Buy This FMCG Stock For A Potential Upside of +24%: IDBI Capital

A brokerage firm, IDBI Capital Markets Securities Ltd, has placed a buy call on Britannia Industries stock. Britannia Industries is one of Indias largest food industries, with 100-years of existence and a record for manufacturing Indias most popular brands such as Good Day, Tiger, NutriChoice, Milk Bikis, and Marie Gold. The brokerage company has recommended buying this stock at a target price of Rs 4,507, representing a gain of +24% over the current market price of Rs 3,644. IDBI Capital has said in its research report that the Britannia (BRIT) 2QFY22 result was below our estimates. Revenue growth at 6%YoY on a high base of 12% is healthy. However, a steep contraction in gross margin led to a higher than expected decline in PAT. Positively, BRIT expects to offset the impact of inflation both by taking price hikes (to the tune of 1/3rd) and grammage reduction (2/3rd) by the end of FY22. According to the brokerage the During 2QFY22 BRIT has taken 4% price hike and expects benefit from grammage reduction to flow in 2HFY22. Distribution expansion is tracking well. BRIT expects rural to outperform urban through distribution expansion and penetration. In rural; market share gains stood at 2.5x vs urban during 2QFY22. Modern trade grew 10% higher than the traditional channel. IDBI Capital says However, the company expects lower volume growth due to inflation and reduction in grammage during 2HFY22. Accordingly, we have trimmed our EPS estimate by 6-13% during FY22-23E.Advertisement Domestic business remained resilient: Consolidated revenue grew 6%YoY (on a base of 12%YoY in 2QFY21) driven by 6%YoY growth in the domestic business while revenue from subsidiaries (consolidated less standalone) declined 5%YoY. BRIT has taken a 4% price hike during the quarter. In the international market; Nepal grew in high double digits led by market share gains. Inflationary raw material impacts operating margins: Gross margin contracted 502bp to 37.5% driven by material inflation in palm oil (54%YoY), industrial fuel (35% YoY) and packaging material (30%YoY). EBITDA declined 17%YoY to Rs 5.6bn. The decline in Adjusted PAT at 23%YoY is higher due to Rs 350mn tax benefit in the base quarter. According to IDBI Capital, Britannia Industries witnessed input cost inflation in RPO (46%YoY vs market inflation of 54%YoY), milk (15% YoY), industrial fuel (35% YoY), freight diesel (20% YoY), laminate(19% YoY) and corrugated box(46% YoY) and inflation for FY22 has been higher than the cumulative inflation for past 6 years. The company launched Britannia 5050 Potazos (PAN India), Treat Wafers Stix (PAN India - commercialization facility in Tamil Nadu) and Marble cake. Britannia also relaunched Milk bikis classic in Tamil Nadu. The brokerage has said in its research report that As per revised business outlook on inflation; we have trimmed our EPS estimate by 6- 13% in FY22-23E. We have introduced FY24E in our estimates. We maintain our bullish view on the company. Our revised TP stands at Rs 4507 with a BUY rating. The above stock is picked from the brokerage report of IDBI Capital. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.