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Britannia: Improved margins remain elusive
Jun 1, 2012

Britannia Industries Limited declared its results for the fourth quarter of financial year 2011-12 (4QFY12). The company has reported 16.8% YoY growth in sales and a 22.6% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Britannia recorded 17.2% growth in revenues in 4QFY12. For the full year, turnover was up by 17.8%.
  • The company has managed to keep its profitability intact through cost rationalisation measures. During the quarter, cost of goods sold and employee costs as a percentage of sales dropped by 264 and 48 basis points, respectively. The operating margin for the full year FY12 was maintained at 5.6%.
  • Backed by 15.4% rise in operating income and reduction in depreciation and tax outgo, the company's earnings grew by 22.6% during the quarter. For the full year, net profit increased by 28.5% backed by slower rise in depreciation and interest expenses.


Standalone Financial snapshot
(Rs m) 4QFY11 4QFY12 % change FY11 FY12 % change
Total income 11,283 13,219 17.2% 42235 49741.9 17.8%
Expenditure 10,587 12,415 17.3% 39920 46950 17.6%
Operating profit (EBITDA) 696 804 15.4% 2315 2792 20.6%
EBITDA margin (%) 6.2% 6.1%   5.5% 5.6%  
Other income 123 102 -16.6% 489 585 19.6%
Interest 91 95 5.1% 378 381 0.8%
Depreciation 137 125 -8.6% 446 473 6.1%
Profit before tax 591 685 15.9% 1,981 2,524 27.4%
Exceptional items - -   - -  
Tax 159 155 -2.3% 527.7 656.3 24.4%
Profit after tax/(loss) 432 530 22.6% 1,453 1,867 28.5%
Net profit margin (%) 3.8% 4.0%   3.4% 3.8%  
No. of shares (m)         119  
Diluted earnings per share (Rs)*         15.6  
Price to earnings ratio (x)*         33.9  
* On a 12-month trailing basis

What has driven performance in 4QFY11?
  • Britannia posted a 17.2% rise in sales.

    Cost break-up
    As a % of net sales 4QFY11 4QFY12 Change in basis points
    Total cost of goods 64.8% 62.2% -263.8
    Employee costs 3.0% 2.5% -47.6
    Conversion and other charges 7.7% 8.4% 68.9
    Advertisement costs 7.4% 8.4% 91.4
    Other expenditure 10.8% 12.4% 160.4

  • The company has barely been able to maintain its profitability through controlled operating spends. During 4QFY12, cost of goods sold and employee costs (both as a percentage of sales) declined by 264 and 48 basis points, respectively. This offset the over 50 basis points jump in each of the advertisement spends, conversion charges and other expenses (all as a percentage of sales). Britannia's operating margin stood at 6% during the quarter.

  • At the net level, profitability has marginally improved to 4% backed by 8.6% reduction in depreciation outgo and a 2.3% fall in tax expense. During the quarter, the company's tax incidence fell to 22.6% from 26.9% in the year-ago quarter.

What to expect?
Although Britannia has been diversifying in the premium segment through its various offerings on the health plank, the same has yet to deliver results on the margin front. Despite robust growth in revenues in FY12, Britannia has not been able to improve profitability significantly. The company has just been able to keep margins intact backed by controlled input costs and lower interest expenses. At 3.8%, the company's net margins are the lowest among FMCG peers. Going forward, the biscuit major is likely to face increased competition from entrants as well as established players.

At the price of Rs. 527, the stock is trading at 16 times our estimated FY14 earnings. At current valuations, the stocks appears fairly valued and we advice investors to remain cautious.

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