Great results from Britannia
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Thanks for the update.
Is it possible for you to post a brief on the concall points…
Also status on the proposed 5% stake sell by Wadia’s through a block deal which appeared in news media a month back… though it should not affect the stock price in the long term as long as it is a sound company with solid business… Stake sell is a common activity on many companies nowadays …
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It was already in price…considering that FMCG did not go down much, so already the move has been a big one for britannia…also the data might be skewed for this month with people hoarding biscuits during lockdown…price action looks more of traders booking profits in leveraged positions, same as what happened with reliance…I think Q2 and Q3 results will show correct financials and how much britannia can gain from the rural surge in spending…
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Unfortunately I did not take notes during the call. But I remember following points on the call, some of which are there in the investor presentation.
- Out of 26% sales growth for the quarter (YoY), 21% is the volume growth and 5% due to product mix plus price increases taken on some products.
- Product availability (read robust distribution network) was the big reason for such good performance for the quarter.
- Benign commodity prices for Milk and flour helped margin improvement.
- It would be difficult to predict how coming quarters would be as situation is very dynamic so they are taking on day to day basis.
- Did not see reduced consumption in the areas where lock-down was lifted.(although it is only 15 days so very small sample size to conclude)
- Management believes they have gained market share during first quarter and would like to work hard to retain it going forward.
- Rural sales is 37% of the overall sales.
- Not much A&P during the quarter
- Traditional Kirana stores sales did very well. Modern trade and institutional sales ( sale to CSD, railways, Airlines etc) affected very badly. E commerce channel did badly in the beginning but slowly improved in the second half of the quarter.
Since I am writing from my memory, I could be wrong on few of the points mentioned above.
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Varun Berry: Heath & Hygiene Are Focus Categories For Britannia’s Future:
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After many quarters of underperformance, it has given a good set of numbers…
Whether it is sustainable?
In my view, it is yes,… even though it may not be able to achieve this high growth. however it may continue giving a descent set of numbers in future as Post Covid19, people have become more health and hygiene conscious…people now tend to eat something hygienically packed from a reputed and well known brand like Britannia… Not only urban people, even Rural mass rely upon Britannia snacks/ bicuits slong with tea or afternoon snacktime…
Britannia with a Capex plan now want to expand with volume and new launch which was postponed earlier…
Most People will continue to avoid unpackaged food /street food, open restaurant food etc etc…which could lead to people turning to well packaged food like Britannia…
Discl: invested…may be biased
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Find enclosed my working about total shareholder return generated by Britannia since 1978.
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Hi…
Can anyone throw some light on the latest status of ICDs on the balance sheet of Britannia Industries.
The stock has been under some pressure, post the Q3 results…which to me looked fine. The only issue could be increased levels of Inter Company Lending.
Plus…its a kind of Corporate Governance issue as well.
Disc : holding. Forms a signifigant part of my portfolio.
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Good to know that you hold Britannia as sizable part of portfolio. Can you pls share reference by which you feel this is the only issue and main issue for current underperformance?
I had been of the opinion that these cross company lending were not new for Britannia and had been since long time and well known to market. And recent underperformance was majorly because of softening of huge demand for packaged foods that had come up during lockdown in last two Three Q’s. So growth has normalized now and would remain normal (although decent)
But yes I agree, the prepandemic normal valuation of Britannia was more than where it seem to be stabilizing now. One reason could be better other opportunities in foods segments emerging. Other can be very well that you mentioned so would be great to know how you concluded corporate governance to be main issue. Thanks
Disc. Invested. Not a buy/sell recommendation
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Yes…you are right. Cross company lending has been an old issue. I was just worried if they have increased their ICDs.
Because otherwise, the results look descent to me…looking at YoY numbers.
Plus the valuation multiple has also seen some moderation when no similar moderation is visible in HUL, Nestle, Dabur etc…so I was a little surpised.
Another reason for the valuation moderation could be that the Mkt is pricing in negetive growth in Q1 and Q2 next yr.
Actually, I was tempted to add some more Britannia to my portfolio seeing the valuation multiple coming off. Just wanted to be sure that ICDs are at low / manageable levels.
Honestly this is a very valid concern and even I am not aware of the same. Would be good if someone can share details about this…
Apart from ICDs the main concern with Britannia, is the diversion of money from Britannia, to shore up the airline business, which as we know sunk even Vijay Mallya. This is indicated in the special issue of debentures, resulting in depletion of reserves by half. This will put money in the hands of the promoters to support their other businesses. This is also indicated in the heavy payout ratio.
There is a fear that the company will not be able to do the needful investment in the main business. As for the airline business, “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
Due to reasons above, market was not giving more than 50 PE. As for the recent correction in the share price, it is the markets acceptance that the surge in earnings in Q1 & Q2 is mostly pent up demand.
Disclosure: Not invested. But looking to invest when the management recognises the Kohinoor placed on its crown.
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Interesting and what steps from management would make you feel that they have done this recognition?
The dividend payout ratio which was averaging around 30% has increased massively in the last 2 years indicating diversion of funds from the business. This is the key monitoring event, as a low dividend payout would indicate massive fund infusion, back into a great business.
But the management might be interested to get maximum dividend payout to support the airline business. The airline business has the capacity to sink not only Britannia, but the empire itself, nourished over several generations.
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Is this not extreme thought that a listed business can be destroyed by another business issues? Well yes have seen Bajaj consumer, emami etc suffer from promoter pledging etc. But Britannia has more growth levers…also if we just see the business, then the steps taken by management during pandemic have been very prudent with right new launches, supply chain management, availability of products and no brand or segment Britannia is in seem to be left wanting for more…
I do not undermine the risk you mention, thanks for that and also I am very watchful of slackness in business but the point I have is that so far I haven’t seen slackness in business decisions…
Thoughts welcome
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You have valid reasons. However, what we lack here is data to substantiate your conclusions / observations.
(1) ICD remains top concern and we have to look at how this increases / reduces over time. Just refer to following details, from their AR:
| Rs.Cr. As on 31/03–> | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|
| ICD o/s | |||||
| Bombay Dyeing | 100 | 350 | 350 | 350 | 350 |
| Go Air | 0 | 0 | 0 | 250 | 335 |
| Sub-total | 100 | 350 | 350 | 600 | 685 |
| Current Inv. and Cash | 400 | 125 | 800 | 650 | 900 |
Pl note that current inv. and cash details are approx. for comparison.
On the face of it, both companies doesn’t have a great business, so ICD to them is a concern. However, just because of ICD’s, at current level, Britannia’s ship will not sink! I would be more worried if Britannia starts giving bank guarantee etc on behalf of Go-Air/BD- this aspect we have to monitor for sure.
(2) Increasing dividend payout - in my understanding, Britannia would need limited capital to grow its business compared to sizable cash it generates. If the business is unable to reinvest retained profits, better return that to s/h. and BTW, dividend doesn’t go only to promoters, it also goes to minority s/h. If, as investor I believe that by increasing dividend, Company is not deprived of growth capital, than I would not be much bothered what promoter does with that dividend.
Disc: Invested, no transactions in last 30 days.
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How can we monitor this aspect? Is a listed company oblidged to inform exchange as and when they give bank guarantee for other companies?
Also, in interest of public shareholders and longevity of trust in capital markets, is there no regulations or roadblocks for any listed company to do such acts like giving bank guarantee for another company (be it of same promoter or otherwise)? ICD is still a deposit (until it goes bad and can be justified by such companies as corporate deposits where many other companies also invest) but steps like bank guarantee is in total disinterest of any company and if a company is liable to public, is there no means/law to prevent them from doing such dishonour? Would be good to know from anyone on such issues…
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Everyone is aware of the ICDs. Several months back there was news that the promoters were planning to sell 5% stake. But they seem to have managed the funds crisis, by issuing debentures and depleting half the reserves.
Bombay dyeing is in a precarious situation and Go Air would be in a life and death situation. How will the promoters meet the future fund requirement. Possibly by 100% dividend payout, more ICDs and one more debenture issue thus depleting the balance reserves. It would be foolhardy to expect that such measures would not affect Britannia in any way. And there are several other ways in which funds can be diverted.
There is concern when a company doing 30% payout for many years, suddenly increases the payout, especially when market was discounting stake sale by promoters, which discounting made it uneconomic for stake sales.
The promoters must clear on their plans for various group business to restore investor trust in Britannia, possibly India’s only MNC company, with the world to conquer.
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