Britannia Industries: A good serve

Tiger biscuits maker Britannia Industries pleasantly surprised the street by reporting strong earnings performance for the Jan-Mar quarter. It’s the third food company to do so after Nestle India and Marico.

Britannia’s consolidated net profit jumped 26% to Rs 374.75 crore during Jan-Mar quarter, driven by lower tax cost (down 45% YoY). It had posted profit at Rs 297.23 crore in corresponding period last fiscal.

Revenue from operations for the quarter grew by 2.5% on year to Rs 2,867.7 crore as sales volumes took a beating due to the nationwide lockdown.

After 9 months of moderate growth, the company witnessed growths coming back in the first 2 months of the quarter which was then hit by COVID-19 & lockdown in March impacting the revenue & net profit growth by an estimated 7-10%.

In lockdown period, the company continued to garner market share through focus on the building blocks of distribution, diligence in marketplace & brand building through focussed product campaigns.

On the operating front, company’s earnings before interest, tax, depreciation and amortisation (EBITDA) increased 4.1% YoY to Rs 454.28 crore and margin expanded 24 basis points to 15.84% in quarter ended March 2020 compared to year-ago.

In the first quarter of FY21, company witnessed a revenue growth of 20% in April and 28% in May 2020 versus the corresponding months in the previous year.

Meanwhile, in April, the company declared an interim dividend of Rs 35 per share for the financial year 2019-20.

The stock gained 17% in past year and rose 14% year-to-date (2020), but lost 11% in March quarter due to sharp sell-off in March month due to COVID-19-led lockdown.

On the cost front, the company management stated that it has witnessed moderate inflation in the prices of key raw materials for the bakery business. However on account of cost efficiencies, reduction in wastages and ability to leverage fixed costs has helped the company to improve the its raw material costs and record a 40 bps increase in operating profit during the quarter despite the Covid 19 pandemic.

Net net while we expect Q1FY21 to be a soft quarter, overall growth prospects for coming year are expected to improve from H2 of FY21 onwards going ahead.