Britannia Q2 net down 23% due to rising palm oil, fuel prices

The company's cost of materials increased 8% from Rs 1,768 crore in Q2FY21 to Rs 1,915 crore in the corresponding quarter of FY22

Britannia’s net profit, attributable to the shareholders of the company, plunged 23 per cent to Rs 384 crore in the quarter ended September, compared to Rs 498 crore in the year-ago period as inflation pushed up the prices of palm oil, industrial fuel and packaging.

The company’s cost of materials increased 8 per cent from Rs 1,768 crore in the September quarter last year to Rs 1,915 crore in the corresponding quarter of FY22.

The FMCG major’s sales, however, rose 6 per cent to Rs 3,554 crore in Q2 from Rs 3,352 crore in the same period last year. The company said that on a 24-month basis (for six months ended 30th September 2021), consolidated sales and net profit grew 21 per cent and 18 per cent, respectively.

Varun Berry, managing director of Britannia, said: “On the cost front, the global economy continued to witness supply led constraints across various input materials fuelling inflation. As a result, we are witnessing unprecedented inflation in market prices of palm oil at 54 per cent, industrial fuel at 35 per cent and packaging materials at 30 per cent, leading to an overall inflation in the quarter of approximately 14 per cent.”

“During the quarter, the impact of the second wave of Covid-19 started receding, and the economic activity started picking up. However, inflationary trends remained rampant around the globe, across sectors,” he added.

While the company has been able to partially mitigate the impact through accelerated cost efficiency programs, it has also initiated price increases across its portfolio of products to improve profitability.

Abneesh Roy, executive vice president at brokerage firm Edelweiss Securities, said: “Nestle and Hindustan Unilever, its peers in the packaged foods space have done better in managing margins. Britannia’s gross margin and EBITDA margin were compressed by 485 basis points and 428 basis points,  respectively, on a year on year basis.”