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Britannia: High volumes benefit topline - Views on News from Equitymaster

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Britannia: High volumes benefit topline
May 31, 2011

Britannia Industries Limited declared its results for financial year 2010-2011 (FY11). The company has reported 23.6% YoY growth in sales and a 24.7% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Standalone top line for Britannia during FY11 grew by 23.6% YoY.
  • Operating (EBITDA) margins for the company increased by 0.5% to 5.4% during the quarter. This performance is due to lower staff costs, conversion charges, advertisement expense and other expenditure partially offset by higher cost of raw material during the year (all as a percentage of sales)
  • Net profit increased by 24.7% YoY during the year.
  • The company has declared a dividend of Rs 6.5 per share for the year.

Consolidated financial snapshot
(Rs m) FY10 FY11 Change
Net Sales 34,134 42,200 23.6%
Expenditure 32,451 39,921 23.0%
Operating profit (EBDITA) 1,683 2,279 35.4%
EBDITA margins (%) 4.9% 5.4%
Other income 409 526 28.5%
Interest 42 377 792.2
Depreciation 376 446 18.7
Profit before tax 1,674 1,981 18.4%
Exceptional items (446)
Tax 43 529 1137.7%
Profit after tax(loss) 1,165 1,453 24.7%;
Net profit margin (%) 3.4% 3.4%  
No. of shares (m) 24 119  
Diluted earnings per share (Rs)*   12.2  
Price to earnings ratio (x)*   32.4  
* On a trailing 12-months basis

What has driven performance in FY11?
  • As noted, the sales of the company grew by 23.6% YoY. This comes on the back of a strong volume growth of 15% while price increases contributed to the remaining top line growth. New launches such as NutriChoice Diabetic Friendly, Treat Choco-Decker, Britannia Healthy Start and entry for the company into category of Ready-to-Cook breakfast options like Porridge, Upma and Poha mixes helped boost sales.

    As a % of net sales FY10 FY11
    Total cost of goods 63.4% 65.5
    Employee costs 3.1% 2.8
    Conversion and other charges 8.4% 7.9%
    Advertisement costs 7.9% 7.2%
    Other expenditure 12.3% 11.2

  • Operating income for the company increased by 35.4% YoY. This performance is due to lower staff costs, 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. Staff costs grew by 13% YoY while conversion charges increased by 15% YoY. Advertisement expense increased by 13% YoY and other expenditure was higher by 12% YoY. Operating income could have been higher but for a sharp increase in raw material costs. During the quarter, raw material costs increased by 28% 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 792% YoY, effective tax rate increased from 2.6% in FY10 to 26.7% in FY11. Bottom line was supported by growth in other income and the absence of exceptional expense during the year. For the year, other income grew by 28.5% YoY.

What to expect?
At the price of Rs. 396, the stock is trading at 17.8 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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