britannia result updated

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Please refer to important disclosures at the end of this report 1

(` cr) 2QFY12 2QFY11 % yoy Angel est. % Diff.

Revenue 1,294 1,095 18.2 1,291 0.3

EBITDA 62 52 20.4 66 (6.0)

OPM (%) 4.8 4.7 9bp 5.1 (32bp)

PAT 38 32 18.8 42 (10.4)

Source: Company, Angel Research

Britannia reported a strong set of numbers for 2QFY2012. The company

registered top-line growth of 18.2% yoy, driven by volumes, price hikes and an

improved product mix. Earnings growth during the quarter stood strong at 18.8%yoy. Operating margin during the quarter marginally expanded, despite higher

staff costs and ad spends. We maintain our Neutral view on the stock.

Key highlights for the quarter: Britannia registered robust top-line growth of

18.2% yoy in 2QFY2012. The company continued its impressive top-line growth

because of new product launches, price hikes and improved product mix.

Britannia has been posting ~20% top-line growth consecutively for the past seven

quarters. During the quarter, Britannia’s operating margin expanded marginally

by 9bp yoy, despite higher staff costs and ad spends, as the company managed

its raw-material costs efficiently. Earnings for the quarter grew by 18.8% yoy.

Outlook and valuation: We expect Britannia to post a ~17% revenue CAGR (largely volume growth) over FY2011–13E and model in margin expansion of

184bp, despite sustained higher ad spends, aided by a benign input cost

environment and higher operating leverage. Further, in terms of earnings, we

expect Britannia to post a robust ~36% CAGR. At the CMP, the stock is trading at

21.5x FY2013 EPS (in-line with its historical valuations); hence, we recommend

Neutral on the stock with a fair value `495, based on 22x FY2013E EPS.

Key financials

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013E

Net sales 3,403 4,246 5,014 5,858

% chg 8.3 24.8 18.1 16.8

Net profit (Adj.) 116.5 145.3 184.1 268.9

% chg (35.4) 24.7 26.7 46.0

EBITDA margin (%) 4.8 5.3 5.8 7.1

EPS (`) 9.8 12.2 15.4 22.5

P/E (x) 49.7 39.9 31.5 21.5

P/BV (x) 14.6 12.8 11.1 9.0

RoE (%) 26.7 34.3 37.8 46.0

RoCE (%) 14.8 20.9 25.3 43.0

EV/Sales (x) 1.7 1.3 1.1 1.0EV/EBITDA (x) 34.7 25.1 19.6 13.7


NEUTRALCMP ` 485

Target Price -

Investment Period -

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 51.0

MF / Banks / Indian Fls 20.1

FII / NRIs / OCBs 11.3

Indian Public / Others 17.6

Abs. (%) 3m 1yr 3yr

Sensex 0.8 (16.5) 74.7

Britannia 3.6 11.8 108.1

2

17,193

5,169

BRIT.BO

BRIT@IN

5,792

0.4

498/324

19,665

FMCG

Avg. Daily Volume

Market Cap ( ` cr)

Beta

52 Week High / Low

Face Value ( ` )

BSE Sensex

Nifty

Reuters Code

Sreekanth P.V.S

022 – 3935 7800 Ext: 6841

[email protected]

Britannia

Performance Highlights

2QFY2012 Result Update | FMCG

November 11, 2011



Britannia | 2QFY2012 Result Update

November 11, 2011 2

Exhibit 1: Quarterly performance

Y/E March (` cr) 2QFY12 2QFY11 % yoy 1HFY2012 1HFY2011 % chg

Net Sales 1,294 1,095 18.2 2,400 2,008 19.5

Consumption of RM 841 721 16.6 1,567 1,318 18.9(% of Sales) 65.0 65.8 65.3 65.6

Staff Costs 48 31 57.5 79 56 39.5

(% of Sales) 3.7 2.8 3.3 2.8

Advertising 101 7730.3 183 146 25.6

(% of Sales) 7.8 7.1 7.6 7.3

Other Expenses 135 123 9.7 260 231 12.2

(% of Sales) 10.5 11.3 10.8 11.5

Conversion and other charges 107 91 200 164 21.5

(% of Sales) 8.3 8.3 8.3 8.2

Total Expenditure 1,232 1,044 18.0 2,288 1,916 19.4

Operating Profit 62 52 20.4 113 92 22.2

OPM 4.8 4.7 4.7 4.6

Interest 10 10 (0.2) 19 19 (0.6)

Depreciation 12 10 11.7 23 20 11.5

Other Income 11 12 (11.5) 38 35 7.7

PBT (excl. Extr. Items) 52 44 18.0 109 88 23.8

Extr. Income/(Expense) - - - -

PBT (incl. Extr. Items) 52 44 18.0 109 88 23.8

(% of Sales) 4.0 4.0 4.5 4.4

Provision for Taxation 14 12 16.0 30 24 25.7

(% of PBT) 27.1 27.6 27.1 26.7

Reported PAT 38 32 18.8 80 65 23.1

PATM 2.9 2.9 3.3 3.2

Equity shares (cr) 12 12 12 12

EPS (`) 3.2 2.7 18.8 6.7 5.4 23.1

Adjusted PAT 38 32 18.8 80 65 23.1

Source: Company, Angel research

Seventh consecutive quarter of ~20% top-line growth

Britannia posted robust top-line growth of 18.2% yoy to ` 1,294cr ( ` 1,095cr),

in-line with our estimate. We believe top-line growth was led by ~15% volume

growth in its core brands. Moreover, a combination of price hikes and change in

product mix aided the company’s top-line growth.




November 11, 2011 3

Exhibit 2: Seventh consecutive quarter of ~20% top-line growth


Strong earnings growth aided by top-line growth

In terms of earnings, Britannia reported robust growth of 18.8% yoy to ` 38cr.

Growth came in below our estimates due to a spike in depreciation.

Other income for the quarter came in lower by 11.5% yoy to ` 11cr.

Exhibit 3: Bottom-line growth strong at ~19% yoy


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November 11, 2011 5

Increased demand for premium products will lead to higher realization: We

expect Britannia to register a ~16% CAGR in its top line, aided by improving

sales mix (Britannia has recently introduced premium products in the health

and wellness space). Further, we have modeled in the 5–6% increase in thecompany’s realization on the back of recent price hikes and further price hikes

cannot be ruled out. We expect consumers’ uptrading to value-added biscuits

(positioned in the health and wellness space) from plain glucose variants of

biscuits to support value growth.

Outlook and valuation

Post 2QFY2012 results, we maintain our revenue and earnings estimates. We

expect Britannia to report a CAGR of ~17% in its revenue (largely volume growth)

over FY2011–13E and model in margin expansion of 180bp, despite sustained

higher ad spends, aided by a benign input cost environment and higher operatingleverage. Moreover, in terms of earnings, we expect Britannia to register a robust

~36% CAGR. At the CMP, the stock is trading at 21.5x FY2013 EPS (in-line with its

historical valuations); hence, we recommend Neutral on the stock with a fair value

`495, based on 22x FY2013E EPS.

Key risks to our investment argument

1) Higher-than-anticipated raw-material price inflation

2) High competitive intensity leading to much higher ad spends




November 11, 2011 6

Exhibit 5: Peer valuation

Company Reco Mcap CMP TP Upside P/E (x) EV/Sales (x) RoE (%) CAGR

(` cr) (`) (`) (%) FY12E FY13E FY12E FY13E FY12E FY13E Sales EPS

Asian Paints Neutral 29,340 3,059 - - 29.8 24.2 3.1 2.6 39.6 38.3 17.3 19.8

Britannia Neutral 5,792 485 - - 31.5 21.5 1.1 1.0 37.8 46.0 17.3 36.0

Colgate Neutral 14,206 1,045 - - 32.4 27.7 5.4 4.6 111.7 108.0 14.9 12.9

Dabur Buy 17,155 99 115 17 24.5 21.4 3.4 2.9 44.9 41.6 20.5 18.8

GSKCHL Neutral 11,184 2,659 - - 32.2 27.1 3.7 3.2 32.6 31.8 20.1 23.9

GCPL Accumulate 13,285 411 - 11 24.8 19.1 3.3 2.6 36.6 29.4 22.9 20.2

HUL Neutral 86,428 396 - - 33.9 29.8 3.8 3.3 87.5 85.3 12.7 17.1

ITC Neutral 164,705 213 - - 28.5 24.1 6.4 5.3 32.7 31.5 17.6 17.4

Marico Neutral 9,053 147 - - 29.4 23.3 2.6 2.2 30.2 28.8 17.2 28.0

Nestle Neutral 43,349 4,496 - - 44.5 37.4 5.9 5.1 91.1 72.9 16.1 18.9


Exhibit 6: Angel vs. ConsensusTop-line (` cr) FY2012E FY2013E EPS (`) FY2012E FY2013E

Angel estimates 5,014 5,858 Angel estimates 15.41 22.51

Consensus 5,112 6,008 Consensus 17.70 23.50

Diff (%) (1.9) (2.5) Diff (%) (12.9) (4.2)

Source: Angel research, Bloomberg

Exhibit 7: Return of Britannia vs. Sensex


Exhibit 8: One-year forward P/E band


Exhibit 9: One-year forward P/E


Exhibit 10: One-year forward Premium vs. Sensex


60%

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November 11, 2011 7

Profit and loss statement

Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

Gross sales 2,618 3,143 3,427 4,246 5,014 5,858

Less: Excise duty 33 31 23 32 50 59Net Sales 2,585 3,112 3,403 4,214 4,964 5,799

Total operating income 2,585 3,112 3,403 4,214 4,964 5,799

% chg 17.5 20.4 9.4 23.8 17.8 16.8

Total Expenditure 2,353 2,849 3,241 3,990 4,677 5,387

Cost of Materials 1,555 1,910 2,164 2,764 3,223 3,694

Advertising Exp (Incl. Promotion) 180 211 269 304 347 406

Personnel 91 96 106 120 154 174

Others 527 632 703 801 953 1,113

EBITDA 232 263 162 224 287 412

% chg 79.9 13.4 (38.2) 38.0 28.0 43.8

(% of Net Sales) 9.0 8.4 4.8 5.3 5.8 7.1

Depreciation& Amortisation 29 33 38 45 52 60

EBIT 203 229 125 179 234 352

% chg 95.7 13.1 (45.6) 43.8 30.7 50.2

(% of Net Sales) 7.8 7.4 3.7 4.3 4.7 6.1

Interest & other Charges 10 16 8 40 42 42

Other Income 50 40 51 59 60 58

(% of PBT) 20.6 15.8 30.4 29.7 23.6 15.7

Share in profit of Associates - - - - - -

Recurring PBT 243 253 167 198 252 368

% chg 92.8 4.1 (33.9) 18.4 27.3 46.0

Prior Period & Extra Exp./(Inc.) 10.85 20.63 46.64 - - -

PBT (reported) 232 233 121 198 252 368

Tax 41 52 4 53 68 99

(% of PBT) 17.0 20.6 2.5 26.7 27.0 27.0

PAT (reported) 202 201 163 145 184 269

Add: Share of earn. of asso. - - - - - -

Less: Minority interest (MI) - - - - - -

PAT after MI (reported) 202 201 163 145 184 269

ADJ. PAT 191 180 117 145 184 269

% chg 77.4 (5.6) (35.4) 24.7 26.7 46.0(% of Net Sales) 7.4 5.8 3.4 3.4 3.7 4.6

Basic EPS (`) 16.0 15.1 9.8 12.2 15.4 22.5

Fully Diluted EPS (̀ ) 16.0 15.1 9.8 12.2 15.4 22.5

% chg 77.4 (5.6) (35.4) 24.7 26.7 46.0




November 11, 2011 8

Balance sheet


SOURCES OF FUNDS

Equity Share Capital 24 24 24 24 24 24Preference Capital - - - - - -

Reserves& Surplus 732 801 372 427 500 620

Shareholders’ Funds 756 825 396 451 524 644

Minority Interest - - - - - -

Total Loans 106 25 430 431 431 25

Deferred Tax Liability (2) 10 (7) 6 6 6

Total Liabilities 860 860 819 889 961 676

APPLICATION OF FUNDS

Gross Block 453 512 548 594 758 872

Less: Acc. Depreciation 212 234 266 290 342 402

Net Block 241 278 282 304 416 470

Capital Work-in-Progress 10 6 10 12 16 18

Goodwill - - - - - -

Investments 381 423 491 545 485 125

Current Assets 552 539 529 625 799 946

Cash 44 41 23 29 33 60

Loans & Advances 161 195 198 228 266 302

Other 13 14 6 14 25 35

Current liabilities 348 413 492 597 754 883

Net Current Assets 205 126 37 29 45 63

Misc. Exp. not written off 23 27 - - - -

Total Assets 860 860 819 889 961 676




November 11, 2011 9

Cash flow statement


Profit before tax 232 233 121 198 252 368

Depreciation 29 33 38 45 52 60Change in Working Capital (140) 0.5 100 7 60 32

Interest / Dividend (Net) (11) (5) (25) 13 3 15

Direct taxes paid 41 52 73 53 68 99

Payment of VRS/ other comp. 2 (3) 33 - - -

Profit on sale of invest/FA (Net) 7 7 12 20 - -

Others (21) 26 2 - (89) (56)

Cash Flow from Operations 43 224 183 190 210 320

(Inc.)/ Dec. in Fixed Assets (55) (55) (40) (47) (169) (117)

(Inc.)/ Dec. in Investments (61) (42) (68) (54) 60 360

Cash Flow from Investing (116) (97) (108) (102) (109) 243

Issue of Equity - - - - - -

Inc./(Dec.) in loans 101 (81) (2) 2 - (406)

Dividend Paid (Incl. Tax) 42 50 112 70 90 112

Interest/Dividend paid (Net) (8) (1) (21) 15 7 19

Cash Flow from Financing 67 (130) (93) (83) (97) (537)

Inc./(Dec.) in Cash (5) (3) (17) 5 4 27

Opening Cash balances 49 44 41 23 29 33

Closing Cash balances 44 41 23 29 33 60




November 11, 2011 10

Key ratios

Y/E March FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

Valuation Ratio (x)

P/E (on FDEPS) 30.3 32.1 49.7 39.9 31.5 21.5P/CEPS 25.1 24.7 28.9 30.5 24.5 17.6

P/BV 7.7 7.0 14.6 12.8 11.1 9.0

Dividend yield (%) 2.2 1.8 1.7 1.3 1.1 1.0

EV/Sales 2.2 1.8 1.7 1.3 1.1 1.0

EV/EBITDA 24.3 21.4 34.7 25.1 19.6 13.7

EV / Total Assets 6.6 6.6 6.8 6.3 5.9 8.3

Per Share Data (`)EPS (Basic) 16.0 15.1 9.8 12.2 15.4 22.5

EPS (fully diluted) 16.0 15.1 9.8 12.2 15.4 22.5

Cash EPS 19.3 19.6 16.8 15.9 19.8 27.5

DPS 3.6 8.0 5.0 6.5 8.0 10.6

Book Value 63.3 69.0 33.2 37.8 43.8 53.9

Returns (%)

RoCE 27.4 26.7 14.8 20.9 25.3 43.0

Angel ROIC (Pre-tax) 24.3 22.3 15.0 15.8 19.1 33.3

RoE 29.5 25.4 26.7 34.3 37.8 46.0

Turnover ratios (x)

Asset Turnover (Gross Block) 5.7 6.1 6.2 7.1 6.6 6.7

Inventory / Sales (days) 43 30 29 27 32 32

Receivables (days) 7 6 4 5 5 5

Payables (days) 35 31 33 33 35 35

WC (ex-cash) (days) 23 19 8 5 8 8




November 11, 2011 11

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

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Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .

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connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.

Disclosure of Interest Statement Britannia

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

britannia result updated

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