Home >Markets >Mark To Market >Britannia’s FY21 set to be a cakewalk but FY22 likely to be testing
While NutriChoice targets the urban customer, Nutrichoice Heavens is aimed at SEC-A, the most desirable category of consumers, says Varun Berry, managing director of Britannia Industries. Photo: Priyanka Parashar/Mint
While NutriChoice targets the urban customer, Nutrichoice Heavens is aimed at SEC-A, the most desirable category of consumers, says Varun Berry, managing director of Britannia Industries. Photo: Priyanka Parashar/Mint

Britannia’s FY21 set to be a cakewalk but FY22 likely to be testing

  • Britannia’s April-June volume growth was 21.5%. Ebitda margin of almost 21% is an all-time high, reckon analysts
  • Inter-corporate deposits to group firms while sequentially stable are still a matter of concern

MUMBAI: Packaged foods company Britannia Industries Ltd’s June quarter results announced on Friday are stunning in these uncertain times of the covid-19 crisis. Last quarter’s consolidated year-on-year revenue growth of 26% was ahead of analysts’ already robust expectations. In fact, for financial year 2021, the company is on the path to see some of the best growth rates seen in many years.

As analysts from Motilal Oswal Financial Services Ltd said in a report on 18 July, “A confluence of positive factors such as high in-home consumption, reduction in ad spend, decline in material cost, and low promotional spend (owing to strong demand) are likely to drive the strongest topline growth in FY21 for Britannia since FY12 and the highest profit after tax growth since FY16."

Britannia derives about 80% of its sales from biscuits. For financial year 2021, Motilal Oswal estimates the company’s year-on-year revenue and net profit growth at 18.3% and 38%, respectively.

The company’s execution prowess since the lockdown began has also helped. Britannia has emerged as one of the key beneficiaries of Indians spending more time at home, which has led to a spike in packaged foods consumption. While this factor is expected to boost growth rates this year, the worry is that it would be tough to replicate these growth rates in the next financial year.

“We highlight the risk of a potential volume decline in FY22 assuming normalcy returning and consumers spending less time at home," said analysts from ICICI Securities Ltd in a report on 18 July.

According to JM Financial Institutional Securities Ltd, “(Britannia) stock’s performance is contingent on such hyper growth rate continuing for a few more months at least, but we expect that this will finally have to settle down at a lower level once normalcy returns in the country."

Britannia’s volume growth for the June quarter stood at 21.5%. The company’s Ebitda margin of almost 21% last quarter is an all-time high, reckon analysts.

Investors have acknowledged the good performance. So far this calendar year, the Britannia stock has increased by 25% at a time when the benchmark Nifty 50 index has declined by 10%. This also means valuations are not cheap. The stock trades at about 54 times trailing twelve months earnings. Inter-corporate deposits (ICDs) to group firms while sequentially stable are still a matter of concern. Apart from how demand plays out, investors should watch out for the extent of cost savings that would sustain.

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