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    Britannia Ind - Paterson

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    Lokesh Naidu
    Britannia Industries is the market leader in biscuits and bakery products in India with a 35% market share. It has maintained strong revenue growth of 25% in 3QFY09 through volume growth of 13% and price hikes. However, EBITDA margins declined by 100 bps to 8% due to higher raw material costs. While net profit growth was lower at 7.7% due to lower margins and higher tax rates, margins are expected to improve going forward as input costs soften. The report recommends buying Britannia at current levels with a target price of 1630, which is 14.5 times FY10 estimated earnings.

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    Britannia Ind - Paterson

    Uploaded by

    Lokesh Naidu
    25 views2 pages
    Britannia Industries is the market leader in biscuits and bakery products in India with a 35% market share. It has maintained strong revenue growth of 25% in 3QFY09 through volume growth of 13% and price hikes. However, EBITDA margins declined by 100 bps to 8% due to higher raw material costs. While net profit growth was lower at 7.7% due to lower margins and higher tax rates, margins are expected to improve going forward as input costs soften. The report recommends buying Britannia at current levels with a target price of 1630, which is 14.5 times FY10 estimated earnings.

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    Britannia Industries is the market leader in biscuits and bakery products in India with a 35% market share. It has maintained strong revenue growth of 25% in 3QFY09 through volume growth of 13% and price hikes. However, EBITDA margins declined by 100 bps to 8% due to higher raw material costs. While net profit growth was lower at 7.7% due to lower margins and higher tax rates, margins are expected to improve going forward as input costs soften. The report recommends buying Britannia at current levels with a target price of 1630, which is 14.5 times FY10 estimated earnings.

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    Download as PDF, TXT or read online from Scribd
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    25 views2 pages

    Britannia Ind - Paterson

    Uploaded by

    Lokesh Naidu
    Britannia Industries is the market leader in biscuits and bakery products in India with a 35% market share. It has maintained strong revenue growth of 25% in 3QFY09 through volume growth of 13% and price hikes. However, EBITDA margins declined by 100 bps to 8% due to higher raw material costs. While net profit growth was lower at 7.7% due to lower margins and higher tax rates, margins are expected to improve going forward as input costs soften. The report recommends buying Britannia at current levels with a target price of 1630, which is 14.5 times FY10 estimated earnings.

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    of 2

    Feb 2009

    Equity Research

    Britannia Industries BUY CMP 1325

    Britannia Industries is the market leader in the organized biscuit and bakery products market
    in 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 equal
    shareholders 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 Times
    pegged 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 has
    expanded its distribution network to rural areas. Exports are to the Middle East, Asia, US and
    Australia.

    Strong revenue growth

    Britannia has maintained its


    strong growth tempo in
    3QFY09. It reported revenue
    growth of 25%, yoy. Volume
    growth accounted for 13
    percentage points, price hikes
    accounted for the rest.
    Britannia has reported revenue
    growth of over 16% for the
    13th consecutive quarter. Three
    major brands (Good Day, Tiger
    and Nutrichoice) continue on
    their healthy revenue growth.

    Revenue growth ahead of ITC’s Sunfeast biscuits

    For three quarters in row, revenue growth in ITC’s Sunfeast lagged Britannia’s. Launch of
    products in all segments and varied SKUs have helped Britannia keep ahead. Failure to gain
    market share in premium segments (Good Day and cream biscuits) despite launches and re-
    launches have resulted in ITC’s 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 raw
    material 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.
    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. But
    going 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 (Tiger
    and 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 consensus
    earnings. 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 at
    these levels. Moreover the softening commodity prices will also impact the Britannia’s
    EBITDA margins in a positive way. We recommend Britannia at current levels, with a target
    price of 1630, which is 14.5 times of its FY10E earnings.

    (Secondary Research - Outsourced data)

    Disclaimer:

    This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy
    or sell a security. While the information contained therein has been obtained from sources believed to be reliable, investors
    are advised to satisfy themselves before making any investments. Patco Investments & Consultancy Services Pvt Ltd. has
    not independently verified all the information given in this document. Accordingly, no representation or warranty, express or
    implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document.
    Patco Investments & Consultancy Services Pvt Ltd. does not bear any responsibility for the authentication of the information
    contained in the reports and consequently, is not liable for any decisions taken based on the same. Further, Patco Research
    Reports only provide information updates and analysis. As per SEBI requirements it is stated that, Patco Investments &
    Consultancy Services Pvt Ltd. and/or individuals thereof may have positions in securities referred herein and may make
    purchases or sale thereof while this report is in circulation.

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