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Britannia: Leaner post dairy…

Aug 1, 2002

Britannia Industries has reported a 7% dip in 1QFY03 topline. However, the performance is not comparable with 1QFY02 as during that time Britannia operated the dairy business too. This business has been transferred effective March 27, 2002 to Britannia New Zealand Foods Pvt. Ltd., a joint venture with Fonterra Group, New Zealand. On a comparable basis net sales have, infact, increased by 6%.

(Rs m) 1QFY02 1QFY03 Change
Net Sales 3,494 3,266 -6.5%
Other Income 12 10 -16.7%
Expenditure 3,163 2,890 -8.6%
Operating Profit (EBDIT) 331 376 13.6%
Operating Profit Margin (%) 9.5% 11.5%  
Interest 36 28 -22.2%
Depreciation 53 63 18.9%
Profit before Tax 254 295 16.1%
Tax 81 91 12.3%
Extraordinary items (VRS) -11 -17 54.5%
Profit after Tax 162 187 15.4%
Net profit margin (%) 4.6% 5.7%  
Effective tax rate (%) 31.9% 30.8%  
No. of Shares (eoy) (m) 27.9 26.9  
Diluted earnings per share* 24.1 27.8  
P/E ratio   18.4  
(* annualised)      

Despite the exclusion of dairy numbers in 1QFY03, Britannia has managed a 15% growth in net profit. This itself indicates what a drain the dairy business must have been on its resources. The company's operating margins have improved post the hive off of dairy operations to 11.5%. For the full year FY02, operating margins stood at 9.4%.

cost break-up
(Rs m) 1QFY02 1QFY03 Change
Material cost 1,098 1,044 -4.9%
Staff cost 195 396 103.1%
Purchase of finished goods 570 1,251 119.5%
Other expenditure 1,300 199 -84.7%
Total expenditure 3,163 2,890 -8.6%

A look at the cost break-up table indicates a huge dip in other expenditure. This expenditure seems largely pruned as a result of the dairy hive off. However, another trend that comes to the fore is the significant increase in purchase of finished goods. This could indicate Britannia increasingly moving towards outsourcing.

The primary business of the company is now bakery, which consists of biscuits, bread and cakes. A 6% topline growth in this business is a good sign in these difficult market conditions. With Britannia's focus back on bakery, one can expect further efficiencies going forward. At the current price of Rs 513 the stock trades at 18.4x annualised 1QFY03 earnings, market cap to sales of 1.1x.


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