Britannia Sep quarter: With good pricing, come good results

Britannia Industries Ltd’s results for the September quarter (Q2FY23) cheered traders with shares leaping by 9% on Monday. The Q2 numbers have prompted analysts to boost their earnings estimates for FY23-24E.

The outperformance was led by pricing progress, to start with. Britannia delivered on margin enchancment one quarter forward, largely helped by a gutsy 17% year-on-year (y-o-y) pricing progress, which interprets to an incremental in-quarter price-hike of 9-10%, identified analysts from JM Financial Institutional Securities.

Turning tide

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Turning tide

Volume grew by mid-single digit, indicating that pricing actions had been absorbed regardless of the general muted demand surroundings. Britannia continues to achieve market share, which touched a 15-year excessive in Q2.

The resilience of biscuits, regardless of it being a phase that caters to the lots and has a big rural salience, is confounding, mentioned JM’s analysts. This is in an surroundings the place fast-moving client items friends, particularly the house and private care ones, are alluding to persistent retail inflation hitting demand for low-priced items quite badly, they mentioned.

It stays to be seen if such quantity progress persists, however Britannia is optimistic as biscuits are a less expensive type of snacks. The firm’s go-to-market technique and growing distribution attain would help progress.

“Britannia’s income progress is price-led in Q2FY23. We anticipate this pattern to proceed within the close to time period. As costs of sure uncooked supplies are softening, the incremental strain to boost costs appears to be low,” mentioned Kunal Vora, head of India fairness analysis, BNP Paribas Securities India.

A fall in enter prices would assist Britannia’s margin in H2FY23. Prices of palm oil have fallen sharply from latest peaks. However, costs of different key commodities resembling wheat, sugar and milk are nonetheless excessive.

In Q2, uncooked materials inflation rose 3% sequentially, taking the cumulative inflation over the past seven quarters to 32%, in response to Britannia. However, hikes in product value helped the robust progress in Q2 income. Q2 gross margin rose by 205 foundation factors from Q1. Ramping up of recent merchandise would imply an increase in promoting and promotion spends. Given this, Ebitda margin can be key to trace.

As the inventory is hovering close to 52-week highs, giant near-term upsides could also be capped. Success in new launches might fetch brownie factors. The inventory trades at 47.5 occasions estimated earnings for FY24, present Bloomberg information.

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