- Date : 09/03/2023
- Read: 4 mins
Britannia's share price has fallen 6% this month, caused by CLSA's downgrade, rising raw material costs, rural demand slowdown, and a reluctance to reduce product costs.
It's been a tough month for Britannia, the British multinational food-products corporation. Over the past month, the company's share price has dropped 6.1%, leading some investors to question whether Britannia has lost its spark.
Here, we will take a look at what has caused this downturn and consider the implications it might have on the future of Britannia.
Reason for the fall
CLSA downgrade:
The Britannia share price fell 6% this month after a downgrade of the stock by CLSA from 'Underperform' to 'Sell'. The research firm also cut its target price to Rs 4,060 from Rs 4,525 per share. This downgrade has likely weighed on the share price.
Further, rising raw material costs, particularly milk and wheat, could affect Britannia's profitability in the near future. Milk and wheat are key raw materials for Britannia and an increase in these costs can have a significant impact on their margins. This in turn could adversely affect the profitability of the company.
Slowdown of Rural demand:
It appears that one of Britannia's core markets, rural India, is the cause of their stock price dropping 6% this month. High inflation has caused the rural populace to be hesitant to spend on Britannia's discretionary products.
This lack of consumer confidence has been exacerbated by the El Nino weather formation, which can hurt crop growth and further dampen the rural population's pockets.
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With these factors combined, Britannia's prospects in the rural markets are looking grim in the near term. As a result, its share price has taken a hit and is down 6% this month.
Cost reduction hesitance:
Britannia saw its share price fall 6% over the past month. During the company's earnings conference call, Chairman Varun Berry stated that Britannia would not go for price cuts on its products; rather, it would opt for promotional offers to increase sales. This reluctance to reduce costs is likely to hurt demand for their products in the short term.
In addition, the overall economic environment in India continues to be challenging. Inflation is still high, and consumer spending has yet to pick up. This has contributed to the decline in Britannia's share price. As a result, investors have become wary of investing in the company's stock.
Britannia share price: Analysts View
Prabhudas Lilladher:
Investors in Britannia have been feeling the pinch as the company's share price has dropped 6.1% over the past month. The consumer goods major is facing a multitude of challenges, including rising raw material prices and a decline in demand for some of its products.
Prabhudas Lilladher, an investment firm, recently gave Britannia a 'Hold' rating with a price target of Rs 4,580. The firm cited Britannia's rising margins and increasing market share as key drivers of growth but pointed out that persistently rising raw material prices remain a cause of concern for the company.
Analysts noted that despite the surge in margin expansion, Britannia's pricing power has been waning in recent months, which has led to a decline in the company's share price.
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BNP Paribas:
BNP Paribas has a Buy rating on the stock with a price target of 5,285 and is optimistic about the company's prospects due to operational efficiency reflected by rising margins and market share gains.
Despite this, investors remain concerned that the company is not doing enough to reduce its costs of products, which could lead to a drop in profits and revenue.
Motilal Oswal:
Motilal Oswal currently has a Neutral rating on the stock with a price target of Rs 4,600. Analysts have pointed to several strengths in Britannia's business, including low inventory costs, rising margins, and market share gains. However, these positives were not enough to offset investor concerns that the stock was richly valued at current levels.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
