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Britannia: Core business subdued - Views on News from Equitymaster
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Britannia: Core business subdued
Jul 31, 2009

Performance summary
  • Net sales have grown by 6% YoY in 1QFY10 mainly led by volume growth.
  • Operating (EBITDA) margins have remained flattish at 9% of sales.
  • The bottom line has increased by 17% YoY due to higher other income and lower interest costs.


Standalone Financial snapshot
(Rs m) 1QFY09 1QFY10 % change
Net Sales 6,952 7,339 5.6%
Expenditure 6,357 6,713 5.6%
Operating profit (EBDITA) 596 626 5.1%
EBDITA margin (%) 8.6% 8.5%  
Other income 61 127 108.7%
Interest 36 8 -76.9%
Depreciation 79 91 15.0%
Profit before tax 541 653 20.6%
Exceptional items 56 70  
Tax 83 109 32.4%
Profit after tax/(loss) 403 474 17.5%
Net profit margin (%) 5.8% 6.5%  
No. of shares (m)   23.9  
Diluted earnings per share (Rs)*   78.5  
Price to earnings ratio (x)*   23.7  
* On a 12-month trailing basis

What has driven growth in 1QFY10?
  • Britannia reported a standalone growth of 6% YoY during 1QFY10. The company launched several new products and variants during the quarter. It also has introduced a number of new packages in a number of new formats. This has increased overall width and depth of distribution, thereby creating an opportunity of Rs 2 to 3 m annualized. While biscuits still contribute 80% to the total revenues, the other segments though small are growing fast. Cakes and rusks segment, which earned nearly Rs 4 bn of revenues during FY09 is expected to grow in double digits. The company is entering other product categories in the FMCG sector and is also exploring options to expand its overseas business into new markets. This would aid its growth going forward.

  • The consolidated sales grew by 9% YoY. The subsidiaries witnessed a growth of 49% YoY and now contribute 11% to the total sales. The consolidated bottomline grew by 33% YoY. Though the subsidiaries are still reporting losses, they have reduced from Rs 65 m to Rs 25 m during 1QFY10.

  • The operating margins remained stable at 8.5%. While the raw material costs have gone up by 6% YoY, better product mix has aided the margins. However, higher ad spends restricted the growth to that extent.

  • Excluding the extraordinary item (VRS), the net profit has increased by 19% YoY. This has been due to the company’s focus on working capital management, which has added to other income. Lower interest costs also boosted growth.

What to expect?
At the price of Rs.1,863, the stock is trading at a multiple of 15 times our estimated FY12 earnings. The company has not done as well as our estimates. However, going forward we expect the company’s sales to pick up and receive benefits from its international and dairy businesses. We are following the company and will update our analysis when we get more visibility on the scale up of the company’s new businesses.

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