Stock Market Result Update on Britannia for 2QFY2012

Stock Market Result Update on Britannia for 2QFY2012 with an Neutral recommendation. 

Britannia reported a strong set of numbers for 2QFY2012. The company registered top-line growth of 18.2% yoy, driven by volumes, price hikes and an improved product mix. Earnings growth during the quarter stood strong at 18.8% yoy. Operating margin during the quarter marginally expanded, despite higher staff costs and ad spends. We maintain our Neutral view on the stock.

Key highlights for the quarter: Britanniaregistered robust top-line growth of 18.2% yoy in 2QFY2012. The company continued its impressive top-line growth because of new product launches, price hikes and improved product mix. Britannia has been posting ~20% top-line growth consecutively for the past seven quarters. During the quarter, Britannia’s operating margin expanded marginally by 9bp yoy, despite higher staff costs and ad spends, as the company managed its raw-material costs efficiently. Earnings for the quarter grew by 18.8% yoy.

Outlook and valuation: We expect Britannia to post a ~17% revenue CAGR (largely volume growth) over FY2011–13E and model in margin expansion of 184bp, despite sustained higher ad spends, aided by a benign input cost environment and higher operating leverage. Further, in terms of earnings, we expect Britannia to post a robust ~36% CAGR. At the CMP, the stock is trading at 21.5x FY2013 EPS (in-line with its historical valuations); hence, we recommend Neutral on the stock with a fair value `495, based on 22x FY2013E EPS.