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IDBI Capital
Britannia Ind (Buy)
Target: ₹4,507
CMP: ₹3,697.10
Britannia Industries (BRIT) Q2-FY22 result was below our estimates. Revenue growth at 6 per cent y-o-y on a high base of 12 per cent is healthy. However, a steep contraction in gross margin led to a higher than expected decline in PAT.
Positively, BRIT expects to offset the impact of inflation both by taking price hikes (to the tune of 1/3rd) and grammage reduction (2/3rd) by the end of FY22. During Q2-FY22 Britannia has taken a 4 per cent price hike and expects benefit from grammage reduction to flow in H2-FY22. Distribution expansion is tracking well.
BRIT expects rural to outperform urban through distribution expansion and penetration. In rural; market share gains stood at 2.5x vs urban during Q2-FY22. Modern trade grew 10 per cent higher than the traditional channel. However, the company expects lower volume growth due to inflation and reduction in grammage during H2-FY22.
Accordingly, we have trimmed our EPS estimate by 6-13 per cent during FY22-23. We have introduced FY24 in our estimates. We maintain our bullish view on the company. We maintain Buy rating and our revised target price stands at ₹4,507 (vs previous TP of ₹4,351).
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