Britannia’s steady 3Q09 results show revenue and PAT growth of 25% and 8%, respectively.
With a 3QFY09 25% revenue growth y-o-y, Britannia’s strong growth momentum continued. Volumes accounted for around 12% and price hikes the rest.
The re-launch of some SKUs and the launch of variants helped maintain the growth momentum. For the third straight quarter Britannia has reported higher revenue growth than ITC’s Sunfeast.
Higher raw material prices, especially packaging, and edible oils kept EBITDA margins down 100bps. PAT grew only 8%. Besides the lower margin, higher income taxes (14% vs 11% a year ago) led to lower PAT growth.
We expect strong revenue growth to continue, from continuing product launches and variants. Lower raw material costs and less competition from organised players should help to raise margins.
We raise our FY10 net profit estimates, by 6%, to factor in lower costs of raw materials and maintain a BUY but raise target price from Rs1,516 to Rs1,750.
We increase the target multiple from 14x to 15x to reflect higher earnings and a better RoE due to lower raw material prices.