The outperformance was led by pricing growth, to begin with. Britannia delivered on margin improvement one quarter ahead, largely helped by a gutsy 17% year-on-year (y-o-y) pricing growth, which translates to an incremental in-quarter price-hike of 9-10%, pointed out analysts from JM Financial Institutional Securities.
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Volume grew by mid-single digit, indicating that pricing actions were absorbed despite the overall muted demand environment. Britannia continues to gain market share, which touched a 15-year high in Q2.
The resilience of biscuits, despite it being a segment that caters to the masses and has a large rural salience, is confounding, said JM’s analysts. This is in an environment where fast-moving consumer goods peers, especially the home and personal care ones, are alluding to persistent retail inflation hitting demand for low-priced goods rather badly, they said.
It remains to be seen if such volume growth persists, but Britannia is optimistic as biscuits are a cheaper form of snacks. The company’s go-to-market strategy and increasing distribution reach would support growth.
“Britannia’s revenue growth is price-led in Q2FY23. We expect this trend to continue in the near term. As prices of certain raw materials are softening, the incremental pressure to raise prices seems to be low," said Kunal Vora, head of India equity research, BNP Paribas Securities India.
A fall in input costs would aid Britannia’s margin in H2FY23. Prices of palm oil have fallen sharply from recent peaks. However, prices of other key commodities such as wheat, sugar and milk are still high.
In Q2, raw material inflation rose 3% sequentially, taking the cumulative inflation over the last seven quarters to 32%, according to Britannia. However, hikes in product price helped the strong growth in Q2 profits. Q2 gross margin rose by 205 basis points from Q1. Ramping up of new products would mean a rise in advertising and promotion spends. Given this, Ebitda margin would be key to track.
As the stock is hovering near 52-week highs, large near-term upsides may be capped. Success in new launches may fetch brownie points. The stock trades at 47.5 times estimated earnings for FY24, show Bloomberg data.
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