Britannia (Q2 FY14)

India Infoline News Service | Mumbai |

Britannia is setting up plants in different geographic locations (two new units at Patna and Odisha, new bakery plant in Gujarat at a cost of Rs500mn) to reduce freight cost.

CMP Rs925, Target Rs1,018, Upside 10.1%

  • Britannia’s standalone Q2 FY14 revenues matched our expectations by recording 13.7% yoy growth at Rs15.9bn driven by healthy volume growth, price hikes and premiumisation. 


  • Operating margins for the quarter expanded sharply by 430bps to 8.6% aided by sharp 360bps drop in raw material cost. Lower adspend and overhead cost further fuelled margins. Gross margins expanded by 380bps aided by better product mix, higher realizations and benign commodity costs.

Cost analysis
As a % of net sales
Q2 FY14
Q2 FY13
bps yoy
Q1 FY14
bps qoq
Material costs
50.4
54.0
(362)
47.9
246
Purchase of goods
10.2
10.4
(21)
11.7
(150)
Personnel costs
2.6
2.7
(3)
3.5
(84)
Advertising cost
8.2
8.4
(16)
9.0
(78)
Other overheads
19.9
20.2
(29)
19.5
35
Total costs
91.4
95.7
(431)
91.7
(31)
Source: Company, India Infoline Research

  • Britannia is setting up plants in different geographic locations (two new units at Patna and Odisha, new bakery plant in Gujarat at a cost of Rs500mn) to reduce freight cost. This will help reduce lead distance by 100-150kms. The company has also implemented initiatives like alternative fuels to keep costs as low as possible.


  • Net profit more than doubled to Rs957mn – above our expectations of Rs892mn led by healthy revenue growth, improved operating efficiency and lower interest outgo (as the company repaid a major portion of debt). Other income for the quarter declined by 66% yoy to Rs44mn there by restricting further earnings growth. Effective tax rate for the quarter was higher at 32% against 29% in Q2 FY13 due to increase in tax surcharge from 5% to 10%.

Changes in estimates
(Rs mn)
FY14E
FY15E
New
Old
Change (%)
New
Old
Change (%)
Net sales
63,878
63,878
(0.0)
73,550
73,550
0.0
EBITDA
5,209
4,570
14.0
6,160
5,424
13.6
OPM (%)
8.2
7.2
1.0
8.4
7.4
1.0
PAT
3,780
3,317
13.9
4,386
3,897
12.5
EPS
31.6
27.7
14.1
36.7
32.6
12.5
Source: Company, India Infoline Research
  • 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 it will help the company achieve better margins in the long term. We maintain Buy given healthy domestic volume growth, improved performance of subsidiaries and attractive valuations. 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 Rs925, the stock is trading at 25.2x FY15E EPS of Rs36.7. We maintain Buy rating on the stock with a revised 9-month price target of Rs1,018 (earlier Rs978).

Results table (Standalone)
(Rs m)
Q2 FY14
Q2 FY13
% yoy
Q1 FY14
% qoq
Net sales
15,945
14,028
13.7
14,034
13.6
BSE 4,704.00 9 (0.19%)
NSE 4,703.60 8.75 (0.19%)

***Note: This is a NSE Chart

 

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