Stock Review: BRITANNIA

Biscuits and dairy products maker Britannia Industries reported a net profit of . 43.2 crore in the quarter ended March compared to a net loss of . 19 crore a year ago, helped by a decline in input cost.

Sales grew 21% year-on-year to . 1,127 crore. The company posted a turnaround in operating margin to 6.2% from a loss of 4.2% a year ago, meeting analysts' expectations. The stock has risen about 20% over the last one month.

However, despite having an appetising quarter, Britannia's performance still falls short of many of its peers. Though operating profit margin reported a turnaround, it still remains low. In the past, input cost inflation had hit Britannia more severely than others such as Nestle. An easing of raw material cost will lend only a temporary relief to its bottomline. Rising competition, both from old and new players, is perhaps a bigger concern for the company, going forward. Britannia has about a 35% share in the biscuits business with brands such as Tiger, Good Day, Treat, 50-50, and Nutri-Choice. It faces a stiff competition from a host of rivals, including Parle, Cadbury, ITC, Glaxosmithkline Consumer Healthcare, and United Biscuits. In the dairy segment, the company has strong competitors such as Amul, Nestle, and new entrant Gowardhan.

Intensifying competition will weigh on Britannia's pricing power, posing a major concern for growth. It has a market cap of . 5,300 crore, a tad higher than its annual sales of . 4,215 crore. This is among the lowest valuations in the sector as fast-moving consumer goods companies have an average market cap of 2-3 times their sales