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
[email protected] | 91-22-66322233
Nishita Doshi
[email protected] | 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
12.011.0 11.0
10.0
8
7.0
1.52.0
2.5
6.0
13.012.0
13.0
0
2
4
6
8
10
12
14
Q2F
Y15
Q3F
Y15
Q4F
Y15
Q1F
Y16
Q2F
Y16
Q3F
Y16
Q4F
Y16
Q1F
Y17
Q2F
Y17
Q3F
Y17
Q4F
Y17
Q1F
Y18
Q2F
Y18
Q3F
Y18
Q4F
Y18
Q1F
Y19
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
Britannia Industries
August 8, 2018 5
Gained 9% Market share from Parle in 5 years to become the market leader
Source: Company, PL
Britannia Industries
August 8, 2018 6
Financials
Income Statement (Rs m)
Y/e Mar FY17 FY18 FY19E FY20E
Net Revenues 84,144 93,041 106,441 121,799
YoY gr. (%) 8.8 10.6 14.4 14.4
Cost of Goods Sold 51,983 57,735 65,587 74,639
Gross Profit 32,161 35,306 40,854 47,159
Margin (%) 38.2 37.9 38.4 38.7
Employee Cost 2,417 2,780 3,055 3,438
Other Expenses 5,144 5,328 6,110 6,936
EBITDA 12,042 14,290 17,228 20,750
YoY gr. (%) 7.7 18.7 20.6 20.4
Margin (%) 14.3 15.4 16.2 17.0
Depreciation and Amortization 964 1,198 1,399 1,684
EBIT 11,077 13,093 15,829 19,066
Margin (%) 13.2 14.1 14.9 15.7
Net Interest 13 15 70 556
Other Income 1,448 1,559 1,808 2,339
Profit Before Tax 12,512 14,638 17,568 20,849
Margin (%) 14.9 15.7 16.5 17.1
Total Tax 4,075 4,973 5,955 7,068
Effective tax rate (%) 32.6 34.0 33.9 33.9
Profit after tax 8,437 9,664 11,612 13,781
Minority interest - - - -
Share Profit from Associate - - - -
Adjusted PAT 8,437 9,664 11,612 13,781
YoY gr. (%) 10.5 14.6 20.2 18.7
Margin (%) 10.0 10.4 10.9 11.3
Extra Ord. Income / (Exp) - (170) - -
Reported PAT 8,437 9,494 11,612 13,781
YoY gr. (%) 10.5 12.5 22.3 18.7
Margin (%) 10.0 10.2 10.9 11.3
Other Comprehensive Income (2) (4) - -
Total Comprehensive Income 8,434 9,491 11,612 13,781
Equity Shares O/s (m) 120 120 120 120
EPS (Rs) 70.3 80.5 96.7 114.8
Source: Company Data, PL Research
Balance Sheet Abstract (Rs m)
Y/e Mar FY17 FY18 FY19E FY20E
Non-Current Assets
Gross Block 14,620 17,737 21,772 25,812
Tangibles 14,279 17,387 21,387 25,387
Intangibles 341 350 385 425
Acc: Dep / Amortization 6,227 7,424 8,823 10,507
Tangibles 6,002 7,154 8,503 10,132
Intangibles 225 270 320 376
Net fixed assets 8,393 10,313 12,949 15,305
Tangibles 8,277 10,233 12,884 15,255
Intangibles 116 80 65 49
Capital Work In Progress 298 2,003 2,753 3,503
Goodwill - - - -
Non-Current Investments 7,992 6,055 6,272 6,439
Net Deferred tax assets 64 87 (1) (105)
Other Non-Current Assets 166 141 176 209
Current Assets
Investments 8,831 15,283 18,813 25,390
Inventories 6,026 5,946 6,532 7,117
Trade receivables 1,264 2,303 1,471 1,614
Cash & Bank Balance 262 973 892 811
Other Current Assets 3,446 2,895 3,161 3,619
Total Assets 36,961 46,273 53,333 64,262
Equity
Equity Share Capital 240 240 240 240
Other Equity 25,580 32,113 31,388 40,540
Total Networth 25,820 32,353 31,628 40,780
Non-Current Liabilities
Long Term borrowings 4 3 7,207 7,207
Provisions - - - -
Other non current liabilities - - - -
Current Liabilities
ST Debt / Current of LT Debt 101 90 101 101
Trade payables 6,438 8,664 9,162 10,356
Other current liabilities 4,355 4,907 4,965 5,535
Total Equity & Liabilities 36,961 46,273 53,333 64,263
Source: Company Data, PL Research
Britannia Industries
August 8, 2018 7
Cash Flow (Rs m)
Y/e Mar FY17 FY18 FY19E FY20E Year
PBT 12,512 14,638 17,568 20,849
Add. Depreciation 964 1,198 1,399 1,684
Add. Interest 13 15 70 556
Less Financial Other Income 1,448 1,559 1,808 2,339
Add. Other (3,139) (1,530) (3,104) (3,795)
Op. profit before WC changes 10,350 14,320 15,932 19,294
Net Changes-WC (5,394) (4,124) (3,020) (6,031)
Direct tax (4,075) (4,973) (5,955) (7,068)
Net cash from Op. activities 882 5,223 6,956 6,195
Capital expenditures (2,492) (4,822) (4,785) (4,790)
Interest / Dividend Income 1,430 1,559 1,790 2,321
Others 2,159 943 (12) 1
Net Cash from Invt. activities 1,096 (2,320) (3,007) (2,468)
Issue of share cap. / premium 954 1,013 (6,083) 1,378
Debt changes (14) (12) 7,215 -
Dividend paid (2,888) (3,178) (3,617) (4,629)
Interest paid (13) (15) (70) (556)
Others - - - -
Net cash from Fin. activities (1,962) (2,192) (2,554) (3,807)
Net change in cash 16 711 1,396 (80)
Free Cash Flow (1,611) 400 2,171 1,405
Source: Company Data, PL Research
Quarterly Financials (Rs m)
Y/e Mar Q2FY18 Q3FY18 Q4FY18 Q1FY19
Net Revenue 23,854 24,110 23,884 24,067
YoY gr. (%) 6.9 13.9 14.3 13.6
Raw Material Expenses 14,878 14,946 14,900 14,646
Gross Profit 8,976 9,164 8,983 9,421
Margin (%) 37.6 38.0 37.6 39.1
EBITDA 3,702 3,746 3,699 3,677
YoY gr. (%) 18.3 1.2 (1.3) (0.6)
Margin (%) 15.5 15.5 15.5 15.3
Depreciation / Depletion 282 275 363 304
EBIT 3,420 3,471 3,336 3,374
Margin (%) 14.3 14.4 14.0 14.0
Net Interest 4 4 3 5
Other Income 492 328 400 385
Profit before Tax 3,908 3,795 3,733 3,754
Margin (%) 16.4 15.7 15.6 15.6
Total Tax 1,284 1,303 1,286 1,292
Effective tax rate (%) 32.9 34.3 34.4 34.4
Profit after Tax 2,623 2,492 2,447 2,462
Minority interest - - - -
Share Profit from Associates - - - -
Adjusted PAT 2,623 2,492 2,447 2,462
YoY gr. (%) 15.3 18.2 24.4 18.0
Margin (%) 11.0 10.3 10.2 10.2
Extra Ord. Income / (Exp) (171) - - -
Reported PAT 2,453 2,492 2,447 2,462
YoY gr. (%) 7.8 18.2 24.4 18.0
Margin (%) 10.3 10.3 10.2 10.2
Other Comprehensive Income - (1) (2) (1)
Total Comprehensive Income 2,453 2,491 2,445 2,461
Avg. Shares O/s (m) 120 120 120 120
EPS (Rs) 21.9 20.8 20.4 20.5
Source: Company Data, PL Research
Key Financial Metrics
Y/e Mar FY17 FY18 FY19E FY20E
Per Share(Rs)
EPS 70.3 80.5 96.7 114.8
CEPS 78.3 90.5 108.4 128.8
BVPS 215.2 269.5 263.5 339.7
FCF (13.4) 3.3 18.1 11.7
DPS 22.0 25.0 32.0 40.0
Return Ratio(%)
RoCE 47.9 44.9 44.4 43.8
ROIC 39.7 43.6 47.1 50.1
RoE 36.7 33.2 36.3 38.1
Balance Sheet
Net Debt : Equity (x) (0.3) (0.5) (0.4) (0.5)
Net Working Capital (Days) 4 (2) (4) (5)
Valuation(x)
PER 89.6 78.3 65.1 54.9
P/B 29.3 23.4 23.9 18.6
P/CEPS 79.6 92.0 110.1 130.9
EV/EBITDA 62.1 51.8 43.2 35.5
EV/Sales 8.9 8.0 7.0 6.1
Dividend Yield (%) 0.3 0.4 0.5 0.6
Source: Company Data, PL Research
Britannia Industries
August 8, 2018 8
Price Chart
Analyst Coverage Universe
Sr. No. CompanyName Rating TP (Rs) Share Price (Rs)
1 Asian Paints Hold 1,431 1,468
2 Avenue Supermarts Reduce 1,285 1,595
3 Britannia Industries Accumulate 6,170 6,217
4 Colgate Palmolive Reduce 1,084 1,085
5 Dabur India Hold 440 432
6 Emami Accumulate 603 568
7 Future Retail BUY 682 561
8 GlaxoSmithKline Consumer Healthcare Hold 6,800 6,390
9 Hindustan Unilever Hold 1,703 1,751
10 ITC BUY 346 287
11 Jubilant FoodWorks Accumulate 1,570 1,400
12 Kansai Nerolac Paints Accumulate 549 479
13 Marico Hold 313 341
14 Nestle India UR 8,893 9,785
15 Pidilite Industries Accumulate 1,175 1,101
16 Titan Company BUY 1,114 919
17 Tribhovandas Bhimji Zaveri Accumulate 120 85
PL’s Recommendation Nomenclature (Absolute Performance)
Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
2564
3561
4557
5554
6550
Au
g-1
5
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Au
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6
Feb
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Au
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7
Jan
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Jul-
18
(Rs)
Britannia Industries
August 8, 2018 9
ANALYST CERTIFICATION
(Indian Clients)
We/I, Mr. Amnish Aggarwal- MBA, CFA, Ms. Nishita Doshi- CA, B.Com Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
(US Clients)
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report.
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Indian Clients
Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com.
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