Britannia Industries - 2QFY13 Results Update - Motilal Oswal

2QFY13 numbers lower than expected: Britannia Industries (BRIT) reported lower than expected numbers for 2QFY13, with sales at INR14b (v/s our estimate of INR14.5b) and EBITDA at INR606m (v/s our estimate of INR827m). Despite higher other income, adjusted PAT declined 4.8% to INR456m (v/s our estimate of INR548m).

Continued deceleration in volume growth: We estimate volume growth during the quarter at ~2%, which in dicates continued deceleration (12% in 1QFY12, 10% in 2QFY12, 7% in 3QFY12, 5.5% in 4QFY12, and 3-4% in 1QFY13).

Recurring EBITDA margin down 140bp: Gross margin expanded 70bp (v/s our estimate of 40bp), led by price hike and mix improvement. Adjusted for INR150.3m VRS cost in 2QFY12 (on account of closure of Mumbai factory), recurring EBITDA margin declined 140bp to 4.3%. 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. Despite BRIT's continued focus on innovation and premiumization, slowdown in volumes and lack of operating leverage has resulted in sub-par operating margins.

Surge in other income restricts decline in recurring PAT: Despite 18% EBITDA decline, recurring PAT declined just 5% due to 82% surge in other income. Reported PAT grew 20% to INR456m.

Maintain Sell: The stock trades at 26.1x FY13E and 20.3x FY14E EPS. Maintain Sell. Letdown in competitive pressures (unlikely) and sharp decline in input prices are key risks to our rating.

Source : Equity Bulls

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