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Shares of Britannia Industries Ltd declined by around 2% on Wednesday, a day the benchmark Nifty 50 index gained 1.4%. Investors are discouraged by the packaged foods company’s profit margin performance in the quarter ended March.

While Britannia’s consolidated gross profit margin expanded by 80 basis points on a year-on-year basis to 40.5%, the measure has declined by 262 basis points vis-à-vis the December quarter. One basis point is one-hundredth of a percentage point.

Britannia has said that on the commodity cost front, palm oil, packing material and dairy products witnessed sudden and steep increases.

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Satish Kumar/Mint


But it’s not as if the margin outlook is bright, going ahead. Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a report on 28 April: “We also lower our margin estimates given rising input cost pressures and delayed pricing actions due to a weak demand environment. We see gross margins contracting in H1FY22 and normalizing in H2."

Besides, higher advertising spends are also likely to weigh on earnings before interest, tax, depreciation and amortization (Ebitda) margin performance. For the March quarter, Ebitda margin increased by 30 basis points to 16.1% compared to the corresponding period last year.

Other expenses increased at a faster rate, capping Ebitda margin expansion.

To be sure, Britannia’s revenue performance was satisfactory in the March quarter with operating revenues increasing by 8.2% year-on-year to 3,038 crore.

Having said that, the base for the current quarter is high considering that in the June 2020 quarter, revenues had increased as much as 26.4% year-on-year. Britannia had benefited from the increase in at-home consumption during last year’s covid-19 lockdown.

But the firm is unlikely to gain in a similar manner during the second covid-19 wave. In fact, analysts from Jefferies India Pvt. Ltd said in a report on 27 April: “With the onset of the second covid wave, biscuit category is seeing some tailwinds due to pantry stocking. However, unlike last year, there has not been a major supply disruption and, hence, Britannia would not have the benefit of lower competition."

As such, the above mentioned factors are expected to keep sentiments muted for the Britannia stock in the coming days. The shares trade at nearly 45 times estimated earnings for financial year 2022, according to Bloomberg data.

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