Britannia share price: Sharekhan maintains Buy on Britannia with price target of Rs 4200
Sharekhan says that Britannia’s Q4FY2021 results were mixed. Revenue grew by a high single digit, while OPM expanded moderately by 30 bps to 16.1%. PAT declined by 3% (due to higher tax incidence). The company’s revenue for the quarter grew by 9% yoy to Rs 3131 cr (largely in-line with our expectation of Rs 3100 cr). Domestic volume growth stood at 8%, slightly better than our as well street expectation of 6%
Sharekhan says that Britannia’s Q4FY2021 results were mixed. Revenue grew by a high single digit, while OPM expanded moderately by 30 bps to 16.1%. PAT declined by 3% (due to higher tax incidence). The company’s revenue for the quarter grew by 9% yoy to Rs 3131 cr (largely in-line with our expectation of Rs 3100 cr). Domestic volume growth stood at 8%, slightly better than our as well street expectation of 6%. Focus states continue to perform well and growth was ahead of the rest of India. Q4 was disappointing for adjacencies (part of subsidiaries) such as bread and cheese with muted revenue growth of 2% and OPM at 9.9% (compared to 13.7% in Q4FY2020). Sharekhan maintains Buy on Britannia with a price target of Rs 4200.
Sharekhan explains that Britannia is well prepared in terms of production and distribution of products in the second surge of COVID-19 cases compared to the first wave. Although demand is better and resilient, the company is not expecting pantry loading-like scenario building up as consumers have opted for systematic buying due to availability of products. Sharekhan says once the COVID-19 scare reduces and the economy gets into its normal shape, Britannia can target industry growth of 8%-9% and expects to achieve volume growth of low double digit (ahead of industry growth). This will be done through market share gains, distribution expansion (especially in rural markets), and new product launches.
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Sharekhan adds that Britannia has a strong pipeline of new products and will launch relevant new products in the backdrop of a normal demand environment. Capacity utilisation is currently 90% and the company is planning to add new facilities in states such as Uttar Pradesh, Tamil Nadu, Orissa, and Bihar to expand capacity and reduce the distance between key markets (third party manufacturing has reduced to 35%). The company is targeting a capex of around Rs 700 crore – 800 crore for this capex plan over the next three to four years (overall capex including phase wise expansion in Ranjangaon facility is more than Rs 2000 crore spread over four years).
On the international front, SHarekhan says Britannia is getting into contract manufacturing tie-up to set up production facilities in countries such as Uganda and Egypt to supply in domestic and neighbouring markets. Raw-material inflation currently stands at 3% due to a spike in palm oil, packaging cost, and dairy prices. The company is likely to pass on to consumers through relevant price hikes in the coming months. Britannia expects Operating Margins to remain high compared to FY2020 levels and will consistently improve in coming years, highlights Sharekhan.
Key positives for Britannia:
Domestic volume growth stood at 8%, better than street expectation of 6%
Rural distribution and direct reach have reached above pre-COVID levels at 23,500 rural dealers and 23.7 lakh outlets, respectively
Focus states are growing 25% more than rest of India
Key negatives for Britannia:
Operating Margin expansion of 30 bps to 16.1% was lower than our and street expectation, says Sharekhan. Adjacencies registered muted performance during the quarter.
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