Britannia Industries Q1 Results: Analysts Lower FY23 Earnings Estimates On Margin Woes
Here's what analysts have to say about Britannia Industries' Q1 FY23 results.
Brokerages cut FY23 earnings estimates for Britannia Industries Ltd. on account of a sharper-than-expected decline in margin and volumes in the first quarter.
The maker of Good Day and Tiger biscuits has seen volumes decline of 2% over the previous year, and the number of packets sold remaining flat adjusting for the impact of grammage reduction, it told analysts during a post-earnings call.
Heightened inflationary pressures, analysts said, impacted margin, down to 13.5% in the quarter ended June—a level last seen in Q4 FY15. Prices of several inputs inched higher sequentially, led by wheat flour (20%), industrial fuel (15%), packing material and palm oil (5%).
This caused gross margin to contract 120 basis points quarter-on-quarter to 36.1%. It fell 170 bps over the previous year and 400 bps from 2019 levels, down to the lowest level in at least 40 quarters. The gross margin dip was exacerbated by 15% year-on-year growth in other expenses. Employee cost, too, grew 6% year-on-year, resulting Ebitda margin to fall below estimates.
According to analysts, the first-quarter margin delivery would weigh on near-term share price. The company has taken a 10% price hike till Q4 FY22 and would have to take 6% more price hike to mitigate inflation, which could delay recovery in volumes. Margin, they said, is expected to normalise on the back of softening of input prices from peak levels.
Shares of Britannia rose as much as 1.6% but erased all gains to trade 0.06% lower as of 10:15 a.m. on Friday.
Of the 39 analysts tracking the company, 21 have a 'buy' rating, 14 recommend a 'hold' and four suggest a 'sell', according to Bloomberg data. The 12-month consensus price target implies a 1.5% upside.
Here's what analysts have to say about Britannia Industries' Q1 FY23 results.
Jefferies:
Maintains 'buy' with a target price of Rs 4,380 apiece, implying a potential upside of 16.2%.
Cuts FY23 earnings per share estimate by 3% to factor in Q1 miss.
Correction in some key input prices from peak levels should help, and margins are likely to see strong bounce-back starting H2 FY23.
New launches momentum remains strong; adjacencies did well with double-digit growth in cakes and ramp-up in dairy, croissant and international business. The company gained market share in biscuits.
Motilal Oswal
Downgrades to 'neutral' rating with a target price of Rs 3,670, implying a potential downside of 3%.
After displaying resilience in Q4 volumes despite steep price hikes, Britannia's Q1 FY23 result was disappointing.
With further price increases likely in Q2 FY23 (cumulative 6-7% price hike in H1 FY23), the effective price hike will be 20% YoY. This might delay the eventual volume recovery, especially in a price sensitive category like biscuit.
Ebitda margin was also notably lower than expectations at 13.5%.
There is no material change to our FY23 EPS estimate however, a likely realisation decline in FY24 after the over 20% YoY price hike (prudent for a price sensitive category) would translate into a muted sales growth even if volumes were to be healthy in FY24E.
This leads us to cut our FY24 EPS estimate by 5% even as we expect Ebitda margin to revive to historical highs (barring an unusually high level in FY21 led by a combination of stupendous in-home demand, low A&P spends, and benign material costs.
Valuation at 48.1x FY24E P/E appears rich given a tepid EPS CAGR of 11.7% over FY22-24E.
Dolat Capital
Downgrades to 'sell' rating with a target price of Rs 3,527, implying a potential downside of 7%.
Cuts FY23/24E EPS estimates at Rs 65.1/78.7 to factor in lower margins in Q1.
Efforts to reduce other operational costs and improve efficiencies is expected to help normalise margins.
New product launches and brand innovations (4.5% of sales) continue to remain the company's focus. These new products would help reduce dependency on conventional biscuit business and create new levers for growth (contribution expected to grow to 5% in near term).
Market share gains across key brands, especially in rural India is a key positive.