How biscuits help Britannia get an edge over peers

“Biscuits remain among the few favoured categories due to potential down-trading from street food, spike in travel, and schools making a full-scale comeback," said Edelweiss Securities in a report dated 20 September. It helps that Britannia continues to see market share gains in this category.

The ₹5 and ₹10 packs form roughly 50-55% of the company’s total mix. “The consumer stickiness to such products makes the company relatively less vulnerable to high levels of inflation," said Varun Singh, analyst at IDBI Capital Market & Securities.

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Further, the rural market had performed well for Britannia in Q1 and the company is focusing on increasing its reach there.

“(Britannia’s) deepening distribution network, particularly in rural areas, with a focus on driving growth in states it has a weak standing in, such as Gujarat, Madhya Pradesh, Uttar Pradesh, and Rajasthan, would hold it in good stead," pointed out Edelweiss.

Whether the favourable rural demand trends persist in Q2 needs closer tracking. In Q1, Britannia’s overall volumes are estimated to have dropped by 2% year-on-year. In its Q1 earnings call, the company said it hiked prices by about 20% over the past few quarters. Against this backdrop, the extent of recovery in volumes remains to be seen in Q2.

On the margin front, the drop in palm oil prices by 54% from the peak seen in March is helpful. Wheat prices have also corrected. Even so, analysts reckon, higher milk prices pose a threat.

Consolidated gross margin at 36.9% in Q1 was at a multi-quarter low because of higher input prices. Price hikes and cost control measures may aid margin expansion.

Meanwhile, Britannia’s entry into new segments and the transition to a total foods company is a key monitorable. Here, its execution capabilities will be in focus.

From their 52-week lows in March, Britannia’s shares have risen by 23.5%, though they have fallen nearly 8% in the past year. Investors await strong volume growth and recovery in margins. On the flip side, either muted response to its new products or renewed rise in raw material prices are looming risks. Bloomberg data shows the stock trades at 43.6 times estimated earnings for FY24. That is not exactly cheap.

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