Britannia Industries’ impressive price-to-earnings ratio raises eyebrows as earnings decline

INDIA – Britannia Industries Limited has recorded a price-to-earnings ratios (P/E) of 56x in February 2025, according to Simply Wall Street, a research company that conducts in-depth and unbiased analysis on thousands of listed companies worldwide to help investors make sound decisions.

Despite the impressive P/E ratio, the research watchdog noted that the results are subject to further investigation to determine if it’s justified since other companies in India have reported relatively low P/E ratios below 29x.

Britannia Industries has not been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average.

Last year, the company’s profits fell by 16%. However, it was still able to grow Earnings Per Share (EPS) by 34% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Simply Wall Street suggests that it might be that investors have continued to expect the poor earnings performance to recover significantly, and this has kept the P/E from deteriorating. Furthermore, Britannia’s P/E ratio would be typical for a company that’s expected to deliver very strong growth, and perform much better than the market.

Looking ahead, Brittania’s EPS is anticipated to increase by 12% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 18% each year.

While most investors are hoping for a turnaround in the company’s earnings, the analyst cohort at Simply Wall Street is doubtful that this will happen.

The analysts added that only the boldest investors would assume that these prices are sustainable in the long-term as this level of earnings growth is likely to deteriorate the share price eventually.

The analysts cautioned investors against reading too much into price-to-earnings ratios when settling on investment decisions. They concluded that unless these conditions improve markedly, it would be very difficult to accept these prices as being reasonable.

According to Statista, Britannia Industries Limited reported a net profit of around US$242M in fiscal year 2024.

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