Persistent cost inflation delays the treat for Britannia investors
Biscuit maker Britannia Industries’ tussle with input-cost inflation continues despite pricing action. Going by the September quarter (Q2FY27) management commentary, a near-term respite is not in sight, given dearer raw materials such as sugar, refined palm oil, flour and industrial fuel.
Britannia took a nearly 3.5% price hike in Q2 through grammage cuts, which covered only part of the impact of cost inflation. Consequently, consolidated gross margin fell by around 200 basis points (bps) year-on-year and sequentially to 39.6%. Ebitda margin declined around 150 bps year-on-year to 18.3%. True, the recent fall in palm oil prices and a cut in edible oil duties could support margins in H2FY27. But for now, some brokerages have lowered their FY27 earnings estimates.
Pricing pressure
A large part of Britannia’s portfolio sells at ₹5 and ₹10 price points, where grammage cuts take about two months to reach the market. Further pricing actions are on the cards, although additional grammage cuts could weigh on volume growth. Volumes rose 13% in Q2, largely aided by improving rural demand and a recovery in the general trade (GT) channel.
GT growth is now 2.6 times the pace seen in FY26, up from 1.5 times in Q1. Key states, which account for more than 50% of domestic sales, grew at 2.8 times their FY26 pace, while other channels grew at 1.8 times the rate of GT, aided by semi-urban and rural consumption.
Systematix Shares and Stocks (India) notes that while Britannia’s expected market-share recovery on retail shelves, with the odd-MRP-pack advantage enjoyed by competitors subsiding, is encouraging, volume growth remains moderate. The two-year compound annual growth rate (CAGR) is estimated at 4.5%, with the added overhang of upcoming grammage cuts across around 60% of the portfolio.
Recall that following the GST hike, Parle and other competitors continued with packs priced at ₹4.5 and ₹8.9 to gain market share.
Rising competition
Moreover, Reliance Consumer Products has launched biscuits similar to Britannia’s existing offerings, entering Tamil Nadu, a key market for the company.
The management believes competing at ₹5 and ₹10 price points is tougher, given the limited scope for aggressive price disruption. Although Britannia remains confident in its moats of innovation, distribution strength and increased advertisement spending to boost volumes, competition poses a threat.
So far in 2026, Britannia’s stock is down 20%. It trades at a FY28 price-to-earnings multiple of 38, according to Bloomberg data. But moderated valuations are not enticing enough amid concerns over margin recovery.