Maintain REDUCE on Britannia - Growth moderates; margin expansion continues - HDFC Securities

Mr. Varun Lohchab, Head Institutional Research & Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Britannia delivered a mixed bag as growth moderated to 11% YoY in 2QFY21 (HSIE 16%) due to sharp moderation in category growth in Aug/Sep. The company witnessed a strong double digit growth in July, which tapered down to single digit growth in Aug/Sep. Consumer buying saw a shift from essentials to non-essentials. Britannia also launched its full range of products along with new launches in 2QFY21, which indicates even lower growth for the core business. The company saw robust margin expansion (361bps YoY) led by benign commodity inflation and effective cost management. We cut our EPS estimate by 3/4/2% for FY21/22/23. Rising debt, inter group transactions and modest FY22 growth will keep valuations in check. We roll forward our target price to Sep-22 EPS and value BRIT at 40x P/E to derive a TP of Rs 3,455. Maintain REDUCE.

Miss in revenue: Revenue grew by 11% YoY (+6% in 2QFY20 and +26% in 1QFY21). Growth deceleration was sharp in Aug/Sep vs. strong growth in Jun/July. Pantry loading led growth for essentials is in the past and core categories have reached their normalized growth trajectory. Macro headwinds were visible in the category growth moderation. Trade inventory has normalized, and the company is focusing on distribution expansion. Hindi belt has outperformed, led by strong rural growth.

Robust margins: Gross margin expanded by 236bps YoY (+12bps in 2QFY20 and +124bps in 1QFY21). RM inflation is expected to remain benign in 2HFY21. Employee/Other expenses grew by 9/6% YoY. EBITDA margin expanded by 361bps YoY (+31bps in 2QFY20 and +634bps in 1QFY21), vs expectation of 277bps YoY expansion, leading to 37% YoY EBITDA growth. APAT grew 23% YoY to Rs 4.9bn (+33% in 2QFY20 and +109% in 1QFY21), vs our expectation of Rs 5.0bn.

Call takeaways: (1) Non-essential categories showed recovery; (2) Downtrading was visible in the industry; (3) Commodity inflation is expected to remain benign in 2HFY21; (4) New products contributed 4-4.5% of revenue and (5) Group ICD remained at Rs 7bn since March.

Shares of BRITANNIA INDUSTRIES LTD. was last trading in BSE at Rs.3393.05 as compared to the previous close of Rs. 3551.5. The total number of shares traded during the day was 83213 in over 11556 trades.

The stock hit an intraday high of Rs. 3582.4 and intraday low of 3374.8. The net turnover during the day was Rs. 288353014.

Source : Equity Bulls

Keywords