Britannia Q2- Rising prices of Palm oil caused 23% decline in Net profit?

Britannia's Q2 FY22 revenue witnessed an increase of 5% YoY, as estimated. The first half of the financial year saw the company gaining more market share with primary focus on increasing their rural coverage.

The gross margin decreased by 520bps mainly due to the high input cost inflation of palm oil(54%), industrial fuel (35%) and packaging material (30%) and a total inflation of approximately 14% this quarter. Rise in input costs were mitigated to a certain extent due to the forward covers taken on commodities as well as price increases across the entire portfolio. The operating margin also witnessed a decrease of 430bps YoY to 15.5%. The employee costs increased by 14% YoY whereas the EBITDA fell by 17% YoY.

PAT decreased by 23% mainly due to lower income and higher tax and also the increased prices of the raw materials as mentioned above. The cost of materials of the company increased by 8% YoY from Rs.1,768 crore in Q2 FY21 to Rs.1,915 crore in Q2 FY22.

The major sales rose by 6% in this quarter to Rs.3,554 crore. On a 24 month basis, the company reported a growth in sales and net profit by 21% and 18% respectively. Biscuits and high protein food compose of 70% of the total sales mix of Britannia.

The long term investments of the company, mainly in market securities have decreased to Rs.9.8 billion in 2^nd half of FY22.

According to the management, the commercial paper proceeds are being used for buying future covers for wheat and sugar and this in turn has led to an increase in the inventories by Rs.2.3 billion.

A price target of Rs.4000, with an estimated upside of 7.6% and a BUY call has been reported by analysts.