Total operating revenue increased by 5% over the same period last year to  ₹2,983 crore. (Priyanka Parashar/Mint)
Total operating revenue increased by 5% over the same period last year to 2,983 crore. (Priyanka Parashar/Mint)

Britannia Industries’ shares turn soft after December quarter show

  • The stock, which fell nearly 3% on Monday, trades at 46 times FY21 estimated earnings, as per Bloomberg
  • Notwithstanding the improvement in Ebitda margin, higher finance costs took a toll on pre-tax and exceptional item profit, which increased by 6.5%

Shares of food company Britannia Industries Ltd declined nearly 3% on the National Stock Exchange on Monday. The firm, which also makes Good Day biscuits, failed to impress investors with its December quarter results.

Total operating revenue increased by 5% over the same period last year to 2,983 crore. Revenue performance fell short of some analysts’ expectations.

“Revenue growth trajectory decelerated even though base is now much more favourable. The pain in the environment seems to be really catching up hard," wrote analysts at JM Financial Institutional Securities Ltd in a report on 7 December.

Note that the Britannia Industries stock has gained as much as 37% from its 52-week low seen on 21 August. According to Bloomberg, the stock trades at nearly 46 times estimated earnings for FY21. In general, consumer firms’ stocks are pricey and Britannia Industries is no exception.

Graphic by Satish Kumar/Mint
Graphic by Satish Kumar/Mint

Not only that, outlook isn’t hunky-dory. According to Nitin Gupta, an analyst at SBICAP Securities Ltd, “Post budget, the demand recovery that everyone was expecting has been pushed further. With the recovery delayed, Britannia’s revenue growth is likely to be in single digits, going ahead."

In short, a rerating is not on the cards soon. “There is a concern on the inter-corporate deposits or ICDs as well with the management guiding for a reduction a few quarters ago. The ICDs have been maintained," added Gupta.

Coming back to the December quarter results, a modest 1.7% decline in other expenses proved to be quite helpful. It lifted Ebitda (earnings before interest, tax, depreciation and amortization) margin by 94 basis points year-on-year to 16.8%. Ebitda increased by 11%. This was achieved despite a 44 basis points decline in gross profit margin. A basis point is one-hundredth of a percentage point.

“On the cost front, we witnessed moderate inflation in the prices of key raw materials for the bakery business. There was a significant increase in milk prices which impacted our dairy business," Varun Berry, managing director of Britannia Industries, said in a press statement.

Notwithstanding the improvement in Ebitda margin, higher finance costs took a toll on pre-tax and exceptional item profit, which increased by 6.5%.

“Stock seems to lack trigger at this point of time, in our view," pointed out analysts at JM Financial.

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