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Britannia: Volume concerns - Views on News from Equitymaster
 
 
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  • Aug 3, 2001

    Britannia: Volume concerns

    Bakery products major, Britannia Industries, has recently declared its first quarter performance. The company registered a 20% growth in bottomline backed by a 5% turnover growth. Though the bottomline growth is encouraging, its turnover growth looks under pressure.

    (Rs m) 1QFY01 1QFY02 Change
    Net Sales 3,320 3,494 5.2%
    Other Income 13 12 -7.7%
    Expenditure 3,057 3,163 3.5%
    Operating Profit (EBDIT) 263 331 25.9%
    Operating Profit Margin (%) 7.9% 9.5%  
    Interest 19 36 89.5%
    Depreciation 46 53 15.2%
    Profit before Tax 211 254 20.4%
    Tax 69 81 17.4%
    Extraordinary items -7 -11 57.1%
    Profit after Tax 135 162 20.0%
    Net profit margin (%) 4.1% 4.6%  
    Effective tax rate (%) 32.7% 31.9%  
    No. of Shares (eoy) (m) 27.9 27.9  
    Diluted earnings per share* 19.4 23.2  
    P/E ratio   25.2  
    (* annualised)      

    In FY01, Britannia had recorded a turnover growth of 18%. However, the company has managed to control its expenditure and thus its operating margins have gained a smart 160 basis points. Therefore, despite a higher interest, depreciation and tax burden, net margins have improved.

    As per trends available, Britannia's volumes had grown in April and May but remained more or less flat in June. To accelerate sales Britannia cut prices of brands like Bourbon by 17% and Milk Bikis by 9% during the quarter. These brands account for roughly 5-7% of total volumes and offer significantly higher margins than the company average.

    But despite the current difficult market conditions, Britannia continues with its expansion plans both in bakery segment and in its dairy business. The company recently acquired the trade mark 'KWALITY', and several other trademarks owned by Kwality Biscuits of Bangalore for a consideration of Rs 300 m. Britannia has also agreed in principle to acquire 49% equity of Kwality Biscuits. This transaction is expected to be completed during FY02. In the dairy segment too, Britannia has realunched its flavoured milk.

    The company has reportedly signed on ace batsman, Sachin Tendulkar, for its advertising promotions. Though this should help spur the consumer interest, its costs may be under pressure going forward. With HLL also planning a foray in the bakery segment through Modern Foods, Britannia has to gear up to face its toughest test yet. On the dairy front, both Nestle and Amul are slugging it out. Britannia for the moment seems restricted to mainly butter and cheese.

    The company's plans to enter the bottled water business seem to have fizzled out. It seems that the company's promoter, Danone, will do it alone.

    At the current price of Rs 585 the stock trades at a P/e multiple of 25 times its annualised 1QFY02 earnings. The stock has come down quite a bit since the company announced its buyback plan. Given the pressure on the company's volumes, the stock may remain range bound in the short term. On the longer term though, the company's brand building and marketing efforts should bear fruit.
    See buyback details

     

     

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