Maintain REDUCE on Britannia Industries - Beat on revenue; in-line EBITDA - HDFC Securities

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

Britannia reported a beat on revenue/volume with an in-line EBITDA. It delivered a strong performance in Q1FY22 with revenue declining by only 1% YoY on a strong base (+26%), a beat to our estimate of 8% decline. Domestic volume was up 1% YoY (HSIE -9%), 2-year CAGR at +13% vs. Nestle +6%, Marico +2%, Emami +2%, Colgate flat, and HUL flat. The company saw decent resurgence of demand as customer preference has shifted towards premium and trusted brands. This has helped Britannia gain market share. Rising input costs (palm oil and crude) led to gross margin compression of 296bps YoY to 38.7%. The EBITDA decline of 23% was broadly in line with our estimates. The company has reduced its inter-corporate debt from INR 7.9bn at Q4FY21-end to INR 4.7bn at Q1FY22-end, which reduces some of the overhang on the stock. We maintain our FY23/24 EPS estimates and value Britannia at 40x P/E on Jun-23 EPS to derive a target price of INR 3,600. Maintain REDUCE.

Beat on revenue/volume: Consolidated revenue declined 1% YoY (26% in Q1FY21 and 8% in Q4FY21), vs our estimate of 8% YoY decline. Standalone revenue remained flat YoY (24% in Q1FY21 and 9% in Q4FY21). Domestic volume grew 1% (26% in Q1FY21 and 8% in Q4FY21, -9% HSIE). The company relaunched its Good Day Chocochips cookies with a surprise campaign and launched 50-50 Potazos in the Northeast. Ad campaigns for the brand was resumed and supply chain remained unaffected.

EBITDA in line, margin a miss: Consolidated GM contracted by 296bps YoY (+124bps in Q1FY21 and +80bps in Q4FY21) to 38.7% vs our estimated margin of 40.6%. Gross margin was impacted by RM inflation in crude and palm oil. RM saw inflation of 6-7% along with supply chain costs of additional 1-2%. Given the sudden input price rise, the company would not be able to pass on the cost immediately and hikes would be taken over a period of time. Employee/other expenses grew by 2/9% YoY. The company resumed its A&P spends. Despite the lockdown, the company continued its A&P spends on its new launches. EBITDA margin contracted by 469bps YoY (+634bps in Q1FY21 and +30bps in Q4FY21, -309bps HSIE) to 16.3%. EBITDA declined by 23% YoY, in line with our estimates. PBT degrew by 28% YoY while APAT degrew by 29% YoY.

Con call takeaways: (1) Britannia's product launches were delayed due to the second wave. (2) The company has changed its distributor in the Middle East, and expects better execution with the new distributor. (3) It hopes to make the Nepal business larger where it currently is the market leader. (4) It continued with its Milk Bikis advert campaign despite the lockdown and launched the third round of its campaign in July. (5) The company's inter-corporate debt at Q1FY22-end stood at INR 4.7bn vs. INR 7.9bn at Q4FY21-end.

Shares of Britannia Industries Ltd., was last trading in BSE at Rs. 3571.65 as compared to the previous close of Rs. 3503.75. The total number of shares traded during the day was 31207 in over 3862 trades.

The stock hit an intraday high of Rs. 3580 and intraday low of 3530.1. The net turnover during the day was Rs. 111153077.

Source : Equity Bulls

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