Britannia Industries Ltd. after the company reported weak volumes for the September quarter, even as margins rose, beating consensus estimates.

The second-quarter volume growth was flat, impacted by weak rural demand, which is now growing slower than urban (versus two times urban growth last year), despite distribution expansion, the management told analysts during a post-earnings briefing on Thursday. This was exacerbated by an increase in competitive intensity as regional players re-entered the market with falling input prices, a trend seen in other categories as well.

Growth in focus states—Uttar Pradesh, Rajasthan, Gujarat and Madhya Pradesh—also moderated amid weak consumer sentiment, mainly in rural markets. However, the company managed to increase its market share in the states.

Britannia Industries has reduced prices by 1.5% from the peak level after increasing them by 22% during the inflationary environment, implying that the price growth is still above 20%.

The management is hopeful of a volume pickup in the second half as the pricing gap with regional players narrows. Yet, analysts expect Britannia's volume growth and revenue growth to remain under pressure in the near term, amid heightened competition and a high base. However, margins are likely to sustain at higher levels with deflation in key commodities.

Gross margins should remain in the current range, although no guidance on Ebitda margin was shared during the analysts' conference call.

Shares of Britannia Industries were trading 0.55% higher, compared to a 0.58% gain in the BSE Sensex at 10:45 a.m.

Of the 41 analysts tracking the company, 24 maintain a 'buy' rating, 12 recommend a 'hold', and five suggest a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 10.41%.

Here's what analysts have to say about Britannia's Q2 FY24 results:

Jefferies

• Maintains a 'buy' rating with a lower target price of Rs 5,100 apiece, implying a potential upside of 16%.

• The brokerage has cut FY25/26 earnings per share estimate by 2%, building on a lower revenue trajectory.

• Upside catalysts: Moderation in input prices, which helps margin recovery, acceleration in new product launches.

• Downside catalysts: Weak rural sentiment; longer-than-expected margin headwinds due to raw material inflation; group level exposure as Britannia has extended Rs 700-800 crore of inter-corporate deposits to group firms.

Nomura

• Retains 'buy' rating with a target price of Rs 5,500 apiece, implying a potential upside of 25%.

• Slower-than-expected volume growth in the traditional biscuit products, weak demand traction in the new product categories, higher-than-estimated input cost inflation impacting margins and a sharp increase in competitive intensity may impede the achievement of the target price.

• Britannia is cycling a high-margin base in the second half, and the brokerage expects the Ebitda growth to be muted or early-decline.

• Values Britannia at a P/E of 50 times (unchanged) on Sep-25 EPS forecast. It expects a 13% EPS CAGR over FY23-26.

Motilal Oswal Financial Services Ltd.

• Assigns 'neutral' rating with a target price of Rs 4,680 apiece, implying a potential upside of 3%.

• Although the brokerage likes the company’s structural investment case accompanied by healthy return ratios, valuations at 51 times of FY24 EPS estimate/44 times FY25 EPS estimates are rich.

• Maintains FY24 and FY25 EPS growth estimates at 10.3% and 17.2%, respectively.

• The advantage of its distribution network is particularly important for food players such as Britannia, as the velocity of food consumption is much higher compared with personal care products. With the stated goal of being a total foods player, the company’s utilisation would play a crucial role in its expansion into other foods sub-categories.

Emkay Global Financial Services Ltd.

• Maintains 'buy' rating but lowers target price to Rs 5,250 per share, implying a potential upside of 19.4%.

• The focus ahead is likely to be on driving consumption in penetrated segments (biscuits, bread, rusk), while propelling penetration for cakes, wafers and dairy products.

• Building-in the demand stress, the brokerage cut topline estimates by 3% for FY24, while maintaining growth estimates for FY25–26.

• As we enter the second half of FY24 on a high base, the company is likely to log weaker earnings.