Q1 results: New launches to spur Britannia volumes, sales jump 14%

Driven by strong volume growth, Britannia reported June quarter numbers that were broadly in line with estimates. On the back of a 12.5 per cent volume growth and a better product mix, net sales of the company were up 14 per cent, albeit on a lower base. 

The company had reported volume growth of three per cent in year-ago quarter due to disruption of the trade channel, on account of the goods and services tax roll-out. 

The management highlighted that the double digit volume growth was due to investments in brands and widening of distribution network, especially in the rural market. 

Analysts say that in addition to new product launches and premiumisation efforts, the company is going deeper into rural markets — especially in the hindi-speaking belt. 

Volume growth in FY18 was the highest in Rajasthan, Madhya Pradesh and Uttar Pradesh, and is key for Britannia that lags its peers in rural share and penetration.

Analysts believe that the company, which has recorded an average volume growth of 9.3 per cent over the last two years, is expected to post volume growth in double digits over the next couple of years — led by a strong pipeline of products. 

The company is planning to launch 50 new products in FY19, which will take its total product range to about 150, as compared to 85 in FY17. 

In addition to new products, lower priced packs of premium products is also expected to get new customers and improve volumes, going ahead. 

What could add to the overall growth is gradual uptick in the diary business as well as international revenues (single-digit contribution to its overall revenues). 

While the slowdown in Africa and West Asian business impacted revenues, the transition to a being value-added player in the dairy business has dented its June quarter revenues. 

Volume growth is also expected to reflect on its profitability. 

Margins in the June quarter, which were up 79 basis points to 15.3 per cent, are expected to improve on the back of increasing operational efficiencies as well as higher share of premium products in the portfolio.

The Britannia stock, which shed about a per cent in trade on Monday, is trading at 44 times its FY20 earnings estimates. Investors could look at the stock on dips.