Share Market Update on Britannia for 4QFY2011

Britannia reported a strong set of numbers for 4QFY2011, above our estimates. Top-line growth stood at 21.1% yoy, driven by volumes, price hikes and improved product mix. The company reported strong earnings unlike loss reported during 4QFY2010. Operating margin expanded because of efficient cost management and gross margin expansion. We maintain Buy on the stock.

Steady top-line growth and impressive show on the margin front: Britannia registered robust top-line growth of 21.1% yoy, driven by 15% volume growth. The company has shown impressive top-line growth, which was a result of new product launches, price hike and improved product mix. For consecutive five quarters, Britannia has been posting 20% plus top-line growth. On the margin front, Britannia showed a stunning performance by managing raw-material costs as well as operating costs efficiently. As a result, the company reported gross margin expansion. OPM expanded after five quarters of contraction to 6.5%.

Outlook and valuation: During FY2011–13E, we expect Britannia to report a CAGR of ~17% in its top line (largely volume growth) and model in margin expansion of 180bp, despite sustained higher ad spends, aided by a benign input cost environment and higher operating leverage. Moreover, in terms of earnings, we expect Britannia to register a robust ~36% CAGR. Hence, we maintain our Buy rating on the stock with a revised target price of `495 (`458) based on 22x FY2013E EPS, in line with its historical valuations.
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