britannia industries (brit in)static-news.moneycontrol.com/.../2019/08/britannia...revival only on...

August 9, 2019 1

Rating: ACCUMULATE | CMP: Rs2,602 | TP: Rs3,068

Innovations and cost savings to led growth

Quick Pointers:

Volume growth at 3%, 130bps market share gain

1Q Inflation ay 4%, took forward contracts in Wheat, SMP and Butter

We cut our EPS estimates for FY20 and FY21 by 3.5% and 5.2% respectively

and remain cautious led by slower category growth (~1-2%) and expected

revival only on festive season. We remain positive on Britannia’s structural

story led by 1) 130bps market share gains despite muted environment 2) high

traction in new launches of Cream wafers and Milkshakes 3) focus on scaling

up the new launches and achieve the targeted 9% contribution from

innovations in FY20 (4.5% in FY19) 4) increase in direct distribution (0.25m

addition/year) and 5) benefit of Rs2.7bn from cost efficiency program

(Rs2.25bn in FY18 and FY19)

Wheat, SMP and sugar prices have remained inflated, however BRIT shall be

able to maintain margins as it has entered into forward contracts of Wheat,

SMP and butter upto 3Q20. Although volume growth has moderated since the

past 3 quarters, we estimate 14.8% PAT CAGR over FY19-21 and value the

stock at 45xJune21 EPS. We arrive at a SOTP based target price of Rs3068.

Retain Accumulate.

Concall Takeaways: 1) Biscuit industry is growing by 1-2%. BRIT is growing 4-5%

ahead of industry and has witnessed 130bps market share expansion with gap

between the largest competior increasing. 2) For BRIT, Rural is growing slower than

Urban due to low growth in Hindi heartland. BRIT remains cautious and expects

demand to pickup only during Diwali. 3) Milk Shakes and Cream wafers have

evoked good response. Salted snacks has reached 75% capacity utilization with

addition of another line in Ranjangoan to take it PAN India. Croissants will however

take time to stabilze operations 4) 1Q Inflation was 4% only as BRIT has taken

forward contracts of Wheat, SMP and Butter till 3QFY20 5) Export sourcing

continues in 1Q as Oman factory remained shut 6) Dairy witnessed double digit

growth led by milkshakes 7) BRIT is looking at adding a SE Asian country in FY20

8) ICDs are expected to reduce to Rs5bn and remain at the same for FY20 9) BRIT

borrowed Rs5bn in April for 9 months to purchase Wheat 10) Impairment relates to

Kolkata factory which is being closed down 11) Ad-spends were Rs1.3bn versus

Rs1.07bn in 1Q19 12) Value Cookie grew by 70% in 1H19 as a competitor couldn’t

fulfill one huge demand. Currently their growth is flat on a very high base

Domestic Volume growth at only 3%: Standalone Net sales increased by 7.2%

YoY to Rs 25.8bn. Gross profit increased 9.4% with 80bps margin expansion

(90bps decline QoQ on increase in milk prices). EBITDA increased 5.6% to

Rs3.88bn on 20bps margin decline as staff costs and other expenses increased by

30bps and 80bps. Adj. PAT increased 8.1% to Rs 2.66bn as other income

increased by 70% despite 40bps increase in tax rate. Record date for issue of

Bonus debentures is fixed at 23rd August, 2019.

Britannia Industries (BRIT IN)

August 9, 2019

Q1FY20 Result Update

☑ Change in Estimates | ☑ Target | Reco

Change in Estimates

Current Previous

FY20E FY21E FY20E FY21E

Rating ACCUMULATE ACCUMULATE

Target Price 3,068 3,145

Sales (Rs. m) 115,190 132,628 120,586 138,848

% Chng. (4.5) (4.5)

EBITDA (Rs. m) 18,761 22,382 19,746 23,533

% Chng. (5.0) (4.9)

EPS (Rs.) 51.6 61.5 53.4 64.8

% Chng. (3.5) (5.1)

Key Financials - Standalone

Y/e Mar FY18 FY19 FY20E FY21E

Sales (Rs. m) 93,041 104,826 115,190 132,628

EBITDA (Rs. m) 14,275 16,609 18,761 22,382

Margin (%) 15.3 15.8 16.3 16.9

PAT (Rs. m) 9,616 11,222 12,389 14,777

EPS (Rs.) 40.0 46.7 51.6 61.5

Gr. (%) 13.9 16.6 10.4 19.3

DPS (Rs.) 12.5 15.0 17.5 21.0

Yield (%) 0.5 0.6 0.7 0.8

RoE (%) 33.1 30.9 30.5 32.4

RoCE (%) 44.7 41.8 38.5 38.5

EV/Sales (x) 6.5 5.8 5.3 4.5

EV/EBITDA (x) 42.6 36.6 32.4 26.8

PE (x) 65.0 55.7 50.5 42.3

P/BV (x) 19.3 15.5 15.3 12.4

Key Data BRIT.BO | BRIT IN

52-W High / Low Rs.3,472 / Rs.2,525

Sensex / Nifty 37,582 / 11,110

Market Cap Rs.625bn/ $ 8,837m

Shares Outstanding 240m

3M Avg. Daily Value Rs.2107.74m

Shareholding Pattern (%)

Promoter’s 50.66

Foreign 15.75

Domestic Institution 12.37

Public & Others 21.22

Promoter Pledge (Rs bn) -

Stock Performance (%)

1M 6M 12M

Absolute (5.8) (16.3) (17.9)

Relative (2.9) (18.6) (16.9)

Amnish Aggarwal

[email protected] | 91-22-66322233

Nishita Doshi

[email protected] | 91-22-66322381

Britannia Industries

August 9, 2019 2

1QFY20 Result Overview: Sales up 7.2% led by 3% volume growth

Y/e March (Rs m) Q1FY20 Q2FY19 YoY gr. (%) Q4FY19 FY20E FY19 YoY gr. (%)

Net Sales 25,795 24,067 7.2 26,681 1,15,190 1,04,826 9.9

Gross Profit 10,307 9,421 9.4 10,912 46,269 42,050 10.0

Margins (%) 40.0 39.1 0.8 40.9 40.2 40.1 0.1

Other Expenses 6,425 5,744 11.9 6,689 27,508 25,441 8.1

% of Sales 24.9 23.9 1.0 25.1 23.9 24.3 -0.4

EBITDA 3,882 3,677 5.6 4,222 18,761 16,609 13.0

Margins (%) 15.0 15.3 -0.2 15.8 16.3 15.8 0.4

Depreciation 373 304 22.7 363 1,733 1,350 28.4

Interest 83 5 1,670.2 3 651 15 4,129.7

Other Income 655 385 70.1 583 2,512 1,918 31.0

PBT 4,081 3,754 8.7 4,439 18,888 17,161 10.1

Tax 1,419 1,292 9.9 1,542 6,507 5,939 9.6

Tax Rate (%) 34.8 34.4 0.4 34.7 34.5 34.6 -0.2

Adjusted PAT 2,662 2,462 8.1 2,897 12,381 11,222 10.3

Source: Company, PL

Volume growth at 3% in 1Q hit by the slowdown mainly in Rural

11.0 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

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Q2F

Y16

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

Source: Company Data, PL Research

Only 4% Inflation in 1Q20 as BRIT had taken long positions in Wheat, SMP and Butter

Source: Company, PL


August 9, 2019 3

BRIT continues to strengthen its leadership in the biscuits category with healthy market share gains

Source: Company, PL

Cost efficiency target of Rs2.7bn in FY20 v/s Rs2.25bn in FY19

Source: Company, PL

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

Source: Company, PL


August 9, 2019 4

New launches firing with Wafers and Milk shakes leading the growth.

Source: Company, PL


August 9, 2019 5

Financials

Income Statement (Rs m)


Net Revenues 93,041 104,826 115,190 132,628

YoY gr. (%) 10.6 12.7 9.9 15.1

Cost of Goods Sold 57,735 62,776 68,921 78,952

Gross Profit 35,306 42,050 46,269 53,677

Margin (%) 37.9 40.1 40.2 40.5

Employee Cost 2,779 3,216 3,653 4,276

Other Expenses 5,297 6,787 7,077 8,091

EBITDA 14,275 16,609 18,761 22,382

YoY gr. (%) 18.5 16.3 13.0 19.3

Margin (%) 15.3 15.8 16.3 16.9

Depreciation and Amortization 1,198 1,350 1,733 2,041

EBIT 13,077 15,259 17,027 20,341

Margin (%) 14.1 14.6 14.8 15.3

Net Interest 15 15 651 557

Other Income 1,526 1,918 2,524 2,742

Profit Before Tax 14,589 17,161 18,900 22,526

Margin (%) 15.7 16.4 16.4 17.0

Total Tax 4,973 5,939 6,511 7,749

Effective tax rate (%) 34.1 34.6 34.5 34.4

Profit after tax 9,616 11,222 12,389 14,777

Minority interest - - - -

Share Profit from Associate - - - -

Adjusted PAT 9,616 11,222 12,389 14,777

YoY gr. (%) 14.0 16.7 10.4 19.3

Margin (%) 10.3 10.7 10.8 11.1

Extra Ord. Income / (Exp) (170) - - -

Reported PAT 9,446 11,222 12,389 14,777

YoY gr. (%) 12.0 18.8 10.4 19.3

Margin (%) 10.2 10.7 10.8 11.1

Other Comprehensive Income (4) (21) - -

Total Comprehensive Income 9,442 11,201 12,389 14,777

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

EPS (Rs) 40.0 46.7 51.6 61.5


Balance Sheet Abstract (Rs m)


Non-Current Assets

Gross Block 17,736 22,049 26,589 30,634

Tangibles 17,389 21,659 26,159 30,159

Intangibles 347 390 430 475

Acc: Dep / Amortization 7,423 8,773 10,506 12,547

Tangibles 7,156 8,459 10,137 12,116


Net fixed assets 10,313 13,276 16,083 18,087

Tangibles 10,233 13,200 16,022 18,043


Capital Work In Progress 2,003 649 1,399 1,899

Goodwill - - - -

Non-Current Investments 6,055 11,607 5,710 5,875

Net Deferred tax assets 87 (39) (143) (255)

Other Non-Current Assets 141 295 192 229

Current Assets

Investments 15,542 17,161 24,572 31,018

Inventories 5,946 7,189 8,105 9,341

Trade receivables 2,303 3,510 3,847 4,263

Cash & Bank Balance 943 405 851 914

Other Current Assets 2,895 2,127 3,425 3,947

Total Assets 46,273 56,491 64,382 75,712

Equity

Equity Share Capital 240 240 240 240

Other Equity 32,113 40,154 40,508 50,216

Total Networth 32,353 40,395 40,749 50,456

Non-Current Liabilities

Long Term borrowings 3 3 7,214 7,214

Provisions - - - -

Other non current liabilities - - - -

Current Liabilities

ST Debt / Current of LT Debt 223 - - -

Trade payables 8,664 10,325 10,398 11,347

Other current liabilities 4,774 5,498 5,738 6,397

Total Equity & Liabilities 46,273 56,491 64,383 75,712



August 9, 2019 6

Cash Flow (Rs m)

Y/e Mar FY18 FY19 FY20E FY21E Year

PBT 14,622 17,161 18,900 22,526

Add. Depreciation 1,198 1,350 1,733 2,041

Add. Interest 15 15 651 557

Less Financial Other Income 1,526 1,918 2,524 2,742

Add. Other (867) (3,183) (3,640) (4,291)

Op. profit before WC changes 14,967 15,343 17,645 20,833

Net Changes-WC (4,286) (1,167) (9,667) (7,051)

Direct tax (4,973) (5,939) (6,511) (7,749)

Net cash from Op. activities 5,708 8,238 1,467 6,034

Capital expenditures (4,822) (2,960) (5,290) (4,545)

Interest / Dividend Income 1,506 1,733 2,504 2,724

Others 183 (5,253) 6,001 (1)

Net Cash from Invt. activities (3,134) (6,480) 3,215 (1,822)

Issue of share cap. / premium 1,181 1,556 (6,451) 1,478

Debt changes 120 (223) 7,211 -

Dividend paid (3,179) (3,614) (4,345) (5,069)

Interest paid (15) (15) (651) (557)

Others - - - -

Net cash from Fin. activities (1,892) (2,296) (4,236) (4,148)

Net change in cash 682 (538) 446 63

Free Cash Flow 885 5,278 (3,823) 1,489


Quarterly Financials (Rs m)

Y/e Mar Q2FY19 Q3FY19 Q4FY19 Q1FY20

Net Revenue 27,046 27,032 26,681 25,795

YoY gr. (%) 13.4 12.1 11.7 7.2

Raw Material Expenses 16,446 15,915 15,770 15,487

Gross Profit 10,600 11,117 10,912 10,307

Margin (%) 39.2 41.1 40.9 40.0

EBITDA 4,247 4,463 4,222 3,882

YoY gr. (%) 14.7 19.1 14.2 5.6

Margin (%) 15.7 16.5 15.8 15.0

Depreciation / Depletion 315 369 363 373

EBIT 3,932 4,094 3,859 3,509

Margin (%) 14.5 15.1 14.5 13.6

Net Interest 4 4 3 83

Other Income 395 554 583 655

Profit before Tax 4,323 4,645 4,439 4,081

Margin (%) 16.0 17.2 16.6 15.8

Total Tax 1,488 1,618 1,542 1,419

Effective tax rate (%) 34.4 34.8 34.7 34.8

Profit after Tax 2,836 3,027 2,897 2,662

Minority interest - - - -

Share Profit from Associates - - - -

Adjusted PAT 2,836 3,027 2,897 2,662

YoY gr. (%) 8.1 21.5 18.4 8.1

Margin (%) 10.5 11.2 10.9 10.3

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

Reported PAT 2,836 3,027 2,897 2,501

YoY gr. (%) 15.6 21.5 18.4 1.6

Margin (%) 10.5 11.2 10.9 9.7

Other Comprehensive Income (1) (1) (18) -

Total Comprehensive Income 2,835 3,026 2,879 2,501

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

EPS (Rs) 11.8 12.6 12.1 11.1


Key Financial Metrics


Per Share(Rs)

EPS 40.0 46.7 51.6 61.5

CEPS 45.0 52.3 58.8 70.0

BVPS 134.7 168.1 169.6 210.0

FCF 3.7 22.0 (15.9) 6.2

DPS 12.5 15.0 17.5 21.0

Return Ratio(%)

RoCE 44.7 41.8 38.5 38.5

ROIC 43.9 39.2 43.7 46.5

RoE 33.1 30.9 30.5 32.4

Balance Sheet

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

Net Working Capital (Days) (2) 1 5 6

Valuation(x)

PER 65.0 55.7 50.5 42.3

P/B 19.3 15.5 15.3 12.4

P/CEPS 57.8 49.7 44.3 37.2

EV/EBITDA 42.6 36.6 32.4 26.8

EV/Sales 6.5 5.8 5.3 4.5

Dividend Yield (%) 0.5 0.6 0.7 0.8



August 9, 2019 7

Price Chart Recommendation History

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

1 4-Jul-19 Accumulate 3,145 2,841

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

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

4 11-Feb-19 Accumulate 3,159 3,108

5 7-Jan-19 Accumulate 3,231 3,144

6 13-Nov-18 Accumulate 6,298 5,813

7 5-Oct-18 Accumulate 6,588 5,625

Analyst Coverage Universe

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

1 Asian Paints Accumulate 1,522 1,479

2 Avenue Supermarts Hold 1,338 1,359

3 Britannia Industries Accumulate 3,145 2,841

4 Colgate Palmolive Hold 1,208 1,204

5 Crompton Greaves Consumer Electricals BUY 297 225

6 Dabur India Hold 437 420

7 Emami Accumulate 386 310

8 Future Retail BUY 512 412

9 GlaxoSmithKline Consumer Healthcare Hold 7,972 7,473

10 Hindustan Unilever Accumulate 1,816 1,690

11 ITC BUY 367 265

12 Jubilant FoodWorks BUY 1,459 1,153

13 Kansai Nerolac Paints Accumulate 479 434

14 Marico Hold 357 363

15 Nestle India UR - 11,412

16 Pidilite Industries Accumulate 1,301 1,290

17 Titan Company BUY 1,173 1,047

18 Voltas Hold 609 601

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

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7

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17

Feb

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8

Au

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18

Feb

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(Rs)


August 9, 2019 8

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.

DISCLAIMER

Indian Clients

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