Easing commodity prices likely to support margins of Britannia Industries

Despite muted volumes in Q1FY26, brokerages see upside in Britannia's margins as input cost pressures ease and pricing actions continue to support profitability

Led by an uptick in pricing, consumer major Britannia Industries reported a robust growth in revenues for the first quarter of 2025-26 (Q1FY26). While overall growth was strong, what disappointed the Street was the muted volumes and pressure on profitability. Though results were a mixed bag, brokerages are positive on the stock given the expectations of steady revenue growth and improvement in margins on lower raw material costs. 

Overall sales growth for the packaged foods major came in at 8.8 per cent year-on-year (Y-o-Y) to ₹4,622 crore and was in line with Street expectations. While transaction growth was strong at 12.2 per cent, volume growth was muted at 2 per cent. The rural market posted strong double-digit growth and outperformed the urban market, which grew in high single digits. The company expects the value-volume gap, which was at 7-8 per cent, to remain for a few quarters. 

Brokerages such as BOB Capital Markets expect volume to remain soft in the near term. While inflation is being offset with pricing, efficiencies and fiscal incentives, Lokesh Gusain of the brokerage expects volume growth to remain soft unless consumer spending picks up meaningfully to reduce the impact of elasticity. 

Going ahead, ICICI Securities Research, which has an “Add” rating, believes that an expansion in rural reach, the ongoing distribution transformation, and sustained momentum in adjacencies (rusk, wafers, croissants) remain key positives. Key monitorables, according to analysts led by Manoj Menon of the brokerage, include pace of urban recovery, profitability, innovation pipeline, and volume momentum in the core biscuit portfolio. 

 

While the top-line show was in line with the Street’s expectations, the operating performance was under pressure due to lower gross margins and higher-than-estimated overhead costs.

 

Gross margins contracted by 310 basis points (bps) Y-o-Y to 40.3 per cent due to sharp hike in raw material costs. While palm oil costs were up 45 per cent, cocoa was up 35 per cent, and flour was up 8 per cent.

 

The company was, however, able to restrict the fall in operating profit margins to 140 bps at 16.4 per cent. While employee costs went up by 50 bps Y-o-Y, it was more than offset by other expenses that fell by 220 bps. The company rationalised its advertising and promotion spends to counter some of the inflationary pressures. Given that commodity costs have stabilised and the company has taken price hikes earlier, analysts expect margins to improve going ahead.

 

Though Nirmal Bang Research is bullish on growth in the packaged foods space in India, especially given the huge addressable market and significant investments being made by key players, it has a “Hold” rating on the company. Britannia valuations at 47.8 times FY27 earnings do not leave much room for significant upside, say Krishnan Sambamoorthy and Sunny Bhadra of the brokerage.

 

Kotak Research has an “Add” rating. With pricing in place and some easing of raw material prices, Britannia is well-placed to deliver steady revenue growth with some improvement in margins going forward, say analysts led by Jaykumar Doshi of the brokerage.