Britannia misses estimate as Q2 profit crumbles 23% on costlier inputs

Biscuit maker Britannia Industries reported a higher-than-expected decline in net profit for the quarter ended September 30 as costlier inputs weighed on its earnings.

Consolidated net profit declined 23% to Rs 384 crore in the second quarter from the year-ago period and slid 1.5% on a sequential basis.

Consolidated sales rose 5.9% to Rs 3,553.68 crore from Rs 3,354.35 crore in the second quarter last year. Sales rose 6% compared to the numbers clocked in the three months ended June 30.

Analysts had factored in lower profit but they were expecting it to decline 10-15% while they had projected around 4-5% rise in sales during the quarter.

The company’s share price rose 1.6% to close at Rs 3,708 apiece on the BSE in a strong Mumbai market on Monday. The company declared its financials after trading stopped for the day.

Britannia Q2: Other highlights

1)  EBITDA fell 17.4% year-on-year to Rs 558 crore and the margin declined 430 bps to 15.5%.

2) Cost of raw materials rose 8.2% year-on-year to Rs 1,914.72 crore, higher than the sales growth and puncturing earnings during the quarter.

3) Stock in trade and cost of inventory and work in progress rose to Rs 340 crore from Rs 197 crore in Q2 last year.

4) It launched Milk Bikis Classic in Tamil Nadu and expanded the presence of a snack product, Potazos, across the country. This quarter also saw the launch of Treat Stix and Marble Cake in wafers and cake categories.

Britannia management commentary

Varun Berry, managing director at the company, said the impact of the second wave of Covid-19 started receding during the quarter, and the economic activity started picking up.

“However, inflationary trends remained rampant around the globe, across sectors. Our growth of 6% this quarter over a high base of last year and a 24-month growth of 21% in the current year is a testimony to our strong building blocks and commitment of our people,” he said.

Berry said that, in line with its strategy, Britannia continued its focus on increasing direct distribution and improving its rural footprint. “In this year, we saw higher growth in market share and as a result we significantly reinforced our market leadership,” he said.

Berry also said that the global economy continued to witness supply-led constraints across various input materials fuelling inflation. Market prices of palm oil jumped 54%, industrial fuel rose 35% and packaging materials climbed 30%. This led to an overall inflation in the quarter of about 14%, he said.

“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,” he added.