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Britannia: Growth continues - Views on News from Equitymaster
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Britannia: Growth continues
Oct 31, 2008

Performance summary
  • Topline for 2QFY09 increases by 28.4% YoY, while during 1HFY09, the sales increase by 24.6% YoY.

  • Operating margins decline by 1.6% during the quarter. High input inflation continues to challenge its margins.

  • Excluding the extraordinary items (VRS and profit on sale of properties), the profits are up 15.6% YoY during the quarter.



  2QFY07 2QFY08 % change 1HFY07 1HFY08 % change
Net sales 6,596 8,469 28.4% 12,374 15,422 24.6%
Expenditure 5,902 7,715 30.7% 11,225 14,071 25.4%
Operating profit (EBDITA) 694 754 8.7% 1,149 1,350 17.5%
EBDITA margin (%) 10.5% 8.9%   9.3% 8.8%  
Other income 49 83 69.4% 148.9 143.8 -3.4%
Interest 29 44 51.7% 34 79.7 134.4%
Depreciation 72 82 14.1% 140.6 160.9 14.4%
Profit before tax 643 712 10.8% 1,123 1,254 11.6%
Tax 127 116 -8.8% 214.7 198.1 -7.7%
Extraordinary item (31.3) (63.6) 103.2% -62.1 -119.1 91.8%
Profit after tax/(loss) 485 533 9.9% 847 936 10.6%
Net profit margin (%) 7.3% 6.3%   6.8% 6.1%  
No. of shares (m) 23.89 23.89   23.89 23.89  
Diluted earnings per share (Rs)*         83.71  
Price to earnings ratio (x)*         13.6  
* 12 month trailing earnings

What has driven performance in 2QFY09?
  • Britannia’s topline for 2QFY09 increased by 28.4% YoY. Revenue growth was driven by focused investment in brands, geographies & channels. Volume growth of 17.5% YoY was witnessed during the quarter. During 1HFY09, the sales jumped 24.6% YoY led by its strong product portfolio. The company continued to introduce new products and variants to meet the market needs. Based on improvement in sector dynamics and an additional lever of reducing per-pack weight, the company has been able to garner higher realisations from biscuits.

    Cost break-up
    As a % of net sales 1QFY08 1QFY09 1HFY07 1HFY08
    Total Cost of goods 59.1% 61.2% 60.2% 60.8%
    Staff Cost 3.5% 2.8% 3.6% 3.1%
    Advertising 6.9% 6.6% 6.5% 6.4%
    Other Expenditure 20.0% 20.5% 20.5% 20.9%

  • Operating margins declined by 1.6% during the quarter. High input inflation continued to challenge its margins. While raw material prices and other expenses (as a percent of sales) increased, lower staff costs and ad spends brought some relief. Raw material forms nearly 60% to 65% of its sales with wheat, sugar and fat oil forming the main inputs for the company. For the half year period, the margins were down marginally by 0.5%. The margins are in line with our estimates. While most of the input costs have increased in recent times, the company is looking at improving its product mix and sale of higher value products in order to sustain its margins.

  • Excluding the extraordinary items (VRS and profit on sale of properties), the profits were up 15.6% YoY during the quarter. Higher other income and lower tax outgo aided the jump. For 1HFY09, the profits increased by 16.1% YoY.

  • Consolidated sales during 1HFY09 were Rs 16.5 bn, while profits were Rs 7.2 bn. The topline is in line with our estimates, while the company has outperformed our profit estimates for FY09.

Performance summary
    What to expect? At the current price of Rs 1,140 the stock is trading at a price to earnings multiple of 8.2 times our FY11 estimates. The company continues to report strong volume growth on account of its strong brand building and new launches. Though higher input prices are a cause for concern, Britannia is taking efforts to improve its margins by expanding its portfolio and through inorganic growth. Over a longer time frame, the management has indicated its vision to transform the company form a pure biscuit manufacturer to a holistic food company. We maintain our positive view on the stock.

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