Britannia price cuts raise growth worries, hit biscuit maker's shares

CHENNAI, Aug 7 (Reuters) - Shares of Indias Britannia Industries (BRIT.NS) fell as much as 3.6% on Monday to a two-month low as analysts raised growth concerns after price cuts dragged the biscuits makers quarterly profits below market estimates.

Britannia, which also sells cakes and breads, on Friday posted a consolidated profit of 4.58 billion rupees ($55.36 million) for the first quarter ended June 30, while analysts polled by Refinitiv were looking at a profit of 5.01 billion rupees.

“Local competition intensified. In view of that situation, certain price corrections were initiated to remain competitive and continue to drive top line,” Britannia said on Friday.

The cuts - of about 1.8% during the quarter - meant its gross margins contracted 300 basis points sequentially to 41.9%.

While easing inflation in the months of April and May had brought some relief for consumer goods makers like Britannia, analysts said this intensified competition with local manufacturers.

“A resurgence of local competition with pricing correction means growth has to be largely driven by volumes, which could lag due to channel de-stocking and out-performance of local players,” ICICI Securities analysts said in a note.

Britannia said prices would be “flattish” for the year ending March 2024 compared with the previous year.

“We will have to make sure that we work doubly hard to get our top line to grow,” Managing Director Varun Berry said on an earnings call.

The second half “looks challenging” for revenue, as well as profit growth, unless Britannia was able to offset a pressure on margins through volumes, JM Financial analysts said.

The average rating for the stock among 36 analysts is “buy”, with a median price target of 5,172.50 rupees, according to Refinitiv.

Shares, up over 8% this year, were down 2.9% at 4659.50 rupees at 11:53 IST.

($1 = 82.7250 Indian rupees)