- Britannia surpassed our expectations of Rs16.8bn by recording 15.1% yoy revenue growth at Rs17.7bn led by healthy ~10% volume growth and balance on account of product mix improvement and price hikes
- Operating margins expanded by 60bps to 9.6% led by ~175bps/80bps drop in advertising/staff cost respectively
- Net profit registered 27% yoy increase at Rs1.1bn marginally above our expectations of Rs1bn led by healthy topline growth and improved operating efficiency
- We expect Britannia to witness a revenue/PAT CAGR of 13%/20% respectively over FY14-16. Recommend Buy rating with a 9-mth price target of Rs1,308
|(Rs m)||Q1 FY15||Q1 FY14||% yoy||Q4 FY14||% qoq|
|Purchase of FG||(1,418)||(1,286)||10.2||(1,392)||1.9|
|OPM (%)||9.6||8.9||62 bps||9.5||9 bps|
|Effective tax rate (%)||28.2||30.1||31.0|
|Other provisions / minority etc||(1)||(1)||(22.2)||(5)||(84.8)|
|PAT margin (%)||6.4||5.8||60 bps||6.1||35 bps|
|Ann. EPS (Rs)||37.9||29.9||26.7||35.9||5.6|
Revenue growth beats expectations
Britannia reported healthy 15.1% yoy growth in consolidated revenues at Rs17.7bn driven by ~10% volume growth and balance on account of product mix improvement and price hikes. All the four sub categories of Britannia - Cookies, Milk Bikis, Nutrichoice and Marie recorded double digit growth during the quarter. The company enjoys ~11% market share in the Glucose segment and plans to increase the same to ~13-14% in 2-3 years. The company has a very strong product pipeline and the management plans to launch several premium and mid segment products. Britannia has gained market share in creams segment in the past one year, but is still low compared to market share it enjoyed 4-5 years back. The company targets to build a strong creams portfolio and increase market share in this segment.
Lower advertising/staff cost fuel operating margins
|As a % of net sales||Q1 FY15||Q1 FY14||bps yoy||Q4 FY14||bps qoq|
|Purchase of goods||8.0||8.4||(36)||7.8||17|
Net profit registers strong 27% yoy increase
Net profit for the quarter registered 27% yoy increase at Rs1.1bn (our expectation Rs1bn) led by strong revenue growth, improved operating efficiency and higher other income (Rs216mn against Rs142mn in Q1 FY14). Depreciation increased by 62.4% yoy to Rs318mn (due to adoption of the new Companies Act) there by restricting further earnings growth.
Britannia’s standalone Q1 FY15 revenues recorded 15.3% yoy growth at Rs16.2bn - above our expectations of Rs15.6bn. Operating margins witnessed 50bps expansion at 9.7% aided by sharp ~175bps/75bps decline in advertising/ staff cost respectively. ~230bps increase in raw material cost restricted further margin expansion. Net profit registered ~25% yoy growth at Rs1.1bn – marginally above our expectations of Rs1bn led by healthy revenue growth, higher other income and improved operating efficiency. The growth could have been even better but for higher depreciation cost.
Britannia is the largest player in the fast growing biscuits category with a market share of over 30% with a strong portfolio of brands like – Tiger, 50:50, MarieGold, Good Day, Milk Bikis, Treat and NutriChoice. Britannia is focusing on premiumisation of its product portfolio. We believe things are turning better for Brtiannia, with sales growth back on track, premiumisation and cost rationalisation driving margins and subsidiaries turned profitable. Increase in competitive intensity, input cost inflation and slowdown in domestic volume growth are the key risks to our call. At the current market price of Rs1,136, the stock is trading at 23.7x FY16E EPS of Rs47.9. We forecast 20.5% EPS CAGR over the next two years and recommend Buy rating on the stock with a 9-month price target of Rs1,308.
Financial Summary (Consolidated)
|Y/e 31 Mar (Rs m)||FY14||FY15E||FY16E||FY17E|
|yoy growth (%)||11.3||12.6||13.5||13.8|
|yoy growth (%)||52.4||19.3||21.2||18.2|