Britannia Shares Surge 9% after Q4 results; Should Investors Buy, Sell or Hold?

Britannia Industries was up 9 per cent after the company’s net profit increased 4.3 per cent YoY to Rs 379.9 crore in the March quarter. The total expenditure during the quarter was Rs 3,000.77 crore, which is higher by 14.3 per cent as compared with the same period last year. Consolidated operating profit for the fourth quarter was Rs 499 crore. registering with a growth of 10 per cent on a YoY basis. Profit before tax in Q4 FY22 stood at Rs 518.91 crore, up by 5.3 per cent from Rs 492.65 crore in Q4 FY21.

Varun Berry, managing director, said: “In this quarter, we delivered a robust top-line growth of 15 per cent and a mid-single-digit volume growth which demonstrates the resilience of our brands and a reflection of our execution strengths across divisions & channels.”

“We continued to accelerate our rural journey with a focus on enhancing the reach and sustaining our diligent market practices, which is evident in the consistent market share gains over the years. Our growth in organized trade channels remained robust, wherein revenues from E-commerce doubled over last year,” Berry said.

Berry explained, “We have progressed well in our journey of building technologically superior factories. In this context, I am pleased to announce that our new Dairy greenfield factory is on track for commercialization in the next few months. In addition, we are also in the process of setting up 3 greenfield units – in Uttar Pradesh, Tamil Nadu & Bihar.”

“The economy was impacted by global geo-political factors which caused a further surge in inflation this quarter. We continued to take price increases judiciously and remained aggressive on the cost front. We shall further take calibrated price increases and drive cost leadership to manage profitability,” he further stated.

The effect, Britannia’s consolidated operating revenue rose by 15.5 per cent y-o-y to Rs3508 crore. However, an increase in the costs of raw materials such as palm oil, packaging material etc. meant a drop in the gross margin by 243 basis points (bps) y-o-y to 38 per cent. One basis point is 0.01 per cent. However, on a sequential basis, the gross margin remained on the same levels as the period earlier, as it benefitted from long-term commodity contracts, point out analysts.

So far, so good. Cost pressures are biting and that means margin pressure would continue ahead. “Considering the further rise in commodity costs post-4QFY22 with veg-oil y-o-y price inflation likely >50 per cent for the next two quarters and wheat prices also trending upwards, we believe the bad news may not have fully ended as far as margin-pressures go,” said analysts from JM Financial Institutional Securities Ltd in a report on May 2.

Britannia Industries is one of India’s leading food companies. Its product portfolio includes biscuits, bread, cakes, rusk, and dairy products including cheese, beverages, milk, and yogurt.

Britannia Shares: What Should Investors Do?

Nomura lowered the FY23/24 EPS estimates by 7 per cent/3 per cent to factor in margin pressure, reported CNBC-TV18. The broking firm has maintained the ‘neutral’ rating on Britannia Industries and cut the target price to Rs 3,450 per share. The Q4 was marginally better versus estimates. The volumes were holding on, while sharp price hikes drive sales.

Morgan Stanley has kept the ‘equal-weight’ rating on Britannia Industries with a target at Rs 3,213 per share. The earnings were marginally ahead of estimates. Inflationary pressures will weigh on near-term margin & volume growth.