Britannia Industries experienced a significant dip in its share price following the announcement of its Q2 FY25 results. The company's stock dropped by 4% on Tuesday, November 12, 2024, hitting an intraday low of ₹5,220 per share on the Bombay Stock Exchange (BSE). This marks a concerning 9% decline over two days, with the stock reaching its lowest level since June 4, 2024.
The decline follows a reported fall of 9.6% in profit after tax (PAT) for Q2, which stood at ₹531 crore, compared to ₹588 crore in the same quarter last year. This negative trend has sparked reactions across the share market investment community.
Weak performance across key metrics
The biscuit maker's financial performance in Q2 FY25 failed to meet market expectations. The company reported a marginal 4% increase in consolidated sales to ₹4,667 crore year-on-year, but this was below analyst forecasts of an 8.6% growth. The increase in revenue was largely driven by higher volumes, which grew by 8%, albeit lower than the expected 10-11% range.
Analysts attribute this lower-than-expected volume growth to sluggish consumer demand, especially amidst rising food inflation, which has weighed heavily on discretionary spending.
Pricing power also showed weakness, with a 3.5% decline in average selling prices, in line with analyst expectations. However, higher input costs, particularly in wheat, palm oil, and cocoa, led to a contraction in the gross profit margin (GPM) by 136 basis points, falling to 41.5%. This was well below the expected GPM of 43%.
Pressure on operating profit margins
The company's operating profit margins also came under pressure, dropping by 290 basis points to 16.8% compared to 19.7% in the same quarter last year. This was significantly lower than the anticipated 20.2%, as rising staff costs and other expenses eroded profitability.
In particular, employee expenses surged by 45% year-on-year, although no specific explanation for this increase was provided. Consequently, the company’s operating profit (EBITDA) shrank by 10.2% to ₹780 crore, which also fell short of market expectations.
Looking ahead
Despite the disappointing results, Britannia's revenue growth of 5.3% year-on-year shows that the company is still managing to expand in a challenging market environment. However, the company's ability to navigate inflationary pressures, cost management, and consumer demand trends will be crucial in determining its future trajectory.
As always, business owners and investors involved in share market investment will need to assess whether the company’s strategic responses to these challenges can sustain profitability in the long term. For now, analysts are waiting for further insights from the upcoming earnings call, which could provide more clarity on Britannia’s path forward.
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