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Company Report
Britannia Industries Ltd
CMP
Rs 469.60
Target Price
Rs 600.00
BSE Code
500825
NSE Code
BRITANNIA
Market Cap (Rs Mn)
56094.10
52 Week High/Low
534.70/324.00
Industry
FMCG
Face Value
Rs 2.00
Shares O/S
119450815
EPS
12.16
Book Value
37.78
P/E
38.62
P/B
12.43
17th June, 2011
BUY
Britannia Industries is one of the biggest brands of the country,
has a market share of 33%. More-than-a-century old Britannia has
launched big brands in FMCG Segment.
The company’ bread, cake and rusk portfolio has grown more
than five times in the last five years and its dairy portfolio has
doubled in four years.
The company has launched new products in biscuits to capture
the growing trend for healthier snacks and to widen the appeal
for biscuits-competing with chocolates. It has launched new
products like ‘Nutri Choice Diabetic Friendly’, ‘Treat ChocoDecker’ and ‘Britannia Healthy Start’ during the year to tap new
opportunity segments.
The company has registered strong numbers for the quarter
ending March 2011. Revenues surged about 20% from a year ago
quarter to stay at Rs.11237.80 million translating operating profit
of Rs.705 million which skyrocketed from year ago quarter. It
witnessed a turnaround performance on a reported PAT basis,
despite of interest expense surging manifold. Operating profit
margin stood at 6.27%, turned positive from last year’s level and
an expansion of 90bps from preceding quarter. Increase in
volumes together with better product mix has lead to this kind of
growth for the company. Even ease in input prices also helped.
Britannia expects new launches within bakery-cake, bread or
even biscuits segment together with new introductions in dairy
business. It also expects to increase its foray in café business.
Shareholding Pattern
Valuation
Presently, the stock is trading at Rs 469.60 which is at a standalone PE
of 28.88x and 24.09x to its FY12E and FY13E EPS of Rs 16.26 and
Rs.19.49 respectively. Since the stock offers good investment
opportunity, we initiate a ‘BUY’ signal on the stock with a target price
of Rs 600 expecting an appreciation of about 28% from the current
level with the short to medium term investment horizon.
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Business Details
Britannia Industries Limited (BIL) is a major player in the Indian Foods market with leadership position in Bakery
category and has a market share of 33%. Its brand portfolio includes Tiger, Marie Gold, Good Day, 50:50 and Treat.
The Company was born in 21st March of the year 1918 as a public limited company. The Company's plants are
situated in Kolkata, Delhi, Chennai, Mumbai and Uttarakhand. In 1921, it became the first company east of the Suez
Canal to use imported gas ovens. Britannia's business was flourishing. But, more importantly, Britannia was acquiring
a reputation for quality and value.
The primary business segment of the Company is Foods comprising (i) bakery products - biscuits, bread, cakes and
rusk, and (ii) dairy products – milk, butter, cheese, ghee and dahi. In 1997, the company unveiled its new corporate
identity - "Eat Healthy, Think Better" - and made its first foray into the dairy products market. In 1999, the "Britannia
Khao, World Cup Jao" promotion further fortified the affinity consumers had with 'Brand Britannia'.
Increasing relevance and footprint of Britannia
Britannia strode into the 21st Century as one of India's biggest brands and the pre-eminent food brand of the country.
It was equally recognized for its innovative approach to products and marketing: the Lagaan Match was voted India's
most successful promotional activity of the year 2001 while the delicious Britannia 50-50 Maska-Chaska became India's
most successful product launch. In recognition of its vision and accelerating graph, Forbes Global rated Britannia 'One
amongst the Top 200 Small Companies of the World', and The Economic Times pegged Britannia India's 2nd Most
Trusted Brand.
Today, more than a century after those tentative first steps, Britannia's fairy tale is not only going strong but blazing
new standards, and that miniscule initial investment has grown by leaps and bounds to crores of rupees in wealth for
Britannia's shareholders. The company's offerings are spread across the spectrum with products ranging from the
healthy and economical Tiger biscuits to the more lifestyle-oriented Milkman Cheese. Having succeeded in garnering
the trust of almost one-third of India's one billion population and a strong management at the helm means Britannia
will continue to dream big on its path of innovation and quality. And millions of consumers will savour the results,
happily ever after.
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Sectoral Outlook
The Indian FMCG sector is the fourth largest sector in the economy and is growing at a fast pace despite of the
economic downtrend. The increasing disposable income and improved standard of living in most tier II and tire III
cities are spearheading the FMCG growth across the nation. The changing profile and mind set of the consumers has
shifted the thought to “Value for Money” from “Money for Value”. Further, it has a strong MNC presence and is
characterised by a well established distribution network, intense competition between the organised and unorganised
segments and low operational cost. Availability of key raw materials, cheaper labour costs and presence across the
entire value chain gives India a competitive advantage.
Currently, India is the world’s second largest producer of
food in the world and the food processing industry is the
one of the largest industries in India. In terms of
production, consumption, export and expected growth,
India is ranked fifth in the world.
The industry size has been estimated at US$ 70 billion by
the Ministry of Food Processing, Government of India.
The industry employs 1.6 million workers directly. Value
addition of food products is expected to increase from
the current 8 per cent to 35 per cent by the end of 2025.
Fruit & vegetable processing, which is currently around 2 per cent of total production will increase to 10 per cent by
2010 and to 25 per cent by 2025. The highest share of processed food is in the dairy sector, where 37 per cent of the
total produce is processed, of this only 15 per cent is processed by the organized sector. The food processing industry
in the country is on track to ensure profitability in the coming decades. The sector is expected to attract phenomenal
investments of about Rs 1,400 billion in the next decade. FDI inflows to Food Processing Industries has set a target of
USD 25.07 billion to be achieved by 2015. (Source-ibef.org)
Food processing industry accounts for 32 per cent share in the entire food industry. This industry contributes to 6.3 per
cent of the GDP and about 13 per cent to export production. The food processing industry is expected to witness a
growth of 10 per cent in the recent years to come. The biscuit market recorded double digit growth in 2010 and this is
likely to sustain in the coming year even though volatile commodity prices may impact margins. The food processing
sector attracted US$ 130 million of foreign direct investment (FDI) in the first eight months of the fiscal 2011 as
compared to total FDI of US$ 1.2 billion. Growth is also likely to come from consumer 'upgrading' in the matured
product categories. With 200 million people expected to shift to processed and packaged food by 2010, India needs
around US$ 28 billion of investment in the food-processing industry. Vision 2015 was announced by the Government
of India, which suggested the strategy to ensure faster growth of the food processing sector.
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Strong brand name
Britannia is one of the India’s biggest brands of the country, has a
market share of 33%. The company has got a large base of
consumer at virtually every price points, from a Rs.3 pack of
Tiger Glucose biscuits to a Rs.50 pack of Pure Magic. This is the
leading edge for operating in country like India, catering to both
urban and rural markets. Britannia’s brands now have greater
availability in rural markets and pervasive presence in modern
trade. It launched various brands in biscuits, bread, cake and
rusk business. It has launched brands like Tiger, Britannia 50:50,
Good Day, Britannia Treat, Marie and many more. The company
is expanding its customer base by launching new products and
renovating existing ones. The company has about six power
brands and has added a seventh power brand to that which is
Nutri Choice. Nutri Choice diabetic friendly range of products;
after significant amount of R&D and innovation and testing are
especially formulated to meet the requirements of people who
are either diabetic or borderline or who just want to be careful.
Cooling raw material prices will trigger growth
The company has maintained a healthy growth momentum and
improved margin in a year of intense competitive activity and
high commodity inflation. Britannia is enjoying a compound
annual growth in excess of 22% and has guided that it has got
plans to generate profitable growth going ahead. It has plans to
launch new products to consolidate the one it has already
launched and to establish new categories to enter the market.
Looking forward to the commodity scenario, prices are likely to
be more moderate than what it was last year, thus taking the
company’s margins higher. In fiscal 2012, the company’s
management believes to maintain sales growth around last year’s
levels and also expects to have current trends in material costs
with relatively lower increase in other expenses such as salaries,
advertising and operating expenses which will leave the
company with better margins. And even small increase in its
operating margins will add significantly to profit growth going
forward.
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Foray in different segments
Britannia has forayed into the ready-to-eat space segment with
the launch of breakfast mixes consisting of upmas, pohas,
porridges and oats. The breakfast range is fortified with multigrains, vegetables, pulses and nuts and takes only 5 minutes to
cook. It is priced between Rs.33 and Rs.45 for 150-170 gm packets.
It is focused on healthy snacking options, and it sees this move as
a natural extension of its biscuits and bakery product line. The
company’s strategy is to occupy a larger shelf space in a
consumer’s larder, to sell both impulse and steady consumption
items like these which would enable it to break free from a low
operating profit margin.
The company is planning to scale up its fledgling café business.
The café foray is being lead by Daily Bread Gourmet Foods, a
wholly owned subsidiary of Britannia. The subsidiary of the
Wadia group company has tied up with large-format retailers
such as Spencer's to set up shop-in-shop formats. While the
company currently has 22 company-owned and eight franchisee
stores in Bangalore, it has five stores in Hyderabad and three in
Goa in master franchisee formats. It is investing around Rs.15-20
lakh per store and is focusing on the catchment areas and will
prioritize them. Further, it has plans to open 75 more stores
across major cities. The company claims that these stores have
already started generating profit as they cater both institutional
and retail clients. This business is growing in high double digits.
Daily Bread is now looking at franchisees for its formats ranging
from 100 square feet kiosks to 300-700 square feet premium cafés.
It also intends to appoint franchisees for 4,000 square feet
decentralised production units costing Rs 2 crore each.
Franchisees for kiosks are expected to invest Rs 10 lakh, while
those for cafes are expected to pony up Rs 15-25 lakh.
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Decent Financial performance
Britannia has registered strong numbers for the financial year
ending 2011. Revenues shoot up about 24% from Rs.34014.03
million to Rs.42199.70 million translating in operating profit of
Rs.2279.10 million, up about 40%. This growth has come on the
back of a solid volume growth which has been 15% and the
balance of it is due to mix improvement and better pricing. Also
the launch of some premium products either in biscuits category
or any other products like Choco Decker has helped the mix. The
company has witnessed a reported bottom line growth of 24%.
Operating profit margin increased 60bps at 5.40% from 4.8% a
year ago. EPS for FY11 stood higher at Rs.12.16.
Recent new launch
Britannia has launched ‘Tiger Krunch Chocochips’ – the cookie
with the richness and delight of ‘real chocochips’. Besides being
delicious, Tiger Krunch Chocochips is wholesome and healthy
and is fortified with “Iron Zor” giving children the delight of
eating ‘Real Chocochip Cookies’ along with the feeling of
satiation. With a view of solving every mother’s problem and
making every kid’s summer enjoyable, Britannia has suggested 5
different ways to enjoy Tiger Krunch Chocochip Cookies this
summer. With Tiger Krunch Chocochip, Britannia Tiger which
currently operates in the Glucose, Creams and Coconut Biscuit
category has now entered the Affordable Cookie space. Tiger
Krunch Chocochips is the only cookie with the ‘Delight of
Chocochips’ + ‘Energy of Tiger’ @ an affordable price of just `.5/-.
Key risks
For Private Circulation Only
•
Milk prices continue to rise, which is a cause for concern.
Any adverse movement in commodity prices would impact
margins of Britannia; even tough input prices (wheat and
sugar) have stablised.
•
Rising intense competition, both from old and new players,
local and MNC players, is a bigger concern for the company.
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Standalone Profit & Loss Account
Rs. Million
Particulars
Net sales
FY09
FY10
FY11
FY11E
FY12E
31122.14
34014.03
42199.70
49584.65
58014.04
9.29%
24.07%
17.50%
17.00%
32381.23
39920.60
46609.57
54417.17
Growth
Expenditure
28494.99
EBITDA
2627.15
Growth
1632.80
2279.10
2975.08
3596.87
-37.85%
39.58%
30.54%
20.90%
EBITDA margin
8.44%
4.80%
5.40%
6.00%
6.20%
Other income
398.95
561.16
525.60
595.02
638.15
Depreciation
334.56
375.43
445.90
495.85
571.97
EBIT
2691.54
1818.53
2358.80
3074.25
3663.05
EBIT margin
8.65%
5.35%
5.59%
6.20%
6.31%
Interest
160.07
82.06
377.40
413.21
473.12
PBT
2531.47
1736.47
1981.40
2661.04
3189.93
Tax
521.18
42.66
528.50
718.48
861.28
Adjusted PAT
2010.29
1693.81
1452.90
1942.56
2328.65
-15.74%
-14.22%
33.70%
19.88%
Growth
Exceptional item
(206.30)
(528.70)
0.00
0.00
0.00
Reported PAT
1804.00
1165.11
1452.90
1942.56
2328.65
Net Profit margins
6.46%
4.98%
3.44%
3.92%
4.01%
Equity Capital
238.90
238.90
238.90
238.90
238.90
Res. & Surplus
8006.51
3723.62
4274.10
5,261.06
6,574.38
Equity Shares
23.89
23.89
119.45
119.45
119.45
EPS
84.15
70.90
12.16
16.26
19.49
EPS adjusted for bonus
16.83
14.18
12.16
16.26
19.49
Ratios
Particulars
FY09
FY10
FY11
FY11E
FY12E
Return on Equity
24.38%
42.75%
32.19%
35.32%
34.18%
Return on Capital employed
26.67%
15.22%
20.62%
23.78%
24.18%
Debt/Equity
0.03
1.08
0.96
0.88
0.83
Asset turnover
2.44
2.59
2.84
2.86
2.83
Current Ratio
1.30
1.07
1.05
1.10
1.17
Working capital turnover ratio
24.69
95.79
147.50
71.96
42.73
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Balance Sheet
Rs. Million
Particulars
FY09
FY10
FY11
FY11E
FY12E
Share Capital
238.90
238.90
238.90
238.90
238.90
Reserves & Surplus
8006.51
3723.62
4274.10
5,261.06
6,574.38
Shareholders’ funds
8245.41
3962.52
4513.00
5499.96
6813.28
Borrowings
251.62
4296.17
4314.50
4,861.24
5,632.43
Deferred tax Liability
99.42
0.00
62.40
62.40
62.40
Sources of funds
8596.45
8258.69
8889.90
10423.60
12508.11
Gross block
5,115.05
5,478.33
6,115.90
7083.52
8170.99
Accumulated Depreciation
2,336.65
2,663.32
3,109.22
3,605.07
4,177.04
Net block
2778.39
2815.01
3006.68
3478.45
3993.95
Capital work in progress
60.20
116.39
147.12
164.29
188.17
4,230.97
4,906.39
5,450.00
6,091.83
6,968.22
0.00
0.00
0.00
0.00
0.00
2,536.33
2,683.44
3,112.00
3,713.89
4,597.56
Sundry debtors
496.14
394.87
572.70
697.30
841.02
Cash and bank balance
407.98
233.61
287.50
416.87
523.30
Other current assets
137.09
144.65
121.20
136.43
158.86
Loans and advances
1,815.88
1,753.61
2,161.20
2,614.88
3,223.90
Total current assets
Investments
Goodwill
Inventories
5,393.42
5,210.17
6,254.60
7,579.37
9,344.63
Deferred tax asset
0.00
65.81
0.00
0.00
0.00
Current liabilities
4,132.90
4,855.08
5,968.50
6,890.33
7,986.86
Net current assets
1,260.52
355.10
286.10
689.03
1,357.77
Miscellaneous Exp
266.37
0.00
0.00
0.00
0.00
8,596.46
8,258.69
8,889.90
10,423.60
12,508.11
Uses of funds
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Quarterly Financial Highlights
Rs. Million
Particulars
Q4FY11
Q4FY10
Q3FY10
YoY%
QoQ%
Sales
11237.80
9343.80
10828.60
20.27
3.78
Expenditures
10532.8
9418.30
10247.40
11.83
2.79
Operating Profit
705.00
(74.5)
581.20
----
21.30
Adjusted Net Profit
419.50
128.80
373.40
3.26
12.35
Reported Net Profit
432.50
(190.40)
373.40
----
15.83
OPM%
6.27
(0.79)
5.37
----
90bps
Adjusted NPM %
3.73
1.38
3.45
235bps
28bps
Reported NPM%
3.85
(2.04)
3.45
----
40bps
Adjusted EPS*
3.51
1.08
3.13
225
12.14
*Adjusted for bonus
Past Price movement of the stock
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based on this information, all care has been taken to ensure that the facts are accurate and opinions given fair and reasonable. This information is not intended as an
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