Britannia Industries 1QFY13: Below estimates; Volume growth further slows down; Input costs ruling firm; Maintain Sell - Motilal Oswal

- Britannia Industries 1QFY13 results are below estimates, with sales at INR12.2b (estimate INR13b) and EBITDA at INR651m (estimate INR676m). Lower other income at INR179m and higher tax rate at 28% resulted in muted PAT growth of 4% to INR435m (estimate INR465m).

- We note that the volume growth at 3-4% is on a continuous decline (5.5% in 4QFY12, 7% in 3Q, 10% in 2Q, 12% in 1Q and 16% in FY11). Value growth amounts to 2-3% while the rest comes from better product mix.

- Gross margin expanded 380bp (estimate 100bp); however, EBITDA margin expanded only 100bp (estimate 90bp) due to 180bp increase in other expenses, 110bp increase in conversion costs and 60bp increase in ad spends.

- Prices of vegetable oil (15% of sales), sugar (18% of sales) and wheat (27% of sales) were firm during the quarter; HDPE prices are also ruling strong.

- We believe that as biscuit category growth is slowing down, incremental gains from innovations are likely to be lower despite Britannia's increased focus on premium products.

- The stock trades at 25.3x FY13E and 18.5x FY14E EPS. Maintain Sell.

Source : Equity Bulls

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