Hold Britannia Industries; target of Rs 4801: Prabhudas Lilladher

Prabhudas Lilladher's research report on Britannia Industries

We are increasing FY24/25 EPS estimates by 7.5/5.8% on account of margin beat in 2Q led by lower manpower cost and lesser impact of RM inflation due to soft prices of packaging and Palmoil. BRIT continues to gain share led by success of new launches (Jim Jam Pops, 50-50 Golmaal, Makhana and Laughing cow cheese) and distribution expansion. BRIT has reported decline in sales of Rusk (unorganized competition) and has cut prices in select products averaging 1.5% for the portfolio. We expect tepid profit growth in 2H24 as against 24% PAT growth in 1H24 as 2H23 had 650bps higher gross margins on softened commodity costs, gains from forward contracts and higher other operating income (including one time PLI arrears). We now build in EBITDA margins of 18.1% and 18.8% in FY24/25 as against 17.5% and 17.1% earlier. BRIT’s long term growth drivers are intact with 1) rising distribution 2) improving innovation and entry in faster growing adjacencies 3) higher growth in focus states and 4) cost efficiency gains in manufacturing, distribution and procurement.

Outlook

We estimate 9.2%/12.4% sales and PAT CAGR over FY23-26. We value the stock at 45x Sept25EPS and assign a target price of Rs4801 (Rs4612 earlier). Retain Hold .