britannia industries (brit in) britannia in its 100th year is confident of becoming a “total...

Download Britannia Industries (BRIT IN) Britannia in its 100th year is confident of becoming a “Total Foods

Post on 14-Mar-2020

0 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

  • August 8, 2018 1

    Rating: ACCUMULATE | CMP: Rs6,301 | TP: Rs6,568

    “Excitement and Goodness” continues

    Britannia in its 100th year is confident of becoming a “Total Foods company”

    as it has 1) become the market leader in biscuits with 3% higher market share

    than Parle (gained 9% from Parle in last 5 years), 2) strong innovations in

    adjacencies with entry in Croissants and cream wafers 3) Backward

    integration in the dairy segment 4) increased its direct distribution reach by

    2.5x and expansion in rural distribution to benefit from the growth momentum

    in rural India 5) Strong product pipeline of premium products priced at

    Rs10,15 and 20 which contributes 40% of its sales 6) Rs2.4bn cost efficiency

    gains targeted in FY19. Raw material cost inflation for Q1 was flat. However,

    prices of sugar, wheat, palmoil, packaging and cashewnuts have started to

    rise. BRIT has a forward cover for wheat till Jan’19 post which cost pressure

    may necessitate it to take price increases in 4Q19. We estimate 19.4% PAT

    CAGR over FY18-20 and value the stock at 46x Dec20 EPS (45xSept20 EPS

    earlier) given strong growth outlook and arrive at a SOTP based 18-month

    target price of Rs6568 (18-month target of Rs6170 earlier). Retain Accumulate.

     Analyst Meet Takeaways: 1) Rural sales have grown in double digits and both rural and urban demand outlook remains strong 2) BRIT has gained 9% market

    share in the past 5 years and is now 3% ahead of Parle 3) BRIT is looking at

    4-5% price increase towards 4QFY19 to ward off the impact of input cost

    inflation as prices of sugar, wheat (forward cover till mid january,2019), palmoil,

    packaging and cashew have started rising 3) upto Rs10 prcie point packs are

    40% of sales and will remain a key driver of growth 4) BRIT has plans to bring

    premium products like Wonderfuls, Nutrichoice heavens, Deuce, GoodDay

    chocochips etc at a price points of Rs.10-20 which will accelerate growth rates

    5) BRIT plans to re-launch most brands with changed packaing and flavors,

    which will create consumer excitement and accelerate growth 6) 75% of

    investments will be in existing businesses and 25% will be in new categories/

    segments 7) Weak states growth has accelerated, now 18-20% of sales as

    against 40% for industry 8) BRIT’s margins in Bread has improved significantly

    with Margins in South being 1.7x margins in North 9) 1QFY19 other operating

    income has declined by 53% as BRIT has not recognised GST incentives for

    Bihar and Odisha as these states are yet to clear the same

     Dairy: BRIT’s direct milk collection is 20,500liter/day and it needs 300,000

    liters/day once the new unit is commissioned. BRIT plans to focus on Cheese,

    Yoghurts, Dairy Whitener and Drinks while Butter, Ghee and UHT milk will be

    non-core products. Dairy segment has a strong pipeline of innovations lined

    up. Milk based drinks in Tetra packs will be launched in Sept’18, and new

    cheese formats and dairy whiteners would be launched in 2H. It will continue

    to outsource fresh/ short shelf life products.

     International business: The first plant in Nepal is expected to commence by

    4QFY19 (capex Rs 500mn). BRIT has already become the market leader in

    Nepal. BRIT plans to set-up local manufacturing unit in one country per year.

    Plants at Bangladesh and Nigeria are likely in coming couple of years.

    Britannia Industries (BRIT IN)

    August 8, 2018

    Q1FY19 Result Update

    ☑ Change in Estimates | ☑ Target |  Reco

    Change in Estimates

    Current Previous FY19E FY20E FY19E FY20E

    Rating ACCUMULATE ACCUMULATE

    Target Price 6,568 6,170

    Sales (Rs. m) 106,441 121,799 106,441 121,799

    % Chng. - -

    EBITDA (Rs. m) 17,228 20,750 17,228 20,750

    % Chng. - -

    EPS (Rs.) 96.7 114.8 97.5 118.8

    % Chng. (0.8) (3.4)

    Key Financials

    FY17 FY18 FY19E FY20E

    Sales (Rs. m) 84,144 93,041 106,441 121,799

    EBITDA (Rs. m) 12,042 14,290 17,228 20,750

    Margin (%) 14.3 15.4 16.2 17.0

    PAT (Rs. m) 8,437 9,664 11,612 13,781

    EPS (Rs.) 70.3 80.5 96.7 114.8

    Gr. (%) 10.5 14.5 20.2 18.7

    DPS (Rs.) 22.0 25.0 32.0 40.0

    Yield (%) 0.3 0.4 0.5 0.6

    RoE (%) 36.7 33.2 36.3 38.1

    RoCE (%) 47.9 44.9 44.4 43.8

    EV/Sales (x) 8.9 8.0 7.0 6.1

    EV/EBITDA (x) 62.1 51.8 43.2 35.5

    PE (x) 89.6 78.3 65.1 54.9

    P/BV (x) 29.3 23.4 23.9 18.6

    Key Data BRIT.BO | BRIT IN

    52-W High / Low Rs.6,628 / Rs.3,979

    Sensex / Nifty 37,888 / 11,450

    Market Cap Rs.756bn/ $ 11,013m

    Shares Outstanding 120m

    3M Avg. Daily Value Rs.1523.73m

    Shareholding Pattern (%)

    Promoter’s 50.70

    Foreign 17.26

    Domestic Institution 12.28

    Public & Others 19.76

    Promoter Pledge (Rs bn) -

    Stock Performance (%)

    1M 6M 12M

    Absolute (0.2) 36.1 54.7

    Relative (6.1) 23.6 30.7

    Amnish Aggarwal

    amnishaggarwal@plindia.com | 91-22-66322233

    Nishita Doshi

    nishitadoshi@plindia.com | 91-22-66322381

  • Britannia Industries

    August 8, 2018 2

    Q1FY19 Result Overview: Sales up 13.6%, EBITDA up 17.6% led by cost efficiency programs

    Y/e March (Rs m) Q1FY19 Q1FY18 YoY gr. (%) Q4FY18 FY19E FY18 YoY gr. (%)

    Net Sales 24,067 21,193 13.6 23,884 1,06,441 93,041 14.4

    Gross Profit 9,421 8,183 15.1 8,983 40,854 35,306 15.7

    Margins (%) 39.1 38.6 37.6 38.4 37.9

    Other Exp 5,744 5,055 13.6 5,285 23,626 21,032 12.3

    % of Sales 23.9 23.9 22.1 22.2 22.6

    EBITDA 3,677 3,128 17.6 3,699 17,228 14,274 20.7

    Margins (%) 15.3 14.8 15.5 16.2 15.3

    Depreciation 304 278 9.4 363 1,399 1,198 16.8

    Interest 5 3 46.9 3 70 15 379.5

    Other Income 385 340 13.4 400 1,808 1,559 16.0

    PBT 3,754 3,187 17.8 3,733 17,568 14,621 20.2

    Tax 1,292 1,100 17.4 1,286 5,955 4,973 19.8

    Tax Rate (%) 34.4 34.5 34.4 33.9 34.0

    Adjusted PAT 2,462 2,087 18.0 2,447 11,612 9,648 20.4

    Source: Company, PL

    1QFY19 volumes up ~13%

    8

    9 9

    12.0 11.0 11.0

    10.0

    8

    7.0

    1.5 2.0

    2.5

    6.0

    13.0 12.0

    13.0

    0

    2

    4

    6

    8

    10

    12

    14

    Q 2 F

    Y 1 5

    Q 3 F

    Y 1 5

    Q 4 F

    Y 1 5

    Q 1 F

    Y 1 6

    Q 2 F

    Y 1 6

    Q 3 F

    Y 1 6

    Q 4 F

    Y 1 6

    Q 1 F

    Y 1 7

    Q 2 F

    Y 1 7

    Q 3 F

    Y 1 7

    Q 4 F

    Y 1 7

    Q 1 F

    Y 1 8

    Q 2 F

    Y 1 8

    Q 3 F

    Y 1 8

    Q 4 F

    Y 1 8

    Q 1 F

    Y 1 9

    Source: Company Data, PL Research

    Standalone Net sales increased 14.9% YoY to Rs 23.9bn, est 13% volume growth.

    Gross profit increased 15.1% YoY to Rs 9.42bn on with only 50bps margin

    expansion despite 53% decline in operating other income (state subsidy incentive).

    Excluding the decline in other operating income, expansion in gross margins would

    have been 130bps. EBITDA increased 17.6% to Rs3.68bn on 50bps margin

    expansion to 15.3%. Cost efficiency programs led to 20bps decline in other

    expenses despite 20bps higher staff costs. Other expenses have increased by

    180bps QoQ, mainly due to ad-spends on IPL and other sports events. PBT

    increased 18% on 13% higher financial income despite 47% increase in Interest

    cost and 9% increase in Depreciation. Adj. PAT increased 18% YoY to Rs.2.46bn

    as tax rate declined by 10bps to 34.4%. IBD remained flattish due to slowdown in

    Middle east and Africa. Dairy business demand is subdued; profits are higher on

    account of focus on higher margin products. Input costs were benign for Sugar,

    wheat and SMP, although edible oil prices have risen due to higher import duty.

    Mundra EOU have started commercial production and a Greenfield plant is being

    set-up in Nepal for local manufacturing. Britannia launched “Triple Chocolate

    Chunkies”, “Wonderfulls Butter Jeera & Mixed fruit" and "Multi Grain Rusk.

  • Britannia Industries

    August 8, 2018 3

    Inflation has been flat in Q1FY19, however, they raw material prices are on a steady rise

    Source: Company, PL

    BRIT’s Cost efficiency program saved Rs.2.25bn in FY18 versus Rs.0.5bn in FY14, targets Rs2.25bn in FY19

    Source: Company, PL

    BRIT has achieved significant cost efficiencies through wastage reduction

    Source: Company, PL

  • Britannia Industries

    August 8, 2018 4

    Weak states have grown at 1.5-2.5x average growth rates, BRIT drives 18% sales from these v/s 40% for Industry

    Source: Company, PL

    Direct distribution increased 2.5x in 4 years

    Source: Company, PL

    Rural distribution grew by double digits in 4 years

    Source: Company, PL

    BRIT’s New launches in 1QFY19

    Source: Company, PL