Taste trumps valuation as investors bite into Britannia

Stock hits all-time high on growth uptick in April, May

The Britannia stock hit its alltime high on Wednesday, before closing at ~3,510.25 apiece. This was despite a muted March quarter (Q4) performance — reported on Tuesday after market hours — and expensive valuation.

Sales growth of 24 per cent in the first two months of the June quarter, pointing to strong growth levers, enthused the Street.

This was mainly on account of the firstmover advantage.

According to the management, Britannia improved its network to reach customers before peers during the initial phase of the lockdown, when others were struggling with supply chain issues.

It is now operating at preCovid utilisation levels, while most other FMCG majors are still below 90 per cent levels. Analysts believe this puts Britannia on a strong footing, given that people will continue to avoid eating out and demand is likely to remain strong.

“While category growth for packaged foods and biscuits will remain sturdy in the near term on account of muted demand for outside food, Britannia will see relatively stronger growth — being the first to reach customers,” says Vishal Gutka, vice-president at Phillip Capital. In addition, what should help is the increased focus on rural markets.

Shirish Pareshi, analyst at Centrum Broking, expects the first mover advantage and rural penetration to improve Britannia’s market share.

These positives could lead to further expansion in its valuation. The stock is currently trading at 56x its FY21 estimated earnings —a 27 per cent premium to its 5-year mean.

Sales growth in April and May was driven by the premium segment that would aid margins. Profitability would also get support from benign input prices, mainly wheat and dairy products.

In Q4, however, the Covidled disruption had a 7-10 per cent impact on revenues and the bottom line.

While volumes remained flat, better offtake of premium products resulted in a 1.6 per cent year-on-year rise in net sales, to ~2,808 crore. Higher input costs kept the Ebitda margin at year-ago levels. Following the results, Edelweiss Securities has revised its FY21 and FY22 earnings estimates for Britannia by 9 per cent each.

While the overall business outlook for Britannia is expected to be robust, the pace of response from competition, and impact of the same on Britannia, remains to be seen.

Sales growth in April and May was driven by the premium segment. Profitability would also get support from benign input prices, mainly wheat and dairy products