07-Jun-17
Key Highlights of the Report:
52wk Range H/L
Mkt Capital (Rs Cr)
Av. Volume (,000)
Financials/Valu
ation
FY15 FY16 FY17 FY18E FY19ENet Sales 7,858 8,626 9,324 9,992 11,119
EBITDA 864 1,214 1,278 1,388 1,588
EBIT 719 1,101 1,159 1,232 1,401
PAT 689 825 885 949 1,088
4QFY17 3QFY17 2QFY17 EPS (Rs) 57 69 74 79 91
Promoters 50.7 50.7 50.7 EPS growth (%) 74% 20% 7% 7% 15%
Public 49.3 49.3 49.3 ROE (%) 55% 39% 33% 30% 28%
Total 100.0 100.0 100.0 ROCE (%) 52% 50% 41% 37% 36%
BV 104 174 225 268 320
P/B (X) 9.5 15.4 16.8 13.7 11.5
1Mn 3Mn 1Yr P/E (x) 17.2 38.7 50.7 46.3 40.4
Absolute 1.6 17.6 30.1
Rel.to Nifty (1.8) 8.9 12.4 New initiatives and launches:
Formed Joint Venture with Chipita (Greek Company) for manufacturing
and selling croissants and the project is expected to be commercialized
by July 2018.JV in the ratio of 60:40(Britannia: Chipita). Capex: Rs 80-85
cr.
New initiatives:launched Goodday Wonderfulls and Tiger Creams(Choco
Vanilla) inQ4FY17. New SKU’s launched in Rs 10 price point: Treat Jim
Jam,TOP(50:50) and Vita Marie Gold.
The company is setting up Food Park in Maharashtra with the capex of Rs
100 cr.
In the process of increasing International foot print, Britannia is making a
foray into Nepal.
CMP 3639
INDUSTRY -
Britannia may be the key beneficiary of GST roll out in India considering
approx.35-40% unorganized player in biscuit segment. The company’s
thrust on launching new product gives us confidence of better volume
growth in long run. But company may witness some volume pressure due
to realignment of supply chain in near term. Hence we have `HOLD’ rating
on this stock with the previous target price of Rs 3700.
Britannia’s result for Q4FY17 was mixed. Sales came below than
expectation whereas PAT came inline.Target Price 3700
Previous Target Price 3700
RoE & ROCE
43,671
NIFTY - 9675
Con. Staples
BSE Code - 500825
NSE Code - BRITANNIA
RAJEEV [email protected]
Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report
148
Upside 2%
3796/2524
Volume growth from base business remained 2%which is below than our
expectation.
EBITDA margin improved by 4 bps which is positive considering over 10%
input price inflation in Q4FY17.
Company Data
Stock Performance %
Shareholding patterns %
55%
39%
33%30% 28%
52%50%
41%37% 36%
0%
10%
20%
30%
40%
50%
60%
FY15 FY16 FY17 FY18E FY19E
ROE ROCE
80
90
100
110
120
130
140 BRITANNIA NIFTY
Financials 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY % QoQ% FY16 FY17 YoY %
Net Sales 2,189 2,197 2,456 2,355 2,316 6% -2% 8,626 9,324 8%
Other Income 36 39 41 39 34 -8% -14% 124 151 21%
COGS 1,288 1,288 1,490 1,419 1,392 8% -2% 5,013 5,589 11%
Employee Cost 87 87 88 88 90 3% 2% 341 353 3%
Excise Duty 55 56 69 73 72 30% -2%
Other Expenses 468 450 470 462 455 -3% -2% 2,058 2,105 2%
EBITDA 290 316 339 313 308 6% -1% 1,214 1,278 5%
Depreciation 31 28 29 30 32 5% 6% 113 119 5%
Interest 1 2 2 1 1 -11% 20% 5 5 12%
PBT 294 326 350 320 308 5% -4% 1,220 1,304 7%
Tax 95 107 116 100 97 2% -2% 396 420 6%
PAT 199 219 234 220 211 6% -4% 825 885 7%
Rise in competitive intensity and subdued international business impacted volume growth
Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report
Quarterly Performance
Britannia’s sales for this quarter grew by 6% YoY to Rs 2316 cr led by 2% volume growth in base
business.
PAT for this quarter grew by 6% YoY to Rs 211 cr from Rs 199 cr in Q4FY16.
Gross margin declined by 125 bps YoY to 39.9% led by over 10% inflation in the input prices. Flour,
Sugar, RPO and Milk price increase by 11%,34%,16% and 23% respectively.
In spite of decline in gross margin the company is able to manage 4 bps improvements in EBITDA
margin which is commendable.
EBITDA margin improved due to 175 bps decline in other expenses and 12 bps decline in
employee cost. Other expenses lower in this quarter due to rationalization of Ad&P expenses.
International business continued to be severely impacted on account of deteriorating geopolitical
situation and currency fluctuations in geographies like Middle East and Africa
PAT margin improved by 1 bps YoY to 9.1%.
EBITDA margin improved by 4 bps YoY inspite of 10% inlation in input prices.
11%
8%7% 7%
9%
11%
13%
10% 10% 10%
2% 2%
0%
2%
4%
6%
8%
10%
12%
14%
Britannia's base business volume gr. (%)
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
500
1000
1500
2000
2500
3000
Sales(in cr) Growth YoY
Margin % 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)
Gross Margin 41.2% 41.4% 39.3% 39.8% 39.9% -1.25% 0.17% 41.9% 40.1% -1.83%
EBITDA Margin 13.3% 14.4% 13.8% 13.3% 13.3% 0.04% 0.03% 14.1% 13.7% -0.37%
PAT Margin 9.1% 10.0% 9.5% 9.4% 9.1% 0.01% -0.25% 9.6% 9.5% -0.07%
EBITDA margin improved by 4 bps YoY Britannia’s PAT and PAT growth YoY
Value growth from base business remained 8%.
The company is setting up Food Park in Maharashtra with the capex of Rs 100 cr.
Inter corporate deposit remained same till March 31,17. After that company reduced it by Rs 40 cr.
Expected capex: Rs 400 cr in FY18.
Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report
Gross margin declined by 125 bps YoY(improved 17 bps QoQ) to 39.9% led by over 10% inflation in
the input prices. Flour, Sugar, RPO and Milk price increase by 11%,34%,16% and 23% respectively.
Concall Highlights(Q4FY17):
Input inflation remained excess of 10% in Q4FY17. Flour, Sugar, RPO and Milk went up by
11%,34%,16% and 23% respectively.
GST: expects whole sale channel disruption going forward due to GST. Tax Neutral rate for
BRITANNIA: 18%. BRITANNIA will benefit as company has higher direct reach than market
leader. Britannia has double direct distribution reach than the market leader.
EBITDA margin improved by 4 bps YoY and 3 bps QoQ to 13.3% led by 175 bps decline in other
expenses and 12 bps decline in employee cost.
PAT margin improved by 1 bps YoY and declined 25 bps QoQ to 9%. PAT remained Rs 211 cr in
Q4FY17.
Scope of Distribution expansion: Presently company’s overall distribution reach is 4.5mn
outlets whereas market leader is 1.3 mn outlets more than Britannia.
International business which contributes 7% of revenue is facing problem due to subdued
demand in Middle East and Africa region.
The company may take 4% price hike after GST rates are out.
The company is keen to maintain margin led by intensified cost cutting measures. Targets for
40% more cost saving than previous year.
Increase in inventory level due to company’s opportunistic buying of commodity at lower
levels.
Targets for 40% more cost
saving than previous year.
-50%
0%
50%
100%
150%
200%
0
50
100
150
200
250
300
PAT(in cr) Growth YoY
38.8% 39.7% 40.0%42.4% 42.5% 42.3% 41.7% 41.2% 41.4%
39.3% 39.8% 39.9%
9.5%11.1% 10.8%
12.3%14.3% 14.7% 14.0% 13.3% 14.4% 13.8% 13.3% 13.3%
0.0%
5.0%10.0%
15.0%
20.0%
25.0%
30.0%35.0%
40.0%
45.0%
50.0%
Gross Margin EBITDA margin
Witnessed over 10% of inflation in the input prices in Q4FY17. Britannia’s Direct reach: 2X in the last 3 years
View & Valuation
Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report
Britannia’s result for Q4FY17 was mixed. Sales came below than expectation whereas PAT remained
inline. EBITDA margin improved by 4 bps which is commendable considering over 10% of inflation in
input prices. The company’s commitment towards aggressive cost rationalization gives us hope that
company will maintain margins going ahead. The company’s thrust on launching new product gives us
confidence of better volume growth in long run. Base business grew by 8% in this sluggish
environment is also commendable. The company may benefit from GST implementation. In the
Biscuit segment, there is 35-40% players are unorganized. Hence going forward it may lead to market
share gain for Britannia. But company may witness some volume pressure due to realignment of
supply chain in near term. Hence we have `HOLD’ rating on this stock with the previous target of Rs
3700.
Direct Distribution Expansion: Britannia is continuously expanding its direct distribution which is
helping company in garnering better volume growth than industry. The company has improved is direct
distribution reach by double in last 3 years. Presently company’s overall distribution reach is 4.5mn
outlets whereas market leader has coverage of 5.8 Mn outlets. Hence it gives more head room for
company to expand its direct distribution reach which may improve volume growth going ahead.
Aggressive product launches: The Company is expanding its product portfolio rapidly which is going
to improve its volume going foraward. The company launched New Goodday Wonderfulls and Tiger
Creams(Choco Vanilla) inQ4FY17. New SKU’s launched in Rs 10 price point: Treat Jim Jam,
TOP(50:50) and Vita Marie Gold.
Investment Arguments:
GST led advantage: GST will be major game changer for FMCG sector as a whole. Britannia may be
one of the key beneficiaries of GST implementation. In the Biscuit segment, there is 35-40% players
are unorganized. Hence going forward it may lead to market share gain for Britannia. On the other
hand company may also gain approx. 60-70 bps improvement in margin due to transportation cost
reduction in the range of 15-20%.
Commitment towards maintaining margin: The Company has witnessed input inflation over 10% in
Q4FY17 but it has maintained margin by rationalizing its AD&P expenses and cost cutting measures,
this shows management’s commitment towards maintaining margin going ahead.
0
0.5
1
1.5
2
2.5
March'14 March'15 March'16 March'17
Direct Reach -Britannia(2x in last 3 years)
Income Statement Rs in Crores Key Ratios
Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E
Revenue from Operation 8,626 9,324 9,992 11,119 ROE 39% 33% 30% 28%
Change (%) 10% 8% 7% 11% ROCE 50% 41% 37% 36%
Other Operating Income Asset Turnover 2.5 2.3 2.1 2.0
EBITDA 1,214 1,278 1,388 1,588 Debtor Days 7 7 8 8
Change (%) 41% 5% 9% 14% Inventory Days 19 26 18 17
Margin (%) 14% 14% 14% 14% Payable Days 33 30 30 30
Dep & Amortization 113 119 156 187 Interest Coverage 226 213 278 338
EBIT 1,101 1,159 1,232 1,401 P/E 39 51 46 40
Interest & other finance cost 5 5 4 4 Price / Book Value 15 17 14 11
Other Income 124 151 171 207 EV/EBITDA 26 35 32 27
EBT 1,220 1,304 1,399 1,604 FCF per Share 59 33 47 64
Exceptional Item - - - - Dividend Yield 0.0% 0.5% 0.8% 0.9%
Tax 396 420 450 516
Minority Int & P/L share of Ass. - - - - Assumptions
Reported PAT 825 885 949 1,088 Y/E March FY16 FY17 FY18E FY19E
Adjusted PAT 825 885 949 1,088 Volume growth 11% 4% 3% 7%
Change (%) 40% 7% 7% 15% Pricing growth 0% 4% 4% 4%
Margin(%) 10% 9% 9% 10%
Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores
Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E
Share Capital 24 24 24 24 PBT 1,220 1,304 1,399 1,604
Reserves 2,068 2,672 3,189 3,815 (inc)/Dec in Working Capital 136 (370) (119) (147)
Networth 2,092 2,696 3,213 3,839 Non Cash Op Exp 113 119 156 187
Debt 124 116 112 105 Interest Paid (+) 5 5 4 4
Other Non Current Liab 7 8 8 8 Tax Paid 396 420 450 516
Total Capital Employed 2,215 2,812 3,325 3,943 others (87) - - -
Net Fixed Assets (incl CWIP) 924 1,047 1,315 1,498 CF from Op. Activities 961 639 990 1,132
Non Current Investments 371 310 310 310 (inc)/Dec in FA & CWIP (251) (242) (424) (370)
Other Non Current Assets 217 312 312 312 Free Cashflow 711 397 566 762
Non Current Assets 1,770 1,770 2,037 2,221 (Pur)/Sale of Investment (210) - - -
Inventory 441 661 493 511 others (245) 186 (225) (100)
Debtors 171 179 219 244 CF from Inv. Activities (705) (313) (424) (370)
Cash & Bank 65 56 266 546 inc/(dec) in NW 4 - - -
Other Current Assets 416 175 1,325 1,529 inc/(dec) in Debt (1) - - -
Current Assets 1,724 2,339 2,668 3,235 Interest Paid (5) (5) (4) (4)
Creditors 769 757 812 903 Dividend Paid (inc tax) (231) (288) (403) (462)
Provisions 175 182 196 218 others - 0 - -
Other Current Liabilities 91 92 92 92 CF from Fin. Activities (248) (301) (411) (474)
Curr Liabilities 1,244 1,261 1,345 1,476 Inc(Dec) in Cash 8 25 155 289
Net Current Assets 480 1,078 1,323 1,759 Add: Opening Balance 43 88 121 266
Total Assets 3,494 4,109 4,705 5,455 Closing Balance 51 112 275 555
Financials Snap Shot
Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report
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