Britannia remains a beneficiary of distribution reach catch up with the nearest competitor Parle and other FMCG players
Britannia Industries’ Q4 FY19 consolidated sales grew 10 percent year-on-year (YoY) aided by 7 percent volume growth in domestic business, which benefits from a ramp-up in its distribution network and higher growth in northern states. When compared to the last two consecutive quarters (Q2 and Q3), sales were flattish, which underlines the management’s observation that there has been slowdown in market place in recent months.Result snapshot
Gross margin expanded 273 bps YoY (flattish quarter-on-quarter), aided by moderate inflation in the prices of key raw materials.
EBITDA margin, while benefiting from gross margin expansion, was partially offset by higher other expenses (29 percent YoY). The latter could also be due to aggressive advertising/promotion campaigns in recent times backing new launches (cakes/croissant portfolio) and World Cup campaign.
The management updated on its capex plans, which includes commissioning of its croissant line at Ranjangaon and salted snacks line in Bengaluru. There was no update on its greenfield project in Nepal in its submission to the stock exchanges.Outlook
Overall, the Q4 result underlines a steady run-rate, with benefits so far from increasing distribution reach, addressing gaps in its product portfolio and geography, and cost savings programme. The company’s product strategy remains at bridging portfolio gaps in the bakery business and other adjacent macro snacking business opportunities.
Britannia remains a beneficiary of distribution reach catch up with the nearest competitor Parle and other FMCG players. Its rural exposure remains in the low 20 percent of sales, but is expanding rapidly – 26 percent increase in dealership. It is witnessing super normal growth in northern states – double-digit sales growth in the last three years. Having said that, the management's commentary on 'slowdown in market place in the recent months' should be closely watched in the near term.
The stock has already corrected by around 11 percent from its CY19 high and now trades at a reasonable multiple of 50 times its FY20 estimated price-to- earnings.
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