Nobody expected much from consumer goods firms for the March quarter. Therefore, the financial results of Britannia Industries Ltd are not disappointing, even though they are far from being encouraging.

The company’s domestic volumes grew 7% year-on-year in the March quarter, broadly in line with estimates. Investor expectations had softened after December quarter volume growth came in at 7%, missing expectations.

Consolidated revenue for the quarter increased 10.3% to 2,799 crore. International business was restrained, witnessing single-digit growth due to a slowdown in business in the Middle East. Profit growth was more or less in line with revenue growth, as a slight decline in margins was offset by higher other income.

Management commentary during the earnings conference call on demand outlook was lacklustre. Rural demand, too, did not offer much assurance.

“We have seen a slowdown in the market in recent months," said the Britannia management in a press release. Analysts, however, point out that the company has gained market share from competitors such as Parle Products Pvt. Ltd in a declining market.

This has been aided by new launches, which have boosted sales. In the March quarter, the company launched Treat Burst, Treat Stars, Whole Wheat Marie and Milk Bikis Choco Cream.

“Britannia continues to gain market share in its core biscuits category, coupled with a stepped-up focus on building new categories," said analysts from Jefferies India Pvt. Ltd in a report on 2 May.

But new launches also mean higher marketing expenses, which is why margins fell in the March quarter. “While new categories would aid topline growth in the near term, they would restrict margin expansion given investments needed in the scale-up," added the Jefferies India report.

Nobody expected much from consumer goods firms for the March quarter. Therefore, the financial results of Britannia Industries Ltd are not disappointing, even though they are far from being encouraging.

The company’s domestic volumes grew 7% year-on-year in the March quarter, broadly in line with estimates. Investor expectations had softened after December quarter volume growth came in at 7%, missing expectations.

Consolidated revenue for the quarter increased 10.3% to 2,799 crore. International business was restrained, witnessing single-digit growth due to a slowdown in business in the Middle East. Profit growth was more or less in line with revenue growth, as a slight decline in margins was offset by higher other income.

Management commentary during the earnings conference call on demand outlook was lacklustre. Rural demand, too, did not offer much assurance.

“We have seen a slowdown in the market in recent months," said the Britannia management in a press release. Analysts, however, point out that the company has gained market share from competitors such as Parle Products Pvt. Ltd in a declining market.

This has been aided by new launches, which have boosted sales. In the March quarter, the company launched Treat Burst, Treat Stars, Whole Wheat Marie and Milk Bikis Choco Cream.

“Britannia continues to gain market share in its core biscuits category, coupled with a stepped-up focus on building new categories," said analysts from Jefferies India Pvt. Ltd in a report on 2 May.

But new launches also mean higher marketing expenses, which is why margins fell in the March quarter. “While new categories would aid topline growth in the near term, they would restrict margin expansion given investments needed in the scale-up," added the Jefferies India report.


There are some other worries as well. “We have concerns on the increase in ICD (inter-corporate deposits) to group companies over FY2015-18," wrote analysts from ICICI Securities Ltd in a report on 2 May. ICDs have increased to 350 crore in FY18 (10% of net worth, and 42% of free cash-flow) from 50 crore in FY14, added the brokerage firm.

Collectively, these factors seemed to have weighed on Britannia’s shares on Thursday, dragging the stock down 4% on the National Stock Exchange. Even after Thursday’s drop, it’s not as if the valuations have turned inexpensive. The stock still quotes at a pricey 47 times estimated earnings for FY20. Going ahead, better volume growth rates hold the key to ensure valuations don’t get bitten into.

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