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Britannia: Food inflation weighs on bottomline - Views on News from Equitymaster
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Britannia: Food inflation weighs on bottomline
Aug 10, 2010

Britannia Industries Limited declared its 1QFY11 results. The company has reported 28% YoY growth in sales and a fall of 31% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Top line for Britannia during 1QFY11 grew by 25% YoY.
  • Operating (EBITDA) margins for the company fell by 3.3% to 4.8% during the quarter. This lacklustre performance is due to higher raw material costs as well as higher advertisement spending (both as a percentage of sales).
  • Net profit fell by 31% YoY during the quarter.


Standalone Financial snapshot
(Rs m) 1QFY10 1QFY11 % change
Net Sales 7,339 9,158 24.8%
Expenditure 6,713 8,722 29.9%
Operating profit (EBDITA) 626 436 -30.2%
EBDITA margin (%) 8.5% 4.8%  
Other income 127 199 57.6%
Interest 8 94 1046.3%
Depreciation 91 100 9.2%
Profit before tax 653 442 -32.3%
Exceptional items (70) -  
Tax 109 114 4.3%
Profit after tax/(loss) 474 328 -30.7%
Net profit margin (%) 6.5% 3.6%  
No. of shares (m) 24 24  
Diluted earnings per share (Rs)*   42.7  
Price to earnings ratio (x)*   48.4  

What has driven growth in 1QFY11?
  • As noted, the sales of the company grew by 25%. This comes on the back of 20% volume growth and 5% growth in value.

    Cost break-up
    As a % of net sales 1QFY10 1QFY11
    Total cost of goods 60.6% 65.2%
    Employee costs 3.3% 2.8%
    Conversion and other charges 8.5% 8.0%
    Advertisement costs 7.0% 7.5%
    Other expenditure 12.1% 11.8%

  • Operating income for the company fell by 30% YoY. This was on the back of rise in key commodity prices and higher advertisement costs. Raw material costs increased by 34% YoY as a result of high sugar and flour prices. Advertisement spending for brand building was up by 33% YoY as a result of high competitive intensity.

  • Net margins for Britannia fell by 2.9% to stand at 3.6%. This performance comes on the back of fall in operating income and rise in interest costs partly offset by higher other income and the absence of exceptional loss during the quarter. When adjusted for exceptional loss, net profit is seen to fall by 40% YoY.

What we expect?
At the price of Rs. 2,063, the stock is trading at 19.2 times our estimated FY13 earnings (RPro subscribers click here. The company is suffering from rising food inflation and increase in competition. While the prices of raw material are expected to soften, the competitive intensity is a cause for concern. Moreover, the price of the stock has run up recently. For this reason we are cautious on the company.

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