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Britannia: Strong start to the year - Views on News from Equitymaster
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Britannia: Strong start to the year
Aug 11, 2015

Britannia declared results for the quarter ended June 2015. The company's revenues were up by 13% YoY, while profits rose by 56% YoY. Here is our analysis of the results:

Performance summary
  • Revenues grow by 13% YoY during the quarter.
  • Operating profits grow by 65% YoY; margins expand 4.3% to 14% led by lower input costs.
  • Net profits surge by 56% led by a strong operating performance.
Standalone financial performance summary
(Rs m) 1QFY15 1QFY16 Change
Revenues 16,342 18,471 13.0%
Expenditure 14,765 15,876 7.5%
Operating profit (EBITDA) 1,578 2,595 64.5%
EBITDA margin (%) 9.7% 14.0%  
Other income 196 183 -6.7%
Depreciation 246 209 -15.0%
Finance charges 3 3 7.1%
Profit before tax 1,525 2,566 68.2%
Tax 447 888 98.6%
Profit after tax/(loss) 1,078 1,678 55.6%
Net profit margin (%) 6.6% 9.1%  
No. of shares (m) 120.0 120.0  
Diluted earnings per share (Rs)*   45.0  
Price to earnings ratio (x)   75.1  
* trailing 12 month earnings

What has driven performance in the quarter ended June 2015?
  • Britannia's standalone revenues grew by 13% YoY. Operating profits however surged by almost two-thirds led by a 4.3% YoY expansion in margins on a base of 9.7% in same quarter last year. Key reasons for the same were lower input costs and lower other expenses (as a percentage of sales). As reported by the company, prices of key input commodities such as flour, sugar and refined palm oil have declined considerably in recent quarters. As per data provided by the company, current prices of these commodities are lower by 8%, 10% and 9% from the average price of the full year FY15.

  • Profit before tax was higher by 68% YoY led by a strong operating performance coupled with lower depreciation charges. Net profits growth however slowed down a bit due to a higher tax rate.
What to expect?
At the current price of Rs 3,380, Britannia trades at a multiple of about 75x its trailing twelve month earnings and at about 61x our estimated FY17 EPS.

Britannia's management is focusing on increasing premium offerings in the product stable. This would largely be in the cakes and biscuits segments. Further, it is also looking to launch products that would be introduced for the first time in India; but would be part of its existing categories.

As for entirely new categories, work has been happening at the R&D level, and thus launches would take time as the company is going through the due diligence phase.

Further, the company has been working towards improving its back end. For instance, it increased its reach by 80,000 points in the quarter done by. The company has also been making efforts to improve the efficacy of its sales team through the usage of technology; it has also been focusing on dealer and distribution incentives to leverage upon its channel. Further, the aim is to improve its rural reach as well.

Britannia has moved from strength to strength, improving upon its operating performance consistently for the past few years. While the quarter gone by was one that provided it with a strong fillip in the form of lower input costs, whether the company will be able to sustain margins is at such levels, or rather improve upon the same is something that needs to be gauged.

We are currently in the process of updating our estimates. We will come out with an updated view on the stock soon.

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