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How Britannia managed to trump analysts and its FMCG peers

While all FMCG companies reported margin decline in Q2 on high cost of inventory, Britannia’s EBITDA margin rose to 16.3 percent from 15.5 percent YoY. This margin expansion was driven by better factory productivity, wastage reduction and cutting distance to market

November 14, 2022 / 07:52 AM IST
A worker stands next to a production line at the Britannia biscuit factory in New Delhi. (Image: Reuters)

A worker stands next to a production line at the Britannia biscuit factory in New Delhi. (Image: Reuters)

Analysts were quick to dismiss Britannia after its Q1 FY23 earnings announcement, when the company reported a profit decline of 14 percent year-on-year (YoY). In July-end, the stock had 24 ‘buy’ calls, which dropped to 20 by August-end.

With 16 ‘hold’ calls and 4 ‘sell’ ratings, one could say 50 percent analysts were bearish on the stock for the months of August, September and October. As per Moneycontrol’s analyst tracker, the biscuit maker came in sixth in the list of ‘Stocks with Maximum Pessimism’.

Then came the Q2 surprise. While all fast-moving consumer goods (FMCG) companies reported margin decline in the September quarter due to high cost of inventory, Britannia’s EBITDA margins expanded to 16.3 percent from 15.5 percent in the same quarter last fiscal. The stock jumped 10 percent in the next trading session as the company’s market share climbed to a 15-year high.

What did the company do right?