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Britannia: Margins improve slightly - Views on News from Equitymaster
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Britannia: Margins improve slightly
Nov 7, 2012

Britannia Industries Limited declared its results for the second quarter of financial year 2012-13 (2QFY13). The company has reported 9% YoY growth in sales and a 21% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Britannia reported a 9% rise in revenues in 2QFY13 led by 7-8% volume growth. For 1HFY13, the topline increased by 10%.
  • Aided by controlled input costs and lower staff costs, the company has been able to improve operating margin slightly. During 1HFY13, operating margin expanded by 70 basis points.
  • Earnings grew by 20.5% backed by reduction in interest cost and 35% jump in other income earned. For 1HFY13, earnings increased by 11.8%.

Standalone Financial snapshot
(Rs m) 2QFY12 2QFY13 % change 1HFY12 1HFY13 % change
Total income 12,956 14,166 9.3% 24032 26454.9 10.1%
Expenditure 12,320 13,422 8.9% 22877 24987 9.2%
Operating profit (EBITDA) 637 744 16.9% 1155 1468 27.1%
EBITDA margin (%) 4.9% 5.3%   4.8% 5.5%  
Other income 95 128 35.3% 353 234 -33.7%
Interest 97 88 -9.4% 190 183 -3.9%
Depreciation 116 143 23.5% 226 273 20.5%
Profit before tax 519 642 23.7% 1,092 1,247 14.2%
Exceptional items - -   - -  
Tax 141 186 32.3% 295.2 356.3 20.7%
Profit after tax/(loss) 379 456 20.5% 796 891 11.8%
Net profit margin (%) 2.9% 3.2%   3.3% 3.4%  
No. of shares (m)         120  
Diluted earnings per share (Rs)*       16.4  
Price to earnings ratio (x)*         28.9  
* On a 12-month trailing basis

What has driven performance in 2QFY13?
  • Britannia clocked a 9% rise in sales on a 7-8% rise in offtake.

    Cost breakup
    As a % of net sales 2QFY12 2QFY13 Change in basis points
    Total cost of goods 64.9% 63.8% -106.6
    Employee costs 3.7% 2.6% -108.5
    Conversion and other charges 8.2% 8.8% 62.7
    Advertisement costs 7.8% 8.3% 53.8
    Other expenditure 10.5% 11.1% 64.7

  • The company reported a minor improvement in operating performance on the back of waning commodity inflation coupled with cut in employee costs. As a result, each of the cost of goods sold and employee costs (as a proportion of sales) fell by more than 100 basis points. This enabled the company to more than offset higher ad-spends, conversion charges and other expenditure. Britannia saw its operating margin increase by 40 basis points to 5.3% during the quarter.

  • Earnings grew by a faster 20.5% backed by 17% rise in operating income coupled with 9% cut in interest charges.

What to expect?
Britannia continues to face tepid growth in offtake. Most of the topline growth is coming from its premium range of differentiated offerings. However, with discretionary spends showing signs of moderation and continued competition in the biscuit segment; it will take a while for Britannia to report robust financials.

At the price of Rs. 473, the stock is trading at 16 times our estimated FY15 earnings. At current valuations, the stock is overvalued and therefore we re-iterate a SELL on the stock.

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