Britannia Q1 Review - Operating Profits Miss Estimates, Rural Revival Seen; Maintain Buy: Axis Securities

Axis Securities Report

Britannia Industries Ltd.'s revenue grew by 4% YoY, slightly below our estimates. Revenue growth was driven by high single-digit volume growth (~7% YoY) and price cuts. Gross margins improved to 41.8% (versus our estimate of 43.5%), impacted by the increase in commodity prices (excluding palm oil and laminates).

Ebitda margins stood at 17.7% (missed our estimate), up 56 basis points, due to higher raw material prices and increased ad spends. Adjusted profit after tax stood at Rs 506 crore, up 10.5% YoY.

We expect Britannia to deliver market-leading growth from here on for several reasons:

1. Rural recovery continues to remain a focus area for Britannia, leveraging which it is building strong rural distribution and gaining market share in focused states. Moreover, rural revival is anticipated in the coming quarters, supported by better monsoon and higher government spending,

2. Britannia’s robust portfolio planning through new product development in core and adjacent categories, along with its focus on increasing direct reach, rural penetration, RTM 2.0, and a higher share of in-house manufacturing, will enhance overall efficiency.

3. The management expects raw material prices, though currently firm (wheat and sugar), to experience ~3% inflation, which is manageable.

We believe that these factors will strengthen Britannia in the mid/long run.

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