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Recommendations India

Britannia Industries Q3FY14 results update

February 19, 2014, Wednesday, 10:09 GMT | 05:09 EST | 14:39 IST | 17:09 SGT
Contributed by Nirmal Bang

…And the celebration continues!

- Britannia reported strong consolidated results in terms of PAT; Net Sales/Gross Profit/EBITDA/APAT grew by 10.2%/15.4%/54.4%/62.1%.

- Sustained EBITDA growth led by healthy sales growth, Gross margin expansion by 180bps YoY and tight cost control led decline in other operating costs by 50bps YoY resulted into a 260bps YoY jump in EBITDA margin to 9% in Q3FY14.

- With tight cost control, efforts to plug portfolio gaps and sales mix improvement, we believe Britannia will continue to report sustainable EBITDA margin going forward. We expect consolidated EBITDA margin to be 9%/9.3% in FY14E/FY15E respectively.

- We retain our target price of Rs. 1061 (FY15E PE 26x) and a HOLD rating.

Revenue growth slightly lower: Britannia has reported a consolidated net revenue growth of 10.2% YoY to Rs. 1771.9cr and by 1.8% QoQ, led by estimated single digit volume growth, price hike and product mix improvement. In standalone level, net revenue grew by 11.1% YoY to Rs. 1614.4cr and by 1.3% QoQ.

Sustained EBITDA margin expansion for the past four quarters: Britannia has reported yet another strong quarter with consistent improvement in operating margin. Consolidated EBITDA growth inclined by 54.4% YoY to Rs 159.8cr and marginally decline by 0.6% QoQ. EBITDA margin improved by 260bps YoY to 9% in Q3FY14 and down by 20bps QoQ. The margin expansion is backed by underlying portfolio premiumization. Gross margin improved by 180bps YoY to 38.6% in Q3FY14 and down by 100bps QoQ. In addition, standalone EBITDA margin improved by 280bps YoY to 9.2% in Q3FY14 and down by 40bps QoQ.

PAT growth above estimates: Despite higher tax outgo by 230bps YoY to 29.6% in Q3FY14, depreciation cost by 11.7% YoY to Rs 21.2cr and lower Other income by 64.5% YoY to Rs 4.6cr, consolidated PAT grew by 61.5% YoY to Rs 100.3cr and by 2.7% QoQ due to decline in interest cost by 87.7% YoY and higher EBITDA growth. PAT margin grew by 180bps YoY to 5.7% in Q3FY14 and by 10bps QoQ. Standalone PAT grew by 69.1% YoY to Rs 96.3cr and by 0.7% QoQ. PAT margin grew by 210bps YoY to 6% in Q3FY14 and flat QoQ.

Valuation & Recommendation

We believe that, Britannia appears to have hit a sweet spot in its strategy of using price hikes and a richer product mix (new and premium products) to combat rising costs. Britannia’s focused effort to drive efficiencies in back-end through cost management program is yielding benefits. We feel that the company will be able to sustain the operating margin going forward on the back of benign commodity price (due to better monsoon) and change in sales mix; in our view. Thus, we feel that the company still has a potential to continue its momentum owing to strong brand portfolio, sales mix improvement, cost cutting initiatives and cash generation from its subsidiaries. At CMP of Rs. 915, stock is trading at 28.2x/23.4x PE for FY14E/FY15E respectively.