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Britannia: A strong start to FY14 - Views on News from Equitymaster

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Britannia: A strong start to FY14
Aug 19, 2013

Britannia Industries Limited declared its results for the first quarter of financial year 2013-14 (1QFY14). The company has reported 15% YoY growth in sales and a 99% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Britannia posted a 15.3% revenue growth in 1QFY14.
  • Operating margin expanded by 3.3% YoY aided by easing input prices and controlled conversion charges and other expenses.
  • Net profits almost doubled on a steep rise in operating profits coupled with lower interest charges.

Standalone Financial snapshot
(Rs m) 1QFY13 1QFY14 % change
Total income 12,289 14,163 15.3%
Expenditure 11,566 12,867 11.2%
Operating profit (EBITDA) 723 1,297 79.3%
EBITDA margin (%) 5.9% 9.2%  
Other income 106 139 30.6%
Interest 95 34 -64.6%
Depreciation 130 153 17.6%
Profit before tax 605 1,249 106.5%
Exceptional items - -  
Tax 170 386 126.7%
Profit after tax/(loss) 435 863 98.6%
Net profit margin (%) 3.5% 6.1%  
No. of shares (m)   120  
Diluted earnings per share (Rs)*   23.1  
Price to earnings ratio (x)*   31.9  
(* trailing 12 months earnings)

What has driven growth in 1QFY14?
  • Backed by better product-mix, volume growth as well as price-hikes taken in FY13, Britannia clocked a 15% increase in turnover.

    Cost break-up
    As a % of net sales 1QFY13 1QFY14 Change in basis points
    Total cost of goods 61.6% 59.1% -251.2
    Employee costs 3.1% 3.4% 36.7
    Conversion and other charges 9.1% 8.2% -89.6
    Advertisement costs 8.0% 8.9% 90.5
    Other expenditure 12.2% 11.1% -113.3

  • The improvement in operating margin gained further ground on the back of benign commodity prices. Even refined palm oil prices were lower aided by a weak rupee. Therefore the cost of goods sold to sales ratio fell by 2.5% YoY during the quarter. This coupled with rationalization in other expenses and conversion charges led to a 3.3% expansion in the operating margin during the quarter.

  • At the net level, profits grew two-folds on a 79% surge in operating profit coupled with 65% fall in interest costs. In FY13, the bonus debentures worth Rs 4061.3 m issued by the company in FY10 have been fully redeemed resulting in lower interest charges. However, tax incidence has risen to 30.9% in June 2013 quarter from 28% in the year-ago quarter.
What to expect?
Britannia has witnessed a sharp improvement in its profitability thanks to easing price of inputs as well as robust growth in offtake of its premium products. However with competition remaining high and ad-spends expected to rise on changed government rules for broadcast, sustaining margins may be challenging in future.

At the price of Rs. 739, the stock is trading at 19 times our estimated FY16 earnings. At current valuations, the stock remains overvalued and therefore we re-iterate a SELL on the stock.

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