A company posts good earnings but it gets battered down because the numbers were “below expectations.” Many brokerage and fund houses got busy putting out a “sell” or “hold” call. Maybe there is a bigger play at hand but we should instead use this opportunity to look anew at the stock.

Britannia Industries has been time and again recommended by us, mainly as a long term, good old big gem in the portfolio. And this time is not better than before, irrespective of what the bigwigs say.

A quick recap of the earnings – consolidated net profit fell for the first time in six quarters at Rs.360 crore down 3% (YoY) and this was on a 9% growth in revenue at Rs.3131 crore, led by a 8% surge in volumes. EBITDA was up 11% at Rs.505 crore and margins rose to 16.1%, up 30 bps. This expansion was despite the costs increasing – it managed to effectively pass-on price hikes across some prodcust in March.

Going ahead:

Inflation, especially rising commodity prices will be a challenge but it can get through quite easily with a price hike as it did in Q4

The net profit was impacted due to a shutdown of operations for making three major operational digital transformations and this is going to help the company immensely in the coming months in terms of inventory holding, lower stock returns and getting much better at refill rates.

The lockdowns across the country bode well for companies like Britannia which is already seeing a surge in pantry stocking through e-commerce.

So, there has been a surge in demand in April and this time around, it is without disruption in supply and manufacturing chain. Thus those predicting doomsday, need a rethink.

Our logic is simple – if the fundamentals of the stock are intact, such market movers and shakers are but like a wisp of wind- they cannot really shake the foundation.