Britannia Q3 Results Preview: Higher costs of agri-commodities, packaging, lower consumption may weigh on earnings

Consolidated profit in the preceding quarter was recorded at Rs 384 crore and the operating revenues were Rs 3,607 crore.

Brokerage Views

“A 3 percent volume and price led growth in Q3FY22 owing to deceleration in in-home consumption trend and grammage (weight) reduction,” Brokerage firm Axis Securities said.

It expects revenues to pick up 7 percent on-year to Rs 3,324 crore, while on a quarterly basis, the revenues may decline 6.5 percent.

“Gross margins are likely to contract 410 bps YoY amid a rise in costs for agri-commodities and packaging costs,” Axis said in its report. However, QoQ the margins should improve by 50 bps owing to price hikes and grammage reductions. Consequently, this will result in a YoY decline in EBITDA (earnings before interest, tax, depreciation and amortisation) margins too.

Axis expects a 352-bps YoY decline in EBITDA margins to 16.2 percent compared to 19.7 percent a year ago. On a quarterly basis, EBITDA margins may remain flat with a marginal increase of 46 bps.

The brokerage expects the company to report a YoY decline of 16.4 percent in its net profit for the quarter at Rs 378 crore, a sequential decline of 1 percent.

Kotak Institutional Equities pegs the growth in revenues at 7.7 percent on year, to Rs 3,408 crore. Compared to the previous quarter, this is a decline of 5.5 percent.

It models a 2.5 percent YoY domestic volume growth. “We build in continued sequential moderation in a two-year revenue CAGR on the back of lower in-home consumption. Volume growth is also weighed down by grammage cuts in price point packs,” said Kotak in its report.

It estimates a 6.4 percent 2-year domestic revenue CAGR during the quarter compared to 11.6 percent in the first quarter of this year and 8.4 percent in the second quarter.

“We expect consolidated gross margin to decline 415 bps YoY. Price increases/ grammage cuts should drive 130 bps QOQ improvement in gross margin”, the brokerage said in its report.

It estimates the EBITDA to decline by 12.1 percent YoY to Rs 537 crore for the quarter, compared to Rs 612 crore in the same period a year ago. On quarter-on-quarter basis, the EBITDA may decline 3.7 percent.

That said, due to lower gross margins, EBITDA margins for the quarter are likely at 15.8 percent with a YoY decline of 355 bps while remaining flat on a quarterly basis.

Kotak sees net profit for the quarter declining 19 percent year on year and 4 percent on quarter to Rs 369 crore.

Brokerage firm Prabhudas Liladhar expects a 9 percent YoY growth in revenues to Rs 3,450 crore with a sequential decline of 4.3 percent.

“We estimate 1.5 percent volume growth due to relatively soft demand in rural areas. GRM will sequentially improve but will remain lower by 460 bps YoY,” it said in a report.

There is a likely decline of 11 percent on-year and 2.4 percent decline on quarter in EBITDA, which is forecast at Rs 545 crore.

Basis this, EBIDTA margins are expected to come at 15.8 percent, down 350 bps year-on-year and flattish on a sequential basis.

Prabhudas Liladhar forecast a net profit of Rs 392 crore which is a decline of 13.5 percent compared to the previous quarter last year and a growth of 2.6 percent on quarter.

It will be important to get a guidance from the company on the demand environment; raw material cost outlook; market share trends; update on core biscuits portfolio & adjacencies and Update on ICDs.

The stock of Britannia Industries closed at Rs 3,494, down Rs 45 at the National Stock Exchange on January 27. The stock has been trading down for the past one year with a marginal decline of 3 percent and has been flat over the past one month.