10-Aug-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 10,244 11,615

EBITDA 864 1,214 1,278 1,403 1,637

EBIT 719 1,101 1,159 1,269 1,486

PAT 689 825 885 959 1,129

1QFY18 4QFY17 3QFY17 EPS (Rs) 57 69 74 80 94

Promoters 50.7 50.7 50.7 EPS growth (%) 74% 20% 7% 8% 18%

Public 49.3 49.3 49.3 ROE (%) 55% 39% 33% 30% 29%

Total 100.0 100.0 100.0 ROCE (%) 52% 50% 41% 38% 37%

BV 104 174 225 269 323

P/B (X) 9.5 15.3 16.6 15.1 12.6

1Mn 3Mn 1Yr P/E (x) 17.2 38.7 50.7 50.8 43.1

Absolute 8.7 15.2 40.9

Rel.to Nifty 6.3 8.8 26.8 New initiatives and Expected 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.

Britannia Industries would set up its largest plant in Maharashtra at a food

park with 6 lines in Ranjangaon.The company is also planning to set up a

dairy project at the food park with a capacity of 7 lakh litres per day.

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 4061

INDUSTRY -

Going forward we expect volume to improve due to re stocking of

channels and company’s expansion of direct reach to Hindi speaking belt

where it is less present.Presently company is trading at 43 times of

FY19’s expected EPS. We value it 48 times of FY19’s EPS and

recommend BUY with upward revised target price of Rs 4550.

BRITANNIA’s number for Q1FY18 was better than our expectation.

EBITDA and PAT margin beat our estimates by 31 and 21 bps YoY

respectively.Target Price 4550

Previous Target Price 3700

RoE & ROCE

48,754

NIFTY - 9908

Con. Staples

BSE Code - 500825

NSE Code - BRITANNIA

RAJEEV ANANDrajeev.anand@narnolia.com

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

149

Upside 12%

4215/2776

Sales and EBITDA for this quarter grew by 7% and 4% YoY respectively

while PAT declined by 2%YoY.

Positive remain bread business which grew in double digits in

Q1FY18.While international business still facing currency headwinds.

Company Data

Stock Performance %

Shareholding patterns %

80

90

100

110

120

130

140

150 BRITANNIA NIFTY

55%

39%

33%30% 29%

52%50%

41%38% 37%

0%

10%

20%

30%

40%

50%

60%

FY15 FY16 FY17 FY18E FY19E

ROE ROCE

Financials 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 YoY % QoQ% FY16 FY17 YoY %

Net Sales 2,197 2,456 2,355 2,316 2,340 7% 1% 8,626 9,324 8%

Other Income 39 41 39 34 35 -11% 5% 124 151 21%

COGS 1,288 1,490 1,419 1,392 1,387 8% 0% 5,013 5,589 11%

Employee Cost 87 88 88 90 93 7% 3% 341 353 3%

Excise Duty 56 69 73 72 76 36% 6%

Other Expenses 450 470 462 455 455 1% 0% 2,058 2,105 2%

EBITDA 316 339 313 308 329 4% 7% 1,214 1,278 5%

Depreciation 28 29 30 32 33 19% 3% 113 119 5%

Interest 2 2 1 1 1 -15% -4% 5 5 12%

PBT 326 350 320 308 329 1% 7% 1,220 1,304 7%

Tax 107 116 100 97 113 6% 16% 396 420 6%

PAT 219 234 220 211 216 -2% 2% 825 885 7%

Q1FY18 Result Highlights:

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

Quarterly Performance

Britannia’s sales for this quarter grew by 7% YoY to Rs 2340 cr, in line to our expectation of Rs

2330 cr. Positive remain bread business which grew in double digits in Q1FY18.

International business continued to be impacted on account of deteriorating geopolitical situation

and currency fluctuations in geographies like Middle East and Africa

Gross margin declined by 66 bps YoY to 40.7% led by 6% inflation in the key input prices. Flour,

Sugar, RPO and Milk price increased by 3%,17%,11% and 24% respectively.

The company was able to manage EBITDA margin decline to 35 bps by lowering other expenses by

103 bps YoY despite 66 bps decline in gross margin.

PAT declined by 2% YoY to Rs 216 cr from Rs 219 cr whereas our expectation for Q1FY18 PAT

was Rs. 210 cr.

PAT margin for this quarter declined by 75 bps YoY to 9.2% due to higher provisioning of Taxes by

157 bps YoY.

EBITDA grew by 4% YoY to Rs 329 cr from Rs 316 cr led by lower A&P and other expenses.

0%

2%

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6%

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16%

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Sales(in cr) Growth YoY

17%18%18%19%19%20%20%21%21%22%22%

Other expenses(% of Sales)

Margin % 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)

Gross Margin 41.4% 39.3% 39.8% 39.9% 40.7% -0.66% 0.79% 41.9% 40.1% -1.83%

EBITDA Margin 14.4% 13.8% 13.3% 13.3% 14.0% -0.35% 0.74% 14.1% 13.7% -0.37%

PAT Margin 10.0% 9.5% 9.4% 9.1% 9.2% -0.75% 0.12% 9.6% 9.5% -0.07%

EBITDA margin declined lesser than Gross margin by 31 bps. Britannia’s PAT declined by 2%YoY

Good Quarter in the face of challenging market environment and de-stocking in trade due to GST.

Gained handsome market share in this quarter from National as well as local players.

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

Gross margin declined by 66 bps YoY to 40.7% led by 6% inflation in the key input prices. Flour,

Sugar, RPO and Milk price increased by 3%,17%,11% and 24% respectively.

Concall & Mgt. Highlights(Q1FY18):

EBITDA margin declined by 35 bps YoY to 14% from 14.4% backed by 103 bps decline in A&P and

other expense. A&P expenses remained Rs 80 cr lower by Rs 15 cr from Q1FY17.

PAT margin for this quarter declined by 75 bps YoY to 9.2% due to higher provisioning of Taxes by

157 bps YoY.

Continued focus on enhancing direct reach coupled with rural agenda.Plans to add 2 to 2.5

Lakhs outlets every year.

The company plans 60% more cost saving in FY18. It saved around Rs 145 cr previous year.

The company has not taken any price increase in this quarter on the contrary it passed some

GST benefit in terms of prices reduction in some of category. Expects some price increase

going forward.

Expected capex for FY18 and FY19: around Rs 400 cr.

On the commodity front, prices of key raw material continue to remain high with inflation in Q1

FY18 standing at around 6%.

Expected to generate a positive momentum going forward. Sees double digit growth as

situation improves.

Britannia Industries would set up its largest plant in Maharashtra at a food park with 6 lines in

Ranjangaon.

Income Tax Rate: around 34% in FY18.

Targets for 60% more cost

saving than previous year.

39.7% 40.0%42.4% 42.5% 42.3% 41.7% 41.2% 41.4%

39.3% 39.8% 39.9% 40.7%

11.1% 10.8%12.3%

14.3% 14.7% 14.0% 13.3% 14.4% 13.8% 13.3% 13.3% 14.0%

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

-50%

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200%

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PAT(in cr) Growth YoY

Witnessed 6% of inflation in the input prices in Q1FY18. 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 Q1FY18 was better than our expectation. Sales for this quarter grew by 7%

YoY to Rs 2340 cr while PAT declined by 2% YoY to Rs 216 cr. EBITDA and PAT margin declined by

35 and 75 bps YoY respectively but remained better than our expectation by 31 and 21 bps

respectively. Going forward we expect volume to improve due to re stocking of channels and

company’s expansion of direct reach to Hindi speaking belt where it is less present. New launches of

product and category will also boost volume going ahead. In the Biscuit segment, there is 35-40%

players are local whereas in Bakery segment almost 50% players are unorganized. Hence going

forward it may lead to market share gain for Britannia. Management’s thrust on expanding Rusk,

Mathri, cookies and cake business will improve company’s market share in these segment as it is

highly unorganized. Presently company is trading at 43 times of FY19’s expected EPS. We value it 48

times of FY19’s EPS and recommend BUY with upward revised target price of Rs 4550.

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 4.7mn

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. Recently company has launched to two variant (chocolate and

vanilla) of teat. Company is focused towards launch of premium products.

Investment Arguments:

GST led advantage:GST may be major game changer for FMCG sector as a whole. Going forward it

may lead to market share gain for Britannia in Cookie,Cake, Mathri and Rusk segment as it is highly

unorganized.Company has expanded its capacity during FY17 across five locations including,

imported Cream biscuit line, imported Speciality Cookie line and the first in-house Rusk Plant.

0

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1.5

2

2.5

March'14 March'15 March'16 June'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 10,244 11,615 ROE 39% 33% 30% 29%

Change (%) 10% 8% 10% 13% ROCE 50% 41% 38% 37%

Other Operating Income Asset Turnover 2.5 2.3 2.2 2.1

EBITDA 1,214 1,278 1,403 1,637 Debtor Days 7 7 7 7

Change (%) 41% 5% 10% 17% Inventory Days 19 26 15 15

Margin (%) 14% 14% 14% 14% Payable Days 33 30 30 30

Dep & Amortization 113 119 135 151 Interest Coverage 226 213 287 358

EBIT 1,101 1,159 1,269 1,486 P/E 39 51 51 43

Interest & other finance cost 5 5 4 4 Price / Book Value 15 17 15 13

Other Income 124 151 188 228 EV/EBITDA 26 35 34 29

EBT 1,220 1,304 1,452 1,710 FCF per Share 59 7 63 70

Exceptional Item - - - - Dividend Yield 0.0% 0.5% 0.7% 0.8%

Tax 396 420 494 582

Minority Int & P/L share of Ass. - - - - Assumptions

Reported PAT 825 885 959 1,129 Y/E March FY16 FY17 FY18E FY19E

Adjusted PAT 825 885 959 1,129 Volume growth 11% 4% 6% 9%

Change (%) 40% 7% 8% 18% 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 1,452 1,710

Reserves 2,068 2,672 3,198 3,853 (inc)/Dec in Working Capital 133 (451) (11) (169)

Networth 2,092 2,696 3,222 3,877 Non Cash Op Exp 113 119 135 151

Debt 124 116 112 105 Interest Paid (+) 5 5 4 4

Other Non Current Liab 7 8 8 8 Tax Paid 396 420 494 582

Total Capital Employed 2,215 2,812 3,334 3,981 others (72) (90) - -

Net Fixed Assets (incl CWIP) 924 1,047 1,237 1,355 CF from Op. Activities 959 441 1,086 1,115

Non Current Investments 371 310 310 310 (inc)/Dec in FA & CWIP (251) (360) (324) (270)

Other Non Current Assets 217 312 312 312 Free Cashflow 708 82 762 846

Non Current Assets 1,770 1,770 1,959 2,078 (Pur)/Sale of Investment (210) 367 - -

Inventory 441 661 416 468 others (320) (438) (225) (100)

Debtors 171 179 205 232 CF from Inv. Activities (705) (150) (324) (270)

Cash & Bank 65 56 439 766 inc/(dec) in NW - - - -

Other Current Assets 416 175 1,348 1,575 inc/(dec) in Debt - - - -

Current Assets 1,724 2,339 2,781 3,465 Interest Paid (5) (6) (4) (4)

Creditors 769 757 832 943 Dividend Paid (inc tax) (231) (288) (403) (475)

Provisions 175 182 200 227 others - - - -

Other Current Liabilities 91 92 92 92 CF from Fin. Activities (246) (295) (411) (486)

Curr Liabilities 1,244 1,261 1,371 1,526 Inc(Dec) in Cash 8 (4) 350 359

Net Current Assets 480 1,078 1,410 1,939 Add: Opening Balance 43 51 121 439

Total Assets 3,494 4,109 4,740 5,543 Closing Balance 51 47 471 798

Financials Snap Shot

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

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