britannia industries (brit in) - markets mojo · 2019. 12. 4. · britannia industries november 15,...

November 15, 2019 1

Rating: ACCUMULATE | CMP: Rs3,196 | TP: Rs3,433

Story remains on track; Accumulate

Quick Pointers:

Volume growth at 3%, Market share gain continue

2Q Inflation at 3%, forward covers extended till February

Croissants issue resolved, taking salted snacks to west India

We retain positive view on BRIT despite near term growth headwinds given

that the company remains on track with its strategic plans and milestones

like 1) distribution expansion in Rural India and Hindi heartland 2) Innovation

and renovation of Biscuits portfolio 3) Initial success in cream wafers,

Milkshakes and salted snacks and 4) Rs2.7bn from cost efficiency program

(Rs2.25bn in FY18 and FY19).

Volume growth has seen moderation from past few quarters and we expect

slow recovery. We are increasing estimates by 4.1% for FY20 mainly led by

lower tax rates while EPS estimates for FY21 are being cut by 0.5%

respectively. We estimate 19.2% PAT CAGR over FY19-22 and value the stock

at 45x Sept21 EPS. We arrive at a SOTP based target price of Rs3433 (Rs.3307

earlier). Retain Accumulate.

Concall Takeaways: 1) Stronger recovery only after 9 months from now. Market

share gains in hindi belt continues, despite slowdown 2) BRIT now has forward

covers for Raw Material till February, opportunist buying done in Q2 has lead to

increase in inventory 3) Increased direct reach by 30000 outlets in Q2 and focus is

now to get more SKU’s in existing outlets. 4) Salty snacks continue gaining market

share. Launch done in west as well which will be an acid test as it has many value

players. 5) In milk shakes it has 20%+ market share in less than a year (no. 2

brand). 6) Croissant had some back end issues which are now resolved and within

1 month will surpass Bauli in distribution 7) Some new launches have been

postponed on the back of slowdown however ad spends remain at same levels. 8)

Rural is still growing faster than urban but from industry stand point urban is growing

faster than rural. 9) Ranjangaon plant has 12 operational lines now (capacity of ~

140,000 TPA) 10) Capex also slowed down to Rs1.7 bn in 1H. 11) ICD to group

companies has not changed at Rs4.50bn at rate of 10%. 12) Biscuit is 75% of sales.

In 2 years it may go down to 70%. 13) Middle East & Africa continues to be

challenging, America is growing in double digits. Nepal operations doing well and

market share is increasing.

Domestic Volume growth at 3%: Net sales increased by 7.1% YoY to Rs 28.96bn.

Gross profit increased 7.7% with 20bps margin expansion (60bps decline QoQ on

increase in milk prices, wheat & palm oil prices). EBITDA increased 10.8% to

Rs4.7bn on 70 bps decline in other expenses even as staff cost increased 40bps.

PBT from operation were up 6.8%. PAT increased 61% to Rs 4.6bn mainly on the

back of tax benefits and increase in other income by 230% because of dividend

payment of Rs 665 mn from subsidiary. There was exceptional profit of Rs 350 mn

for reversal of provision of diminution in value of investment.

Britannia Industries (BRIT IN)

November 15, 2019

Q2FY20 Result Update

☑ Change in Estimates | ☑ Target | Reco

Change in Estimates

Current Previous

FY20E FY21E FY20E FY21E

Rating ACCUMULATE ACCUMULATE

Target Price 3,433 3,307

Sales (Rs. m) 113,423 128,071 114,152 128,887

% Chng. (0.6) (0.6)

EBITDA (Rs. m) 17,897 20,,999 18,027 21,151

% Chng. (0.7) (0.7)

EPS (Rs.) 58.8 66.1 56.5 66.5

% Chng. 4.1 (0.5)

Key Financials - Standalone

Y/e Mar FY19 FY20E FY21E FY22E

Sales (Rs. m) 104,825 113,423 128,071 145,892

EBITDA (Rs. m) 16,621 17,897 20,999 24,923

Margin (%) 15.9 15.8 16.4 17.1

PAT (Rs. m) 11,222 14,134 15,889 18,973

EPS (Rs.) 46.7 58.8 66.1 79.0

Gr. (%) 16.6 25.9 12.4 19.4

DPS (Rs.) 15.0 17.8 21.5 26.0

Yield (%) 0.5 0.6 0.7 0.8

RoE (%) 30.9 33.9 32.8 31.6

RoCE (%) 41.8 35.8 34.3 35.6

EV/Sales (x) 7.2 6.6 5.8 5.0

EV/EBITDA (x) 45.1 42.0 35.4 29.4

PE (x) 68.4 54.3 48.3 40.5

P/BV (x) 19.0 17.9 14.3 11.6

Key Data BRIT.BO | BRIT IN

52-W High / Low Rs.3,584 / Rs.2,300

Sensex / Nifty 40,357 / 11,895

Market Cap Rs.768bn/ $ 10,696m

Shares Outstanding 240m

3M Avg. Daily Value Rs.3718.68m

Shareholding Pattern (%)

Promoter’s 50.66

Foreign 15.22

Domestic Institution 13.57

Public & Others 20.55

Promoter Pledge (Rs bn) -

Stock Performance (%)

1M 6M 12M

Absolute 0.5 18.9 9.8

Relative (4.2) 9.3 (4.0)

Amnish Aggarwal

[email protected] | 91-22-66322233

Darsh Gada

[email protected] | 91-22-66322256

Britannia Industries

November 15, 2019 2

2QFY20 Result Overview: Sales up 7.1% led by 3% volume growth

Y/e March (Rs m) Q2FY20 Q2FY19 YoY gr. (%) Q1FY20 H1FY20 H1FY19 YoY gr. (%)

Net Sales 28,961 27,046 7.1 25,795 54,756 51,113 7.1

Gross Profit 11,412 10,600 7.7 10,307 21,720 20,022 8.5

Margins (%) 39.4 39.2 0.2 40.0 39.7 39.2 0.5

Other Expenses 6,709 6,354 5.6 6,425 13,134 12,098 8.6

% of Sales 23.2 23.5 -0.3 24.9 24.0 23.7 0.3

EBITDA 4,704 4,247 10.8 3,882 8,586 7,924 8.3

Margins (%) 16.2 15.7 0.5 15.0 15.7 15.5 0.2

Depreciation 367 315 16.4 373 739 619 19.5

Interest 140 4 83 224 8

Other Income 1,302 395 229.4 655 1,957 781 150.7

PBT 5,499 4,323 27.2 4,081 9,580 8,078 18.6

Tax 923 1,488 (38.0) 1,419 2,342 2,780 (15.7)

Tax Rate (%) 16.8 34.4 -17.6 34.8 24.4 34.4 -10.0

Adjusted PAT 4,576 2,836 61.4 2,662 7,238 5,298 36.6

Source: Company, PL

Volume growth at 3% in 2Q

11.010.0

8

7.0

1.52.0

2.5

6.0

13.012.0

13.012.0

7.0 7.0

3.0 3.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Q3F

Y16

Q4F

Y16

Q1F

Y17

Q2F

Y17

Q3F

Y17

Q4F

Y17

Q1F

Y18

Q2F

Y18

Q3F

Y18

Q4F

Y18

Q1F

Y19

Q2F

Y19

Q3F

Y19

Q4F

Y19

Q1F

Y20

Q2F

Y20

Source: Company Data, PL Research

Overall inflation at 3% as BRIT took forward contracts and higher stock buying

Source: Company, PL


November 15, 2019 3

BRIT continues to increase GAP with No2 player in biscuits category

Source: Company, PL

Hindi belt has been impacted by slowdown in rural India; Direct reach has increased to 2.13mn outlets

Source: Company, PL


November 15, 2019 4

New launches firing with Croissant and Milk shakes leading the growth

Source: Company, PL

Continuous innovation and relaunches continue

Source: Company, PL


November 15, 2019 5

Financials

Income Statement (Rs m)


Net Revenues 104,825 113,423 128,071 145,892

YoY gr. (%) 12.7 8.2 12.9 13.9

Cost of Goods Sold 62,776 68,142 76,704 87,345

Gross Profit 42,048 45,281 51,367 58,546

Margin (%) 40.1 39.9 40.1 40.1

Employee Cost 3,216 3,824 4,067 4,346

Other Expenses 5,985 6,587 7,391 8,252

EBITDA 16,621 17,897 20,999 24,923

YoY gr. (%) 16.4 7.7 17.3 18.7

Margin (%) 15.9 15.8 16.4 17.1

Depreciation and Amortization 1,350 1,663 1,961 2,224

EBIT 15,271 16,234 19,038 22,699

Margin (%) 14.6 14.3 14.9 15.6

Net Interest 15 647 557 557

Other Income 1,905 3,226 2,953 3,453

Profit Before Tax 17,161 18,813 21,434 25,595

Margin (%) 16.4 16.6 16.7 17.5

Total Tax 5,939 4,679 5,545 6,621

Effective tax rate (%) 34.6 24.9 25.9 25.9

Profit after tax 11,222 14,134 15,889 18,973

Minority interest - - - -

Share Profit from Associate - - - -

Adjusted PAT 11,222 14,134 15,889 18,973

YoY gr. (%) 16.7 25.9 12.4 19.4

Margin (%) 10.7 12.5 12.4 13.0

Extra Ord. Income / (Exp) - - - -

Reported PAT 11,222 14,134 15,889 18,973

YoY gr. (%) 18.8 25.9 12.4 19.4

Margin (%) 10.7 12.5 12.4 13.0

Other Comprehensive Income (21) - - -

Total Comprehensive Income 11,201 14,134 15,889 18,973

Equity Shares O/s (m) 240 240 240 240

EPS (Rs) 46.7 58.8 66.1 79.0


Balance Sheet Abstract (Rs m)


Non-Current Assets

Gross Block 21,961 26,501 30,546 34,096

Tangibles 21,583 26,083 30,083 33,583

Intangibles 378 418 463 513

Acc: Dep / Amortization 8,685 10,348 12,309 14,533

Tangibles 8,383 10,006 11,923 14,099


Net fixed assets 13,276 16,153 18,237 19,563

Tangibles 13,200 16,076 18,160 19,484


Capital Work In Progress 649 1,399 1,899 2,399

Goodwill - - - -

Non-Current Investments 11,607 11,583 11,709 11,860

Net Deferred tax assets (39) 18 (132) (311)

Other Non-Current Assets 295 142 162 193

Current Assets

Investments 17,117 22,964 30,934 34,495

Inventories 7,189 7,873 9,023 10,286

Trade receivables 3,510 3,708 4,032 4,403

Cash & Bank Balance 405 503 555 617

Other Current Assets 2,438 2,812 3,177 3,622

Total Assets 56,491 67,266 79,723 87,272

Equity

Equity Share Capital 240 240 240 240

Other Equity 40,154 42,763 53,495 66,240

Total Networth 40,395 43,003 53,735 66,480

Non-Current Liabilities

Long Term borrowings 3 7,214 7,214 4

Provisions - - - -

Other non current liabilities - - - -

Current Liabilities

ST Debt / Current of LT Debt 19 - - -

Trade payables 10,325 10,973 12,102 13,411

Other current liabilities 5,480 5,793 6,373 7,063

Total Equity & Liabilities 56,491 67,268 79,723 87,272



November 15, 2019 6

Cash Flow (Rs m)

Y/e Mar FY19 FY20E FY21E FY22E Year

PBT 17,161 18,813 21,434 25,595

Add. Depreciation 1,350 1,663 1,961 2,224

Add. Interest 15 647 557 557

Less Financial Other Income 1,905 3,226 2,953 3,453

Add. Other (3,276) (4,500) (4,519) (5,336)

Op. profit before WC changes 15,251 16,624 19,432 23,040

Net Changes-WC (1,185) (6,195) (8,102) (3,644)

Direct tax (5,939) (4,679) (5,545) (6,621)

Net cash from Op. activities 8,126 5,749 5,786 12,775

Capital expenditures (2,960) (5,290) (4,545) (4,050)

Interest / Dividend Income 1,816 3,206 2,935 3,435

Others (5,243) - - -

Net Cash from Invt. activities (6,387) (2,084) (1,610) (615)

Issue of share cap. / premium 1,560 (5,767) 1,589 1,897

Debt changes (204) 7,193 - (7,210)

Dividend paid (3,619) (4,346) (5,157) (6,229)

Interest paid (15) (647) (557) (557)

Others - - - -

Net cash from Fin. activities (2,278) (3,567) (4,125) (12,098)

Net change in cash (539) 99 51 62

Free Cash Flow 5,167 459 1,241 8,725


Quarterly Financials (Rs m)

Y/e Mar Q3FY19 Q4FY19 Q1FY20 Q2FY20

Net Revenue 27,032 26,681 25,795 28,961

YoY gr. (%) 12.1 11.7 7.2 7.1

Raw Material Expenses 15,915 15,770 15,487 17,549

Gross Profit 11,117 10,912 10,307 11,412

Margin (%) 41.1 40.9 40.0 39.4

EBITDA 4,463 4,222 3,882 4,704

YoY gr. (%) 19.1 14.2 5.6 10.8

Margin (%) 16.5 15.8 15.0 16.2

Depreciation / Depletion 369 363 373 367

EBIT 4,094 3,859 3,509 4,337

Margin (%) 15.1 14.5 13.6 15.0

Net Interest 4 3 83 140

Other Income 554 583 655 1,302

Profit before Tax 4,645 4,439 4,081 5,499

Margin (%) 17.2 16.6 15.8 19.0

Total Tax 1,618 1,542 1,419 923

Effective tax rate (%) 34.8 34.7 34.8 16.8

Profit after Tax 3,027 2,897 2,662 4,576

Minority interest - - - -

Share Profit from Associates - - - -

Adjusted PAT 3,027 2,897 2,662 4,576

YoY gr. (%) 21.5 18.4 8.1 61.4

Margin (%) 11.2 10.9 10.3 15.8

Extra Ord. Income / (Exp) - - (161) 350

Reported PAT 3,027 2,897 2,501 4,926

YoY gr. (%) 21.5 18.4 1.6 73.7

Margin (%) 11.2 10.9 9.7 17.0

Other Comprehensive Income (1) (18) - -

Total Comprehensive Income 3,026 2,879 2,501 4,926

Avg. Shares O/s (m) 240 240 240 240

EPS (Rs) 12.6 12.1 11.1 19.1


Key Financial Metrics


Per Share(Rs)

EPS 46.7 58.8 66.1 79.0

CEPS 52.3 65.7 74.3 88.2

BVPS 168.1 178.9 223.6 276.6

FCF 21.5 1.9 5.2 36.3

DPS 15.0 17.8 21.5 26.0

Return Ratio(%)

RoCE 41.8 35.8 34.3 35.6

ROIC 39.2 37.1 39.5 43.5

RoE 30.9 33.9 32.8 31.6

Balance Sheet

Net Debt : Equity (x) (0.4) (0.4) (0.5) (0.5)

Net Working Capital (Days) 1 2 3 3

Valuation(x)

PER 68.4 54.3 48.3 40.5

P/B 19.0 17.9 14.3 11.6

P/CEPS 61.1 48.6 43.0 36.2

EV/EBITDA 45.1 42.0 35.4 29.4

EV/Sales 7.2 6.6 5.8 5.0

Dividend Yield (%) 0.5 0.6 0.7 0.8



November 15, 2019 7

Price Chart Recommendation History

No. Date Rating TP (Rs.) Share Price (Rs.)

1 03-Oct-19 Accumulate 3,307 2,903

2 09-Aug-19 Accumulate 3,068 2,602

3 04-Jul-19 Accumulate 3,145 2,841

4 02-May-19 Accumulate 3,145 2,783

5 05-Apr-19 Accumulate 3,142 2,994

6 11-Feb-19 Accumulate 3,159 3,108

7 07-Jan-19 Accumulate 3,231 3,144

Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)

1 Asian Paints Accumulate 1,855 1,767

2 Avenue Supermarts Reduce 1,647 1,843

3 Britannia Industries Accumulate 3,307 2,903

4 Colgate Palmolive Reduce 1,267 1,564

5 Crompton Greaves Consumer Electricals BUY 303 255

6 Dabur India Hold 484 481

7 Emami Accumulate 373 327

8 Future Retail BUY 477 381

9 GlaxoSmithKline Consumer Healthcare Hold 9,144 8,960

10 Havells India Reduce 580 670

11 Hindustan Unilever Accumulate 2,083 2,009

12 ITC BUY 344 249

13 Jubilant FoodWorks BUY 1,753 1,435

14 Kansai Nerolac Paints Accumulate 548 539

15 Marico Reduce 339 394

16 Nestle India Reduce 12,093 14,490

17 Pidilite Industries Hold 1,365 1,344

18 Titan Company Hold 1,189 1,282

19 Voltas Hold 662 667

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

1404

1921

2439

2957

3475

Nov -

16

May -

17

Nov -

17

May -

18

Nov -

18

May -

19

Nov -

19

(Rs)


November 15, 2019 8

ANALYST CERTIFICATION

(Indian Clients)

We/I, Mr. Amnish Aggarwal- MBA, CFA, Mr. Darsh Gada- MBA 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.

DISCLAIMER

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.

This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.

The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.

Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.

PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014

PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.

PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.

PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.

PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report.

PL or its associates might have received compensation from the subject company in the past twelve months.

PL or its associates might have managed or co-managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months.

PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months

PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report.

PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report.

It is confirmed that Mr. Amnish Aggarwal- MBA, CFA, Mr. Darsh Gada- MBA Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company

Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest.

PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.

US Clients

This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").

Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.

Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India | Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

www.plindia.com | Bloomberg Research Page: PRLD <GO>

http://www.plindia.com/

britannia industries (brit in) - markets mojo · 2019. 12. 4. · britannia industries november 15,...

Documents