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Britannia: Bakes a profitable growth - Views on News from Equitymaster

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Britannia: Bakes a profitable growth

Aug 18, 2011

Britannia Industries Limited declared its results for the first quarter of financial year 2011-2012 (1QFY12). The company has reported 21% YoY growth in sales and a 27.3% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Standalone top line for Britannia during 1QFY12 grew by 21% YoY. The growth was driven by a 6-8% hike in prices and a 10-12% rise in offtake.
  • Operating (EBITDA) margins were maintained at around 4.7% backed by cost control.
  • Net profit grew by a faster 27% YoY during the quarter on account of higher other income earned from property sale and reduction in borrowing costs.


Standalone Financial snapshot
(Rs m) 1QFY11 1QFY12 % change
Total income 9,145 11,076 21.1%
Expenditure 8,707 10,557 21.3%
Operating profit (EBITDA) 439 519 18.3%
EBITDA margin (%) 4.8% 4.7%  
Other income 197 258 30.9%
Interest 94 93 -1.0%
Depreciation 100 111 11.3%
Profit before tax 442 573 29.5%
Exceptional items - -  
Tax 114 155 35.9%
Profit after tax/(loss) 328 418 27.3%
Net profit margin (%) 3.6% 3.8%  
No. of shares (m) 24 119  
Diluted earnings per share (Rs)*   12.9  
Price to earnings ratio (x)*   36.4  
* On a 12-month trailing basis

What has driven growth in 1QFY12?
  • Judicious price-hikes and good pick-up in the recently launched products in the health & wellness category propelled Britannia’s overall sales by 21% in 1QFY12. Brisk sales have been led by volumes that recorded double-digit growth of 10-12%. As per the company, the new products contributed at least 7-8% to overall revenues. The company raised prices by around 6-8% to counter the commodity inflation during the quarter.

    Cost break-up
    As a % of net sales 1QFY11 1QFY12
    Total cost of goods 65.3% 65.5%
    Employee costs 2.8% 2.8%
    Conversion and other charges 8.0% 8.4%
    Advertisement costs 7.5% 7.4%
    Other expenditure 11.6% 11.2%


  • The company was able to protect profitability on account of controlled expenditure that grew at the same pace as the topline. Despite steep rise in price of palm oil, milk powder, cashew and packaging material, the cost of goods sold to sales ratio increased marginally to 65.5% in 1QFY12. The conversion & other related charges (as percentage of sales) increased by 40 basis points YoY to 8.4%. The proportion of staff costs and advertisement expenses to sales remain unchanged during the quarter. However, the other expense to sales ratio fell by 40 basis points YoY to 11.2%. EBIDTA margin was maintained at around 4.7% in 1QFY12.

  • At the net level, the company could pull off an improvement of 20 basis points in its margin at 3.8%. Other income (including property sale proceeds of Rs. 153.3 million) grew by 30% YoY during the quarter. This coupled with a 100 basis points drop in interest outgo led to higher profitability during the quarter.

What to expect?

At the price of Rs. 470, the stock is trading at 18.5 times our estimated FY13 earnings. The company’s bakery business, which includes the mainstay biscuits and non-biscuit products such as breads, cakes & rusk, has been growing by over 20% for six consecutive quarters. The steady launch of innovative and differentiated products under its seven power brands has diversified the consumption portfolio of the company. Moreover, Britannia’s diverse biscuit offerings at the largest selling Rs. 5 and Rs. 10 price points have widened choice resulting into higher impulsive, out-of-home consumption and increased sales. The company enjoys a price premium of 9-15% in all biscuit brands, except glucose. With the company having a substantial presence in the non-staple biscuit market comprising of biscuits other than Marie & Glucose, it has not witnessed moderation in demand. In fact Britannia expects a 15-16% growth in all its categories in future. Strong sales growth along with judicious price hikes and cost control measures have enabled the company to withstand inflation and maintain margins. The stock price has run up a bit. We thus advise investors to be cautious.

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