Consolidated sales increased 6.2% y-o-y to Rs 27 bn (v/s est. of Rs 28 bn). Standalone sales grew 7.2% y-o-y to Rs 25.8 bn with 3% volume growth in base business (v/s est. of +6%). Consolidated Ebitda grew 1.4% y-o-y to Rs 3.9 bn (v/s est. of Rs 4.3 bn), while consol. PAT grew 2.4% y-o-y to Rs 2.6 bn (v/s est. of Rs 2.9 bn).
Consolidated gross margin expanded 40bp y-o-y to 40.4%. Higher other expenses as percentage of sales (up 90bp y-o-y to 21.3%) and increase in staff costs as percentage of sales (up 20bp y-o-y to 4.5%), meant that Ebitda margin contracted 70bp y-o-y to 14.6% (down 100bp q-o-q ) v/s est. of 15.5%.
Conference call highlights: Market is growing at a very slow pace but BRIT is significantly outpacing the market, ICDs are reduced to under Rs 5 bn as of Q1FY20 (Rs 7 bn in March) and are expected to decline by another Rs 1.5 bn.
Valuation & View
Britannia has been continually reporting impressive market share growth, which is seen increasing at a higher pace in recent quarters. However, the slowdown in the Biscuits category in Q1FY20 is expected to impact Britannia’s growth (recovery appears unlikely soon). This factor has resulted in a higher cut to our EPS forecasts (~10% each in FY20/FY21), than warranted by the Q1FY20 results (PAT miss of 8%).
Additionally, the impact of rising milk prices will be felt in Dairy business. Traction in new categories is good news for medium term sales and is also gross margin accretive. The reduction as well as sharing of plans for reduction in ICDs, partly alleviates a significant concern that had cropped up after the Q4FY19 results. While valuations are not cheap at 42xFY21 EPS, the structural opportunity makes a strong case for best-of-breed multiples. We maintain Buy with TP of Rs 3,030, 17% upside (48x Jun’21 EPS).