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| Britannia: Crunch time |
| Shobhana Subramanian / Mumbai Sep 05, 2009, 01:58 IST |
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With the price of sugar up 40 per cent year-on-year and unlikely to fall in a hurry, biscuit maker Britannia’s operating margins are unlikely to expand this year and may even contract slightly. Sugar accounts for just above 20 per cent of the company’s raw material costs. Even in 2008-09, a fairly good year, Britannia’s operating margins came off by about 30 basis points to 8.9 per cent. What’s worrying is that the company’s sales in the June 2009 quarter were up just 5.5 per cent to Rs 731 crore, the slowest revenue growth in over three years. With the raw materials bill (including the cost of good purchased) flat, the operating margins were just about steady at 8.2 per cent. That meant a rise in the operating profit of just under 4 per cent. If the net profit was up 18.5 per cent, it was only because of higher other income.
 The growth in sales of biscuits fell to 11.7 per cent in the last six months of 2008-09 from 14 per cent in the first half of the year and the management believes growth in the category could be more sedate this year.
Last year, volumes (tonnage) were up around 8 per cent and that, together with better realisations of around 9 per cent, resulted in revenues increasing by about 21 per cent to Rs 3,127 crore. Revenues in the current year are unlikely to grow as much, given the less than normal monsoon in many parts of the country and the high inflation in food items.
It’s also unlikely that Britannia will be able to take any price increases because that would make products from regional players, as also private labels of organised retailers, more competitive. As such, revenues could grow by about 15 per cent. With operating margins expected at around 8.5 per cent, the net profit should increase by just under 10 per cent. At the current price of Rs 1,667, the stock trades at 18 times estimated 2009-10 earnings and is expensive.
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