PL Stock Report: Britannia Industries (BRIT IN) - Q1FY24 Result Update - Mixed demand, Competition to curtail margins - HOLD

Britannia Industries (BRIT IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs4,670 | TP: Rs4,500

Q1FY24 Result Update - Mixed demand, Competition to curtail margins

Quick Pointers:

§ Unorganized competition comes back, BRIT adjusts grammage/prices

§ Wheat prices, ad-spends, pricing actions to curtail margin expansion in FY24

We cut FY24/FY25 EPS estimates by 12.7%/9.0% on account 1) sustained pressure on rural demand, 2) price cuts and grammage correction to remain competitive amidst rising regional/unorganized competition and 3) normalized ad-spends & higher depreciation (new units including Ranjangaon). Innovations have been a mixed bag with dairy innovations being 10% of sales and overall innovations contribution at 4% (Jim Jam Pops & Multigrain rusks launched). While BRIT has wheat futures for next four months, timely rollover could be key given that wheat prices may firm up in 2H24. We now build in EBITDA margins of 17.6% & 17.9% in FY24/25 (18.8% & 18.5% earlier) vs 17.4% in FY23 (one time PLI gains of ~50bps for FY23 and 240bps in 4Q23).

BRIT’s long term growth drivers are intact with 1) 28k rural preferred dealers 2) rising share of MT sales with improved mix 3) higher growth in focus states and 4) cost efficiency gains in manufacturing, distribution and procurement. We estimate 8.8%/9.6% sales and PAT CAGR over FY23-25. We roll over to 45x Jun25EPS and assign a target price of Rs4500 (Rs4800 earlier). Hold.

1Q volumes flat as regional players bounce back: Consolidated Revenues grew 8.4% YoY to Rs40.1bn. Gross margins expanded 506bps YoY (down 298bps QoQ) to 41.9% (240bps impact of one-time PLI arrears in 4Q). EBITDA grew 37.6% YoY to Rs6.9bn; Margins expanded 365bps YoY but contracted 273bps QoQ to 17.2%. PBT grew 33.6% YoY to Rs 6.2bn. Adjusted PAT grew 34.7% YoY to Rs4.5bn. Standalone Revenues grew 9.9% YoY to Rs38.7bn. EBITDA grew 41.9% YoY to Rs6.7bn, margins expanded by 388bps YoY but contracted 318bps QoQ to 17.2%. PAT grew 51.2% YoY to Rs 4.4bn. Britannia BEL JV is showing green shoots with rebranding as Britannia 'Laughing Cow cheese and launch of Rs10 sachets.

Concall Takeaways: 1) Increase in competitive intensity due to resurgence of local/regional players. BRIT has increased grammage to remain competitive and cut prices by 1.8% 2) Focus states continue to grow at 2.2x of company growth 3) MT/E-com growth has been robust while GT remains sluggish. 4) Taken some pricing actions to remain competitive & drive market share gains 5) Market share has been flattish in 1Q with no.2 player losing significant share to local/regional players 6) Expect volume trajectory to improve in upcoming quarters 7) GM likely to remain stable given low-single digit inflation in wheat 8) A&P spends to remain in band of 3.5-4% of revenues 9) Dairy biz saw robust volumes/revenues in Jun’23 led by milkshakes 10) Supply of SMP, SCM & butter has started to dairy unit, it will provide cost advantages as plants scale up 11) Dairy Innovation contribution at 10%+; NPD to remain in 4-5% band 12) Enhance factory capacities in Ranjangaon, Bihar and Odisha 13) Capex of Rs4-4.5bn in FY24 14) ICD at Rs7.6bn in 1Q between Bombay Dyeing and Bombay Burmah

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