After Britannia Industries Ltd. announced late Friday a 28.4% increase in second-quarter consolidated net profit at ₹490.58 crore, supported by volume growth, shares of the biscuit manufacturer rose as much as 10% to touch a new high of ₹4,181 per share on the BSE in the early dealings on Monday. The firm reported that its overall operating revenue increased by 21.4% from a year earlier to ₹4,379 crore, marking its highest quarterly revenue.
Britannia’s performance over the past three years has been among the most resiliant (backed by share gains). Although pressure on core margins has not yet provided Britannia with ammunition, consensus (including us) anticipates the company to invest in new categories. Having said that, the previous re-rating cycle’s consensus was generous, so it will now have to earn the multiple again. Success of new segments and expansion of related categories are critical moving ahead. The prognosis for this seems improved, according to brokerage company ICICI Securities, which boosted the target price for Britannia shares from ₹3,650 to ₹4,300 and upgraded the rating on the stock to ADD.
Britannia’s volumes, pricing mix, and revenues all pleasantly surprised the consensus. The brokerage says that despite the lack of strong demand, it has continued to increase market shares (15-year high) in underdeveloped countries and expand distribution (rural markets).
According to analysts at another brokerage and research firm Edelweiss, Britannia reported a strong set of numbers, with revenue and EBITDA beating both our and consensus estimates by 6%/7% and 14%/19%, respectively. A welcome surprise came from margins, with both gross and EBITDA margins increasing YoY/QoQ.
It saw significant growth and several product releases across all categories. Overall, the biscuits category led a good revenue momentum. This supports our anti-consensus claim that biscuits are one of the few product categories experiencing a resurgence in sales. We remain optimistic about Britannia, the note said. The brokerage firm has kept its Buy rating and a target price of ₹4,620 per share on the FMCG company.
