We downgrade Britannia (BRIT) to Impartial (from Purchase) and decrease our FY22-23F EPS forecasts by c.6%, as we see demand moderating on account of: (i) a delay within the return to normalised quantity/gross sales development; (ii) decrease/delay in contribution from new product launches; (iii) gross sales push impacted as salesforce works from dwelling on account of the rising variety of COVID-19 instances; and (iv) the absence of significant pantry up-stocking through the second wave of the pandemic, as shares are adequately obtainable given there was no disruption in manufacturing/provide chains.
We additionally decrease our margin estimates given rising enter price pressures and delayed pricing actions on account of a weak demand atmosphere.
We see gross margins contracting in H1FY22 and normalising in H2. We additionally anticipate A&P spending to stay elevated, as BRIT might want to keep excessive visibility to push gross sales (given a comparatively lesser salesforce within the market), limiting OPM good points. Nevertheless, it has not too long ago carried out the digital transformation platform, and we anticipate price efficiencies (manufacturing unit productiveness, direct dispatches, decrease wastage) to cushion the influence on OPMs.
BRIT is making an attempt to counter weak demand circumstances with the nationwide launch of Milk Bikis (addressing the big milk+glucose class, the place it’s underindexed with 4% share), focusing on bottom-of-pyramid customers and upgrades in Hindi heartland markets. We don’t anticipate any significant margin dilution from this. BRIT’s ICDs to group stay in the identical vary. We downgrade our score to Impartial on a weak outlook, and forecast FY21-23F EPS CAGR of seven%.
Q421 beneath estimates; miss on GPM, in-line income; quantity 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 enter price inflation, and OPM expanded by 30bp y-o-y to 16.1%, on account of a step-up in advert spending. Adjusted PAT development was decrease primarily on account of decrease different revenue and better tax fee. Standalone income/ Ebitda/PAT grew 10%/13%/8% y-o-y.
Downgrade to Impartial 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% low cost to its previous three-year common buying and selling a number of, as we anticipate its elevated gross sales’ development section to reasonable to a normalised trajectory, with demand for ready-to-eat packaged meals (biscuits, and so on) not witnessing the super-normal development of final yr, as manufacturing and provide chains are higher outfitted to cope with the pandemic. Our valuation implies a goal value of Rs 4,000 (vs Rs 4,460 beforehand). Key dangers embrace slower/quicker quantity development in biscuits.