Britannia Industries Q4 Preview | Net profit may decline 1-5% despite 8-11% revenue growth

Brokerages expect the consolidated profit after tax (PAT) for the home grown confectioner to remain flat or decline in low single digits vis-à-vis the corresponding period last year. On a sequential basis, the decline is sharper due to a slump in volumes.

Analysts forecast a net profit of Rs 351 crore for the quarter as against Rs 364 crore a year ago. The company had recorded a PAT of Rs 371 crore during the October-December period of this year.

Revenues

Revenues, however, are expected to increase 8-11 percent on-year due to price hikes and stay flat to lower volume growth compared to last year. On a sequential basis, the revenues are seen declining 2-5 percent due to falling biscuits volumes.

Revenues for the reported quarter are expected at Rs 3,442 crore. Britannia had registered revenue from operations of Rs 3,131 during the year ago period while during the previous quarter this year, the revenue from operations stood at Rs 3,575 crore.

Kotak Institutional Equities estimates a 6.5 percent average growth rate over the last three years for domestic revenue compared to a 10.1 percent CAGR in Q1FY22, 7.9 percent in Q2FY22 and 7.9 percent Q3FY22.

Volume and prices

Brokerages expect the biscuit volume to remain flat or witness a decline due to weakening demand and reduction in grammages. The price hikes effected during the quarter however, have aided the company to ward off the impact of volume reduction on its revenues to a certain extent.

“We model flat YoY domestic volumes and +8 percent YoY contribution from price-mix”, a report from Kotak Institutional Equites said. It has built in continued sequential moderation in underlying biscuits volume CAGR led by weakening demand environment. “Volume growth is also weighed down by grammage cuts in price-point packs,” Kotak said in its report.

Raw material costs remain inflationary and food inflation was further exasperated by the Ukraine crisis due to which the company had to pass on the increased cost to consumers. On the other side, the price hikes and grammage reductions seemed to have an impact on the consumption patterns.

“We expect consumption to have seen some de-growth due to price hikes with rural seeing more impact than urban,” a report from Edelweiss Research said.

Margins

Gross margins (GM) are likely to be impacted by the raw material inflation which however was moderated by price hikes taken by the company.

Kotak expects a 300 bps impact on the gross margins for the quarter. “Consolidated EBITDA (earnings before interest, tax, depreciation and amortization) margin is expected to decline 130 bps YoY despite 300 bps GM moderation, aided by lower advertising and promotion (A&P) spends and other expenses,” said the report.

Research firm Emkay Equity Research estimates a steeper decline in EBITDA margins for the quarter as it expects the EBITDA margins to decline 176 bps to 14.4 percent for the quarter. On a sequential basis, it sees the EBITDA margins declining by 71 bps.

“Input cost inflation should continue to impact margin delivery with gross margins expected to contract by 275bps,” Emkay Research said in its report.

Broker estimates

Kotak Institutional Equities expect the company to report a PAT of Rs 344 crore with revenues from operations of Rs 3,379 crore.

Emkay Research has pegged a PAT of Rs 348 crore at the back of revenues for the quarter at Rs 3,485 crore while Edelweiss Research forecasts a PAT of Rs 361 crore and revenues at Rs 3,463 crore with EBITDA margin at 15 percent.

Britannia stock ended Rs 78.65 or 2.34 percent down at Rs 3,279.25 on April 29 at the National Stock Exchange. The stock has declined 5.5 percent during the past one year and has generated returns of 5.65 percent during the past one month.

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