Dominance in fast growing biscuits category to continue
With a strong brand portfolio like â€“ Tiger, 50:50, MarieGold, Good Day, Milk Bikis, Treat and NutriChoice, Britannia dominates the fast growing biscuits category with 30%+ market share. The company leads the health biscuits (4x that of next competitor) and premium cream biscuits (1x) segment as well. The non-biscuit businesses - bread, rusk, cake, dairy and international are generating ~Rs1.5bn revenues annually, while the Dairy business has touched sales of ~Rs4bn and is contributing to the bottom line. The management expects the biscuits category to continue to grow at ~15%, given Indiaâ€™s low per capita biscuits consumption of ~2kgs compared to other countries (4.5kg in Sri Lanka). We believe the long-term premiumisation story is intact and expect Britannia to witness ~16% PAT CAGR over FY12-15.
Premiumisation to help sustain margins
Britannia successfully managed the high commodity inflation (wheat flour/sugar prices up by ~32%/~21% yoy during 9M FY13) by taking selective price hikes and maintained operating margins at 5%. Given the intensive competition in the biscuits category, Britannia has increased adspend (~8% of sales) but is still not spending as much as competitors. Britanniaâ€™s mother brand has a positive rub-off impact on all its brands, allowing a slightly lower ad spend. Britannia has undertaken stringent cost control measures like alternate fuels to lower the fuel cost and set up plants in different geographic locations to reduce freight cost. The company is also focusing on premiumisation of its product portfolio which will help sustain operating margins. We expect operating margins to marginally expand by ~30bps over FY13-15.
Attractive valuations; Recommend BUY
We believe things are turning better for Brtiannia, with sales growth back on track, premiumisation and cost rationalisation driving margins and subsidiaries turned profitable. The new packaging norms didnâ€™t have any negative impact on Britannia as it is reflected from the higher revenue growth. We forecast 19% EPS CAGR over the next two years and recommend Buy.
|Y/e 31 Mar (Rs m)||FY12||FY13E||FY14E||FY15E|
|yoy growth (%)||17.8||13.4||15.6||15.5|
|yoy growth (%)||28.5||11.3||19.9||18.4|
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