Investor- Britannia Industries Rating: Reduce; A soft quarter for the company

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Published: February 15, 2020 2:30:00 AM

FY21/22e EPS cut by 1/5% given growth scenario; ‘Reduce’ maintained with TP down to Rs 2,900

Britannia Industries Rating, BRIT, Realisation growth, net operating revenues, category growth rates, RM inflationManagement indicated that the category growth rates slowed down further with growth decelerating in both rural and urban markets. Rural deceleration was particularly sharp.

BRIT’s core volume growth slowed down to 2% y-o-y, slowest in many years, as continued share gains failed to make up for further deceleration in overall category growth rates. Margin defence despite sharp RM inflation was commendable. We tone down our revenue growth forecasts and lower our FY2021/22e EPS forecasts by 1/5%. Revise FV down to Rs 2,900/share (from Rs 3,050). Reiterate Reduce

Strong margin defence makes up for soft revenue print

BRIT’s Q3FY20 print, while soft, was broadly in line with our estimates. Standalone net operating revenue growth slowed down to 4% y-o-y and was aided by a sharp jump in other operating income. Product sales grew just 3% y-o-y with volume growth slowing down to a multi-year-low of 2%. Realisation growth stood at 1% despite improved product mix as (i) certain price hikes taken in Q3FY19 anniversarised, and (ii) production issues at certain Middle East factories normalised; for the past few quarters, ME sales were being booked in the standalone books as the parent entity was catering to demand in the geography.

Consolidated net operating revenues grew 5% y-o-y to Rs 29.8 bn, 2% below our estimate. Gross margins declined 44bps y-o-y to 40.9%, 39 bps lower than our estimate. Ebitda grew 11% y-o-y to Rs 5.02 bn, 2% ahead of our estimate on the back of lower-than-expected staff costs as well as other expenses. PBT grew 7% while recurring net profit grew 24% y-o-y on the back of lower ETR. PAT print was in line with our estimate. 9MFY20 performance – revenues up 6%, gross margins flat, Ebitda up 7%, PBT up 6% and PAT up 21%. 9M EPS: Rs 43.3/share.

Continues to grow ahead of the market

Management indicated that the category growth rates slowed down further with growth decelerating in both rural and urban markets. Rural deceleration was particularly sharp. Value end of the segment continues to struggle for growth, mid end is holding up relatively better while the top end has also seen growth decelerate from recent highs. BRIT’s market share gains have accelerated in recent times thanks to the segmental growth contours and the company’s continued aggressive distribution push in the Hindi belt.

Tweak estimates, retain REDUCE

We have tweaked our estimates to bake in (a) fresh disclosures on other operating income, (b) still-weak ST category demand prognosis, and (c) RM inflation trends. FY2021/22 EPS estimates see a 1/5% cut.



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