Govt push for rural consumption should help Britannia

The firm will also benefit from launches as well as expansion of distribution network

The share price of Britannia Industries (valued at 52 times FY20 earnings and among the highest in the FMCG segment) shed about three per cent in just two trading sessions compared to a 1.6 per cent fall in the Sensex.

Despite Q3 numbers being almost in line with analysts’ expectations, the lower volume growth impacted investor sentiment.

While net sales grew by 10.5 per cent year-on-year to ~2,827.4 crore against analyst expectations of ~2879 crore, net profit was up 13.8 per cent to ~300.1 crore but lower than Street estimates of ~312 crore.

Against double-digit volume growth reported by FMCG players such as Dabur and Hindustan Unilever, among others, Britannia saw volumes increase by seven per cent in Q3. This is also lower than the 11-13 per cent rise it clocked in the previous four quarters.

Volume growth is the key moving forward, given that the management, during an analysts’ call, pointed to the tapering demand after Diwali and higher base of double-digit growth in the past quarters. However, they believe that the demand headwind may be a shortterm phenomenon and there are factors to support volume traction, even as they plan to keep an eye out on the demand trends.

Positively, the government’s big push to rural consumption in the Budget should help Britannia garner higher volumes. It gets 32 per cent of its revenue from the hinterland. While Britannia is also expanding its rural distribution network, a healthy new product pipeline across categories should add to overall numbers. The management expects revenue share of innovative products to be more next year against 3.54.5 per cent now.

In Q3, Britannia’s gross profit margin expanded 252 basis points year-on-year to 41 per cent. However, its operating profit margin rose just 38 basis points to 15.9 per cent, thanks to rise in other operating expenses.