Britannia surges 7%, hits new high as Q4 nos come in-line with expectations

Shares of Britannia Industries surged over 7 per cent to hit a new high of Rs 3,704.55 apiece on the BSE on Wednesday, a day after the company reported largely in-line numbers for the fourth quarter (Q4FY20) of the last financial year, despite the lockdown hitting revenue and profit growth by 7-10 per cent. 

At 09:25 am, the stock was trading nearly 6.5 per cent higher at Rs 3,657.55 on the BSE. In comparison, the benchmark S&P BSE Sensex was ruling 1.5 per cent higher at 34,325-mark. 

Britannia's profit before tax (PBT) stood at Rs 457.27 crore for Q4 — a marginal rise of 1.6 per cent year-on-year (YoY). However, consolidated net profit rose 26.5 per cent to Rs 372.35 crore from Rs 294.27 crore helped by a lower tax outgo, with the firm migrating to the new tax regime. On sequential basis, it remained flat during this period. CLICK TO READ FULL REPORT

Revenue rose 2.9 per cent to Rs 2,946 crore, against Rs 2,861 crore last year. Sequentially, however, it declined by 3.3 per cent.

The FMCG major said that after the initial hiccups, the firm coped up well and witnessed 20 per cent rise in revenues in April, and 28 per cent in May — both year-on-year (YoY) — aided by several measures.

“After nine months of moderate growth, we started seeing a revival in the first two months of this quarter, which was then hit by the pandemic. The lockdown affected revenue and net profit growth by 7-10 per cent. During this period, we continued to gain market share through our focus on distribution, diligence in marketplace, and brand-building through focussed product campaigns,” said Varun Berry, managing director of Britannia.

The management also indicated moderate inflation in the prices of key raw materials for the bakery business. Commodity prices at the global level witnessed moderation due to low demand on account of lockdown in most parts across the world.

As per news reports, global brokerage firm Credit Suisse has maintained "Neutral" rating on the stock with the target price of Rs 3,450 apiece. The brokerage says that revenue growth of over 20 per cent in April and May is a big positive for the company. It further observes that input costs have softened and the company has put in place cost-reduction measures.

On the other hand, analysts at ICICI Securities note that flat volumes in Q4 (their estimate) was in-line with consensus expectations but below other food companies – +7% for Nestlé, +25% for Saffola (Marico), +5% for Tata Consumer (India beverages). Also, "capital allocation concerns remain – Rs 8 billion debt (ex-NCDs) despite Rs 29 billion investments and Rs 11 billion inter-corporate deposits (ICDS). As per policy of renewing ICDs every year, Britannia redeemed Rs 12 billion and placed Rs 13 billion of fresh ICDs in FY20." The brokerage retains REDUCE rating on the stock with the target price of Rs 3,000. 

JM Financial notes that although there was an impact on sales during late-March (-40-50%), growth for April-May just about exploded at 20 per cent and 28 per cent, respectively. It might be due to factors such as pantry up-stocking, increased consumption since most people are at home), feeding migrant workers, etc, it says. 

"Even more interesting is the fact that Britannia has been able to fulfill the demand, given that logistics and supply-chain were bigger challenges than demand in recent months," the brokerage notes. 

It notes that the stock is likely to do well on the back of such a performance though valuation is no longer as comfortable as it used to be earlier. Some small nagging balance-sheet related issues continue to exist but these are likely to get overlooked for now. It has maintained a "BUY" rating on the stock and has upgraded the target price to Rs 3,500 for the next 12 months from Rs 3,210 earlier.