Britannia Industries shares tank 5% as Q2 earnings miss market expectations

Shares of Britannia Industries declined 5 per cent to hit an intraday low of Rs 3,536.60 on the Bombay Stock Exchange (BSE) after the company's Q2 earnings missed the Street's expectations.   The FMCG major reported a net profit of Rs 381.8 crore for the July-September quarter, recording a 23 per cent decline on a year-on-year basis. Profit in the year-ago period stood at Rs 495.2 crore. The company's revenue grew 5.5 per cent year-on-year to Rs 3,607.4 crore.   The stock opened 4 per cent lower at Rs 3,561 against the previous close of Rs 3,718.80 on the BSE. With a market capitalisation of more than Rs 87,000 crore, the shares stand higher than 5 day, 20 day, 50 day, 100 day and 200 day moving averages.   Commenting on the performance, Mr. Varun Berry, Managing Director, said, "During the quarter, the impact of the second wave of COVID-19 started receding, and the economic activity started picking up. However, inflationary trends remained rampant around the globe, across sectors."   "Our growth of 6 per cent this quarter over a high base of last year and a 24-month growth of 21 per cent in the current year is a testimony to our strong building blocks and commitment of our people. In line with our strategy, we continued our focus on increasing direct distribution and improving our rural footprint. In this year, we saw higher growth in market share and as a result we significantly reinforced our market leadership," Berry added.   "On the cost front, the global economy continued to witness supply-led constraints across various input materials fuelling inflation. As a result, we are witnessing unprecedented inflation in market prices of palm oil at the rate of 54 per cent, industrial fuel at the rate of 35 per cent and packaging materials at the rate of 30 per cent leading to an overall inflation in the quarter of ~14 per cent," he noted.   "While we have been able to partially mitigate the impact through strategic forward covers and accelerated cost efficiency programs, we have also initiated necessary price increases across the portfolio all of which will address the cost push and normalise profitability. We are confident that our resilient Brands and strategic growth initiatives will hold us on a path of profitable share gain in the future as well," Berry added.   ICICI Securities noted that Britannia Industries continues to benefit from strong brand positioning, direct distribution expansion and execution edge.   "While lower ad-spends in FY21 have driven higher profit growth vs revenue growth, FY22 is likely to be a low-profit-growth year. Approach on price increases (inflationary RM) will be key," the brokerage firm said.   "We cut our earnings estimates by ~9-6 per cent for FY22-23E; modelling revenue / EBITDA / PAT CAGR of 9 / 5 / 4 per cent over FY21-23E. Maintain REDUCE with a DCF-based revised target price of Rs 3,400 (was Rs 3,200 earlier)," it added.   JP Morgan noted the earnings were a miss on significant COGS inflation, while revenue growth was supported by continued market share gains.   The research firm has an 'overweight call' on the stock with a target price of Rs 4,000 per share.