Gross profit margin of Britannia
expanded by 29 basis points (bps) YoY to 39.9 per cent. However, these benefits got negated amid higher employee costs and advertising spending (up by around 20 per cent). As a result, the earnings before interest, tax, depreciation, and amortisation margin contracted by 69 bps YoY to 14.6 per cent.
Expect inflationary pressure and higher advertising and promotional spending to continue as the company’s priority now is to scale up new product launches amid rising competitive intensity. This will mean margin overhang in the near term for the company. In fact, the management believes that selling premium products would be somewhat difficult after Amul’s recent premium launches.
According to analysts at Edelweiss Securities, the rise in competitive intensity, amid rising raw material prices and lower industry growth, remains a short-term concern. However, the company’s cost-efficiency efforts would support margin somewhat.
Overall, the trend in volume growth, profitability, and new launches in the ensuing quarters would be key for profit growth movement in 2019-20.
Also, investors should keep an eye on the company’s inter-corporate deposit exposure to group companies, which stood at around Rs 500 crore, say analysts.