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Britannia: Strong growth on robust offtake - Views on News from Equitymaster
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Britannia: Strong growth on robust offtake
Feb 10, 2015

Britannia Industries Limited declared its results for the third quarter of financial year 2014-15 (3QFY15). The company has reported 13.7% YoY growth in sales and a 36.5% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Britannia posted a 13.4% YoY topline growth in 3QFY15. For 9mFY15, the revenues were up by 13.6% YoY.
  • The operating profit margin expanded by 1.9% YoY backed by lower input costs, ad-spends and conversion charges (all as a proportion of sales). The operating margin for 9mFY15 improved by 1.6% YoY.
  • Excluding exceptional items of payment on account of voluntary retirement scheme and profit from sale of property, net profits grew by 48.6% YoY and 30.5% YoY in 3QFY15 and 9mFY15, respectively.

Consolidated Financial snapshot
(Rs m) 3QFY14 3QFY15 % change 9mFY14 9mFY15 % change
Total income 17,930 20,333 13.4% 51003 57948 13.6%
Expenditure 16,332 18,138 11.1% 46416 51837 11.7%
Operating profit (EBITDA) 1,598 2,195 37.3% 4587 6111 33.2%
EBITDA margin (%) 8.9% 10.8% 1.9% 9.0% 10.5% 1.6%
Other income 46 196 329.8% 226 595 163.7%
Interest 15 10 -35.7% 68 31 -55.1%
Depreciation 212 325 53.8% 618 951 54.0%
Profit before tax 1,417 2,056 45.1% 4,127 5,725 38.7%
Exceptional items - (121)   - 1,461  
Tax 414 563 36.0% 1251.1 1974.1 57.8%
Profit after tax/(loss) 1,003 1,372 36.8% 2,876 5,211 81.2%
Share of profit/(loss) of associates (1) (1)   (2) (2)  
Minority interest 3 1   3 5  
Net profit/ (loss) 1,006 1,373 36.5% 2,877 5,214 81.2%
Net profit margin (%) 5.6% 6.8% 1.1% 5.6% 9.0% 3.4%
No. of shares (m)         120  
Diluted earnings per share (Rs)*         52.5  
Price to earnings ratio (x)*         36.2  
* On a 12-month trailing basis

What has driven performance in 3QFY15?
  • Britannia clocked a 13.4% YoY growth in revenues driven by a robust 9% volume growth during the quarter. The company has launched two new cookies namely Britannia Nutri Choice Heavens in the super premium segment and Britannia Good Day Choco Chunkies in the premium category during the quarter.

    Cost break-up
    As a % of net sales 3QFY14 3QFY15 Change in basis points
    Total cost of goods 60.7% 60.0% -75.5
    Employee costs 3.7% 3.5% -18.7
    Conversion and other charges 6.9% 6.4% -50.4
    Advertisement costs 8.7% 8.2% -45.2
    Other expenditure 11.1% 11.1% 1.6

  • Aided by lower raw material costs and conversion charges ( both as a proportion of sales) along with a 0.5% cut in ad spends-to-sales ratio, the operating margin expanded by 1.9% YoY during the quarter. As per the company, it has cut spends in unproductive areas and invested the same in brand building exercise. The company has also used some of the margin gains to offer more value to consumers particularly in Good Day and Marie brands.

  • Excluding one-time payment of Rs 121 m on account of voluntary retirement scheme, the net profit surged by 48.6% YoY during the quarter. The growth was aided by a 330% jump in other income earned and a 36% fall in interest charges during the quarter.
What to expect?

Britannia has been posting robust growth in off take in a sluggish environment, thanks to its innovative and premium biscuit offerings. The company is drafting a plan to grow existing categories, enter adjacent categories such as chocolates and snacks and grow its dairy business. On the cost front, the company wants to increase in-house production to 60-65% from the present level of 50%. For this purpose, the company wants to invest Rs 4 bn in additional capacities over the next 1.5 years

At the price of Rs. 1899, the stock is trading at 34 times our estimated FY17 earnings. At current valuations, the stock is overvalued and therefore we recommend investors not to buy the stock at current price levels.

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