Britannia (BRIT) Q1 volume/worth development (+1%/-.5% y-o-y two-year CAGRs +11%/+12%) was significantly above our forecast and the Bloomberg consensus estimate (-7% y-o-y) regardless of a higher base. While there was no proof of any enhance in consumption or pantry up-stocking in Q1, and with its direct attain impacted (2.1mn in Q122 vs 2.4mn outlets in Q421), we think sturdy sales functionality would have been aided by wholesale channel push which could not be recurring, in our view. Also, Q1 would have seen some pipeline filling (Q4 sales impacted) due to ERP upgrade to S4/HANA.
BRIT talked about that front-finish sales GTM is now back to c.90% recovery, and sees steady demand trends in July. It has a prepared pipeline of new solution launches as it awaits standard demand, and launched new subcategory of ‘Potazos’ in potato wafers. Online sales contribution is at c.2% at the moment (vs 10% for HUVR (Buy), 9% for MRCO (Buy), 6.5% for NEST (Buy), 5% for HMN) and BRIT management indicated it could potentially attain 5%. ICDs to group organizations drastically declined to c.Rs 4.7 bn (vs Rs 7.9 bn in March-21).
Margin stress to continue as BRIT cautious on taking price tag increases: GPMs declined by 300bp y-o-y to 38.7%, decrease than our forecast of -140bp y-o-y, due to substantial input expense inflation in fats (RPO c.+50% y-o-y), crude (c.+117% y-o-y) and milk (c.+13% y-o-y), and larger promotions to assistance launches. BRIT indicated that offered the reasonably weak demand atmosphere, it is cautious with price tag increases. We count on pricing actions to come with a lag and to continue to stress GPMs.
OPMs declined by 470bp y-o-y to 16.3%, beneath our/consensus estimates of -405bp/-380bp y-o-y, due to normalisation in A&P expense. We count on A&P charges to stay elevated to assistance new launches, although expense efficiencies from the not too long ago implemented digital transformation platform (factory productivity, direct dispatches, decrease wastage) could cushion some influence on margins. However, BRIT indicated that FY22 OPMs will probably be decrease y-o-y.
We decrease FY22F/23F EPS by 3-4% to element in margin stress and delayed price tag increases. We preserve our Neutral rating with FY21-24F EPS CAGR of 7% (one of the lowest in our coverage).
Maintain Neutral with TP of Rs 4,000 BRIT trades at 39x Sep-23F EPS.
We roll more than valuation to Sep-23F EPS (from Mar-23F) and worth BRIT at a P/E of 45x (unchanged), at a c.5% discount to its previous 3-year typical trading numerous, implying a TP of Rs 4,000 (unchanged).