Last updated: 09 Nov, 2021 | 08:40 am
Britannia shares recorded their biggest fall in 3 months after the company missed estimates in the quarter ended September. However, many brokerages have neutral ratings on the stock, as they expect margin to improve in the next few quarters. Here are the major highlights from Britannia Q2 earnings and the outlook going forward.
Profit misses estimates - Britannia Industries' net profit fell by 1% sequentially to Rs 374.22 crore, missing street estimates by a wide margin. Analysts had earlier anticipated a profit of about Rs 433.9 crore. The net profit fell 22.9% on a year-on-year basis.
Revenue rises - Consolidated revenue rose 6% on quarter to Rs 3,607.37 crore, in line with the estimated Rs 3,618.9 crore. Britannia has been facing high inflation and supply-led constraints for various raw materials. The company said that it has been able to partially mitigate the impact through necessary price hikes across the portfolio.
Operating Profit and margins - The operating profit increased 1% sequentially and stood at Rs 558.33 crore. Yearly, operating profit declined 17.3%. The operating margin contracted from 16.3% in the last quarter to 15.5%. The analyst has earlier estimated margins of 17.18%. The reason for the lower numbers was because the cost of materials increased 8% and staff expenses swelled 14.2%.
Inflation worry - On the cost front, the global economy continued to witness supply led constraints across various input materials fuelling inflation. Britannia witnessed inflation in market prices of palm oil at 54%, industrial fuel at 35%, and packaging materials at 30% leading to overall inflation in the quarter of 14%.
Britannia Q2 results review:
Britannia has reported a lacklustre set of numbers in the Jul-Sep 21 period, impacted by a surge in raw material costs. Nestle and Hindustan Unilever, its peers in the packaged foods space have done better in managing margins as Britannia’s gross margin and EBITDA margin were compressed by 485 bps and 428 bps, respectively, on a yearly basis. Though the impact of COVID-19 started receding and the economic activity has started picking up, inflationary trends did remain rampant and this reflected badly on the company's operating performance in the quarter.
To tackle this the company continued its focus on increasing direct distribution and improving the rural footprint. The company initiated necessary price increases across its portfolio, which would address the cost push and normalise profitability. Hence in this year, they saw higher growth in market share and significantly reinforced the market leadership.The company is confident that their resilient brands and strategic growth initiatives will hold them on a path of profitable share gain in the future as well.
JPMorgan: The research house has kept an overweight call on the stock with a target price at Rs 4,000. The earnings were a miss on significant COGS inflation, while revenue growth was supported by continued market share gains. The steep raw material inflation weighs on margin, however, price hikes and cost measures are in place to support profitability ahead.
Macquarie: Broking firm Macquarie has maintained neutral rating on the stock with a target at Rs 4,400. The second quarter was below the estimates on gross margin miss. The company expects its profitability to normalise, aided by recent price hikes, which have taken to offset input cost pressures.
Nomura: The broking firm has kept a neutral rating with a target at Rs 4,000. The demand was holding up well, but the margin was not much. The key risks include slower/faster volume growth in biscuits.