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Britannia: Robust profitable growth - Views on News from Equitymaster
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Britannia: Robust profitable growth
Feb 13, 2012

Britannia Industries Limited declared its results for the third quarter of financial year 2011-12 (3QFY12). The company has reported 15.4% YoY growth in sales and a 44.8% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Standalone top line for Britannia during 3QFY12 grew by 15.4% YoY backed by a combination of volume, mix and price hike. During 9mFY12, turnover was up by 18.2% YoY.
  • Aided by a 300 basis points cut in cost of goods sold to sales ratio, the company reversed the declining trend and posted a 130 basis points expansion in operating margin during the quarter. During 9mFY12, operating margin was slightly up by 30 basis points.
  • The company's earnings grew by 44.8% backed by 43% rise in operating income and a 2.4% rise in other income earned during the quarter. For 9mFY12, net profit was up by 31%.


Standalone financial snapshot
(Rs m) 3QFY11 3QFY12 % change 9mFY11 9mFY12 % change
Total income 10,834 12,491 15.3% 30959 36523.2 18.0%
Expenditure 10,253 11,658 13.7% 29379 34534 17.5%
Operating profit (EBITDA) 581 833 43.3% 1580 1989 25.9%
EBITDA margin (%) 5.4% 6.7%   5.1% 5.4%  
Other income 128 131 2.4% 406 484 19.1%
Interest 96 95 -0.4% 287 285 -0.5%
Depreciation 106 122 14.9% 309 348 12.7%
Profit before tax 508 747 47.1% 1,390 1,839 32.3%
Exceptional items - -   - -  
Tax 135 206 53.4% 369.8 502.1 35.8%
Profit after tax/(loss) 373 541 44.8% 1,020 1,337 31.0%
Net profit margin (%) 3.4% 4.3%   3.3% 3.7%  
No. of shares (m)         119  
Diluted earnings per share (Rs)*         14.8  
Price to earnings ratio (x)*         35.0  
* On a 12-month trailing basis

What has driven performance in 3QFY12?
  • Britannia posted a 15.4% rise in sales aided by higher offtake and price realisations.

    Cost break-up
    As a % of net sales 3QFY11 3QFY12 Change in basis points
    Total cost of goods 66.3% 63.3% -300.3
    Employee costs 2.7% 2.7% -3.0
    Conversion and other charges 7.5% 8.6% 113.9
    Advertisement costs 6.9% 7.0% 12.7
    Other expenditure 11.2% 11.7% 46.6

  • The company has been able to stem falling profitability through controlled raw material expenses that led to a 300 basis points fall in cost of goods to sales ratio. These have more than offset the higher conversion and other charges, advertisement costs and other expenditure (as a proportion of sales). As a result operating margin appreciated by 130 basis points to 6.7%.

  • Riding on a 43% jump in operating income and 2.4% rise in other income earned during the quarter, Britannia saw its earnings swell by 44.8% during the quarter.

What to expect?
Britannia has been able to arrest declining profitability in 3QFY12 backed by controlled raw material expenses. The company has launched a range of savory products on the health plank such as Nutrochoice Multigrain Thins, Nutrichoice Multigrain Roasty and 50-50 Snackuits. We will update our investors about the company's future outlook after the Analyst Meet.

At the price of Rs. 518, the stock is trading at 17 times our estimated FY14 earnings. At current valuations, the stocks appears fairly valued and we advice investors to remain cautious.

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