HERO MOTOCORP LTD: HERO OF TWO WHEELER MARKET !!!

Scrip Code: 500182 / HEROMOTOCO

CMP:  Rs. 2035.95; Accumulate at every dips.

Medium to Long term Target: Rs. 2140; STOP LOSS – Rs. 1873.25; Market Cap: Rs. 40,655.37 Cr; 52 Week High/Low: Rs. 2150.00 / Rs. 1435.00

Total Shares: 19,96,87,500 shares; Promoters : 7,97,12,482 shares –39.92 %; Total Public holding : 11,99,75,018 shares – 60.08 %; Book Value: Rs. 250.70; Face Value: Rs. 2.00; EPS: Rs. 104.77; Div: 3000 % ; P/E: 19.55 times; Ind. P/E: 19.24; EV/EBITDA: 10.96.

Total Debt: ZERO Cr; Enterprise Value: Rs. 40,520.42 Cr.

HERO MOTOCORP LIMITED:  HERO MOTOCORP Ltd was incorporated in 1984 and is based in New Delhi, India. The company changed its name to Hero MotoCorp after splitting from Hero Honda Motors Ltd in July 2011. Hero MotoCorp engages in the manufacturing and sales of motorcycles in India. It provides a range of two wheeler products, including motorcycles and scooters and spare parts. The company markets its product under various brands, including CD Dawn, CD Deluxe, Splendor Plus, Splendor NXC, Passion and Passion Pro, Passion Plus, Glamour, Super Splendor Pro, Achiever, Glamour FI, Hunk, CBZ X-treme, Karizma, Pleasure and Karizma ZMR. The company offers its product Achiever in 135 cubic centimeter segment. In the 150 cubic centimeters and above the company offers brands like Hunk, CBZ X-treme, Karizma and the Karizma ZMR. It also offers 100 cubic centimeter scooter Pleasure. It offers its products through a network of dealers, service and spare parts outlets and dealer-appointed outlets. The company’s bikes are manufactured across three manufacturing facilities. Two of these are based in Gurgoan and Dharuhera which are located in the state of Haryana in northern India. The third manufacturing plant is based at Haridwar, in the hill state of Uttrakhand. The company was a joint venture between India’s Hero Group and Japan’s Honda Motors Co whereby the promoter the Munjal’s bought the stake of Honda in July 2011. The company is compared to Bajaj Auto Ltd, TVS Motor Company Ltd, Atlas Cycles (Haryana), Shivam Auto Ltd, and Ashok Leyland Ltd locally and is globally compared with Harley-Davidson Inc of USA, Suzuki Motor Corp of Tokyo, Yamaha Motor Co ltd of Tokyo, Isuzu Motors Ltd of Japan, Aftab Automobiles Ltd of Middel East, Fuji Heavy Industries Ltd of Japan, Daihatsu Motor Co Ltd of Japan, Kawasaki Heavy Industries Ltd of Japan, Shimano Inc of Japan globally.

Investment Rationale:

Hero MotoCorp Ltd, India’s largest two-wheeler manufacturer, is charting out new growth strategy post Honda’s exit from the joint venture in January 2011. Post separation, Honda’s aggressive expansion plan has been exerting pressure on the market share of all two-wheeler players. However, Hero Motocorp is expected to maintain its leadership due to its largest distribution network with a deep presence in rural markets, and with a strong brand recall and also due to investment in building its own R&D and tie-ups with overseas technology partners. The company is targeting 1o lakhs two wheelers to be annually exported by FY17E. Over the years, Hero MotoCorp has built its distribution network of 750 dealers and 4,350 service centres. The network, has now grown more than 3 times in the past seven years, and now is fairly spread across rural and semi-urban areas. The rural sector constitutes around 46 % of Hero MotoCorp’s total sales volumes in FY13. Despite low industry volume off-take and stiff competition in the Indian two-wheeler market, Hero MotoCorp remains the market leader with 37.1 % share of industry sales volumes in H1FY14 followed by Bajaj Auto and Honda who are the closest competitors reporting 21.3 % and 20.8 % share, respectively, during the same period. HeroMotoCorp dominates the two-wheeler market with 51.4 % market share of the domestic motorcycles segment, led by its number one position in the executive sub-segment. Although intense competition is likely to impact Hero MotoCorp’s market share but still, it is expected that the company will hold leadership position around 52 % in market share in the domestic motorcycles market which can be possible for Hero MotoCorp as it has the largest distribution reach with 5,100 touch points, it has a strong brand recall especially in rural areas. The company has announced plans to invest Rs. 2,575 Cr in the coming years for setting up of new capacities which will increase its capacities by 20 lakhs units to 90 lakhs units, a part distribution centre at Rajasthan and has also recently set up its own R&D team and has tied up with three overseas technology companies viz Engines Engineering, AVL Austria and Erik Buell Racing, and management has also indicated to launch seven to eight new variants every year. Hero MotoCorp launched 15 models/variant in H2FY14 including a refresh version of its high-end bike Karizma. Karizma is the company’s first commercial production developed in collaboration with its technological partner EBR. The company has taken a price increase of Rs. 500 to Rs. 1500 on all models from 1 October 2013. The company is also developing a low-cost motorcycle for the Indian market; the motorcycle will be priced lower than the existing entry-level model HF Dawn which is priced at ₹37,000. It has indicated that once this model is successful in the Indian market, it would be considered for exports.

Outlook and Valuation:

Hero MotoCorp’s efforts for brand building post the Honda split and its investment phase and intensifying competition in two-wheelers will exert pressure on its profitability in the short term. In the global market, Honda has largely maintained more than 50 % market share and it is aggressively trying to replicate its success in India. Honda’s brand image along with technology edge may increase competitive pressure. It is expected that the overall motorcycle sales in India which is 80 % of two-wheeler industry sales to grow at 7 % - 9 % CAGR during FY13-18, led by rural demand. Hero MotoCorp’s domestic motorcycle sales volumes which are dominated by rural sales are expected to grow at 6 % CAGR during FY13-FY15. The company’s strong distribution network in rural markets and brand image are expected to drive growth. Also, it plans to expand in the export markets and its exports are expected to grow at a CAGR of 20 % during FY13-15. However, contribution of export to sales would still be low at 3 % in FY15. Hero MotoCorp is working on variant or models to meet specific requirement of export markets. Hero Motocorp expects to roll out its first own-technology based two-wheeler by FY14. Ability to successfully launch variant or new models will be a key to monitor. Post the split from Honda, Hero MotoCorp is building its own R&D facility in Rajasthan at an investment of Rs. 400 Cr and is expected to be operational by FY14 end. The company’s annual report mentions that the R&D centre will be spread across 250 acres, making it the largest two-wheeler R&D unit in India. It is expected that in FY15, with the royalty outflow to Honda going out from Q2 FY15 its volume growth expectations will become higher and its margins will continue to outperform. Its earnings will not be hampered with the impact of higher tax rate of around 27 % arising out from Haridwar benefit getting stopped and surcharge of 10 %. Factoring these pros and cons, HERO MOTOCORP looks as a good buy for the medium to long term with the target price to Rs. 2,240. At current price of Rs. 2035.95, the stock is trading at P/E of 19.06 x on FY14E & 14.61 x on FY15E. In my view Hero Motocorp could post EPS of Rs. 106.80 for FY14E & Rs. 139.30 for FY15E and one can ACCUMULATE the stock and would advise investors to use declines in the stock to buy with a long term view with a target price of Rs. 2240.00 for Medium to Long term investment. And for short term it would be Rs. 2137.00

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	23,878.90	23,978.80	26,087.20	29,178.00
NET PROFIT (₹ Cr)	2,378.80	2,118.70	2,132.90	2,782.70
EPS (₹)	119.10	106.10	106.80	139.30
PE (x)	17.50	19.70	19.50	15.00
P/BV (x)	9.70	8.30	7.10	5.80
EV/EBITDA (x)	10.50	11.70	10.60	9.10
ROE (%)	65.70	45.60	39.20	42.70
ROCE (%)	69.50	46.10	47.30	53.00

I would buy HERO MOTOCORP LTD for Short term it would be Rs. 2137.00 and for the Medium to Long term it would be Rs. 2240. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 1873.25 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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TWITTER IPO : SOME INTERESTING DETAILS !!!

Twitter : Twitter lists today. Issue price $ 26. 

At the current price of $46.00 and 705 million fully diluted shares, Twitter has a market cap of $32.4 billion. 

474,696,816 current shares 

42,708,824 options 

85,657,603 RSUs outstanding as of 9/30/13 

116,512 convertible preferred 

7,202,952 RSUs granted after 9/30/13 

13,178,040 stock issued for MoPub acquisition 

1,237,847 options issued for MoPub acquisition 

80,300,000 stock reserved for equity compensation plans

705,098,594 Total Shares 

$46.00 Current price 

$32,434,535,324 Valuation

HAPPY DIWALI & A PROSPEROUS NEW YEAR SAMVAT 2070 !!!

HELLO READER FRIENDS, 

Here's Wishing You n your Family

A VERY HAPPY DIWALI &

   A PROSPEROUS NEW YEAR !!!!

We meditate on the Glory of the Creator ; 
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            Who is the remover of all Sin and Ignorance ;

  May He enlighten our Intellect.

Gayatri Mantra....

There's always something warm and bright, about this time of the year, when everything has a special glow, and hearts are full of Cheer, that's why this special greetings comes your way, to wish you all a life's best on Diwali and in the coming year too.....

Bhavikk Shah

I Wish u all a Very Happy Diwali and A Prosperous New Year and Thank you all for being there as a support system for the Blog for 5 long years..
Yes !!! its being Five long years serving its investor friends...and this would not at all been possible without your true and unconditional support ....

This blog, started as an hobby, was seen as a platform to share expreince.... but soon it became a passion, A Passion to create awarness among the people to be an investor and not an trader, an minuscule contribution through this Blog towards Investor Awareness ..!!!

Your blog witnessed the highs of 21,226 of November 2010 and the lows of 7,700 in November 2008, And Now, when we are witnessing 21,000 again, ur blog still have the same feeling that it had 5 years back, yes to help its investor friends.... With 226 posts and going.. I thank u all for ur unconditional support for the Blog which encourages us to keep on going...... once again WISH YOU ALL A VERY HAPPY NEW DIWALI AND A PROSPEROUS NEW YEAR !!!!

READ THE VERY FIRST POST OF THIS BLOG DATED : 30th OCT 2008 

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BHAVIKK SHAH's BLOG.
MUMBAI - INDIA .

_____________________________________

COLGATE PALMOLIVE (INDIA) LTD : DIWALI 2013 MUHURAT PICK !!!

Scrip Code: 500830 / COLPAL

CMP:  Rs. 1248.15; Buy at current levels.
Short term Target – Rs. 1350; STOP LOSS – Rs. 1148.29; Market Cap: Rs. 16,973.94 Cr; 52 Week High/Low: Rs. 1579.90 / Rs. 1190.00

Total Shares: 13,59,92,817 shares; Promoters : 6,93,56,336 shares –51.00 %; Total Public holding : 6,66,36,481 shares – 49.00 %; Book Value: Rs. 36.00; Face Value: Rs. 1.00; EPS: Rs. 38.90; Div: 2800.00 % ; P/E: 32.08 times; Ind. P/E: 39.12; EV/EBITDA: 24.38.

Total Debt: ZERO; Enterprise Value: Rs. 16,679.14 Cr.
EX - DIVIDEND on 6th NOV 2013 -  Rs. 9.00 (900%)

COLGATE PALMOLIVE (INDIA) LTD: The Company was founded on 23 September, 1937 and is based in Mumbai, India. The company is the subsidiary of Colgate Palmolive Company of USA. The company offered 11,79,000 equity shares of Rs. 10 each at a premium of Rs. 15.00 to the general public in November, 1978. Colgate-Palmolive (India) Limited provides oral care products. The company offers products that include toothpastes, toothpowder and toothbrushes under the 'Colgate' brand, as well as a specialized range of dental therapies under the banner of Colgate Oral Pharmaceuticals. The company also provides a range of personal care products under the brand name 'Palmolive'. The oral care product mix includes: Toothpastes which comprises of Colgate Dental Cream, Colgate Total 12, Colgate Kids Tooth Paste, Colgate Fresh Energy Gel, Colgate Herbal, Colgate Herbal White, and Colgate Cibaca Top. Its Tooth Brushes products comprises of Colgate Kids, Colgate Navigator Plus, and Colgate Sensitive, Colgate Extra-Clean, Colgate Super 55, Colgate Cibaca Top, Colgate Motion, Colgate Massager, Colgate Super Junior Flexible, and Colgate Super Child Flexible. Other products offered by the company include tooth powder and whitening products. Its Personal care product mix includes: Shower gel which comprises of Palmolive Aroma Shower Gel – Sensual, Palmolive Aroma Shower Gel – Relax, and Palmolive Aroma Shower Gel – Revive. It’s Bar soaps products comprise of Palmolive Aroma Soap – Revive and Palmolive Aroma Soap – Relax. Company’s Liquid hand wash products comprise of Palmolive Aroma Liquid Hand Wash – Revive and Palmolive Aroma Liquid Hand Wash – Relax. Colgate’s Talcum Powder products comprises of Palmolive Aroma Talcum Powder - Revive and Palmolive Aroma Talcum Powder – Relax. Other products in the personal care includes Palmolive shave cream and Palmolive Charmis cream. House hold care products include Axion Dish Washing paste. Colgate’s from the Dentist to the company offers Dentist product mix that includes Gingivitis treatment comprising of PerioGard and Total Plax, Sensitivity treatment products comprising of Gel Kam and Sensitive, Tooth whitening products, Fluoride therapy consists of Phos-Flur anti-cavity fluoride rinse and lastly Mouth ulcer treatment which consists of Oragard-B. Colgate Palmolive (India) Ltd is locally compared with Amar Remedies Ltd, Farmax India Ltd, Gillette India Ltd, Godrej Consumer Products Ltd, Hindustan Unilever, JHS Svendgaard Laboratories Ltd, Jyothy Laboratories, Nirma Ltd, Procter & Gamble Ltd  and Globally with Beiersdorf AG of Germany, Reckitt Benckiser PLC of UK, Kimberly-Clark Corporation of USA, Church & Dwight Co., Inc of USA, Clorox Company of USA, Paos Holdings Berhad of Malaysia, Niitaka Co ltd of Japan.

Investment Rationale:

India’s oral care market is around $100 Cr and is expected to grow at a CAGR of about 14 % during 2011–2015, which is much higher than the global growth rate. This has led to an increase in the number of oral care companies entering the space, thereby stiffening the competition. P&G has made a similar move by launching its first toothpaste in the country under the Oral-B brand, which commands close to 30 % share in the toothbrush market. Although P&G’s Oral-B has a strong brand recall in India, Colgate-Palmolive has also positioned itself well to defend its market share here. In India only 42 % of the people living in Indian villages and small towns use toothpaste, the proportion is expected to increase with rising rural income and greater awareness about oral hygiene through advertisements, dental camps and free dental checkups. Colgate has done well in this regard by building strong distribution strength across rural India. Colgate now has the highest reach among all consumer products companies in the country. More than 30 % of India’s population suffers from gum sensitivity and oral hygiene problems. Thus, India’s urban population is continuously upgrading from regular toothpastes to dental creams due to which this category is growing at 30 %–40 % annually. Colgate has launched its innovative products such as Colgate Total Pro Gum Health and Colgate Sensitive which will help Colgate to compete with P&G’s Oral-B Pro-Health. Colgate launched several products and a new production facility in India. To support its products in the wake of rising competition, the company also increased its advertising spending which increased by 31 % during the first half of 2013. This has resulted in market share gains in toothpastes, which has grown from 52 % in 2012 to 56 % presently. Company’s annual Report 2013 emphasizes the importance of innovations, market development and distribution expansion to drive growth in oral care business. Colgate is driving market development through consumer awareness program like ‘Brush at Night’, ‘Oral Health Month’ and ‘Bright Smiles, Bright Future’. Innovations are creating new segments like Gum Care, Sensitivity & Visible White. Colgate has launched Colgate Total Pro Gum Health and Colgate Visible White toothpaste in FY13. It has also launched Colgate MaxFresh and Colgate 360 (battery operated) in toothbrush category. Strong efforts on distribution are underway; wherein store coverage increased 40% and rural coverage increased by 25% in FY13. Given that P&G’s toothpaste launch was in the pipeline for some time, competitors have been gearing up for this, and this gets evidenced by a spate of promotions and price-offs, it is expected that Colgate’s ad-spends will too increase. Colgates has a very strong leadership in toothpaste category, it has strengthened its leadership position in toothpaste category from 52.9 % in FY12 to 54.6% in FY13, while market share in toothbrush strengthened to 40.5 %. Hindustan Unilever and Dabur India are at risk of market share loss wherein, the toothpastes contributes 6 % - 7 % of Hindustan Unilever’s and 9 % - 10 % of Dabur India’s revenues. Colgate management is committed for continued investments in India and their efforts are underway for toothpaste facility in Sanand, Gujarat and toothbrush facility in Sricity, Andhra Pradesh. The company has already expended capex of Rs. 1oo Cr and capital advance of Rs. 54.80 Cr and expects commercial production in FY14.

Outlook and Valuation:

Colgate has been present in India for more than 76 years. With products across all oral care categories and price points, it is one of the most popular and preferred oral hygiene brands in the country. Compared to P&G, Colgate offers a much larger assortment of oral care products in a wide price range. This allows consumers to trade up and down gradually depending on macroeconomic conditions without impacting Colgate’s sales volume. Colgate-Palmolive was faced with a similar situation in Brazil where it commands over 70 % market share. When P&G entered the country’s oral care market in 2009, a majority of its market share gains came from smaller competitors and overall category growth for Colgate continued due to maintained strong brand equity among consumers. P&G’s market share gains in India will also come from smaller competitors such as HUL and Dabur given that Brazil and India are quite similar in terms of economic growth and where Colgate-Palmolive has a dominating presence. Recently, Colgate transferred the GSSO division to Colgate Global Business Services Pvt Ltd (CGBSPL) which will enable Colgate Palmolive India to focus on its core business. Colgate divested GSSO by way of slump sale to CGBSPL for a consideration of Rs. 59.89 Cr. With this transfer, expenses and income resulting from this entity would no more reflect in Colgate’s financials w.e.f April 2013. On performance side the volume growth in toothpaste category has moderated from 13 % in recent past to 10 % in FY13. Though, no qualitative input is available in the annual report, but with market checks seems to indicate slower growth in value tiers. Media spends has risen from Rs. 260 Cr in FY12 to Rs. 350 Cr in FY13, A&P spend increased from 15.7 % in FY12 to 15.9% in FY13. This probably hints at preparedness of Colgate for upcoming entry of P&G in India. The management exuberated confidence that the Oral Care category would continue to grow at a healthy pace given the size of the opportunity, but also cited that competition may intensify in near future. With the underlying volume growth of 10 % - 11 % is in sync with management commentary. However, launch of P&G in India, should drive promotions in this category. Colgate Palmolive India has increased media spends in FY13; higher promotion spends in FY14E should be underway. There is overhang on earnings in the short-run. The company has a Cash flow generation of Rs. 460 Cr in FY13 as against Rs. 300 Cr in FY12; also the company has a strong dividend payout at 77 % vs average of 72 % in last 3 years. Higher dividend payout exuberates confidence on future cash generation. At the current market price of Rs. 1239.95, the stock is trading at a PE of 29.86 x FY13E and 25.78 x FY14E respectively. The company can post Earning per share (EPS) of Rs. 41.80 for FY13E and Rs. 48.40 for FY14E. It is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. One can ‘BUY’ in COLGATE PALMOLIVE INDIA LTD with a target price of Rs. 1350.00 for shorter term and for Rs. 1430.00 for Medium to Long term investment.

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (Rs. Crs)	2,623.80	3,084.10	3,514.70	4,083.60
NET PROFIT (Rs. Crs)	446.50	496.80	567.90	658.10
EPS (Rs.)	32.80	36.50	41.80	48.40
PE (x)	43.20	38.80	34.00	29.30
P/BV (x)	44.30	39.40	34.90	30.80
EV/EBITDA (x)	36.90	32.40	25.20	21.00
ROE (%)	109.00	107.40	109.00	111.7
ROCE (%)	149.20	148.90	154.50	160.20

I would buy COLGATE PALMOLIVE (INDIA) LTD with a price target of Rs. 1,430 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 1148.29 on your every purchase.

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BRITANNIA INDUSTRIES LTD: THINK BETTER, BUY BETTER !!!

Scrip Code: 500825/ BRITANNIA

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.

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	4,974.20	5,615.50	6,505.10	7,603.40
NET PROFIT (₹ Cr)	186.80	233.90	321.30	427.50
EPS (₹)	15.60	19.60	26.90	35.80
PE (x)	44.90	35.90	26.10	19.60
P/BV (x)	16.10	13.00	10.60	8.30
EV/EBITDA (x)	30.40	22.90	15.60	12.00
ROE (%)	38.50	40.20	44.70	47.40
ROCE (%)	22.70	27.70	35.40	40.80

I would buy BRITANNIA INDUSTRIES LTD for Medium to Long term for target of Rs. 1010. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 805.55 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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