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During the March quarter (Q4FY22), Britannia Industries saw mid-single digit volume growth, despite the sharp pricing growth. However, a quarter later, its volumes are estimated to have declined by about 2% during the three months ended June (Q1FY23). This, along with cost pressures, took a toll on the company’s Q1 earnings.

Both gross margin and Ebitda margin came in at multi-quarter lows. Consolidated gross margin has fallen by 182 basis points (bps) year-on-year (y-o-y) to 36.9%. Commodities relevant to bakery business such as wheat and industrial fuel saw a 15-20% sequential inflation in Q1, the company said. The contraction in Ebitda margin was sharp as other expenses rose fast. Accordingly, Ebitda margin fell by 274 bps y-o-y to 13.5%. The upshot: Q1 Ebitda was around 501 crore, almost 10% lower y-o-y. This is at a time that total operating revenues have grown by nearly 9%

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Britannia launched innovations such as Biscafe, Bourbon vanilla cheesecake, Nutrichoice Seeds & Herbs last quarter. It also launched Croissant nationally and introduced Treat cheese wafers. Investors would do well to closely track the success of new segments. “While we like Britannia stepping up innovation to fuel its next phase of growth, it is still some time away from seeing meaningful improvement in its growth trajectory," Nomura Financial Advisory and Securities (India) said in a 5 August report.

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Britannia has told analysts it will take cumulative price hikes of 6-7% for the half year ending September (H1FY23) to cope with increased costs. “Correction in some of the key input prices from the peak should help and margins are likely to see a strong bounce back starting H2FY23," said analysts from Jefferies India in a 5 August report. Even so, a big challenge would be to increase volumes and margins simultaneously in the immediate future. Nomura expects near-term volumes to remain range-bound because of high price increases and impacted consumer wallets.

Meanwhile, Britannia shares have staged a remarkable recovery from their 52-week low of 3,050 seen on 8 March on NSE, appreciating by 21%. Valuations are not exactly cheap against the backdrop of muted earnings prospects in the near-to-medium term, analysts said. Based on Bloomberg data, the stock trades at nearly 43 times estimated earnings for FY24.

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