Britannia slips 3%, nears 52-week low on input cost pressure concerns

In the past six months, the stock has declined 12 per cent, as compared to a 0.37 per cent decline on the S&P BSE Sensex.

Shares of Britannia Industries slipped 3 per cent to Rs 3,352 on the BSE in Friday’s intra-day in an otherwise firm market as input cost pressure concerns weighed on the stock.

The stock of fast moving consumer goods (FMCG) company traded closer to its 52-week low of Rs 3,350 touched on February 26, 2021.

At 09:47 am; Britannia was down 1 per cent at Rs 3,407, as compared to 2.4 per cent rise on the S&P BSE Sensex. In the past six months, the stock declined 12 per cent, as against a 0.37 per cent decline on the benchmark index. While, in one year, it was down 0.37 per cent, as compared to 9 per cent rally on the Sensex.

Britannia is the market leader in India’s biscuits and bakery goods market and enjoys strong brand equity with a pan-India distribution network.

For October-December quarter (Q3FY22), Britannia had reported 18.5 per cent year-on-year (YoY) decline in its consolidated net profit at Rs 369 crore. Earnings before interest tax and depreciation and amortization (EBITDA) margin contracted 420bp YoY to 15.1 per cent.

Net sales, however, grew 14 per cent YoY at Rs 3,531 crore, on back of high single digit volume growth driven by superlative performance across divisions and channels. The rural markets across FMCG, however, witnessed significant slowdown.

On the cost front, the company witnessed increase in commodity prices with an inflation of around 4 per cent sequentially (quarter on quarter) and around 20 per cent over last year. “The upward trajectory in prices of commodities and fuel impacted profitability, which led us to action further price increases and accelerate cost efficiency programs,” the management said.

On the conference call, Britannia noted that more pricing and intensified cost measures will help EBITDA margin reach normalized levels by June quarter (Q1FY23).

Market share gains remain encouraging, and rural demand continues to be robust, benefiting from enhanced reach. The scale-up of NPDs (key for a stock re-rating) remains a priority, though feedback has been mixed so far. Even as revenue growth momentum will be healthy (price-led), a margin recovery is likely to be slower than expectations and keep stock performance in check, analysts at JP Morgan said.

The company benefits from a rising focus on innovation, astute marketing and good execution, which the brokerage firm believes should continue to support market share gains and mix enhancements.

“Core brands are being strengthened, with relaunches/marketing pushes and new launches to bolster the portfolio. Significant initiatives are under way to improve manufacturing/supply chain efficiencies and drive cost optimization. We expect FY22 to benefit from at-home consumption (though lower vs. FY21) and share gains, but near-term growth visibility is clouded amid the volatile on- the-ground COVID-19 situation and high RM inflation, although price hikes have been initiated to mitigate the margin hit,” the brokerage firm said.