Britannia cracks 5% despite double-digit growth in revenues — weak volume growth keeps investors jittery

• The shares of biscuits and bakery products maker Britannia plunged 5% during the early trading hours on Tuesday after the drop in volume growth has kept investors jittery.
• The revenue numbers also missed analyst’s expectations — but still registered a 12% growth to ₹3,419.11 crore compared to the same quarter last year.
• Britannia’s Managing Director Varun Berry said the company witnessed moderate inflation in the prices of key raw materials and it expects the prices to be stable going forward.

The shares of biscuits and bakery products maker Britannia plunged 5% during the early trading hours on Tuesday. The drop came after the company reported a sequentially lower profit growth compared to the lockdown quarter.

Although it posted a 23% year-on-year growth in its consolidated net profit to ₹495.20 crore for the second quarter ended September 30, the drop in volume growth has kept investors jittery. The revenue numbers also came in below analyst’s expectations — but still registered a 12% growth to ₹3,419.11 crore compared to the same period last year.

According to Jefferies India estimates in its October 12 report, Britannia was expected to post a 15% y-o-y revenue growth.

“In this quarter, we got our full range of products to the market, focussed on efficiency in distribution, followed continuous replenishment system of distribution, improved the health of our distributors and inched closer to normalcy in advertising & promotions. The nimble culture & the hard work put in by the team helped deliver a resilient performance in these challenging times. All the adjacent businesses too delivered a healthy profitable growth,” said Britannia’s Managing Director Varun Berry.

Analysts believe that with the unlocking, tailwinds from in-home consumption are declining, taking growth back to a more normal level.

“Jump in PAT was less than operating profit due to an increase in tax rate and finance cost compared to last year. Numbers missed street expectation on all fronts of revenue, operating profit and PAT. While the Government is easing restrictions and the economy is on the path of recovery, we believe it will take some time for business to be back to normal,” said Keshav Lahoti, associate equity analyst at Angel Broking.

Emkay however believes that Britannia still offers a healthy growth outlook, given its strong portfolio expansion and execution, along with improved demand in rural areas.

Strong vision ahead

Berry in the company’s financial report said the company witnessed moderate inflation in the prices of key raw materials and it expects the prices to be stable going forward given the positive outlook on monsoon and harvest season.

“We sustained a large part of the efficiency gains that we witnessed in the previous quarter viz., supply chain efficiencies, reduction in wastages and fixed costs leverage. We are keeping a close watch on macro-economic factors, changes in laws, evolving consumer behaviour and are framing our medium-term strategy laying out scenarios to deal with this dynamic environment. We are confident of performing well in these tough times with the agility in our action and passion of the team,” he added.

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