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 ANANDrajeev.anand@narnolia.com

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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