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Britannia: Strong margin uptick in FY14 - Views on News from Equitymaster
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Britannia: Strong margin uptick in FY14
May 31, 2014 | Updated on Jun 2, 2014

Britannia Industries Limited declared its results for the fourth quarter of financial year 2013-14 (4QFY14). The company has reported 9% YoY growth in sales and a 17% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • For 4QFY14, Britannia clocked a 10% YoY revenue growth. For FY14, the topline growth has been 11.8% YoY.
  • The operating profit margin expanded by 0.5% backed by controlled rise in input costs, conversion charges as well as flat ad-spends. For FY14, the net margin has risen by 2.3% on a steep fall in raw material costs in relation to sales.
  • Net profits grew by 17% YoY in 4QFY14 on a 16% rise in operating profit and lower interest outgo. For FY14, the net profits surged by 52%.
  • The company has declared a dividend of Rs 12 per share on face value of Rs 2 per share for FY14.

Consolidated Financial snapshot
(Rs m) 4QFY13 4QFY14 % change FY13 FY14 % change
Total income 16,517 18,124 9.7% 61854 69127.1 11.8%
Expenditure 15,064 16,440 9.1% 57648 62855 9.0%
Operating profit (EBITDA) 1,453 1,685 15.9% 4206 6272 49.1%
EBITDA margin (%) 8.8% 9.3% 0.5% 6.8% 9.1% 2.3%
Other income 161 110 -31.7% 522 336 -35.7%
Interest 96 15 -84.4% 413 83 -79.9%
Depreciation 195 214 10.0% 732 832 13.7%
Profit before tax 1,323 1,566 18.3% 3,584 5,693 58.8%
Exceptional items  - -   - -  
Tax 401 485 20.9% 985.5 1735.8 76.1%
Profit after tax/(loss) 923 1,081 17.2% 2,599 3,957 52.3%
Share of profit/(loss) of associates (3) (0)   (3) (3)  
Minority interest 1 (4)   (1) (1)  
Net profit/ (loss) 921 1,077 16.9% 2,595 3,954 52.4%
Net profit margin (%) 5.6% 5.9% 0.4% 4.2% 5.7% 1.5%
No. of shares (m)         120  
Diluted earnings per share (Rs)*         33.0  
Price to earnings ratio (x)*         26.7  
* On a 12-month trailing basis

What has driven growth in 4QFY14?
  • Britannia registered a 10% YoY increase in revenues.

    Cost break-up
    As a % of net sales 4QFY13 4QFY14 Change in basis points
    Total cost of goods 61.8% 61.6% -24.1
    Employee costs 3.0% 3.3% 29.1
    Conversion and other charges 6.3% 6.1% -19.5
    Advertisement costs 8.9% 8.1% -82.0
    Other expenditure 11.2% 11.6% 46.7

  • The company has managed to improve operating profitability through savings in input costs, conversion charges and ad-spends (all as proportion of sales). Controlled rise in raw material costs and conversion charges resulted in upto 0.2% YoY drop in the proportion of each of the expenses in relation to sales. Also flat ad-spends have led to a 0.8% cut in ad-spends-to-sales ratio for the quarter. Therefore the operating margin increased by 0.5%.

  • Net profits grew by 17% YoY on a 16% YoY rise in operating profit. Savings due to an 84% YoY fall in interest charges, after redemption of bonus debentures, was partially offset by a 32% YoY reduction in the other income earned during the quarter.
What to expect?
Britannia has posted significant improvement in profit margins in FY14 on the back of benign commodity prices as well as cost savings from increased in-house manufacturing. The company is also widening its reach. Going ahead, Britannia would be launching more innovative products in the bakery segment. While these initiatives are margin accretive, growing competition and higher ad-spends can act as dampener.

At the price of Rs. 882, the stock is trading at 21 times our estimated FY16 earnings. At current valuations, the stock remains overvalued and therefore we re-iterate a SELL on the stock.

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