Buy Britannia Industries; target of Rs 4180: Motilal Oswal

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Motilal Oswal's research report on Britannia Industries

Though BRIT’s 3QFY22 result was broadly in line with expectations, the recovery on margins is likely to take longer than anticipated. Positives from the results were: a) about 6% base business volume growth, which was creditable given that grammage reduction has played a key role in the 8% effective price increase YTD; b) overall volume growth of 6% and sales growth of 13% that were still better than staple peers; and c) continued market share gains, with healthy performance in rural India (unlike staples peers). BRIT also saw good traction in Milk Bikis and Potazos. Conversely, the key overhangs included: a) higher-than-expected material cost inflation that escalated pressure on gross margin (especially for a business with ~40% gross margin) and b) sequential increase in ICDs for two quarters (albeit still down v/s Mar’21 level).

Outlook

We believe massive investments in distribution and capacity expansion (both of which are largely complete) in recent years would lead to double- digit sales growth. Margin will bounce back once the ongoing commodity cost pressures abate leading to high teens earnings growth. Maintain BUY.

More Info

At 17:30 Britannia Industries was quoting at Rs 3,656.45, up Rs 121.55, or 3.44 percent.

It has touched an intraday high of Rs 3,708.90 and an intraday low of Rs 3,549.70.

It was trading with volumes of 16,531 shares, compared to its thirty day average of 7,955 shares, an increase of 107.81 percent.

In the previous trading session, the share closed up 0.79 percent or Rs 27.55 at Rs 3,534.90.

The share touched its 52-week high Rs 4,152.05 and 52-week low Rs 3,317.90 on 14 September, 2021 and 22 February, 2021, respectively.

Currently, it is trading 11.94 percent below its 52-week high and 10.2 percent above its 52-week low.

Market capitalisation stands at Rs 88,072.29 crore.

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