britannia industries (brit in)
TRANSCRIPT
February 10, 2020 1
Rating: BUY | CMP: Rs3,156 | TP: Rs3,725
Investing for growth; Upgrade to Buy
Quick Pointers:
Volume growth at 3%, Market share gains continue
3Q Inflation at 3-4%, favorable forward contracts provide gains of Rs1.25bn
We are upgrading BRIT from accumulate to BUY despite near term headwinds
emanating from poor growth and input cost inflation given that it remains on
track with its strategic plans like 1) distribution expansion in Rural India and
Hindi heartland 2) Innovation and renovation of Biscuits portfolio (1% of
sales) 3) Initial success in cream wafers, Milkshakes and salted snacks (1%
of sales) 4) Sustained cost efficiency program (2.1% of sales) and 5)
investment behind pull based sales, distributor health, product fine tunings,
SAP and cost control during current slowdown.
We expect BRIT to gain disproportionately in the expected demand recovery
given the investments behind distribution, innovations and new categories.
We believe fiscal gains from new units in Guwahati and Ranjangaon provide
gains exceeding 1% of sales and cushion any hit on margins due to input cost
inflation and competition. We are increasing FY20 EPS by 2.5% while
tweaking FY21 and FY22 estimates by a small -0.5% to 0.2%. We value the
stock at 45xFY22 EPS and arrive at SOTP based target price of Rs3725
(Rs.3433 based on Sept21 EPS). BRIT trades at 33% discount to Nestle and
remains our top pick in Processed foods segment. Buy
Concall Takeaways: 1) 3% volume growth and 1% value growth 2) competitive
intensity is rising in a muted demand environment with cometitors adopting push
based strategy with higher promotions 3) Operating other income higher because
of fiscal benefits from 2 new units in Guwahati and Ranjangaon, these benefits will
continue for upwards of 5 years 4) Gross margins unlikely to expand in near term
given ~4% inflation, Selective price increases likely 4) BRIT has not underatken
stock dumping and is adopting a pull based model with focus on distributor health,
lower wastages, tightened fixed cost, SAP process improvement and Innovations
5) cost efficiency gains at 2.1% of sales in FY20, will continue in FY21 as well. 6)
Croissant product is being fine tuned and a pan india rollout is likely in 3-4 months
7) Salted snacks pan India roll out likely in 6 months 8) 50% of growth has come
from existing categories, 1% from innovations and 1% from new categories 9) Some
new launches have been postponed on the back of slowdown. 8) Price covers are
taken as per season, wheat covers will expire in March/April and sugar in
October/November. 10) Capex has slowed down to Rs1.9 bn in FY20. 10) ICD to
group companies has not changed at Rs4.5bn. 11) Nepal operations are running at
rated capacity (600 tonnes/month), capacity can be doubled with a small capex.
Domestic Volume growth at 3%: Standalone Net sales increased by 4.3% YoY
to Rs 28.19bn. Gross profit increased 1.1% as higher input costs led to 130bps
margin contraction despite 180% increase in other operating income. Significant
increase in milk prices impacted the dairy business. EBITDA increased 8% to
Rs4.8bn on 190 bps decline in other expenses even as staff cost came in marginally
higher. PBT from operation were up 5%. PAT increased 19% to Rs 3.6bn mainly
on the back of tax benefits and increase in other income by 17%.
Britannia Industries (BRIT IN)
February 10, 2020
Q3FY20 Result Update
☑ Change in Estimates | ☑ Target | ☑ Reco
Change in Estimates
Current Previous
FY21E FY22E FY21E FY22E
Rating BUY ACCUMULATE
Target Price 3,725 3,433
Sales (Rs. m) 121,740 136,523 128,071 145,892
% Chng. (4.9) (6.4)
EBITDA (Rs. m) 20,445 24,026 20,999 24,923
% Chng. (2.6) (3.6)
EPS (Rs.) 66.2 78.6 66.1 79.0
% Chng. 0.2 (0.5)
Key Financials - Standalone
Y/e Mar FY18 FY19E FY20E FY21E
Sales (Rs. m) 93,041 104,825 111,271 121,740
EBITDA (Rs. m) 14,275 16,621 18,066 20,445
Margin (%) 15.3 15.9 16.2 16.8
PAT (Rs. m) 9,616 11,222 14,485 15,916
EPS (Rs.) 40.0 46.7 60.3 66.2
Gr. (%) 13.9 16.6 29.1 9.9
DPS (Rs.) 12.5 15.0 17.8 21.5
Yield (%) 0.4 0.5 0.6 0.7
RoE (%) 33.1 30.9 34.6 32.7
RoCE (%) 44.7 41.8 36.2 33.4
EV/Sales (x) 8.0 7.1 6.6 6.0
EV/EBITDA (x) 51.9 44.6 40.9 35.7
PE (x) 78.8 67.6 52.4 47.6
P/BV (x) 23.4 18.8 17.5 14.0
Key Data BRIT.BO | BRIT IN
52-W High / Low Rs.3,584 / Rs.2,300
Sensex / Nifty 40,980 / 12,032
Market Cap Rs.759bn/ $ 10,635m
Shares Outstanding 240m
3M Avg. Daily Value Rs.2334.56m
Shareholding Pattern (%)
Promoter’s 50.66
Foreign 16.28
Domestic Institution 12.93
Public & Others 20.13
Promoter Pledge (Rs bn) -
Stock Performance (%)
1M 6M 12M
Absolute 5.5 21.9 1.5
Relative 7.1 11.8 (9.5)
Amnish Aggarwal
[email protected] | 91-22-66322233
Raj Mehta
[email protected] | 91-22-66322381
Britannia Industries
February 10, 2020 2
3QFY20 Result Overview: Sales up 4.3% led by 3% volume growth, fiscal gains cushion margins
Y/e March (Rs m) Q3FY20 Q3FY19 YoY gr. (%) Q2FY20 9MFY20 9MFY19 YoY gr. (%)
Net Sales 28,192 27,032 4.3 28,961 82,947 78,145 6.1
Gross Profit 11,241 11,117 1.1 11,412 32,960 31,138 5.9
Margins (%) 39.9 41.1 39.4 39.7 39.8
Other Expenses 6,423 6,654 (3.5) 6,709 19,557 18,752 4.3
% of Sales 22.8 24.6 23.2 23.6 24.0
EBITDA 4,818 4,463 8.0 4,704 13,403 12,386 8.2
Margins (%) 17.1 16.5 16.2 16.2 15.9
Depreciation 384 369 4.3 367 1,124 987 13.8
Interest 221 4 140 445 12
Other Income 646 554 16.6 1,302 2,603 1,335 95.0
PBT 4,858 4,645 4.6 5,499 14,438 12,722 13.5
Tax 1,254 1,618 (22.5) 923 3,596 4,397 (18.2)
Tax Rate (%) 25.8 34.8 16.8 24.9 34.6
Adjusted PAT 3,604 3,027 19.0 4,576 10,841 8,325 30.2
Source: Company, PL
Volume growth at 3% in 3Q
10.0
8
7.0
1.52.0
2.5
6.0
13.012.0
13.012.0
7.0 7.0
3.0 3.0 3.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Q4
FY
16
Q1
FY
17
Q2
FY
17
Q3
FY
17
Q4
FY
17
Q1
FY
18
Q2
FY
18
Q3
FY
18
Q4
FY
18
Q1
FY
19
Q2
FY
19
Q3
FY
19
Q4
FY
19
Q1
FY
20
Q2
FY
20
Q3
FY
20
Source: Company Data, PL Research
Overall inflation was at 3-4%; Going forward inflation will be at 4%
Source: Company, PL
Britannia Industries
February 10, 2020 3
BRIT continues to increase GAP with No2 player in biscuits category
Source: Company, PL
Direct reach has increased to 2.17mn outlets
Source: Company, PL
Market share gains in Hindi Belt continues; Steady increase in Rural Preferred dealers
Source: Company, PL
Britannia Industries
February 10, 2020 4
New launches in consolidation mode
Source: Company, PL
Britannia Industries
February 10, 2020 5
Financials
Income Statement (Rs m)
Y/e Mar FY18 FY19E FY20E FY21E
Net Revenues 93,041 104,825 111,271 121,740
YoY gr. (%) 10.6 12.7 6.1 9.4
Cost of Goods Sold 57,735 62,776 67,026 73,346
Gross Profit 35,306 42,048 44,245 48,394
Margin (%) 37.9 40.1 39.8 39.8
Employee Cost 2,779 3,216 3,732 3,846
Other Expenses 5,297 5,985 6,037 6,514
EBITDA 14,275 16,621 18,066 20,445
YoY gr. (%) 18.5 16.4 8.7 13.2
Margin (%) 15.3 15.9 16.2 16.8
Depreciation and Amortization 1,198 1,350 1,577 1,737
EBIT 13,077 15,271 16,489 18,709
Margin (%) 14.1 14.6 14.8 15.4
Net Interest 15 15 647 557
Other Income 1,526 1,905 3,437 3,319
Profit Before Tax 14,589 17,161 19,279 21,471
Margin (%) 15.7 16.4 17.3 17.6
Total Tax 4,973 5,939 4,795 5,554
Effective tax rate (%) 34.1 34.6 24.9 25.9
Profit after tax 9,616 11,222 14,485 15,916
Minority interest - - - -
Share Profit from Associate - - - -
Adjusted PAT 9,616 11,222 14,485 15,916
YoY gr. (%) 14.0 16.7 29.1 9.9
Margin (%) 10.3 10.7 13.0 13.1
Extra Ord. Income / (Exp) (170) - - -
Reported PAT 9,446 11,222 14,485 15,916
YoY gr. (%) 12.0 18.8 29.1 9.9
Margin (%) 10.2 10.7 13.0 13.1
Other Comprehensive Income (4) (21) - -
Total Comprehensive Income 9,442 11,201 14,485 15,916
Equity Shares O/s (m) 240 240 240 240
EPS (Rs) 40.0 46.7 60.3 66.2
Source: Company Data, PL Research
Balance Sheet Abstract (Rs m)
Y/e Mar FY18 FY19E FY20E FY21E
Non-Current Assets
Gross Block 17,736 21,961 24,001 26,546
Tangibles 17,389 21,583 23,583 26,083
Intangibles 347 378 418 463
Acc: Dep / Amortization 7,423 8,685 10,262 11,999
Tangibles 7,156 8,383 9,920 11,613
Intangibles 267 302 342 386
Net fixed assets 10,313 13,276 13,739 14,548
Tangibles 10,233 13,200 13,663 14,470
Intangibles 80 76 76 77
Capital Work In Progress 2,003 649 1,399 1,899
Goodwill - - - -
Non-Current Investments 6,055 11,607 11,562 11,654
Net Deferred tax assets 87 (39) 19 (131)
Other Non-Current Assets 141 295 146 162
Current Assets
Investments 15,542 17,117 25,598 35,027
Inventories 5,946 7,189 7,684 8,534
Trade receivables 2,303 3,510 3,618 3,815
Cash & Bank Balance 943 405 651 593
Other Current Assets 2,895 2,438 2,744 3,005
Total Assets 46,273 56,491 67,268 79,225
Equity
Equity Share Capital 240 240 240 240
Other Equity 32,113 40,154 43,113 53,873
Total Networth 32,353 40,395 43,354 54,113
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 19 - -
Trade payables 8,664 10,325 10,706 11,449
Other current liabilities 4,774 5,480 5,711 6,150
Total Equity & Liabilities 46,273 56,491 67,268 79,225
Source: Company Data, PL Research
Britannia Industries
February 10, 2020 6
Cash Flow (Rs m)
Y/e Mar FY18 FY19E FY20E FY21E Year
PBT 14,622 17,161 19,279 21,471
Add. Depreciation 1,198 1,350 1,577 1,737
Add. Interest 15 15 647 557
Less Financial Other Income 1,526 1,905 3,437 3,319
Add. Other (867) (3,276) (4,729) (4,851)
Op. profit before WC changes 14,967 15,251 16,775 18,913
Net Changes-WC (4,286) (1,185) (8,830) (9,550)
Direct tax (4,973) (5,939) (4,795) (5,554)
Net cash from Op. activities 5,708 8,126 3,150 3,809
Capital expenditures (4,822) (2,960) (2,790) (3,045)
Interest / Dividend Income 1,506 1,816 3,417 3,301
Others 183 (5,243) - -
Net Cash from Invt. activities (3,134) (6,387) 627 256
Issue of share cap. / premium 1,181 1,560 (5,731) 1,592
Debt changes 120 (204) 7,193 -
Dividend paid (3,179) (3,619) (4,346) (5,157)
Interest paid (15) (15) (647) (557)
Others - - - -
Net cash from Fin. activities (1,892) (2,278) (3,532) (4,122)
Net change in cash 682 (539) 246 (57)
Free Cash Flow 885 5,167 360 764
Source: Company Data, PL Research
Quarterly Financials (Rs m)
Y/e Mar Q1FY19 Q2FY19 Q3FY19
Net Revenue 24,067 27,046 27,032 -
YoY gr. (%) 13.6 13.4 12.1 -
Raw Material Expenses 14,646 16,446 15,915 -
Gross Profit 9,421 10,600 11,117 -
Margin (%) 39.1 39.2 41.1 -
EBITDA 3,677 4,247 4,463 -
YoY gr. (%) 17.6 14.7 19.1 -
Margin (%) 15.3 15.7 16.5 -
Depreciation / Depletion 304 315 369 -
EBIT 3,374 3,932 4,094 -
Margin (%) 14.0 14.5 15.1 -
Net Interest 5 4 4 -
Other Income 385 395 554 -
Profit before Tax 3,754 4,323 4,645 -
Margin (%) 15.6 16.0 17.2 -
Total Tax 1,292 1,488 1,618 -
Effective tax rate (%) 34.4 34.4 34.8 -
Profit after Tax 2,462 2,836 3,027 -
Minority interest - - - -
Share Profit from Associates - - - -
Adjusted PAT 2,462 2,836 3,027 -
YoY gr. (%) 18.0 8.1 21.5 -
Margin (%) 10.2 10.5 11.2 -
Extra Ord. Income / (Exp) - - - -
Reported PAT 2,462 2,836 3,027 -
YoY gr. (%) 18.0 15.6 21.5 -
Margin (%) 10.2 10.5 11.2 -
Other Comprehensive Income (1) (1) (1) -
Total Comprehensive Income 2,461 2,835 3,026 -
Avg. Shares O/s (m) 240 240 240 -
EPS (Rs) 10.3 11.8 12.6 -
Source: Company Data, PL Research
Key Financial Metrics
Y/e Mar FY18 FY19E FY20E FY21E
Per Share(Rs)
EPS 40.0 46.7 60.3 66.2
CEPS 45.0 52.3 66.8 73.5
BVPS 134.7 168.1 180.4 225.2
FCF 3.7 21.5 1.5 3.2
DPS 12.5 15.0 17.8 21.5
Return Ratio(%)
RoCE 44.7 41.8 36.2 33.4
ROIC 43.9 39.2 40.2 42.9
RoE 33.1 30.9 34.6 32.7
Balance Sheet
Net Debt : Equity (x) (0.5) (0.4) (0.4) (0.5)
Net Working Capital (Days) (2) 1 2 3
Valuation(x)
PER 78.8 67.6 52.4 47.6
P/B 23.4 18.8 17.5 14.0
P/CEPS 70.1 60.3 47.2 43.0
EV/EBITDA 51.9 44.6 40.9 35.7
EV/Sales 8.0 7.1 6.6 6.0
Dividend Yield (%) 0.4 0.5 0.6 0.7
Source: Company Data, PL Research
Britannia Industries
February 10, 2020 7
Price Chart Recommendation History
No. Date Rating TP (Rs.) Share Price (Rs.)
1 3-Jan-20 Accumulate 3,433 3,039
2 15-Nov-19 Accumulate 3,433 3,196
3 3-Oct-19 Accumulate 3,307 2,903
4 9-Aug-19 Accumulate 3,068 2,602
5 4-Jul-19 Accumulate 3,145 2,841
6 2-May-19 Accumulate 3,145 2,783
7 5-Apr-19 Accumulate 3,142 2,994
8 11-Feb-19 Accumulate 3,159 3,108
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Asian Paints Accumulate 1,815 1,779
2 Avenue Supermarts Reduce 1,639 1,877
3 Britannia Industries Accumulate 3,433 3,039
4 Colgate Palmolive Reduce 1,270 1,391
5 Crompton Greaves Consumer Electricals BUY 306 267
6 Dabur India Hold 486 479
7 Emami Accumulate 361 300
8 Future Retail Under Review - 332
9 GlaxoSmithKline Consumer Healthcare Hold 9,377 9,247
10 Havells India Reduce 567 601
11 Hindustan Unilever Accumulate 2,136 2,034
12 ITC BUY 310 235
13 Jubilant FoodWorks BUY 1,913 1,749
14 Kansai Nerolac Paints Accumulate 545 499
15 Marico Accumulate 357 315
16 Nestle India Reduce 12,093 14,594
17 Pidilite Industries Hold 1,447 1,522
18 Titan Company Hold 1,264 1,273
19 Voltas Hold 662 664
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
1530
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Britannia Industries
February 10, 2020 8
ANALYST CERTIFICATION
(Indian Clients)
We/I, Mr. Amnish Aggarwal- MBA, CFA, Mr. Raj Mehta- MSc, CFA 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.
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