Britannia Industries - Growth decelerated as tailwinds subside - ICICI Securities

3Q revenue growth decelerated to 6%. Tailwinds of accelerated category growth softened with diversification of consumer basket (increase in discretionary spending), normalisation of pantry stocking and increase in alternatives to snacking. Management expects growth to revert back to pre-covid levels. That said, market share gains for Brit (strong brand positioning, direct distribution expansion, execution edge) are likely to continue in the near-term as unorganised players continue to suffer. However, we do highlight the risk of a potential volume decline in FY22 assuming normalcy returning and consumers spending less time at home. Further, success of new segments is imperative for re-rating. REDUCE retained (it's about fundamentals vs. rest).

- Deceleration in revenue growth sequentially continues: Consolidated sales / EBITDA / PAT grew 6% / 22% / 22%. Standalone revenue grew 6% (volume growth of 6%), however declined 7% QoQ - driven by diversification of consumer purchase basket, normalisation of pantry stocking and consumer having more alternatives for snacking. Adjacent businesses continued healthy profitable growth. Middle East and Africa reported healthy growth while rest of international business grew well. Channel wise, rural GT grew well but modern trade and institutional business (transit, etc.) were muted.

- Margin expansion driven by lower input cost and efficiencies: Gross margin expanded 220bps YoY to 43.1% driven by deflationary input cost (except RPO), better mix, factory efficiencies and wastage reduction. EBITDA margin expansion was higher at 250bps YoY to 19.3% led by lower other expenses (-30bps YoY; supply chain efficiencies, reduced wastage and operating leverage). Ad-spends have returned to pre-Covid levels as most of the brands are on-air now. Management expects most of the commodity prices (except RPO) to remain stable.

- Outlook: 1) Management expects demand levels to revert to pre-covid levels, 2) acceleration of pace of innovation and new launches to drive additional growth, 3) increasing distribution reach and infrastructure (new IT project to be implemented within 3 months to upgrade and integrate all the IT software for inventory, dealer, vendor management), and 4) Focus on brand building & visibility.

- Valuation and risks: We increase our FY22 earnings estimates by 2%; modelling revenue / EBITDA / PAT CAGR of 10% / 16% / 15% over FY20-23E. Maintain REDUCE with a DCF-based unchanged target price of Rs3,200. At our target price, the stock will trade at 35x March'23E. 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.3422.1 as compared to the previous close of Rs. 3463.55. The total number of shares traded during the day was 42275 in over 5816 trades.

The stock hit an intraday high of Rs. 3488 and intraday low of 3410. The net turnover during the day was Rs. 145586373.

Source : Equity Bulls

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