Rising commodity prices, rural slowdown bite into Britannia’s Q3 net profit

India’s largest bakery foods company Britannia Industries Ltd reported an 18.43% drop in consolidated net profit for the three months ended December 2021 even as revenue growth beat analysts’ expectations and the company gained share in key markets.

The Nusli Wadia Group company saw its third-quarter net profit growth fall to Rs 369.18 crore from Rs 452.64 crore in the corresponding period last year.

Its revenue grew 13.66% from a year earlier to Rs 3,350.70 crore, exceeding analyst expectations of a 7-11% growth.

The company said increasing inflation and rising commodity and fuel prices forced it to pass on the cost to the consumer.

“We continued to witness an increase in commodity prices with an inflation of about 4% sequentially (quarter on quarter) and about 20% over last year. As market leaders, we actioned price increases ahead of competition. However, the upward trajectory in prices of commodities and fuel impacted profitability, which led us to action further price increases and accelerate cost efficiency programs,” said Britannia managing director Varun Berry.

Other Key Highlights

1) Operating margin declined to 13.67% from 17.78% a year earlier and 14.09% in the second quarter of this fiscal year.

2) Q3 net profit margin, a percentage of revenue left after all expenses, declined to 10.17% from 13.94% in December 2020 and 10.43% for the quarter ended September 2021.

3) Raw material costs increased nearly 22% year on year, but fell 5% quarter on quarter.

4) The cost of packaging materials rose 23.45% quarter on quarter and 43.6% year on year.

5) The company reported an inventory turnover ratio of 40.23%.

6) Its earnings per share (EPS) was Rs 15.41 at the end of December 2021 compared with Rs 15.95 at the end of September 2021 and Rs 18.93 at the end of December 2020.

Management Commentary

Berry said the company delivered a high single-digit volume growth, significantly ahead of the market, and a resilient double-digit top-line growth driven by superlative performance across divisions and channels.

“While the rural markets across FMCG witnessed significant slowdown, we were able to maintain a significant competitive advantage through our focus to enhance rural footprint and our diligent market practices, which is reflected in the robust topline growth and consistent gain in market share,” he said.

Berry also said the company continued to invest behind its brands and relaunched ‘Good Day’, one of its power brands. “We have made rapid strides in our sustainability agenda with (a) robust increase in our score by Dow Jones Sustainability Index, which is a testimony to our efforts,” he said.

“We are confident that our resilient brands and strategic growth initiatives will hold us on a path of sustainable and profitable share gain in the future as well,” Berry added.

Side Note

Former Reserve Bank of India governor Urjit Patel, who served as an independent director on the company’s board, resigned from his position to pursue a new full-time work assignment starting February 1.

Patel will take charge at Asian Infrastructure Investment Bank (AIIB) as the multilateral development financial institution’s Vice President for Investment Operations for South Asia, the Pacific Islands and South East Asia. He will succeed DJ Pandian, a former bureaucrat from Gujarat.