Pricing is not the only lever to expand margins: Britannia is prioritising volume growth and does not intend to pull pricing lever excessively to expand margins at least in the near term, till industry growth stabilises.
This is reflected in Q1FY15 results; gross margin declined 230 bps, but Ebitda margin expanded 50 bps to 8.8%. Despite biscuit category slowing down from 15% in January 2013 to 5.5% in June 2014, the premium segment of the industry is growing as well, as per management.
Britannia has delivered healthy 15% revenue growth, with underlying 10% volume growth. In urban areas, Britannia is increasing the depth of its portfolio and following split route strategy, which has delivered healthy gains. In rural, it is looking at increased width of distribution via hub and spoke model.
Visible improvement in business fundamentals and responsive management has driven the companys re-rating over the past 18 months. We expect this re-rating to sustain and gather steam. Maintain buy with a target of R1,320.