Britannia reported in-line sales growth of 6% (2-year CAGR of 9%), with volumes growing by ~2%. Margins were weak, resulting in EBITDA/PAT being 11-15% below expectations. EBITDA declined 17% to Rs5.6bn and PAT declined 23% on high comparables. Market share gains were stronger than FY21. Management appears fairly optimistic about growth, as rural reach expansion is expected to help sustain future growth, along with increased aggression in non-biscuit portfolio amid the pick-up in on-the-go consumption. Input inflation is high and may inch up further in Q3. However, additional price hikes of ~6% to be effected by Q4 and cost efficiencies should reduce the margin impact and drive a sequential margin recovery. We estimate FY22/23/24 margins at 16.1%/17.1%/17.5%. We cut FY22E EPS by 10% and FY23-24E EPS by 4-5%. The growth outlook seems to be improving, with margins likely to recover qoq. At 39x FY24E EPS, valuations appear reasonable.
OutlookRetain Buy but reduce TP (Dec’22) to Rs4,050 from Rs4,300 (45x Dec’23E EPS). We believe that PLI benefits could add more upsides.
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