When the first cut of Britannia numbers was out, it did not look impressive and appeared to be an inline set of numbers with a mild beat here and there. What has changed in the commentary from the management this morning that warrants a 7% to 8% gain on the stock?
Abneesh Roy: We are positive on FMCG in general. We would expect sector rotation given a lot of stocks have not really given that kind of movement in the last one year. Plus, the monsoon is going to be strong and we do see post elections in general growth rates for FMCG improving. So, coming back to Britannia, we were impressed by the quality of the results.
We had in fact, highlighted to our investors that Britannia will see strong volume growth in Q4 in our previewed numbers itself. So, yes, in this quarter, Q4, the volume growth was around 7-8%. What excited investors in the call was essentially three-four things.
One is, of course, post monsoon, the company is looking at a 3-4% price hike because in the last one year, there has been almost 4-5% negative effective pricing because of extra grams and price cuts.
Second, the company is gunning for a double-digit volume growth, again, starting post the monsoon. My sense is Q1 and Q2, we will see very close to double-digit volume growth for Britannia. We are already at 7-8%.
Third, margins may not see a big drop. Of course, the wheat crop this year seems to be a bit better than last year. We wait for more clarity. But the company is focusing on growth and volume growth but said that margins may not see a big drop which I think is giving a lot of confidence to the investors. Four, local players have become a concern for Britannia. I would say that it will have an impact in Q1 and so that will be a risk and after that, Britannia will continue to gain market share. It is currently gaining.Five, the company is focusing on a lot of tech projects, artificial intelligence, data analytics, etc, which will be clearly a disruptor in FY26, though may not have much of an impact in FY25. So, overall, we are quite positive on Britannia. We are positive in general on FMCG because of the reasons which I mentioned.
But it seems to be a completely different story when we look at the earnings from Titan this time. The Jewellery segment margins have disappointed yet again. Gold prices are on the rise. What is your anticipation of Titan stock prices going forward because you have downgraded the stock this morning?
Abneesh Roy: Yes, absolutely. We like the company structurally from a two to three years perspective, but from a one-year perspective, we downgraded the stock because in our view, in the first half, the results will be a bit muted on the earnings front.
There are four-five key reasons: One, because gold prices have moved one way up. Some customers are delaying the purchase.
Second is because a lot of the local organised players do not do gold on hedge. When the gold price moves up, they enjoy a lot of inventory gains. Due to that, the competitive intensity has gone up in the sector and Titan is also offering more promotional intensity, more programmes to the customer so that they can grow strongly.
Third, investors have more options because Kalyan Jewellers is doing very well as well and in fact, is growing faster than Titan currently. So, I would say that because of the margin pressure in the first half of Q2 – the base of margins for Titan is very high, the growth rates for Titan will be a bit muted. So, some more correction can happen and then some time correction.
From a one-year perspective and two-year perspective, things will pan out better in the second half. Eyewear continues to be a struggle for Titan. We have seen that Lenskart continues to be the big player and disruptor and that remains a challenge for Titan. So, overall, the number of marriage days are also low in Q1, All this makes the results near term a bit challenging for Titan and that is why there is a cut, we cut our EPS by 6% and we downgraded. We will prefer players like Trent. We also like Avenue Supermarts from a one-year perspective than Titan.
