Buy Britannia Industries; target of Rs 4,050: Emkay

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Britannia Industries

Q3 sales grew by 13% to Rs35.7bn, exceeding our expectations by 5%, led by 5% volume growth and price increases. EBITDA/PAT declined 12%/18%, in line with estimates, due to a 520bps gross margin impact arising from higher input cost pressures. BRIT outperformed peers in Q3 with stronger growth, driven by distribution expansion in the rural/Hindi belt and positive response to its activations and new launches. Market share gains continued. Its plans to expand adjacencies should see a bigger thrust, going forward.

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Outlook

Despite pricing actions, margin pressure prevailed due to a higher-than-expected rise in input prices. Further price increases in Q4 and accelerated cost savings should gradually improve margins in the coming quarters. We forecast a 190bps margin gain in FY23-24. The strong topline performance with healthy volumes despite grammage cuts is a positive and can drive upsides. Retain Buy with an unchanged TP of Rs 4,050, rolling forward to Mar’24E EPS and marginally reducing the target multiple to 44x factoring higher COE.

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