Street gives big-hearted welcome to Britannia Industries' Q4 results

The FMCG sector in general may have seen a poor year in terms of demand but there's analyst consensus demand is picking up and the worst may be behind the sector

FMCG major Britannia Industries’ results for the January-March quarter (Q4) of the financial year 2023-24 (FY24) were received enthusiastically by the market with the share going up by 6.7 per cent on Monday to close at Rs 5,061.60 on the BSE. However, analysts said the results were in line with margins, and disappointing in terms of revenue growth. The consolidated net sales (excluding other operating income) rose 3 per cent year-on-year (Y-o-Y) to Rs 4,010 crore in Q4. Other operating income declined 58 per cent Y-o-Y with consolidated total sales (including Other Operating Income) up 1.1 per cent Y-o-Y to Rs 4,070 crore – the four-year CAGR (compounded annual growth rate) was 9 per cent.

The consolidated Ebitda, PBT and Adjusted PAT declined 2 per cent, 3 per cent and 4 per cent Y-o-Y respectively to Rs 790 crore, Rs 740 crore and Rs 540 crore during Q4. Ebitda is earnings before interest, tax, depreciation and amortisation; PBT is profit before tax; and PAT is profit after tax. Consolidated gross margin was flat Y-o-Y and rose 100 basis points (bps) Q-o-Q (quarter-on-quarter) to 44.9 per cent but the Ebitda margin contracted 50 bps Y-o-Y to 19.4 per cent.

For the full year (FY24), Britannia’s net sales, Ebitda and PAT grew 3 per cent, 12 per cent and 10 per cent, respectively to Rs 16,770 crore, Rs 3,170 crore and Rs 2,140 crore. The final dividend proposed was Rs 73.5 per share.

Employee cost was down 30 bps Y-o-Y while other overheads were up 80 bps Y-o-Y as a per cent of revenue. Increased Advertising & Promotion in Q4 was visible. The company’s market share revived as it took price cuts to remain competitive and gain market share. Volume growth may be in mid-single digits (5-6 per cent). During the quarter, the biscuits-to-dairy major which sells products under brands such as Good Day, Jim Jam, Little Hearts, Tiger, 50-50, Marie Gold, Pure Magic and many more, expanded its distribution network to 2.79 million outlets, and it added 2,000 rural distributors over the full year.

Both e-commerce and modern trade registered double-digit growth. The modern trade and e-com combined contribution to overall business is around 15 per cent, with e-commerce at around 3.5 per cent. The Cost Efficiency Programme continues to yield operational savings of about 2 per cent of revenue, ensuring better margins.

New launches in Q4 included Good Day Fruit & Nut Cookies, Cake Rusk and Bourbon milkshake, and launches of Good Day Fruit and Nut only for Modern Trade. In FY25, the focus will be on expanding current categories. The target share for new products is 3.5 per cent of overall revenues. FY25 will have a target of double-digit volume growth, with the expectation of better demand and better pricing post-monsoon. Margins are likely to be maintained despite the volume focus.

Overall commodity costs remained soft in Q4. The wheat outlook could be inflationary given government procurement, and so could sugar. But this may be balanced by soft palm oil, laminates and corrugates expenses.

The FMCG sector in general may have seen a poor year in terms of demand but there’s an analyst consensus demand is picking up and the worst may be behind the sector. It is also likely big majors will gain market share if demand does pick up since price premiumisation will be easier.

On the positive side, Q4 volume growth was more than 2x the revenue gain, and for the full year (FY24), volume growth matched revenue gain. The target for adjacencies (non-biscuits), which now contributes 25 per cent, is to grow at 1.5x the pace of biscuits. This includes cake, rusk, cheese, and lassi. Cake, rusk, dairy, and bread are about the same contribution – combined revenues would be around Rs 800-1,000 crore in Q4.

The international business continues to do well with the growth led by the GCC (Gulf Cooperation Council) and America. Nepal is also on a consistent growth path, both in revenues and profitability. Bullish investors are expecting market share gains and overall volume growth as demand revives. According to Bloomberg, 7 out of 14 analysts polled post results (announced on Friday evening) are bullish; one is bearish and six have neutral/hold ratings. Their average one-year target price is Rs 5,341.