Britannia shares continue northward journey

Nusli Wadia-promoted Britannia Industries continued its northward journey on bourses for the second day today. The company’s shares closed 1.42 per cent, or Rs 29.60, higher at Rs 2,120.30.

However, the Bombay Stock Exchange’s FMCG (fast moving consumer goods) Index was down 23 points at 3,241.60. While Hindustan Unilever closed 0.02 per cent up at Rs 253.60, ITC was down 1.46 per cent at Rs 154.10.

Incidentally, rumours concerning a share buyback and issue of bonus shares by Britannia persist, despite the company declining to comment about it. “We do not comment on market speculation,” a company spokesperson said today.

The 6.26 per cent run-up in stock price yesterday was attributed to the above, though some analysts said it could also be in anticipation of a better financial performance for the June quarter, due to softening of input prices, especially sugar, in the last few months.

Britannia is yet to declare its financial results for the first quarter of this financial year. The Annual General Meeting is slated for August 9.

As per its cash flow statement for the financial year 2009-10, the company had cash and cash equivalents of Rs 279.64 crore (including cash and bank balance of Rs 23.36 crore and current investments of Rs 256.2 crore), while its share capital, and reserves and surplus, according to its 2009-10 balance sheet, stood at Rs 23.89 crore and Rs 372.36 crore, respectively. A company, for the record, can’t exceed 25 per cent of the paid-up share capital or the paid-up share capital plus reserves and surplus, whichever is higher, while doing a buyback.

As far as the company’s financial performance is concerned, its gross margins have come down by 200-300 basis points since sugar prices began escalating at the end of last year. From then to now, sugar prices have come down over 30 per cent, but continue to be on the higher side, when compared on a year-on-year basis. For instance, at this time last year, a kilo gram (kg) of sugar cost Rs 22-23, which went up to Rs 40-45 a kg at the end of last year. Now, a kg of sugar costs about Rs 25. “So, on a year-on-year basis, the rise is about 13-14 per cent,” pointed out Arnab Mitra, FMCG analyst at brokerage firm India Infoline. “Which is why,” he said, “companies are not likely to bring down product prices, despite a softening in the sugar price sequentially.”

Like most key consumers of sugar, Britannia has increased its biscuit prices by 5-10 per cent in the last few months to be able to deal with input cost pressures. In a May 2010 interview to Business Standard, Britannia’s Managing Director, Vinita Bali, had admitted the company had taken four to five rounds of price hikes to deal with input cost pressures.

Bali had stressed that the concern had shifted from sugar to wheat and milk. “Wheat is a bit of concern because the quality of grains is small on account of the heat wave in the North. Milk prices, on the other hand, have shot up to as high as 35 per cent between last year and now in states such as Maharashtra. This is a bit worrisome,” she had said. “I am hoping the whole food and food pricing scenario will stabilise shortly.”