Britannia Industries - In-home consumption tailwind starts to taper-off - ICICI Securities

Britannia Industries - In-home consumption tailwind starts to taper-off - ICICI Securities2Q revenue growth decelerated sequentially to 12% as tailwinds of accelerated category growth (consumers staying at home) started to taper-off. That said, (likely) market share gains for Brit (strong brand positioning, direct distribution expansion, execution edge) are likely to continue in rest of FY21. Upstocking by a lean distribution chain may support growth, if underlying demand moderates. That said, we highlight the risk of a potential volume decline in FY22 assuming normalcy returning and consumers spending less time at home. ICDs to group companies were at Rs7bn as compared to Rs6.3bn in Mar'20. REDUCE retained (it's about fundamentals vs. rest).

- Deceleration in revenue growth sequentially: Consolidated sales / EBITDA / PAT grew 12% / 37% / 23%. Standalone revenue grew 11% (volume growth of 9%) - driven by increased in-home consumption and likely market share gains. Adjacent business also reported healthy profitable growth. Middle East and Africa grew in single digits while rest of international business grew in double digits. The company has reintroduced its full range of products during the quarter which was rationalised to increase productivity in Q1FY21.

- Margin expansion driven by lower input cost, efficiencies and operating leverage: Gross margin expanded 230bps YoY to 42.5% driven by deflationary input cost, better mix, factory efficiencies and wastage reduction. EBITDA margin expansion was higher at 360bps YoY to 19.8% led by lower other expenses (-110bps YoY; supply chain efficiencies, reduced wastage and operating leverage) and lower staff costs (-10bps YoY). Ad-spends have returned closer to pre-Covid levels. Management expects commodity prices to remain stable going forward as forecast on harvest and monsoons are good.

- Balance sheet and cash flows: Cash generation has increased significantly driven by strong performance in H1FY21, significant decline in capex intensity (-48% YoY) and marginal improvement in working capital - OCF / FCF grew 2.3x / 16.8x YoY to Rs7.2bn / Rs6.3bn. Working capital days improved by 4 days to 13 days driven by lower inventory (-2 days) and higher payables (+2 days). Net Debt increased from Rs3.8bn in Mar'20 to Rs19.2bn in Sept'20 due to higher dividends and increased borrowings.

- Valuation and risks: We cut our earnings estimates by 7-8%; modelling revenue / EBITDA / PAT CAGR of 9% / 17% / 16% over FY20-22E. Maintain REDUCE with a DCF-based revised target price of Rs3,200 (was Rs3,300). At our target price, the stock will trade at 38x Sept'22E. Key upside risk to our thesis is faster-than-expected revenue growth in core biscuits.

Shares of BRITANNIA INDUSTRIES LTD. was last trading in BSE at Rs.3551.5 as compared to the previous close of Rs. 3773.8. The total number of shares traded during the day was 138846 in over 25588 trades.

The stock hit an intraday high of Rs. 3689 and intraday low of 3535. The net turnover during the day was Rs. 496862909.

Source : Equity Bulls

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