Britannia’s Q1FY16 consolidated performance was ahead of estimates with sales, ebitda and PAT posting 13%, 75% and 67% growth y-o-y to R2,000 crore, R270 crore and R190 crore, with 14% and 13% beat on ebitda and PAT. We estimate Biscuits volume growth of ~8%, healthy in the context of muted industry demand environment (3-4% volume growth for the industry).
Gross margin expanded 380 bps y-o-y to 42.2% (41.8%) driven by benign input costs and premiumisation. Adspends went up 16%while operating leverage and tight control on fixed costs drove 40 bps and 110 bps decline in conversion cost and other expenses to 5.6% and 2.3%, respectively. Thus ebitda margin expanded sharp 480 bps y-o-y to 13.6%, best since Q2FY06.
We upgrade our estimates, once again, by 9-12% in FY16/17e to factor in better than estimated margins. We expect FY16 to benefit from premiumisation and continued raw material tailwinds. We estimate 38% and 36% ebitda and PAT CAGR over FY15-17e. Retain ‘buy’ with a revised target price of R3,500(36x June’FY17 EPS). Stock had a decent run ahead of the results and hence we see limited near term upside. However over the medium term, Britannia’s story of premiumisation coupled with cost rationalisation is intact. Valuations, while rich, are backed by superior execution and consistent earnings delivery. Sharp spike in input costs and slowdown in rural consumption are near term risks.