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Britannia Industries Ltd’s December quarter revenue performance shows that the lockdown-led demand tailwinds have reduced. The company’s consolidated revenues increased by 5.8% year-on-year in Q3. This marks the second consecutive quarter of slower revenue growth. In the September quarter, Britannia’s revenue growth stood at nearly 11%. Recall that in the June quarter, its revenues had grown by a robust 26%. The firm had gained from the surge in at-home consumption.

“Post unlocking, more snacking options became available and to that extent, the huge favour enjoyed by packaged foods players began to wane," said analysts from JM Financial Institutional Securities Ltd in a report on 5 February. The broking firm added, “With schools, offices, railway services closed, on-the-go consumption of packaged products also did not return—these should get back to normal once citizens start to lead entirely normal lives, in our view."

According to Britannia, “Essentials were at elevated levels of demand at the beginning of the year due to pantry up-stocking, which has started to normalize with diversification of purchase basket of the consumers."

Evaporating demand
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Evaporating demand

Even so, Britannia did well on profitability during the December quarter, thanks to better cost management. The upshot: earnings before interest, tax, depreciation and amortization (Ebitda) margin expanded by 249 basis points vis-à-vis last year to 19.3%. One basis point is one-hundredth of a percentage point. Improvement in Ebitda margin was driven by an uptick in gross profit margin, which expanded by 224 basis points.

Further, other expenses as a percentage of operating revenues declined marginally as well. Overall, Ebitda increased by about 22% to 611 crore.

Meanwhile, the Britannia stock trades at almost 44 times estimated earnings for financial year 2021-22, based on Bloomberg data.

To be sure, near-term triggers for the Britannia stock appear limited. Higher year-on-year revenue growth (18%) for the half year ending September (H1FY21) means to that extent, the base becomes unfavourable in H1FY22.

Small wonder, while shares of Britannia are about 9% above pre-covid highs seen in February 2020, they are also 11% lower compared to the annual highs seen on 20 July 2020.

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