Britannia Industries (Q1 FY15)

India Infoline Research Team | Mumbai | August 18, 2014 16:45 IST

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.

CMP Rs1,136, Target Rs1,308, Upside 15.2%
 
-  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

Result table (Consolidated)
(Rs m) Q1 FY15 Q1 FY14 % yoy Q4 FY14 % qoq
Net sales 17,726 15,396 15.1 17,773 (0.3)
Operating income 144 119 20.8 352 (59.2)
Total income 17,870 15,515 15.2 18,124 (1.4)
Material cost (9,512) (7,866) 20.9 (9,771) (2.7)
Purchase of FG (1,418) (1,286) 10.2 (1,392) 1.9
Personnel cost (669) (700) (4.5) (600) 11.5
Advertising cost (1,384) (1,471) (5.9) (1,462) (5.3)
Other overheads (3,192) (2,815) 13.4 (3,215) (0.7)
Operating profit 1,696 1,377 23.2 1,685 0.7
OPM (%) 9.6 8.9 62 bps 9.5 9 bps
Depreciation (318) (196) 62.4 (214) 48.5
Interest (10) (42) (77.0) (15) (35.3)
Other income 216 142 51.7 110 96.0
PBT 1,584 1,282 23.6 1,566 1.2
Tax (447) (386) 15.9 (485) (7.8)
Effective tax rate (%) 28.2 30.1 31.0
Other provisions / minority etc (1) (1) (22.2) (5) (84.8)
Reported PAT 1,137 895 27.0 1,077 5.6
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
Source: Company, India Infoline Research
 
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 
Operating margins expanded by 60bps to 9.6% aided by ~175bps/80bps drop in advertising/staff cost. A sharp ~220bps increase in raw material cost on account of sharp increase in milk and edible oil prices restricted further margin expansion. With a favourable base, the management expects pressure on gross margin to reduce for next 2-3 quarters. In the near term, margin expansion is expected to be primarily from product mix improvement (the company plans to take price hikes to the extent of inflation minus cost efficiency), but, later margins will improve in line with market growth improvement. We expect the company to take little more price hikes to improve margins.
 
Cost analysis
As a % of net sales Q1 FY15 Q1 FY14 bps yoy Q4 FY14 bps qoq
Material costs 53.7 51.1 257 55.0 (132)
Purchase of goods 8.0 8.4 (36) 7.8 17
Personnel costs 3.8 4.5 (78) 3.4 40
Advertising cost 7.8 9.6 (175) 8.2 (42)
Other overheads 18.0 18.3 (28) 18.1 (9)
Source: Company, India Infoline Research
 
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.
 
Standalone results
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.
 
Recommend Buy
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
Revenues 68,293 76,864 87,241 99,236
yoy growth (%) 11.3 12.6 13.5 13.8
Operating profit 6,272 7,338 8,747 10,204
OPM (%) 9.2 9.5 10.0 10.3
Pre-exceptional PAT 3,953 4,717 5,718 6,759
Reported PAT 3,953 4,717 5,718 6,759
yoy growth (%) 52.4 19.3 21.2 18.2
EPS (Rs) 33.0 39.5 47.9 56.6
P/E (x) 34.5 28.8 23.7 20.1
Price/Book (x) 17.2 12.8 9.9 7.8
EV/EBITDA (x) 21.8 18.4 15.3 13.0
Debt/Equity (x) 0.2 0.1 0.0 0.0
RoE (%) 58.8 51.0 47.0 43.3
RoCE (%) 60.8 65.3 64.3 61.2
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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