Britannia Industries – A Premiumization Play in Foods

  • 23rd April 2015
  • CMP: Rs 2151
  • Large Cap – Mkt Cap 26,000 crores
  • Advice: BUY, with a target of Rs 3168, a 47.3% appreciation by Mar’17.

Summary

Britannia rides not just the consumption theme, but within that the large food segment and also commands a premium image. Britannia is a powerful brand in this space. As an organization, BIL has recovered completely from the poor performance in 2010. Under a new leadership it is reinventing itself across marketing as well as operations. After many good initiatives in biscuits, the focus is on the high potential dairy products. The market conditions have been challenging in 2014-15, but even so, BIL has performed excellently so far. We expect the demand to look up in the next few years, and BIL to be a multi-year outperformer for investors. Investors may buy the stock for a Mar’17 target of Rs 3168, a 47.3% appreciation.

This is an update of our Feb 2014 report on Britannia Industries – A Ready to Eat Investment. The share has appreciated 144% in the 14 months since this BUY recommendation. 

Britannia Industries – Description and Profile

  • Britannia Ind. (BIL) is a Bangalore based, bakery and dairy products firm, started in 1892.
  • Revenue in FY14 was Rs 6,912 crores and PAT 396 cr, a growth of 52.3% from FY13.
  • Revenues have grown 17% (CAGR) over the last 6 years. Market Cap is 25,300 cr., ranked 2nd in India in the food processing industry by market cap. It has about 2340 employees.
  • BIL operates in foods segments of (i) Bakery – biscuit, bread, cake & rusk and (ii) Dairy – milk, butter, cheese, ghee, dahi, milk-based ready to drink beverages & dairy whitener.
  • The biscuit market is worth 24,000 cr. and BIL has 27-30% market share in India. The dairy segment is much larger at 75,000 cr. but BIL has a very small share here.
  • The shareholding % is: Promoter 50.8, FII 19.5, Retail/HNI 17.2, DI-5.2, MFs 4 and Corporates 3.3%.
  • Key executives are: Chairman Nusli Wadia, Director Ness Wadia and MD Varun Berry.

The report can be downloaded – JainMatrix Investments_Britannia_Apr 2015.

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Disclosures and Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. JM has been publishing equity research reports since Nov 2012. Punit Jain has been a long term investor in BIL since March 2014. Other than this JM and its promoters/ employees have no financial interest in BIL or their group companies, and no known material conflict of interest as on date of publication of this report. JM is voluntarily compliant with SEBI (Research Analysts) Regulations, 2014. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Britannia Ind. – A Ready to Eat Investment

_________________________________________________________________

  • 03-Feb-2014
  • CMP: Rs 880
  • Mid Cap – Mkt Cap 10,500 crores

JainMatrix Investments has published a report on Britannia Industries for its Subscribers. A partial report is available below. Edited from it are Product Overview, Risk factors, Bench-marking, Financial Projections and 2 year target prices for BIL stock. The JainMatrix Investment service is available for a subscription fee.

SUBSCRIBE NOW. Click on See Offering

Here is a note on Britannia Industries (BIL).

Britannia Industries is a leading Indian food processing firm, making biscuits, dairy products and bakery items like cakes, rusks and breads. This firm has seen a turnaround since 2010, with fair revenue growth, but excellent margin improvements. The ongoing initiatives in manufacturing capacity addition, sales team synergies and ‘nutrition’ oriented product launches should see BIL emerge as a premium food giant. Buy. 

Business Profile

  • Britannia Industries (BIL) is a Bangalore based firm selling bakery and dairy products. Started in 1892, it is one of the largest food processing firms in India.
  • Sales turnover in FY13 was Rs 5,615 crores and PAT is 233.9 cr. Sales have grown 7.5% (CAGR) over the last 5 years. Market Cap is 10,500 cr., ranked 3rd in India in the food processing industry.

  • BIL has 30-33% biscuit market share in India, and a reach of 36 lakh retail outlets across the country. It has about 2190 employees.
  • The shareholding pattern is: Promoters-50.8%, FII’s-19.1%, Individuals/HNI-17.2%, FIs/Insurance-5.6%, MFs-4% and Bodies Corporate 3.3%.
  • Key executives are: Chairman Nusli Wadia, MD Vinita Bali, and COO Varun Berry.
Britannia Business Segments, JainMatrix Investments

Fig 1 – Business Segments, JainMatrix Investments

Click on any graphic in report to see in full size.

Britannia Key Brands, JainMatrix Investments

Fig 2 – Key Brands, JainMatrix Investments

  • BIL’s products are high volume food products. It has a large distribution network reaching ~36 lakh outlets, with more than 40% of the consumption in rural India.
  • Economic Times Brand Equity placed BIL among the top 10 trusted brands of India.

Recent Events and Strategies

  • BIL is adding production capacities, and also reducing the dependence on contract manufacturing. To manufacture its own products, BIL has spent nearly Rs 300 cr to add capacities, much of which was earlier outsourced. Three new plants have come up in Bihar, Odisha and Gujarat. These plus one in TN will take the total plants owned by BIL to 12. These will take care of 50% of the company’s manufacturing needs, with the rest coming from contract manufacturers.
  • BIL is planning to set up another wholly owned subsidiary for baked goods in Tamil Nadu, to serve South Indian markets, at an estimated cost of Rs 100 crores in early 2015.
  • BIL is also driving innovation across the existing categories and has strengthened its R&D for this.
  • Synergies were created through integration of the bakery and dairy sales and distribution system.
  • Increased distribution of more high-priced products in urban areas, at the same time concentrating on rural areas is going to be the company’s primary objective for the FY14, according to company’s COO Varun Barry, which should help BIL grow sales by 15% in FY14.
  • MD Vinita Bali is set to exit the company in March’14 and will be succeeded by COO Mr. Varun Barry. The latter is already head of the India operations. He is also undertaking a management restructuring, to make the top team smaller and more focused.  

Stock Evaluation, Performance and Returns

  • The price and dividend history is detailed in Fig 3. There was a split in Face Value (10 to 2) in 2010.
  • Post 2010 BIL has started a sharp uptrend. Investors in BIL over the last 5 years have seen a return on 25% CAGR on the share price. In the past 1 year itself, the share has appreciated over 60%.
  • Revenues have grown at 15.7% of CAGR in the past 4 years. The EBITDA and PAT have grown at 7.9% and 6.7% respectively in this period.
  • The all-time high of 972 was hit in Oct 2013. It is at 9.5% below these levels.  
Britannia Price History, JainMatrix Investments

Fig 3 – Price History, JainMatrix Investments

Britannia Quarterly Financials, JainMatrix Investments

Fig 4 – Quarterly Financials, JainMatrix Investments

  • The EPS has increased by 6.7% CAGR over the last 5 years – Fig 4. However post the losses of Mar’10, the recovery has been rapid. Dividend too has followed a similar pattern. The reasons for this are a combination of volumes growth and better margins.
  • Standalone Free Cash Flow has been positive for the last 5 years (Fig 5), this is positive. It allows the firm to reinvest in the business or reward shareholders. Dividend too has increased. Yield is 1%.
Britannia Cash Flow, Dividend, JainMatrix Investments

Fig 5 – Cash Flow, Dividend, JainMatrix Investments

Britannia Price PE Chart, JainMatrix Investments

Fig 6 – Price PE Chart, JainMatrix Investments

  • The P/E after FY11 has been in the 26-40 range, Fig 6. At 31 times today it’s in the low-end of this.
  • We can see the recent surge in EPS – Fig 7. The Price of BIL has been tracking EPS growth. The EPS now is in the channel indicated in the Chart.
Britannia Price EPS Chart, JainMatrix Investments

Fig 7 – Price EPS Chart, JainMatrix Investments

  • Other relevant consolidated financial parameters –
  • ROCE and RONW are 44.5% and 46.7%, both excellent numbers
  • BIL has just 24 cr. of equity capital; there is a good chance of bonus, split, dividend increase or other shareholder reward if performance continues to excel.
  • Debt equity fell from 0.61 (FY13) to 0.3 (Q1FY14), indicating a fast improving Balance Sheet.
  • PEG at 0.4 indicates undervalued status.

Opinion, Outlook and Recommendation

  • Buy 

JainMatrix Investments has published a report on Britannia Industries for its Subscribers. A partial report is available below. Edited from it are Product Details, Risk factors, Bench-marking, Financial Projections and 2 year target prices for BIL stock. The JainMatrix Investment Service is available for a subscription fee.

SUBSCRIBE NOW. Click on See Offering

JainMatrix Knowledge Base:

See other useful reports

Disclosure: It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it.

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