Britannia Industries Limited Q1 FY23 Result Updates. Net profit growth driven by increase in prices.

Britannia Industries Limited Q1 FY23 Result Updates.
Net profit growth driven by increase in prices.

Britannia Industries Limited reported a net profit of Rs. 337.4 crores, declined by 11.2% YoY from Rs. 389.6 crores and sequentially fell by 11.2% QoQ from Rs. 379.9 crores in the previous quarter. The net profit margin stood at 9.1%, declined by 158 bps QoQ and 233 bps YoY.
The revenue for the June quarter stood at Rs. 3701 crores, up by 8.7% YoY from Rs. 3403.5 crores and increased by 4.2% QoQ from Rs. 3550.5 crores.
The Earnings before interest, tax, depreciation, and amortization stood at Rs. 500.7 crores from Rs. 553.8 crores down by 9.6% YoY and from Rs. 549.7 crores down by 8.9% QoQ. The EBITDA margin is 13.5%, down by 195 bps QoQ and 274 bps YoY.

Commodity cost inflation impact margins.

Volume decline YoY has been in small single digit in Q1FY23, while total price increase would be over 20.0% YoY. Number of packages sold was flat. Biscuits being the cheapest form of snacking has relatively fared better, which has helped the company in not seeing a big drop in the topline. Despite the price increases, the company has not seen any big impact on the volumes. It has seen good traction in urban as well as rural markets. The growth in premium categories is faster than the bottom of the pyramid. Britannia’s adjacent businesses have continued to perform well in Q1FY23. Cakes have grown in double-digit in volume as well as value terms. Dairy business has also seen double-digit growth in the quarter with “Winkin Cow” growing at 140.0% YoY. Britannia has consistently gained market share over the last 36 quarters. Market share gain was better in rural than urban, as Britannia further expanded its rural reach which now stands at 27,000 rural preferred dealers.

Commodities such as Wheat & Industrial fuel witnessed sequential inflation in the range of 15.0% to 20.0% in Q1FY23. To mitigate the impact of cost inflation, Britannia has taken continuous price increases in Q1FY23 as well as Q2FY23. It has also accelerated its cost efficiency programs and plans to deliver cost savings to the tune of 3.0% of revenue in FY23. Softening of commodity prices and full effect of the price increases taken by Britannia should result in margin improvement in coming quarters.

Q1FY23 had consumer food price inflation of 8.0% YoY. By 30th June 2022, wheat inflation has come down to 50.0%. Similarly, for palm oil, on the same base of Q3FY21, inflation for Q4FY22 / Q1FY23 was 80.0%/ 90.0% respectively, which came down to 50.0% by 30th June 2022. Other key raw materials such as industrial fuel and packing material also saw QoQ jump in inflation in Q1FY23. To mitigate the cost inflation, Britannia has taken price increases. Britannia has seen market share gains consistently over last 36 quarters and seeing good performance in rural India as well. Britannia is seeing good traction in Adjacent businesses with double-digit volume & value growth in cakes, profitable growth in breads, double digit growth in dairy, national scale up for croissants, and good performance in international markets. In the domestic business, currently the contribution of biscuits and bakery adjacencies is 80%: 20% respectively. Cost efficiency efforts in Q1FY23 were on the lines of reduction in distance to market, improvement in truck utilization, reduction in power costs, and reduction in market returns.

The shares of Britannia Industries Limited are trading at Rs. 3639, down by 1.01%.

Valuations:

The return on equity (ROE) is 49.7% for the quarter ended June 2022. The price-to-earning (P/E) ratio stood at 59.8. The return on capital employed (ROCE) for the company is 41.5%. The price to book value of Britannia Industries Limited is 34.2. The EV/EBITDA is 38. EPS during the quarter came at Rs. 61.1.