Varun Berry’s Britannia cut down costs enough to make a fat profit despite a sharp slowdown

• Britannia shares slumped by nearly 3% as the biscuits maker clocked a record low 3.8% growth in quarterly sales.
  
  
• Brokerage house JM Financial retained a ‘buy’ rating for Britannia with a target price of ₹3,455 in the next one year.
  
  
• The consumption slowdown has hit the company’s revenue but the profit jumped nearly 24%.

While city slickers in Indian are buying fewer cars and staying away from fashionable jewels, the vanishing of basic amenities from rural houses- like biscuits, hair oil and shampoo is somewhere hitting the Indian businesses as a whole.

Biscuits and bakery products maker Britannia reported a 23.9% rise in net profit in the latest third quarter ending December 2019 but the shares went down almost 3%. That’s because the sales growth had slowed to a record low at 3.8% reflecting a sharp slowdown in consumption of even the most essential items of daily use.

One in every three biscuits sold in India are made by Britannia, according to Britannia’s marketing head Vinay Subramanyam, and yet, it is not immune to the slowdown or rising input prices. “On the cost front, we witnessed moderate inflation in the prices of key raw materials for the bakery business. There was a significant increase in milk prices which impacted our dairy business,” according to Britannia’s MD Varun Berry.

According to the National Statistics Office India’s GDP growth will slip to an 11-year low of 5% in the current financial year ending March 2020. This has led to a sharp drop consumption too as reflected in Britannia’s earnings.

An RBI survey result released last week showed that India’s consumer confidence has slipped further after hitting a six-year low in September.


But an analyst says ‘buy’ Britannia

Even as the slowdown bites into Britannia’s earnings, financial services firm JM Financial reportedly advised investors to buy the stock. “The pain in the environment seems to be really catching up hard. On the positive side, the other trigger that we were looking out for, ‘Other Expenses’ growth rate cooling off once costs of new factories and new businesses get into the base, did play out, though, and helped operating profit to still grow in double-digits despite a very disappointing topline performance,” told JM Financial, according to a report in ET.

Essentially, the report says that the company has been successful in trimming down costs enough to make a fat profit even though the sales growth slowed down.

Not just that, JM Financial also expects the share price to jump to ₹3,455 a piece in the next one year, that’s a nearly 9% jump from to Monday’s closing price.

SEE ALSO: Britannia, Amul, Dabur to raise prices or cut quantities in packaged products. Here’s why