Britannia Industries falls nearly 4% as worries over demand slump deepen

Britannia
Shares of Britannia Industries plunged nearly 4 per cent to hit a 52-week low of Rs 2,302 apiece on the BSE in intra-day trade on Wednesday, as worries over demand slump worsened. Parle Products, India's largest biscuit maker, said on Tuesday that it may be forced to layoff up to 10,000 people if the ongoing consumption slowdown persists. 

At 09:52 am, the stock was trading 1.52 per cent lower at Rs 2,358.25 apiece on the BSE. In comparison, the benchmark S&P BSE Sensex was quoting at 37,318 levels, down 0.03 per cent. 

“We have sought reduction in the goods and services tax (GST) on biscuits priced at Rs 100 per kg or below, which are typically sold in packs of Rs 5 and below, but if the government doesn’t provide that stimulus, then we have no choice but to let go of 8,000-10,000 people from our workforce across factories as slowing sales are severely impacting us,” The Economic Times reported quoting Mayank Shah, category head of Parle Products, as saying.

Consumption space has been hit hard amid ongoing demand slowdown in the country. According to analysts at Edelweiss Securities, weak overall macroeconomic scenario including lower government spending, liquidity crisis, which in turn, is hurting wholesalers, lower procurement despite minimum support price (MSP) hikes, and limited payout of the PM-Kisan scheme are some of the key reasons behind the slowdown.

For the quarter ended June 30, 2019, Britannia Industries reported a 5.9 per cent year-on-year (YoY) growth in consolidated net sales at Rs 2,677.3 crore, while its net profit fell by 3.7 per cent YoY to Rs 248.6 crore. Britannia’s rural business, which was earlier growing 1.5x faster than urban, grew slower than its urban business in the quarter. The company, which has 32 per cent exposure to the rural segment, saw just 3 per cent volume growth during the quarter, though on a higher base of 12 per cent in the year-ago quarter. CLICK TO READ FULL REPORT

That apart, the management of the company in post-earnings conference call had flagged concerns pertaining to demand slump. “If the consumer is thinking twice before buying even a Rs 5 product, then obviously there is some serious issue in the economy," the company had said.

Shares of the company have slipped nearly 7.5 per cent (as of Tuesday's close) since August 9, the day it released its June quarter results. The stock has lost around 34 per cent from its 52-week high of Rs 3,472.05, touched on August 23, 2018.

Despite the developments, most analysts are still positive on the stock and have retained 'buy' rating for now. 

Centrum Broking, for instance, notes that though the value biscuits segment declined, Britannia gained volume market share (nearly 35 per cent) focusing on premium products. It has retained 'Buy' rating on the stock with a discounted cash flow (DCF)-based revised target price of Rs 3,418 (earlier Rs 3,796).

"Entry into four new categories and adjacencies such as salty snacks in the past one year hold good revenue potential, in our view. Considering management’s view on a prolonged slowdown, we trim our earnings for FY20/FY21E by 4.2 per cent/4.7 per cent, respectively, given the base effect," analysts at the brokerage firm said.