We downgrade Britannia (BRIT) to Neutral (from Buy) and decrease our FY22-23F EPS forecasts by c.6%, as we see demand moderating due to: (i) a delay in the return to normalised volume/sales development (ii) decrease/delay in contribution from new item launches (iii) sales push impacted as salesforce functions from home on account of the increasing quantity of COVID-19 circumstances and (iv) the absence of meaningful pantry up-stocking for the duration of the second wave of the pandemic, as stocks are adequately obtainable provided there has been no disruption in manufacturing/provide chains.
We also decrease our margin estimates provided increasing input expense pressures and delayed pricing actions due to a weak demand atmosphere.
We see gross margins contracting in H1FY22 and normalising in H2. We also count on A&P spending to stay elevated, as BRIT will will need to preserve higher visibility to push sales (provided a somewhat lesser salesforce in the marketplace), limiting OPM gains. However, it has not too long ago implemented the digital transformation platform, and we count on expense efficiencies (factory productivity, direct dispatches, decrease wastage) to cushion the influence on OPMs.
BRIT is attempting to counter weak demand circumstances with the national launch of Milk Bikis (addressing the massive milk+glucose category, exactly where it is underindexed with 4% share), targeting bottom-of-pyramid shoppers and upgrades in Hindi heartland markets. We do not count on any meaningful margin dilution from this. BRIT’s ICDs to group stay in the identical variety. We downgrade our rating to Neutral on a weak outlook, and forecast FY21-23F EPS CAGR of 7%.
Q421 beneath estimates miss on GPM, in-line income volume development 8%
Consolidated income/Ebitda/PAT grew 9%/11%/7% y-o-y vs our forecast of +9%/ +29%/ +24% y-o-y and Bloomberg consensus estimates of +9%/+24%/+22% y-o-y. GPM expanded by 80bp y-y (vs our estimate of +280bp y-o-y), impacted by elevated input expense inflation, and OPM expanded by 30bp y-o-y to 16.1%, due to a step-up in ad spending. Adjusted PAT development was decrease mostly due to decrease other revenue and greater tax price. Standalone income/ Ebitda/PAT grew 10%/13%/8% y-o-y.
Downgrade to Neutral with a decrease TP of Rs 4,000 BRIT trades at 40x Mar-23F EPS
We worth BRIT at a P/E of 45x Mar-23F EPS (vs 47x earlier), at a c.5% discount to its previous 3-year typical trading numerous, as we count on its elevated sales’ development phase to moderate to a normalised trajectory, with demand for prepared-to-consume packaged foods (biscuits, and so on) not witnessing the super-regular development of last year, as manufacturing and provide chains are superior equipped to deal with the pandemic. Our valuation implies a target cost of Rs 4,000 (vs Rs 4,460 previously). Key dangers include things like slower/more quickly volume development in biscuits.