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Britannia: Demand pushes topline - Views on News from Equitymaster
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Britannia: Demand pushes topline
Feb 11, 2011

One liner: Britannia Industries Limited declared its 3QFY11 results. The company has reported 22.3% YoY growth in sales and a 28.3% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Top line for Britannia during 3QFY11 grew by 22.3% YoY.
  • Operating (EBITDA) margins for the company increased by 0.7% to 5.4% during the quarter. This performance is due to lower conversion costs, advertisement expense and other expenditure during the quarter (all as a percentage of sales)
  • Net profit increased by 28.3% YoY during the quarter.
  • For 9mFY11, the bottom line of the company fell by 24.7% YoY while net profit margins declined by 2.2% to stand at 3.3%. This performance comes on the back of fall in operating income, higher interest costs and rise in effective tax rates, partly offset by a lower exceptional loss. When adjusting for exceptional loss, the company's bottom line is seen to fall by 33.9% YoY.

Standalone Financial snapshot
(Rs m) 3QFY10 3QFY11 % change 9mFY10 9mFY11 % change
Net Sales 8,856 10,829 22.3% 24,822 30,945 24.7%
Expenditure 8,436 10,247 21.5% 22,999 29,351 27.6%
Operating profit (EBDITA) 420 581 38.3% 1,823 1,594 -12.6%
EBDITA margin (%) 4.7% 5.4% 7.3% 5.2%
Other income 72 128 77.1% 285 406 42.4%
Interest 8 96 1081.5% 25 287 1042.2%
Depreciation 95 106 11.5% 280 309 10.5%
Profit before tax 389 508 30.4% 1,804 1,404 -22.2%
Exceptional items (70) -   (209) (14)  
Tax 29 135 368.6% 239 370 54.7%
Profit after tax/(loss) 291 373 28.3% 1,355 1,020 -24.7%
Net profit margin (%) 3.3% 3.4%   5.5% 3.3%  
No. of shares (m) 24 119   24 119  
Diluted earnings per share (Rs)*         6.9  
Price to earnings ratio (x)*         49.9  
* On a 12-month trailing basis

What has driven growth in 3QFY11?
  • As noted, the sales of the company grew by 22.3% YoY. This comes on the back of a strong volume growth. New launches such as NutriChoice and entry for the company into the category of Ready-to-Cook breakfast options like Porridge, Upma and Poha mixes helped boost sales.

    Cost break-up
    As a % of net sales 3QFY10 3QFY11 9mFY10 9mFY11
    Total cost of goods 63.9% 65.4% 61.6% 65.8%
    Employee costs 2.9% 2.7% 3.0% 2.7%
    Conversion and other charges 8.6% 7.5% 8.5% 7.9%
    Advertisement costs 8.0% 6.9% 7.8% 7.1%
    Other expenditure 12.0% 11.2% 11.7% 11.2%

  • Operating income for the company increased by 38.3% YoY. This performance is due to lower conversion costs, advertisement expense and other expenditure during the quarter (all as a percentage of sales). This is a reflection of the company's cost saving programme. Conversion costs increased by 7% YoY while advertisement expense increased by 6% YoY. Other expenditure was higher by 14% YoY. Operating income could have been higher but for a sharp increase in raw material costs. During the quarter, raw material costs increased by 25% YoY.

  • Net profit margin remained flat during the quarter as higher operating income was netted off by increase in interest costs and higher effective tax rate. While interest costs increased by 1082% YoY, effective tax rate increased from 7.4% in 3QFY10 to 26.5% in 3QFY11. Bottom line was also supported by the absence of exceptional expense during 3QFY10. When adjusted for this onetime expense, net profit grew by 3.5% YoY.

What we expect?
At the price of Rs. 346, the stock is trading at 15.7 times our estimated FY13 earnings (RPro subscribers click here). The company is suffering from rising food inflation and increase in competition. While the prices of raw material are expected to soften, the competitive intensity is a cause for concern. Moreover, the price of the stock has run up recently. For this reason we are cautious on the company.

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