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Analysts Lower FY23 Earnings Estimates On Margin Woes


Brokerages cut FY23 earnings estimates for Britannia Industries Ltd. on account of a sharper-than-expected decline in margin and volumes in the first quarter.

The maker of Good Day and Tiger biscuits has seen volumes decline of 2% over the previous year, and the number of packets sold remaining flat adjusting for the impact of grammage reduction, it told analysts during a post-earnings call.

Heightened inflationary pressures, analysts said, impacted margin, down to 13.5% in the quarter ended June—a level last seen in Q4 FY15. Prices of several inputs inched higher sequentially, led by wheat flour (20%), industrial fuel (15%), packing material and palm oil (5%).

This caused gross margin to contract 120 basis points quarter-on-quarter to 36.1%. It fell 170 bps over the previous year and 400 bps from 2019 levels, down to the lowest level in at least 40 quarters. The gross margin dip was exacerbated by 15% year-on-year growth in other expenses. Employee cost, too, grew 6% year-on-year, resulting Ebitda margin to fall below estimates.

According to analysts, the first-quarter margin delivery would weigh on near-term share price. The company has taken a 10% price hike till Q4 FY22 and would have to take 6% more price hike to mitigate inflation, which could delay recovery in volumes. Margin, they said, is expected to normalise on the back of softening of input prices from peak levels.

Shares of Britannia rose as much as 1.6% but erased all gains to trade 0.06% lower as of 10:15 a.m. on Friday.

Of the 39 analysts tracking the company, 21 have a ‘buy’ rating, 14 recommend a ‘hold’ and four suggest a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies a 1.5% upside.





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