Why Investors Should Not Worry About the 29% Fall in Britannia's Bottomline

Maker of Good Day and Tiger biscuits, Britannia Industries, on Friday last week reported its June quarter earnings, which missed street estimates.

Shares of the company rose over 2% in early trade today even after the home-grown food major reported a 29% decline in its bottomline.

Key financials

Britannia Industries reported a 28.7% drop in June quarter profit to Rs 3.9 bn. This compared with a net profit of Rs 5.4 bn, reported in the year-ago period.

Consolidated topline for the three months ended June 2021 stood at Rs 34 bn, which was down marginally from Rs 34.2 bn reported in the year-ago period.

The street was expecting Britannia to report topline of Rs 31.7 bn on a consolidated net profit of Rs 4.1 bn.

Last fiscal, Britannia had posted a 26% jump in sales as it benefitted significantly from increased in-home consumption. Indian households bought more biscuits during India's protracted lockdown a year ago.

Here's a table comparing Britannia's results on key parameters.

Financial Snapshot

(Rs m)	Jun-21	Jun-20	Mar-21	YoY (%)	QoQ (%)
Revenue from operations	34,035	34,207	31,308	-0.5%	8.7%
Total Expenses	29,330	27,773	27,019	5.6%	8.6%
Profit before tax	5,312	7,371	4,927	-27.9%	7.8%
Tax	1,442	1,944	1,326	-25.8%	8.7%
Profit after tax	3,870	5,427	3,601	-28.7%	7.5%

Data Source: Company Filings

Commenting on the performance, Britannia MD Varun Berry said,

• Second wave of Covid-19 struck the country hard followed by lockdowns imposed by various state governments. We witnessed the evolving nature of the pandemic as well as consumer sentiment and behaviour.

In these uncertain times, the company delivered a healthy consolidated 24-month sales growth of 25% and net profit growth of 55%, he added.

Pricing strategy and new launches

During the quarter, Britannia continued to witness an increase in the prices of palm oil and crude.

The company was cautious on pricing but aggressive on cost efficiencies. This helped improve operating profit from 14.9% in March 2021 to 15.1% in June 2021.

In view of rising raw material costs, the company warned of calibrated price increases as things normalise.

During the quarter the company relaunched Good aDy Chocochips with a campaign and launched 50-50 Potazos in the northeast.

Last month, ITC also forayed into the new-found category with Sunfeast All Rounder.

Britannia's brands were back on air and its full range of products retailed in market as the supply chain impact was less severe.

Why investors should not worry about the 29% fall in bottomline

Britannia's results were good, given the disruptions caused by lockdown due to second wave.

Among big FMCG companies which have announced results so far, Nestle India's profit and revenues, both fell sequentially.

Meanwhile, Hindustan Unilever's (HUL) earnings and revenue also saw a decline.

Britannia has been paying dividends for at least ten years or more. It paid out a hefty dividend of Rs 145 per share in fiscal 2021.

This shows its consistency in dividend payout and that the company is committed to sharing profits with its shareholders.

Also, here's an interesting data point on the company. Fiscal 2021 became the year in which Britannia saw a sharp turnaround in it return on capital (ROCE) which had been slipping for years.

How the stock markets reacted to Britannia's earnings

Britannia share price opened the day up by 0.5% at Rs 3,432.50.

Shares extended gains and rose over 2% to Rs 3,540 in intraday trade.

Britannia's stock has a 52-week high quote of Rs 4,004 touched on 10 October 2020 and a 52-week low quote of Rs 3,318 touched on 22 February 2021.

Over the past one year, shares of Britannia have underperformed and lost 11% as compared to 39% gains in benchmark BSE Sensex.

It has also underperformed other top FMCG companies including ITC, HUL and Nestle which have gained in the range of 6-10%.

At the current price of Rs 3,515, the company commands a marketcap of Rs 846.6 bn.

About Britannia Industries

Established in 1892, Britannia Industries is one of the largest players in the biscuit industry in India, with a market share of over a third in value terms.

The company has a diversified portfolio of biscuits across all seven categories: glucose, marie, cookies, crackers, cream, milk, and health. It also has strong brands in its product portfolio including Good Day, Tiger, Marie, Nutrichoice, and Milk Bikis.

The strong market position is supported by a wide distribution network in both rural and urban areas. Over the years, the company has expanded its product offering significantly through adding newer products such as dairy items, cake, and rusk.

It has expanded overseas through acquiring Strategic Foods International LLC in the United Arab Emirates (UAE) and Al Sallan Food Industries Co SAOG in Oman. These two companies are regional players in the biscuit and cookies segment in the Middle East.

The Mumbai-based Wadia group holds 50.6% stake in Britannia.

To know more about the company, check out Britannia company fact sheet and quarterly results.

For a sector overview, read our FMCG sector report.

You can also compare Britannia with its peers.

Britannia vs Nestle

Britannia vs Marico

Britannia vs Hatsun Agro Products

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