Shares of Britannia Industries Ltd’s reached record highs on Wednesday after the company reported better than expected profits for the March quarter.

Consolidated net profit of the maker of Good Day biscuits came in at 372 crore versus 322 crore that a Bloomberg poll of analysts was expecting.

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However, management commentary on how April and May has panned out is the more heartening bit. Britannia has said revenue growth for April and May has been 20% and 28%, respectively, over the corresponding months last year. With more people staying at home due to the covid-19 lockdown, in-home food consumption has spiked and Britannia has benefitted from this. Of course, whether these trends continue in future would be interesting to watch.

“Biscuits as a category seems to have clearly benefited from the shift in consumption from out-of-home to in-home,” said analysts from JM Financial Institutional Securities Ltd in a report on 2 June. The brokerage firm added, “Britannia would also have gained shares from other players (B-brands are likely less efficient in dealing with complexities and challenges plus many local bakery shops were shut during lockdown) – not all but some of these gains could be for keeps.” B-brands refer to local bakery brands.

Coming back to the March quarter results, in keeping with the numbers of other companies, Britannia too saw covid-19’s adverse impact on the numbers. In fact, after nine months of moderate growth, the company was witnessing growth coming back in the first two months of the March quarter. This was hit by covid-19 and the lockdown starting 25 March.

Overall, Britannia’s March quarter operating revenues increased by 1.6% to 2808 crore. Gross profit margin declined by 152 basis points to 39.67%. One basis point is one-hundredth of a percentage point. The company said it witnessed moderate inflation in prices of key raw materials. Nonetheless, a decline in other expenses, helped earnings before interest, tax, depreciation and amortisation (Ebitda) margins expand by 24 basis points to 15.8%. This is despite higher employee costs.

The good news is that sales bounced back in April and May after the initial hiccup caused by the lockdown for the company. The Britannia stock has made a stunning recovery of about 67% from its 52-week lows seen on 23 March. Of course, valuations are not cheap. Currently, the shares trade at a pricey 48 times estimated earnings for financial year 2022, according to Bloomberg. If the good run seen in April-May continues, Britannia’s high valuations may well sustain. After all, how many companies have reported an increase in sales during the lockdown?

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