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Equity Research

Britannia Industries BUY CMP 1325

Britannia Industries is the market leader in the organized biscuit and bakery products marketin India with a 35% market share. The Company was incorporated on Mar. 21, 1918 as a

public limited company. The Wadia Group of India and Groupe Danone of France are equalshareholders in ABIL, UK, which is a major shareholder in Britannia Industries. Forbes Global

rated Britannia amongst the Top 200 small companies of the world, and the Economic Timespegged Britannia India as 2nd most trusted brand. It has six brands in its portfolio whose

market share is more than Rs 1 billion. It has got 600,000 outlets across India and hasexpanded its distribution network to rural areas. Exports are to the Middle East, Asia, US and

Australia.

Strong revenue growth

Britannia has maintained itsstrong growth tempo in

3QFY09. It reported revenuegrowth of 25%, yoy. Volume

growth accounted for 13percentage points, price hikes

accounted for the rest.Britannia has reported revenue

growth of over 16% for the13th consecutive quarter. Three

major brands (Good Day, Tigerand Nutrichoice) continue on

their healthy revenue growth.

Revenue growth ahead of ITCs Sunfeast biscuits

For three quarters in row, revenue growth in ITCs Sunfeast lagged Britannias. Launch of

products in all segments and varied SKUs have helped Britannia keep ahead. Failure to gainmarket share in premium segments (Good Day and cream biscuits) despite launches and re-

launches have resulted in ITCs lower revenue growth.

EBITDA margin weighed down by higher raw material prices

The 3QFY09 EBITDA margin was down 100bps, from 9% a year ago to 8%. Higher rawmaterial costs chiefly led to the decline. Raw material as percent of net sales has moved up

from 59.4% a year ago to 62.7% this quarter.

Feb 2009

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Net profit growth lower due to lower margins

In 3QFY09 net profit growth was 7.7% yoy. Apart from the lower EBITDA margin, the

effective income tax rate rising from 10.9% to 14.3% resulted in lower net profit growth. Butgoing forward, lower packaging material costs and lower wheat prices should help expand

margins. The recent 4% excise duty cut on biscuits with an MRP of over Rs100 a kg should

also help Britannia improve realizations. Recent weight reductions for some biscuits (Tigerand Bourbon) would also help to better profitability margins

Recommend Buy

At the CMP of Rs 1,325 the stock trades at a PE of 14.5 x FY09E and 11.8 x FY10E consensusearnings. The stock has a history of trading in a PE band of 10 x to 18 x its forward

earnings. Hence an 11.8 multiple on the FY10 earnings makes Britannia an attractive Buy atthese levels. Moreover the softening commodity prices will also impact the Britannias

EBITDA margins in a positive way. We recommend Britannia at current levels, with a targetprice of 1630, which is 14.5 times of its FY10E earnings.

(Secondary Research - Outsourced data)

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