Britannia Industries share plunged 5.6% on November 12, 2024, marking a 10% decline over two days. The share hit a five-month low at Rs 5,120 on BSE, amid lower-than-expected Q2FY25 financial performance.
Key Points
- Britannia’s stock hit its lowest since June 2024 after the company reported a 9.6% drop in profit after tax (PAT) for Q2FY25.
- Revenue growth and margins were below analyst expectations, leading brokerages to adjust ratings and target prices.
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Financial Performance Overview of Britannia Industries Share
Q2FY25 Earnings
Britannia Industries faced a challenging quarter, reporting a profit after tax of Rs 531 crore, down 9.6% from Rs 588 crore the previous year.
This decline has affected market sentiment, with the company’s stock witnessing significant losses since the announcement.
Revenue and Sales
The company’s consolidated revenue grew 5.3% year-on-year to Rs 4,667 crore, just below some analyst forecasts, including a Bloomberg estimate of Rs 4,740 crore.
However, despite an 8% rise in volume growth, which was slightly under Nomura’s projection of 10-11%, Britannia faced pressures from lower consumer demand amid inflationary pressures on food.
Analyst Reactions
Brokerages offered varied views on Britannia’s Q2FY25 performance:
Nomura’s Analysis
Nomura found the 8% volume growth slightly below its forecast. Additionally, the brokerage highlighted that Britannia’s revenue growth of 5.3% year-over-year was short of its projected 8.6%.
The gross profit margin (GPM) contracted 136 basis points (bps) year-over-year to 41.5%, mainly due to increased costs for key commodities such as wheat, palm oil, and cocoa.
Nomura also noted a significant increase in employee costs, up 45% year-over-year, which impacted the operating profit margin (OPM), now down to 16.8%.
Nomura has maintained a ‘Neutral’ rating with a target price of Rs 5,800, awaiting additional insights from Britannia’s earnings call.
Motilal Oswal’s Perspective
Motilal Oswal echoed similar concerns, with Britannia’s consolidated net sales rising 4.5% year-over-year to Rs 4,570 crore, marginally missing its forecast.
The company’s gross margin fell by 135 bps, reaching 41.5%, as higher staff expenses weighed on profits.
Consequently, the EBITDA margin declined by 290 bps to 16.8%, lower than Motilal Oswal’s estimate of 19.7%.
The brokerage projected a higher EBITDA of Rs 930 crore, while Britannia reported Rs 780 crore, resulting in a 10% year-over-year decline.
Nuvama Institutional Equities’ View
Nuvama pointed out that Britannia’s revenue, reaching Rs 4,667 crore, met their expectations but noted a 10% decline in EBITDA and PAT year-over-year.
Nuvama highlighted a drop in gross margin by 185 bps to 40.2%, attributing it largely to a 45% increase in employee expenses.
Excluding this one-off cost, Nuvama considers Britannia’s core performance to be in line with expectations, and it maintained a ‘Buy’ rating with plans to reassess the target post-earnings call.
Other Brokerage Ratings and Target Price Adjustments
Several other brokerages have also weighed in with their ratings and revised target prices:
- Investec: Maintained a ‘Hold’ rating, cutting the target price to Rs 5,770.
- Morgan Stanley: Kept an ‘equalweight’ rating, lowering the target price to Rs 5,424.
- Goldman Sachs: Reaffirmed a ‘Neutral’ stance with a reduced target of Rs 5,350.
Company Challenges and Market Response
Britannia has faced hurdles from fluctuating commodity prices and subdued consumer demand.
The biscuit and snack manufacturer grapples with a competitive landscape, inflationary pressures, and operational cost increases.
Additionally, inflation in food categories continues to impact consumer spending, limiting the company’s ability to pass on price increases.
Britannia Industries Share Movement
The stock’s sharp decline comes as investors react to Britannia’s lower-than-expected quarterly performance.
A two-day drop of 10% has pushed the stock to Rs 5,120 on BSE, marking its lowest point in five months.
Analysts suggest the recent dip may reflect investor sentiment toward a broader slowdown in the FMCG sector, influenced by rising costs and volatile demand.
Conclusion
Britannia’s Q2FY25 results indicate that rising costs and tepid consumer demand have put pressure on the company’s margins and profitability.
While the biscuit giant has maintained moderate volume growth, challenges in pricing and managing expenses have impacted its bottom line.
Brokerages offer mixed opinions, with some maintaining a neutral stance while others cautiously recommend buying, reflecting uncertainty in the FMCG sector’s immediate outlook.
Investors are now waiting for more details from the earnings conference call, which could provide clarity on the company’s approach to managing inflationary pressures and stabilizing margins.
Britannia’s efforts to navigate these challenges in the coming quarters will be closely watched by market analysts and shareholders alike.
