Britannia Industries Reports Robust Performance with Focus on Volume Growth in FY24

Britannia Industries, a leading packaged foods company in India, has delivered strong financial results in the financial year (FY) 2023, with a consolidated EBITDA margin that expanded year-on-year for three consecutive quarters. The company's margin performance was driven by a combination of factors such as price hikes, cost efficiency measures, and a fall in commodity costs.

The company's strong margin performance comes at a time when inflation levels are elevated. During the March quarter (Q4FY23), EBITDA margin and Britannia's gross margin reached a multi-quarter high of 19.9% and 44.9% , respectively. The solid margin performance was partly aided by the Production-Linked Incentive (PLI) scheme of INR 90 crore, some of which pertains to earlier periods.

Some commodities like laminates and palm oil are becoming cheaper, but some

other inputs are getting more expensive. In the fourth quarter, the cost of flour, which constitutes the majority of Britannia's input expenses, rose by 4% compared to the previous quarter and 21% compared to the same period in the previous year. Dairy products are also seeing inflation, which could persist in the near term.

To address these challenges, Britannia expects to change pricing in certain categories to operate volume growth and market share gains. In FY24, volume growth will be the focus, with the company expecting it to be better than in FY23.

Analysts predict that FY24 is likely to be a volume revival story for Britannia as the revenue growth would moderate to high single to low double-digit from the teens growth seen in FY23. As the

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price hikes come in the base, the company's revenue growth is likely to moderate.

The company's diversification strategies are also on track, with the non-biscuit portfolio growing 1.5 times in FY23. The largest categories here are cake, rusk, dairy, and bread, which clocked about INR 600-700 crore revenue each in FY23. Analysts at ICICI Securities say that the success of at least a few new segments and the ramp-up of adjacent categories is imperative, and the outlook on this appears much better.

Britannia continues to see market share gains, having widened the market share gap with the no. 2 company in the biscuit portfolio. It grew its reach in the countryside, thanks to its good delivery network and reputation. The momentum is expected to continue.

Britannia's shares are currently

trading close to their 52-week high of INR 4,700 apiece. However, analysts do not see further expansion in valuation multiples in the near term, as most of the positives appear to be factored into the valuation multiples.

In general, the company thinks gross margin will stay close to FY23’s 41% in the next few quarters, while EBITDA margin will probably drop from Q4’s peak and settle to FY23’s yearly margin of around 17.5%.

In conclusion, Britannia Industries' strong performance in FY23 has been acknowledged by investors, with shares rising as much as 42% in the past year. While challenges such as inflation and fluctuating input costs persist, the company's focus on volume growth and market share gains, along with its diversification strategies, are expected to drive growth in FY24.