Britannia shares reach new milestone; analysts see more than 50% upside

Britannia Industries shares reached a significant milestone, surpassing Rs 5,000 on June 15.

Although the stock pulled back from this mark, it traded more than 1 percent higher at 11:15 am. Year-to-date, the stock of the biscuit and snack maker has rallied 15 percent, compared with almost 18 percent by the Nifty FMCG index.

According to the Bloomberg consensus rating, 31 of 42 analysts covering the stock have a ‘buy’ rating on it, suggesting a potential upside of over 50 percent. The stock’s relative strength index stands at 81, indicating a possibility of it being overbought.

JPMorgan, in its brokerage note after the Q4 earnings, said Britannia’s effective execution in driving market gains in the biscuit category, portfolio diversification, and consistent margin delivery is now reflected in the earnings and stock performance.

Emkay Securities initiated a buy rating on the stock on June 14, saying the company is well-positioned in the core biscuit segment and is actively addressing adjacency gaps to evolve into a total foods company.

Financial performance

For the quarter ended March 31, 2023, Britannia reported net sales grew 11 percent to Rs 3,892 crore, driven by 2 percent volume growth.

The company took pre-emptive price hikes, showcasing brand strength. Additionally, moderation in key raw material prices positively impacted financials.

Downside risks

JPMorgan emphasised several downside risks to the targets, including weak demand trends, significant inflation in input costs, irrational competition, potential earnings drag from the dairy business, poor response to new launches/premium offerings, and an increase in inter-corporate deposits to promoter group companies.

FMCG outperformance

Like other fast-moving consumer goods (FMCG) companies, Britannia has been performing well, buoyed by reports suggesting minimal impact of the El Nino on crops during the monsoon this year, thanks to India’s sufficient reservoirs and improved irrigation system.

Valuation

Britannia’s current valuation of 50 times is at a 20 percent premium compared to its 10-year average forward price-to-earnings ratio.