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

Shareholding Pattern

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 Choco-

Decker‟ 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.

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.

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.

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.

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.

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 multi-

grains, 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.

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

• 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.

Standalone Profit & Loss Account

Rs. Million

Particulars FY09 FY10 FY11 FY11E FY12E

Net sales 31122.14 34014.03 42199.70 49584.65 58014.04

Growth

9.29% 24.07% 17.50% 17.00%

Expenditure 28494.99 32381.23 39920.60 46609.57 54417.17

EBITDA 2627.15 1632.80 2279.10 2975.08 3596.87

Growth

-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

Growth

-15.74% -14.22% 33.70% 19.88%

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

c FY09 FY10 FY11 FY11E FY12E

Share 238.90 238.90 238.90 238.90 238.90

Reserves & 8006.51 3723.62 4274.10 5,261.06 6,574.38

8245.41 3962.52 4513.00 5499.96 6813.28

251.62 4296.17 4314.50 4,861.24 5,632.43

tax 99.42 62.40 62.40 62.40

of 8596.45 8258.69 8889.90 10423.60 12508.11

Gross 5,115.05 5,478.33 6,115.90 7083.52 8170.99

2,336.65 2,663.32 3,109.22 3,605.07 4,177.04

Net 2778.39 2815.01 3006.68 3478.45 3993.95

work in 60.20 116.39 147.12 164.29 188.17

I 4,230.97 4,906.39 5,450.00 6,091.83 6,968.22

I 2,536.33 2,683.44 3,112.00 3,713.89 4,597.56

496.14 394.87 572.70 697.30 841.02

Cash and bank 407.98 233.61 287.50 416.87 523.30

Other 137.09 144.65 121.20 136.43 158.86

Loans and 1,815.88 1,753.61 2,161.20 2,614.88 3,223.90

Total 5,393.42 5,210.17 6,254.60 7,579.37 9,344.63

tax 65.81

4,132.90 4,855.08 5,968.50 6,890.33 7,986.86

Net 1,260.52 355.10 286.10 689.03 1,357.77

266.37

Uses of 8,596.46 8,258.69 8,889.90 10,423.60 12,508.11

Balance Sheet

Rs. Million

Quarterly Financial Highlights

Rs. Million

*Adjusted for bonus

Past Price movement of the stock

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