Jun 22, 2023
Rating: buy: Britannia Industries: results above estimates; growth in single digits
Britannia Industries Q3FY23 consolidated revenue grew 17% y-o-y to `4,200 crore, but was a bit below our forecast and Bloomberg consensus estimate. Continued execution of its go-to-market (GTM) strategy along with investments in brands and product innovations can be attributed to strong Q3 growth.
Share gains in core portfolio continue: Strategic focus on expanding rural reach (especially in the Hindi-speaking belt states) aided in improving market share for its core portfolio (39th consecutive quarter of market share gains).
New product launches scaling up well: Recent new launches such as Biscafe, Golmaal, NC Seeds & Herbs and Marble cake grew strongly in Q3. The company also relaunched certain products such as Pure Magic Chocolush & Rusk with improved recipes. The company expanded the footprint of certain adjacent categories (e.g., croissant and cakes) and also forayed into certain newer adjacencies during the quarter.
GPM at 43.7% expanded strongly on: moderation in prices of raw materials; utilisation on low-cost inventory and product mix improvement in Q3. In addition, strong price increases and cost rationalisation initiatives helped to mitigate inflation during the quarter. Ebitda at `820 crore grew robust +51% y-o-y despite the strong increase in employee costs/other expenses. OPM margin expanded +440bp y-o-y/+320bp q-o-q to 19.5%, above our forecast /Bloomberg consensus estimate of 15.9%/15.8%. Adjusted PAT at `560 crore (vs. our forecast/ Bloomberg consensus estimate of `470 crore) grew +50% y-o-y.
Q3 had a one-time exceptional gain of `380 crore on profit on the sale of a 49% stake in Britannia Dairy Pvt Ltd to Bel SA (a French cheese maker) as per the terms of JV. Through this JV, BRIT has not only likely helped to secure its success but has also fortified its innovation pipeline in this higher-margin category.
Maintain Buy with TP of Rs 5,200
In Q3, BRIT demonstrated resilience in taking strong price increases, prudence in raw material procurement aiding margin improvement and calibrated expansion into rural markets, which aided in garnering market share gains. While volume growth was tepid, it was driven by weak macros. New product development pipeline is strong, with recently launched innovations reporting strong traction. BRIT has not only taken steps to secure success, but has also fortified an innovation pipeline in this high-margin category.
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