Corporation tax rate cut may save the day for Britannia in Q4, say analysts

Fast-moving consumer goods (FMCG) major Britannia Industries is expected to report a weak set of numbers for the quarter ended March 2020 (Q4FY20), owing to disruptions caused by Covid-19-induced lockdown. The company, according to analysts, may see up to 7 per cent volume decline in domestic business while revenue is likely to dip up to 4 per cent year-on-year (YoY). Reduction in corporate tax, however, is expected to drive up the net profit. The company is slated to announce its numbers on June 2 (Tuesday).

In April, Britannia announced an interim dividend of Rs 35 per share for the financial year 2019-20. At the bourses, shares of the company slipped 11.5 per cent during the January-March period as compared to a 28.6 per cent slump in the benchmark S&P BSE Sensex, exchange data shows.

Here's a look at what top brokerages expect from Britannia's March quarter numbers - 

Emkay Global Financial Services

The brokerage estimates a volume decline of 7 per cent in the domestic business and 5 per cent growth in subsidiary revenues. Moderation in wheat and skimmed milk powder (SMP) prices along with lower crude prices to maintain gross margins while cost savings and lower ad spend will aid sustain operating margins, it notes.

It estimates net sales to fall 4 per cent YoY and 10 per cent QoQ to Rs 2,687.1 crore while EBITDA is seen at Rs 416 crore, down 4.7 per cent YoY and 17.1 per cent QoQ. Net profit is projected to grow 4.7 per cent YoY to Rs 308.1 crore. On QoQ basis, the numbers are expected to decline 16.7 per cent.   

Kotak Securities

It expects net sales (revenue) to come in at Rs 2,903 crore, up 3.7 per cent YoY but down 2.7 per cent quarter-on-quarter (QoQ). EBITDA is seen at Rs 474.3 crore, up 8.6 per cent YoY but decline of 5.5 per cent QoQ. EBITDA margin is estimated at 16.3 per cent, up 74 basis points (bps) on the back of cost rationalization measures. On QoQ basis, it is expected to drop 50 bps.

The brokerage expects profit before tax (PBT) to come in at Rs 471.1 crore, up 4.6 per cent YoY and down 5.2 per cent QoQ while net profit is projected to grow 14.9 per cent YoY at Rs 341.5 crore. Sequentially, the numbers will slip by 8.4 per cent.

It sees 4.1 per cent topline growth in the standalone business. Additionally, weaker performance in the international business is expected to further drag consolidated performance.

HDFC Securities

The brokerage expects net sales to come in at Rs 2,740 crore, down 2 per cent YoY. EBITDA is expected to fall 4 per cent YoY and 16.5 per cent QoQ to Rs 420 crore while EBITDA margin is seen at 15.3 per cent, down 33 bps YoY and 156 bps QoQ. Adjusted PAT or net profit is estimated to grow 9.5 per cent YoY to Rs 320 crore. On QoQ basis, it is expected to fall 13 per cent.

Change in competitiveness post GST, especially after a rise in taxes in the value segment and commentary on new launches are some of the key things to watch out for in the results announcements.

Centrum Broking

The brokerage estimates Britannia’s revenue to increase 5.1 per cent YoY to Rs 2,903.8 crore, led by 3 per cent domestic volume growth and the rest from product and price mix change. In the base quarter Q4FY19, volume growth came in at 7%. "Recently, we saw sharp increase in its key raw material prices – Crude palm Oil (+28%), Wheat (+7%), Milk powder (+33%) and Sugar (+6%); however in 4QFY20, the company has taken adequate cover for such commodities including wheat flour," Centrum Broking notes.

It has built-in 11.8 per cent growth in earnings before interest, taxes, depreciation, and amortisation (EBITDA) at Rs 488.1 crore, expecting EBITDA margin to expand nearly 101 bps YoY to 16.8 per cent, assuming lower ad-spends, and higher supply chain efficiencies. It sees net profit at Rs 344.9 crore, up 18.4 per cent owing to lower tax rate benefits.