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Britannia: Bakery focus improves efficiencies

Oct 28, 2002

Britannia Industries has reported a 5% dip in 2QFY03 topline. However, the performance is not comparable with corresponding period last year, as during that time Britannia operated the dairy business too. This business was transferred effective March 27, 2002 to Britannia New Zealand Foods Pvt. Ltd., a joint venture with Fonterra Group, New Zealand. On a comparable basis net sales have, infact, increased by 7% YoY.

(Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
Net Sales 3,796 3,607 -5.0% 7,290 6,873 -5.7%
Other Income 41 71 73.2% 53 81 52.8%
Expenditure 3,441 3,222 -6.4% 6,604 6,112 -7.5%
Operating Profit (EBDIT) 355 385 8.5% 686 761 10.9%
Operating Profit Margin (%) 9.4% 10.7%   9.4% 11.1%  
Interest 30 26 -13.3% 66 54 -18.2%
Depreciation 61 70 14.8% 114 133 16.7%
Profit before Tax 305 360 18.0% 559 655 17.2%
Tax 125 126 0.8% 206 217 5.3%
Extraordinary items 73 28 -61.6% 62 11 -82.3%
Profit after Tax 253 262 3.6% 415 449 8.2%
Net profit margin (%) 6.7% 7.3%   5.7% 6.5%  
Effective tax rate (%) 41.0% 35.0%   36.9% 33.1%  
No. of Shares (eoy) (m) 27.9 26.7   27.9 26.7  
Diluted earnings per share* 37.9 39.2   31.1 33.6  
P/E ratio   13.2     15.4  
(* annualised)            

The company has expanded its margins to 10.7%, up from 9.4% in 2QFY02. Britannia reported a marginal 4% growth in bottomline during the quarter, largely due to a huge dip in extraordinary income. Last year during 2QFY02, the company had written back processing charges worth Rs 84 m. After adjusting for VRS expenses of Rs 11 m, Britannia showed Rs 73 m as net extraordinary income in 2QFY02. In comparision, the company recorded Rs 28 m as extraordinary income in September quarter this year (Rs 47 m as profit on sale of residential properties minus Rs 19 m VRS expenses). Excluding extraordinary income in both the corresponding quarters, Britannia reported a healthy 30% growth in net profit during September quarter 2002.

Cost break-up
(Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
Material cost 1,443 1,538 6.6% 2,541 2,582 1.6%
Staff cost 242 238 -1.7% 437 634 45.1%
Purchase of finished goods 606 423 -30.2% 1,176 1,674 42.3%
Other expenditure 1,150 1,023 -11.0% 2,450 1,222 -50.1%
Total expenditure 3,441 3,222 -6.4% 6,604 6,112 -7.5%

The jump in other income (up 73% YoY) seems a result of increased investments due to freeing of Britannia's resources post the dairy hive off. The higher other income has largely aided the bottomline growth. Going forward this trend is likely to continue.

The primary business of the company is now bakery, which consists of biscuits, bread and cakes. A 7% topline growth in this business is a good sign in these difficult market conditions. With Britannia's focus back on bakery, one can expect further efficiencies going forward. At the current price of Rs 519 the stock trades at 15.4x annualised 1HFY03 earnings (including extraordinary income), market cap to sales of 1x.


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