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Britannia: Robust profitable growth - Views on News from Equitymaster

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Britannia: Robust profitable growth
Nov 24, 2014

Britannia Industries Limited declared its results for the second quarter of financial year 2014-15 (2QFY15). The company has reported 12.4% YoY growth in sales and a 13.2% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Britannia recorded a 12.5% YoY topline growth in 2QFY15. For 1HFY15, the revenues were up by 13.7% YoY.
  • The operating profit margin expanded by 2% YoY backed by lower ad-spends and conversion costs. The operating margin for 1HFY15 improved by 1.3% YoY.
  • Excluding exceptional income from sale of land and building, net profits grew by 50% YoY and 39% YoY in 2QFY15 and 1HFY15, respectively.

Financial performance snapshot
(Rs m) 2QFY14 2QFY15 % change 1HFY14 1HFY15 % change
Total income 17,558 19,745 12.5% 33073 37615 13.7%
Expenditure 15,949 17,544 10.0% 30084 33717 12.1%
Operating profit (EBITDA) 1,609 2,201 36.8% 2989 3898 30.4%
EBITDA margin (%) 9.2% 11.1% 2.0% 9.0% 10.4% 1.3%
Other income 41 184 350.4% 180 399 121.5%
Interest 10 11 4.8% 53 21 -60.8%
Depreciation 211 308 46.2% 406 626 54.0%
Profit before tax 1,429 2,067 44.7% 2,710 3,651 34.7%
Exceptional items - 1,599   - 1,599  
Tax 451 964 113.6% 837.2 1411.2 68.6%
Profit after tax/(loss) 977 1,462 49.6% 1,873 2,599 38.8%
Share of profit/(loss) of associates (1) (1)   (2) (1)  
Minority interest - 4   0 4  
Net profit/ (loss) 976 2,705 177.0% 1,872 3,841 105.2%
Net profit margin (%) 5.6% 13.7% 8.1% 5.7% 10.2% 4.6%
No. of shares (m)         120  
Diluted earnings per share (Rs)*         49.4  
Price to earnings ratio (x)*         33.9  
* On a 12-month trailing basis

What has driven growth in 2QFY15?
  • Britannia posted a 12.5% YoY rise in revenues led with two-thirds of its growth coming from volumes.

    Cost break-up
    As a % of net sales 2QFY14 2QFY15 Change in basis points
    Total cost of goods 59.9% 60.3% 48.4
    Employee costs 3.8% 3.4% -34.8
    Conversion and other charges 6.9% 6.5% -38.8
    Advertisement costs 8.8% 7.3% -156.6
    Other expenditure 11.5% 11.3% -16.8

  • Backed by a 7% cut in ad-spends and a 0.4% fall in conversion charges to sales ratio on increased in-house manufacturing, the operating margin expanded by 2% YoY during the quarter. The raw material cost to sales ratio was up by 0.5% YoY, however employee costs as a proportion of sales fell by 0.3% during the quarter.

  • Excluding the one-time profit of Rs 1.24 bn on sale of land and building, the net profit was up by 50% YoY for the quarter. The depreciation charges surged by 46% YoY during the quarter. The tax incidence shot up to 46.6% from 31.6% in the year-ago quarter. However, the company witnessed a steep 350% jump in other income earned during the quarter.
What to expect?
Britannia continues to reap the benefits of a revamped biscuit portfolio with more healthy offerings and increased focus on the cookie segment that is growing at a faster pace. The company recently launched Tiger Butter Krunch and Nutrichoice Heavens cookies in the mass and premium end of the cookie market. Therefore the company has been witnessing better volume growth at a time when the other packaged food companies are struggling to grow offtake. Even its efforts at cost optimisation through increased in-house manufacturing have enabled it to expand margins.

At the price of Rs. 1674, the stock is trading at 30 times our estimated FY17 earnings. At current valuations, the stock is overvalued and therefore we re-iterate a SELL on the stock.

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