View: Buy; Tgt Price: Rs 2200
Beats expectations again!
*PAT 14% above estimate:
Britannia’s 3QFY15 results were better than expected, with robust 31% YoY growth in EBITDA and 34% YoY growth in PAT. Net sales grew 13.6% YoY to Rs 18.3b, marginally below estimate of Rs 18.6b. The company is expected to witness volume growth of 5-6%; improved product mix and price hikes would have accounted for the rest of the net sales growth.
*EBITDA and PAT growth at 30%+:
Gross margin expanded by a modest 20bp YoY to 39%. Savings in advertising spends (down 50bp YoY to 7.6%), employee costs (down 20bp YoY to 2.4%) and conversion costs (down 20bp YoY to 8.8%) aided EBITDA margin expansion of 120bp YoY to 9.6%. Consequently, EBITDA grew 30.5% YoY to Rs 1.76b. Other income doubled YoY, which aided 34% YoY recurring PAT growth to Rs 1.3b. Reported PAT was up 25% due to exceptional items pertaining to VRS costs.
*Highlights of consolidated and subsidiary performance:
Sales, EBITDA and adjusted PAT grew 13.7%, 45% and 45% YoY, respectively. Gross margin expanded 90bp YoY to 39.5% while operating margin expanded 220bp YoY to 10%. Imputed subsidiary margins expanded by a sharp 1,150bp YoY to 12.1%, likely driven by benign RM costs. YTD subsidiary performance has shown similar improvement, with 9MFY15 EBITDA margin up 740bp YoY.
*Valuation and view:
After considering better than expected 3Q results and benigh RM costs, likely muted revenue growth during FY16 and lower realization growth going forward, investors may gradually accumulate the stock at CMP or lower with a Tgt Price of Rs 2200.Valuations, while rich, are backed by superior execution and earnings delivery. This stock could be a portfolio stock as it is a medium-term story of premiumization plus cost containment.
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