Search the Internet          Tips  Sites: Finance, Investment

Tough times ahead for Britannia, say analysts

NetScribes/Rajiv Banerjee

The good results notwithstanding, Britannia Industries Ltd seems to be heading for a rough time ahead as higher excise, the slowdown in the FMCG sector and competition from regional players would put pressure on the top line.

On the BSE, the scrip is trading at Rs 638.25, down 0.60 per cent from the previous close of Rs 642.1.

"The results are more or less in line with the expectations. The company has clocked net profits of Rs 705 million for the year ended March 2001 while expectations were around Rs 690 million," said Rajesh Kothari, analyst at Khandwala Securities Ltd, a Bombay-based brokerage firm.

Kothari, however, added that the company would not be able to maintain the topline growth of 15 per cent, as higher excise will put pressure on the brands.

"We are expecting the topline to grow at around 10-11 per cent as along with the higher excise, competition from regional players would also affect the company's performance. We continue to have a hold recommendation on the scrip and would like to watch the performance for a few quarters before re-rating the scrip," he added.

For the year ended March 31, 2001, the company posted a topline growth of 14.41 per cent at Rs 13.4 billion, as against Rs 11.7 billion for the year ended March 31, 2000.

The bottomline grew by 24 per cent from Rs 510 million to Rs 705 million for the year ended March 31 2001. The growth has been primarily due to strong sales of its main brand Tiger biscuits and also from dairy products.

However, biscuit products, which are the mainstay of the company, have slowed down owing to a similar phenomenon in the FMCG segment.

On a quarter-on-quarter basis, the biscuit sales growth in volume terms have dipped to 3.4 per cent from 8.6 per cent in the earlier three-quarters.

Apart from the biscuit segment, which contributes to around 84 per cent of the total revenues, the diary products contribute about 10 per cent of the sales, while bread and cake contribute 5.7 per cent and 2 per cent, respectively.

The cheese category grew by 6.3 per cent year-on-year, while the milk powder category showed a negative growth y-o-y.

The increase in excise duty on biscuits priced at less than Rs 5 for 100 gms, to 16 per cent, will have an impact on its Tiger brand.

Biscuit products has remained one of the fast growing segment for the company as its low prices enable mass consumption of products like the Tiger brand. Now, with the hike in excise, a price increase would adversely affect volumes of Britannia's mainstay affecting sales.

"If Britannia does not increase the price, then it will affect the margins which will have an impact on the profits," said a FMCG analyst at First Global.

Further, competition from regional players is seen adding to BIL'a problems. "Apart from the regional players like Priya Gold Biscuit, Champion and Bakeman's, there is also the threat of players from the unorganised market which compounds BIL's problems," said Kothari.

The unorganised market has been BIL's bane as low cost per unit for these players gives them the advantage in rural and semi-urban areas.

Money

Business News

Tell us what you think of this report