Britannia Q4 preview: Will higher sugar, wheat prices hurt margins?

Highlights

• In Q3FY17, Britannia's consolidated net profit rose by 4.6% to Rs 220.49 crore
• Cookie segment earned revenue of Rs 8,600 crore in 2017
• Rise in price of wheat and sugar likely to hurt margins, experts say

Food products major Britannia Industries is set to announce its financial results for the quarter ended on March 31. 

In the previous quarter, Britannia's revenues took a hit on the back of implementation of demonetisation in November 2016. 

The food products maker's consolidated net profit for the October to December quarter of FY17 jumped by 4.6% to Rs 220.49 crore as against Rs 210.81 crore in the October to December quarter of FY16.

That time, Varun Berry, Managing Director, Britannia Industries, had said, "The impact in terms of liquidity crunch was felt by our consumers and channel partners, thereby  impacting our revenues with sales dropping in November 2016 sequentially over October 2016 by more than 10%."

Post demonetisation, the experts believed that under the consumer sector, impact of note-ban is likely to continue particularly those companies with higher proportion of wholesale trade and greater exposure to rural as well as north and east regions.

Experts outlook

The company has a strong market share under the cookie category as it gives tough competition to its peers ITC and Parle. It holds 30% share in Indian cookie market and recorded revenue of Rs 8500 crore in 2017, as stated my media reports. 

Interestingly, out of the total revenue generated, the company's Good Day brand earned revenue of Rs 2600 crore in 2017, a report said.

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According to Edeiweiss research report, the company is likely to witness revenue growth of nearly 10% on year-on-year basis led by 3-4% year-on-year volume growth on a base of 10% yoy volume growth.

"Flour and sugar prices (~45% of raw material basket) which had moved up significantly has led to price hikes (price hike has been in the range of 6-7% YTD) which will help to protect
overall margins - though gross margins will come under pressure," the report said. 

However, having similar views, Motilal Oswal in its research too said that with the rise in wheat and sugar prices on yoy basis, the margins are likely to take a hit. 

"We expect 130 basis points contraction in operating margin YoY, and EBITDA and PAT to decline 4% and 3%, respectively," it said.

Ahead of the result announcement, the shares of the company opened in red. At 0919 hours the shares of the company were trading at Rs 3533.20 per piece, down 1.71% or Rs 61.60 on BSE.