Raise EPS estimates by 1-2% and retain Buy with TP of Rs 6,400 based on target P/E of 48x Sept-20 (due to higher value creation optionality from portfolio expansion).
Britannia delivered a healthy and broadly in-line quarter led by fourth consecutive quarter of double-digit volume growth; operational performance was robust despite sharp surge in advertising and sales promotion (A&SP) led by robust GM expansion (aided by better mix and covers in key commodities).
Consistent performance in core biscuits (led by share gains via strong execution, distribution expansion and innovations) coupled with strong NPD funnel and focus to bridge portfolio gaps in bakery, international expansion and entry into new adjacencies/categories (cream wafers this quarter; to launch packaged croissants soon) should continue to drive robust growth in FY19/20. Raise EPS estimates by 1-2% and retain Buy with TP of Rs 6,400 based on target P/E of 48x Sept-20 (due to higher value creation optionality from portfolio expansion).
Q2FY19 performance – another healthy quarter
Britannia reported another healthy but broadly in line quarter with 13% consolidated revenue growth (led by 12% volume growth, 2-year CAGR inched up to 9% vs. 7-8% over past few quarters) and 16-20% growth in Ebitda/PAT. Ebitda margin expanded 100 bps y-o-y led by strong 230 bps expansion in GM (flat q-q-o-q, gains from better mix, higher profitability in subsidiary business and benign RM cost inflation due to long covers in key commodities) partly negated by higher brand investments (complete brand/ packaging refresh to celebrate centennial year and support new launches) and business model change in breads. Recurring PAT growth was a tad lower vs. Ebitda due to 13% y-o-y drop in other income (high base).
Subsidiary revenues (international + dairy) grew 3.5% y-o-y (highest growth over past 12 quarters, only second quarter of positive growth) aided by healthy double-digit growth in international business (despite slowdown in key geographies). Profitability continued to witness improvement with 21% Ebitda growth and 24% growth in recurring PAT led by 270 bps expansion in Ebitda margin; better mix due to curtailment of commoditised dairy portfolio has been the key driver of this expansion along with benign RM environment.
Extensive consumer campaign launched in Q2FY19
During the quarter, Britannia spent heavily on A&SP to celebrate its centennial year, undertaking extensive brand/media campaigns to highlight the same along with visual identity change for mother brand Britannia and new packaging for selective brands. It has relaunched several core biscuit brands like 50-50, Bourbon and Pure Magic Chocolush which have received good response (more brands to be relaunched in ensuing quarters).