CMP:
Rs. 875.60; Buy at current levels.
Medium to Long term Target – Rs. 1010; STOP LOSS – Rs. 805.55; Market
Cap: Rs. 10,481.00 Cr; 52 Week High/Low: Rs. 444.90 / Rs. 881.80
Total
Shares: 11,97,00,815 shares; Promoters : 6,08,68,345 shares – 50.85 %; Total
Public holding : 5,88,32,470 shares – 49.15 %; Book Value: Rs. 53.52; Face Value: Rs. 2.00; EPS: Rs. 23.09;
Dividend: 425.00% ; P/E: 37.92 times; Ind P/E: 37.97; EV/EBITDA: 21.52.
Total
Debt: 341.35 Cr; Enterprise Value: Rs. 10,800.50 Cr.
BRITANNIA INDUSTRIES LTD: The Company
was founded in 1892 with an initial investment of Rs. 295.00 and is based in Bengaluru, India. It was earlier known as
Britannia Biscuit Company and changed its name to Britannia Industries Ltd in 1979. The
company is the subsidiary of Associated Biscuits International Limited. The
company offered 18,00,000 shares of Rs. 10 each at a premium of Rs. 5 to the
general public in the January, 1978. Britannia Industries Limited engages in
the production and sale of bakery and dairy products in India and
internationally. Its Bakery products include biscuits, bread, cakes, and
rusk; and Dairy products comprise milk, butter, cheese, ghee, and dahi
(curd), as well as milk-based ready to drink beverages and dairy whiteners. The
company offers its products under various brands, including Tiger, Good Day,
50-50, Marie Gold, Treat, Milk Bikis, NutriChoice, Time Pass, Pure Magic,
Little Hearts, Nice Time, Greetings, Premium Bake, and Healthy Start. It also
manufactures and sells gourmet bakery products, which include specialty breads,
cakes, pastries, and cookies through the company’s own retail stores under the
brand name of Daily Bread. Its subsidiaries include AL Sallan Food Industries Co SAOC, Britannia Dairy Pvt. Ltd, Boribunder Finance & Investment Pvt. Ltd, Daily Bread Gourmet Foods (India) Pvt. Ltd, Ganges Vally Foods Pvt. Ltd, International Bakery Products Ltd, Sunrise Biscuits Co. Pvt. Ltd, Manna Foods Pvt. Ltd, J.B Mangaram Foods Pvt. Ltd. Britannia Ind Ltd is locally compared with Parle
Products, Nestle India Ltd, Ruchi Soya Industries Ltd, Heritage Foods Ltd,
Kwality Ltd, ITC Ltd, and Globally with United Biscuits of UK, ConAgra Foods
Inc of USA, Kraft Food Group Inc of USA, Hershey Company of United States of America,
Campbell Soup Company of USA, Dean Foods Co of USA, LaSalle Brands Co of USA,
Enlightened Gourmet Inc of USA, PepsiCo
USA, Iwatsuka Confectionery Company Ltd of Japan, Bourbon Corporation of Japan,
Kameda Seika Co., Ltd of Japan.
Investment Rationale:
Bakery is a traditional activity and occupies an important place in food
processing industry. The bakery manufactures in India can be differentiated
into Bread, Biscuits and Cakes. About 1.3 million tonnes of the bakery products
industry in India is in organized sector out of 3 million tonnes whereas the
rest are from unorganised and small scale local manufactures. Bakery products
are an item of mass consumption which are low priced and has rapid growth. With
changing eating habits of people, bakery products have gained popularity among
masses. The unorganized sector accounts to about half of the total biscuit
production estimated at 1.5 million tonnes. It also account for 85 % of total
bread production and around 90 % of the bakery products estimated at 0.60
million tonnes, this includes pastries, cakes,buns, rusks and others. Biscuit
market growth has although slowed down as indexed sales growth has registered
only 35 % of earlier levels, the pace of premiumisation has also slowed down a
bit, however Britannia’s premium brands straddle across price points and are
affordable, enabling the company to sustain its growth in this environment.
Good monsoons and Food Security bill would be seen as a boost to company’s
growth rates in coming quarters. The rural India offers huge growth opportunity
as Britannia’s market share in rural India is only 70 % of its urban share from
the total market share of 33 %. With strong brand equity and pricing power can
increase growth significantly, although the efficient and cost effective
distribution remains a challenge for this company. Britannia plans a capex of around
Rs. 450 Cr aiming at Bigger Units with a capacity of 15000 MT per unit; multiples lines of 3 per unit; fiscal benefits of VAT refund in Bihar and Orissa for 10 years estimated to be around Rs. 18 Cr in FY13. Britannia has reduced conversion costs by 0.90 %
and overheads by 1.10 % in 1QFY14. The Cost reduction were in freight, energy
(bio mass in new units), raw material sourcing (reverse auction) and
distribution (integration of dairy and bakery, low volume SKU rationalisation)
has led to these savings. Management is aiming at simplifying the systems and
processes with focus on bigger manufacturing plants, bigger innovations, lean
organisation structure and better distribution which will enable further cost
reduction in coming periods as well. Volatility in input costs remains a
challenge; however recent quarters show benefits of cost control measures in a
stable input cost scenario. While
stable input costs environment have aided this improvement, the company’s cost
rationalisation efforts across the value chain have started bearing fruit. In
addition to increasing premiumisation, company has worked on saving energy and
distribution costs, improving revenue per employee and better manufacturing
technology in its bid to improve profitability. Britannia will continue with
its focus on improving margins and the management expects to maintain margins
going forward as well. Stable input prices (led by a good monsoon) will also
support margins. It is expected that the to expand by 2.20 % over FY13-15, led
by favourable base and premiumisation benefits. EBITDA margins could see an
expansion of 1.60 % over FY13-15 to 7.4 %, this margin expansion is significant
given the slowing down biscuits segment (in sync with overall consumption slowdown).
In the June 2013 quarter, biscuits category growth stood at one-thirds of that
witnessed in June 2012 quarter. Thus, focus on profitability will enable
Britannia to minimise the impact of the slowdown.
Outlook and Valuation:
The branded packaged
segment in this sector had a size of Rs. 17,000 Cr in last fiscal and is
expected to grow at 13 % - 15 % in next 3-4 years. Within biscuits there are
few players like Parle, ITC and Cadbury which commands about 75 % of market
share. The bakery industry has achieved 3 positions in generating revenue among
the processed food sector. The market size for the industry is expected to be
at US$ 760 Cr by 2015, and the shining star of the sector will be Biscuits
Industry. The per
capita consumption of bakery products in India is very low, about 1 to 2 kgs
per annum, which is comparatively much lower than the developed countries where
consumption is between 10 and 50 kg per annum. The growth rate of bakery
products has been tremendous in both urban and rural areas. Britannia is stepping up its rural presence as well as expanding its
food and snacks portfolio to drive long-term growth. Notably, rural markets
have remained fairly stable as compared to urban markets during this slowdown and
hence, company’s strategy of increasing rural penetration seems to be
appropriate. Improved financial health of its Dairy and International
businesses will also aid growth. While an unprecedented rise in input costs
remains the key risk, monetisation of its land assets at Chennai and Bengaluru
will act as key stock price catalysts. Management
believes that a 2.00 % decline in overheads led by reduction in energy cost, freight,
distribution, proprietary technology and own manufacturing units is sustainable
Key brands like 50‐50, Goodday, Mariegold and Milk Bikis which have
sustained high double digit growth rates Britannia is following 3 pronged
strategy based on Innovation, cost control and revenue management to drive
profitable growth for the company. Company is looking forward to restructure
its cost base by implementing comprehensive projects from design to delivery. Company
also focuses on its revenue management by differentiating brands and
differentiating pricing. Gross Margins have expanded by 2.50 %, while EBITDA
margins have expanded by 3.30 %. Britannia had a strong run in the recent past at the bourses on the back
of significant improvement in its profitability which has supported its
financial performance in the current slowing demand scenario. The company’s
strong brands, improving sales mix (in favour of premium products) and healthy
cash generation are its key positives. Most analysts remain positive on the company
and expect 15-18 % from current levels. Britannia is trading at 23.3 times FY14
estimated earnings and at 15-25 % discount to listed peers ITC, Nestle, Marico
& GSK Consumer, largely due to low operating margin. However, due to
on-going structural changes in company’s revenue and product mix, the operating
margin will improve and this discount could narrow down gradually. The global
baked goods market has shown rapid recovery following the economic recession,
recording strong growth over recent years. Factors fuelling market expansion
include convenience, affordability and health benefits of baked goods products.
Demand for healthier fortified baked products has also driven sales. At the current
market price of Rs. 875.60, the stock P/E ratio is at 32.55 x FY14E and 24.45 x
FY15E respectively. Company’s Earnings per share (EPS) of the company for FY14E
and FY15E is seen at Rs. 26.90 and Rs. 35.80 respectively. Britannia Ind could
be good buy for the target price of Rs. 1010 for Medium to Long term investment.
Once again a very detailed post and there is so much to learn. Your introductory comment is apt, I have no idea about the share market but have been learning slowly and steadily from the master- YOU.
ReplyDeleteNice one,.
ReplyDeleteI did have some shares of Britannia, but sold them... Should have added more! Too late to do so?
nice post
ReplyDelete