Britannia Industries Ltd  had benefitted immensely from the rising at-home consumption when the strict covid-19 lockdown was enforced earlier this year. In fact, the packaged foods firm’s consolidated June quarter revenues had increased by as much as 26.4% year-on-year, the best performance amongst consumer goods companies.


Another quarter down the lane and with the lockdown easing, those tailwinds have diminished in keeping with expectations. September quarter revenues have grown by 11%, lower than analysts’ estimates. For perspective, Jefferies India Pvt. Ltd and JM Financial Institutional Securities Ltd had forecasted Britannia’s September quarter revenues to increase by 15% and 16.6%, respectively, on a year-on-year basis.

Even so, it’s worth noting September quarter revenue growth rate is much higher than pre-covid growth. For instance, revenue had increased by 5% year-on-year during the nine-month ended December 2019.

For the September quarter, Britannia compensated the sequentially lower revenue growth by improving its profitability. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin for the September quarter expanded by 361 basis points year-on-year to 19.8%. One basis point is one-hundredth of a percentage point. During the June quarter, Ebitda margin had expanded by 634 basis points to 20.9%.

True, the degree of Ebitda margin expansion is lower sequentially but it has still enthused analysts. “Despite production of full portfolio reducing manufacturing efficiency and mix gains versus Q1, margin expansion was higher than expected, which points to strong cost efficiencies that are likely to sustain," point out Emkay Global Financial Services Ltd in a report on 19 October.

Britannia said, “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."

The company witnessed moderate inflation in the prices of key raw materials, which helped gross margins expand by 176 basis points.

Overall, better profit margins helped Britannia’s net profit increase at fast pace than revenue growth. Net profit rose by 23% to Rs495 crore, lower than Bloomberg consensus estimate of Rs508 crore.

Shares of Britannia were trading about 5% lower in early deals on Tuesday. Still, the Britannia stock is about 10% higher from its pre-covid highs seen in February. Based on Bloomberg data, the shares current trade at nearly 44 times estimated earnings for financial year 2022. According to Emkay, valuations still appear reasonable, given the strong earnings outlook. While covid-19 tailwinds may further taper down, a faster rate of decline remains a key worry for the stock, going ahead.