PremiumShares of Britannia Industries Ltd. were the top gainers on the Nifty 50 index on Monday. The stock was up around 9% and had hit a new 52-week high in early trade.
The reason is clear. Investors are thrilled about the company’s September quarter (Q2FY23) earnings. What really stood out was the biscuit maker's robust volume growth at mid-single digit despite having taken price hikes to combat input cost inflation. Accordingly, consolidated operating revenues were up 22% year-on-year (y-o-y) at ₹4,338 crore. This is the “highest quarterly revenue", said Britannia, adding that its market share was at a new 15-year high.
“The company’s investments are starting to yield results, and BRIT delivered better-than-peers volume growth of 5% in Q2 despite significant price hikes, driven by: (1) increasing direct (rural) reach by 18% in H1FY23; (2) its focus on the Hindi-belt with a curated portfolio, which is growing about 20% faster than the company average; and (3) new launches and adjacent portfolio coming back to growth after two years of focusing on core," said a report by Nomura Financial Advisory and Securities (India). Post Q2, the broking firm has raised earnings per share (EPS) estimates for FY23-25 and upgraded the stock to a ‘Buy’ rating in view of better volume and margin outlook.
In Q2, prices of key commodities relevant to the bakery business such as wheat flour and industrial fuel and palm oil remained elevated. Nevertheless, strong revenue growth supported Britannia’s profitability for the quarter. Consolidated earnings before interest, tax, depreciation and amortization (Ebitda) margin expanded by 77 basis points year-on-year (y-o-y) to 16.3%. One basis point is 0.01%. Ebitda margin is up 272bps sequentially. The upshot is that net profit rose by 28.5% y-o-y to Rs490.5 crore.
Additionally, Britannia has also managed to bring down its inter corporate deposits at the end of Q2 compared to FY22 levels. The company maintains some of its new launches have fared well and continue to grow quarter on quarter. Going ahead, easing food prices should offer comfort on the margin front.
“We increase FY2023-24E earnings per share by 6-8%, roll over and revise DCF-based fair value to ₹4,400 ( ₹4,000 earlier), implying 44 times Dec 2024E price-to-earnings multiple," said analysts from Kotak Institutional Equities in a report on 6 November. DCF stands for discounted cash flow.
On Monday, after the sharp jump, Britannia’s shares traded at about ₹4,150 apiece.
