BRITANNIA INDUSTRIES LIMITED INITIATE BUY TARGET PRICE 794

Transcription

1 BRITANNIA INDUSTRIES LIMITED INITIATE BUY TARGET PRICE 794 Analyst: Naveen Vyas

2 BRITANNIA INDUSTRIES LTD INVEST HEALTHY BUY Market Data Current Market Price (INR) 670 Target Price 794 % Upside 18% 52 Week High / Low (INR) 752 / 380 Market Capitalization (In INR cr) 8,014 Others 19.91% DII 11.28% FIIS 17.89% Shareholding Promoters 50.92% STOCK SCAN BSE Code NSE Code BRITANNIA Bloomberg Ticker BRIT IN Reuters Ticker BRIT.BO Face Value (INR) 2.00 Equity Share Capital (Rs. cr.) Average 5 Year P/E 32.0x Beta vs Sensex 0.5x Average Daily Volmes (6 M) 118,830 Dividiend Yield 1.24 Return (%) 1YR We Rate Britannia Industries Limited a BUY. Britannia Industries Limited (BIL) is a major player in the Indian Foods market with leadership position in Bakery category and has a market share of ~ 30% in the industry. Britannia offers both delightfully indulgent and healthy choices in biscuits, bread, cake, rusk and a range of dairy products that include cheese, curd and specially formulated functional beverages with a dairy base. The company has recently added capacity in several existing manufacturing units and 2 new Greenfield units in Hajipur (Bihar) and Khurda (Orissa) were completed and commissioned towards the end of the year. Investment Highlights Sector FMCG Strong brands portfolio in biscuits segment : Britannia Industries lead the biscuits category with market share of ~30% in the industry. It has strong brands in the fastest growing biscuit market like Good Day, Marie Gold, Tiger, 50:50, Milk Bikis, Treat, Burbone, Little Hearts, Pure Magic and Nutrichoice. The company is investing ~ 8% of its sales on the advertisement to enhance its brand value and market share. Shift towards Premiumisation and Cost Rationalisation to help improve margin in the business: India is witnessing a major shift towards 'premiumisation' as consumer preferences change, fuelled by soaring disposable incomes in smaller towns and health awareness. To cater to the current trends, Britannia has launched various value added products to increase its mix towards premiumisation with its products like Pure Magic, Treat, Good Day, Burbone etc and has undertaken a cost rationalisation which is expected to improve the margin of the company going forward. Increasing the Sales Mix of non-biscuits to improve profitability and diversifying the product portfolio: The company has been increasing its non-biscuits portfolio like Dairy (butter, Milk and Dahi), Bakery and Healthy breakfast (Poha, upma and Oats) to earn higher margin and diversify its product portfolio. It derives around 25% of its total sales from non-biscuits category whereas biscuits constitutes around 75% of the total sales. Driving sales through focus on new and renovated offering: The Company has been driving its sales by introducing several new and renovated offerings acrosss the entire portfolio that includes NutriChoice Multigrain Thins and Roasty, Pure Magic, Treat Fruit Creams, Marie with Honey, Tiger-Zor chocolate and almond milk Exhibit 1. Britannia Industries Historical Financials and Projections INR crores /15/2012 7/15/2012 8/15/2012 9/15/ /15/ /15/ /15/2012 Britannia 1/15/2013 2/15/2013 3/15/2013 SENSEX 4/15/2013 5/15/2013 Particulars FY11A FY12A FY13 FY14E FY15E Net Sales (incl OPI) 4, , , , ,280.0 Growth (%) 19% 13% 15% 17% EBITDA EBITDA Margins (%) 5.1% 5.7% 6.8% 7.1% 7.1% Adjusted Net Profit Net Profit Margins (%) 2.9% 3.6% 4.2% 4.5% 4.6% Net Profit Growth (%) 49% 30% 23% 19% EPS (Adjusted) P/E P/BV RoE 44.1% 54.3% 54.1% 49.3% 44.1% Source: Company, ( Adj. Profit excludes Extra-ordinary Item) - 2 -

3 Company Profile Britannia Industries Limited (BIL) is a major player in the Indian Foods market with leadership position in Bakery category and has a market share of ~ 30% in the industry. It was humble beginning for Britannia Industries limited, which was set up in Kolkata in 1892, with an initial investment of INR295. By 1910, with the advent of electricity, Britannia mechanised its operations, and in 1921, it became the first company east of the Suez Canal to use imported gas ovens. During the tragic World War II, the Government reposed its trust in Britannia by contracting it to supply large quantities of "service biscuits" to the armed forces. It has power brands in the form of Good Day, Marie Gold, Tiger, 50:50, Milk Bikis, Treat, Burbone, Little Hearts, Pure Magic and Nutrichoice. Britannia Offers both delightfully indulgent and healthy choices in biscuits, bread, cake, rusk and a range of dairy products that include cheese, curd and specially formulated functional beverages with a dairy base. In the recent years, Britannia is making several healthy endeavours in the bakery industry, which are expected to not only infuse health in the snacking and breakfast habits, but can also reshape the contours of the Indian bakery industry in the times to come The company has recently added capacity in several existing manufacturing units and 2 new Greenfield units in Hajipur (Bihar) and Khurda (Orissa) were completed and commissioned towards the end of the year. Additionally, technology innovations that increase manufacturing productivity have been implemented in several units. Key Strategy for Profitable Growth. Understanding customer Needs Differentiated brands Cost efficiency and effectiveness Continuous improvement in operations New Product development Higher value realisation - 3 -

4 Business Overview Britannia Industries Ltd business is divided into broad categories i.e. Bakery and Dairy. A. Bakery Business The Company s Bakery business comprises biscuits, bread, cake and rusk and the market growth across these categories has been around 15-18%. In biscuits, Britannia brands have about one-third share and in all other categories Britannia is the only national player. Biscuits Portfolio Marie Gold: Britannia's oldest brand enjoys a heritage that spans 50 years - and going strong. Marie Gold is a loved brand that stands for Tea Time Vitality. It's balanced taste, crispiness and lightness along with the added vitamins and minerals makes Britannia Marie Gold the "healthy tea time biscuit". It is the # 1 brand in its category by a long shot. Bourbon: India's first and favorite Bourbon's sweet adventure began in Bourbon consists of thick, rich and delicious chocolate packed between two crunchy chocolate biscuits, topped with sugar crystals - 4 -

5 Good DAY: Britannia is the leader in the cookies segment. Britannia Good Day was launched in 1986 in two delectable avatars - Good Day Cashew and Butter. Over the years, new variants were introduced - Good Day Pista Badam in 1989, Good Day Chocochips in 2000 and Good Day Choconut in : Britannia positioned this product as an element of fun. Launched in 1993, because of its "Hatke" taste and youthful appeal quickly emerged as the leader of category with more than one-fourth of market share. In 2008, sharpened its focus on housewives and positioned it as a snack Milk Bikis: Launched In 1996, Milk Bikis launched a variant called Milk Cream. These round biscuits come with smiley faces and are full of milk cream that makes them very popular with children. Milk Cream also promoted the idea of 'eating milk' in a yummy way, which makes mothers happy as well

6 TIGER: Tiger, launched in 1997, is the second largest brand in Britannia's portfolio. It is one of the biggest brands in the kids segment and symbolizes fun and energy on one hand and health and nutrition on the other. Tiger re-invented itself in November 2012, to revolutionize the concept of kids' nutrition in the country. This new position of Tiger is embedded in its every element of marketing mix and across all formats of Glucose, Krunch cookies and Creams. The product has undergone a complete formula change to include growth nutrients like iron, calcium, folic acid, vitamin A and D which are required for growing kids. Treat: Made especially for kids of all ages, this is Britannia's much-loved range of cream goodies - Britannia Treat! Launched in 2002, Treat's been wowing the country in all shapes, sizes, flavours and forms for over 10 years now, earning the rightful place as market favorite for as long too Pure Magic: Pure Magic is a premium cookies brand from Britannia Industries. However with competition increasing in premium cream biscuits, the company relaunched Pure Magic in 2012 to enhance the product experience and introduce international quality chocolate with two new flavors vanilla crème & chocolate crème - 6 -

7 Nutrichoice: Britannia NutriChoice provides with a range of snacks and NutriBix which are inherently healthy yet do not compromise on taste and come with a promise of adding goodness to the lives. Healthy -Start Breakfast foods: Britannia Industries has entered the breakfast foods segment with the launch of Britannia Healthy Start, a range of ready-to-cook breakfast menus. Designed to cater to Indians in the urban market, the company has introduced ready-to-cook upmas, pohas, porridges and oats. ''The Britannia Healthy Start range is made with natural ingredients in just five minutes. It also has great health value as it contains no transfats, no cholesterol, no MSG and no preservatives. Britannia Cakes: Britannia launched its cakes in 1963 in India. Today the Britannia Cakes portfolio has grown into an exciting collection of offerings like soft and scrumptious Bar Cakes, Chunk Cakes, Cup Cakes and Veg Cakes

8 Britannia Breads and Rusk: Britannia launched its branded Breads in 1963 in Mumbai. From a company offering 2 packs - the 400gm and the 800gm plain white sliced bread - Britannia has evolved into a company offering 22 packs, catering to a variety of taste and price segments in the bread consuming market. The last couple of years also saw the introduction of Whole Wheat Bread as a part of "Eat Healthy, Think Better" credo Britannia launched its Rusks in the year They are made from the finest ingredients and baked with care as they are twice as crisper as and tastier than ordinary rusks. B. Dairy Business Britannia dairy business includes milk, butter, cheese, ghee, dahi, milk-based ready to drink beverages and dairy whitener

9 Raw Material Price Trend Sugar Price (per 100 KG) Trend 3 years (weekly) /26/2010 8/26/ /26/ /26/2010 2/26/2011 4/26/2011 6/26/2011 8/26/ /26/ /26/2011 2/26/2012 4/26/2012 6/26/2012 8/26/ /26/ /26/2012 2/26/2013 4/26/2013 Source: Bloomberg Wheat Price (Per Quintal) Trend 3 years (weekly) /19/2010 8/19/ /19/ /19/2010 2/19/2011 4/19/2011 6/19/2011 8/19/ /19/ /19/2011 2/19/2012 4/19/2012 6/19/2012 8/19/ /19/ /19/2012 2/19/2013 4/19/2013 6/19/2013 Source : Bloomberg MCX Palm Oil Price (INR Per 10 KG) Trend 3 years (weeekly) /12/2010 8/12/ /12/ /12/2010 2/12/2011 4/12/2011 6/12/2011 8/12/ /12/ /12/2011 2/12/2012 4/12/2012 6/12/2012 8/12/ /12/ /12/2012 2/12/2013 4/12/2013 6/12/2013 Source : Bloomberg - 9 -

10 Cost Breakup Trend last 5 years 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 7% 8% 8% 8% 9% 5% 5% 4% 4% 4% 21% 20% 19% 19% 20% 7% 11% 60% 56% 7% 8% 9% 62% 60% 58% FY09 FY10 FY11 FY12 FY13 Advertisement Employee Cost Other Expenses Puchase Cost Cost of Raw Material Cost as (%) of Sales of last 5 years 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 7% 8% 7% 8% 9% 5% 4% 4% 4% 4% 20% 20% 18% 19% 19% 6% 11% 56% 54% 7% 8% 8% 59% 57% 55% FY09 FY10 FY11 FY12 FY13 Advertisement Employee Cost Other Expenses Puchase Cost Cost of Raw Material Revenue Break-up - Consolidated Gross Revenue Breakup for FY11 Gross Revenue Breakup for FY12 5% 3% 2% 1% 5% 3% 2% 1% 4% 5% 9% Biscuits Bread & Rusk Cake 9% Biscuits Bread & Rusk Cake Dairy Dairy SFIC Food Dubai SFIC Food Dubai Al Salan Foods Omon Al Salan Foods Omon Others Others 77% 75% Source : Company database,

11 Financial Highlights Standalone and Consolidated Net Sales [INR Crore] Net Sales [INR Crore] 6,000 5,000 4,000 3,000 3,112 3,403 4,198 4,947 5,564 7,000 6,000 5,000 4,000 3,000 3,421 3,773 4,590 5,461 6,136 2,000 2,000 1,000 1,000 FY09 FY10 FY11 FY12 FY13 FY08 FY09 FY10 FY11 FY12 EBIDTA [INR Crore] EBIDTA [INR Crore] % 5.5% 5.6% 8.7% 4.9% FY09 FY10 FY11 FY12 FY % 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% % 5.1% 5.7% 7.1% 4.6% FY09 FY10 FY11 FY12 FY % 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Normalised PAT [INR Crore] Normalised PAT [INR Crore] FY09 FY10 FY11 FY12 FY13 0 FY09 FY10 FY11 FY12 FY

12 Industry Outlook The biscuit market in India is estimated to be INR15,000 crore (US$2.68 billion) and the industry is also gearing up aggressively to tap the medium and premium segment within the country in the coming years. Biscuit industry is witnessing a major shift towards premiumisation as consumer preferences change, fuelled by soaring disposable incomes in smaller towns and health awareness. People with lower incomes are also upgrading from the affordable glucose biscuits to mass cream biscuits and mass cookies. The biscuit industry, which consists of economy, middle, premium and superpremium segments, is likely to grow at percent annually for the next five years. But the premium and super-premium segments, according to industry experts, are believed to be growing at a much faster rate, probably more than 20 percent on a yearon-year basis. Currently, economy and middle segments (mass segment) comprise about 70 percent of the total biscuit market in India. While biscuits priced below Rs.100 a kg are in the economy segment and biscuits priced at Rs per kg are categorised as middle segment. Whereas biscuits with an MRP of Rs per kg fall in the premium category and above Rs.150 a kg in the super-premium segment. Over the last few years, the biggest shift that has been happening (in the country s biscuit industry) is the premiumisation shift and this is best borne out by the reducing contribution of the glucose segment. The glucose segment used to contribute 33 percent by value a couple of years ago and currently this is expected to dropped to around 24 percent. Also more action is expected in the health and wellness segment, due to increasing concern about lifestyle-related ailments. There will be more products on the market which are naturally healthy. Many biscuits, which are good for health, but are not advertised as such, will see a change in their marketing pitch. Annual Growth Rate of Biscuits of last 10 years Annual Growth Rate (%) of Biscuits FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 *FY13 Source : IBMA * FY13 data as on 30 SEP

13 Annual Production Data of Biscuits (In lakh Metric Tonnes) Annual Production (in Lakh Metric Tonnes) of Biscuits FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Source : IBMA Main Category of Biscuits Key Major Brands in Biscuits Industry

14 Investment Thesis Strong brands portfolio in biscuits segment : Britannia Industries lead the biscuits category with market share of ~30% in the industry. It has strong brands in the fastest growing biscuit market like Good Day, Marie Gold, Tiger, 50:50, Milk Bikis, Treat, Burbone, Little Hearts, Pure Magic and Nutrichoice. The company is investing ~ 8% of its sales on the advertisement to enhance its brand value and market share. Advertisement Investment in Brands (last 5 years) INR Crores % 8.3% 7.6% 8.1% 9.3% FY09 FY10 FY11 FY12 FY % 24.0% 20.0% 16.0% 12.0% 8.0% 4.0% 0.0% Shift towards Premiumisation and cost rationalisation to help improve margin in the business: India is witnessing a major shift towards 'premiumisation' as consumer preferences change, fuelled by soaring disposable incomes in smaller towns and health awareness. To cater to the current trends, Britannia has launched various value added products to increase its mix towards premiumisation with its products like Pure Magic, Treat, Burbone etc and has undertaken a cost rationalisation which is expected to improve the margin of the company going forward. Britannia has been reducing the sales of its glucose bisuits from around 60% of its sales five years ago to currently around 20% of the sales and on the other hand pushing sales of cream and other high-margin biscuits to enhance its margin. In last 4 years, the EBITDA margin of the company has been gradually improving from 4.6% in FY10 to 6.8% in FY13. Going forward we expect the margin to improve further to around 7.1% on back of cost rationalisation and improvement in value added product mix. EBITDA (%) Margin Trends Last 5 Years 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 6.8% 7.1% 5.1% 5.7% 4.6% FY09 FY10 FY11 FY12 FY

15 Increasing the Sales Mix of non-biscuits to improve profitability and diversifying the product portfolio: The company has been increasing its non-biscuits portofolio like Dairy (butter, Milk and Dahi), Bakery and Healthy breakfast (Poha, upma and Oats) to earn higher margin and diversify its product portfolio. It derives around 25% of its total sales from non-biscuits category whereas biscuits constitutes around 75% of the total consolidated sales. 5% 3% Gross Revenue Breakup for FY12 2% 1% 9% 5% Biscuits Bread & Rusk Cake Dairy SFIC Food Dubai Al Salan Foods Omon Others 75% Also the non-biscuits business has been growing much faster than the biscuits business which is benefiting the company in enhancement of its margin and diversifying into high growth product portfolio. Growth Rate of Various Products (Last 3 YRS) 70% 62% 60% 50% 40% 40% 34% 30% 20% 23% 16% 22% 21% 21% 18% 17% 16% 10% 7% 0% Biscuits Bread & Rusk Cake Dairy FY10 FY11 FY12 Source : company database

16 Driving sales through focus on new and renovated offering: The Company has been driving its sales by introducing several new and renovated offerings acrosss the entire portfolio that includes NutriChoice Multigrain Thins and Roasty, Pure Magic, Treat Fruit Creams, Marie with Honey, Tiger-Zor chocolate and almond milk Restructuring of Top Management The management of Britannia Industries has undertaken a restructuring of top managament whereby Vinita Bali, who is the MD, will be focussing on the international business and Varun Berry, who is the COO, will now head the India business. Varun Berry has more than 27 years of experience with him in working at toplevel in companies like Hindustan Unilever Ltd and Pepsi. Also Management has indicated that Britannia is gearing up for high growth in India operations by catering to the changing food habits of the evolving Indian consumer and pursuing opportunities for growth in the overall food domain. Peer Comparison Source : Bloomberg, Company Database Financials INR Crore Note: Nestle India and GSK Consumer Healthcare year ending December

17 Valuation At the CMP of INR670, the stock discounts its consolidated FY14E EPS of INR26.7 by 25x and its FY15E EPS of INR31.8 by 21x. Its 3 year and 5 Year Average P/E works out to be 37x and 32x respectively as per Bloomberg. Also the company is relatively much cheaper in comparison to other food companies in its peer group. With Powerful brands in biscuits category, Non-biscuits division delivering healthy growth and Strong Financials, Britannia industries Limited looks to be a good bet for investment. We assign a multiple of 25x on its FY15E EPS of INR31.77 to arrive at a Target price of INR794 for a time horizon of 15 months. Key concern Volatility in the raw material prices- Any major sharp increase in the prices of wheat, sugar and palm oil will lead to decline in the EBITDA margin of the company and may affect its profitability. Stiff competition- Britannia operates in a highly competitive industry so any aggressive expansion by the domestic companies may further enhance competition and may restrict further pricing power of the company

18 Income Statement Consolidated Financials INR Crore Ratio Analysis

19 Balance Sheet Consolidated Financials INR Crore Cash Flow

20 : Phone No.: Ajay Jaiswal: President, Investment Strategies, Head of Research: Fundamental Research Name Sectors Designation ID Nitin Prakash Daga IT, Telecom & Entertainment AVP Research Naveen Vyas Midcaps, Market Strategies AVP Research Sutapa Roy Economy Research Analyst s roy@microsec.in Sanjeev Jain BFSI Research Analyst sjain@microsec.in Neha Majithia Mid Cap Research Analyst nmajithia@microsec.in Soumyadip Raha Mid Cap Executive Research sraha@microsec.in Saroj Singh Mid Cap Executive Research ssingh2@microsec.in Kapil Bhati Mid Cap Executive Research kbhati@microsec.in Technical & Derivative Research Vinit Pagaria Derivatives & Technical VP vpagaria@microsec.in Ranajit Saha Technical Research Sr. Manager rksaha@microsec.in Institutional Desk Puja Shah Institutional Desk Dealer pdshah@microsec.in Abhishek Sharma Institutional Desk Dealer asharma3@microsec.in PMS Division Siddharth Sedani PMS Research AVP ssedani@microsec.in Ketan Mehta PMS Sales AVP ksmehta@microsec.in Research: Financial Planning Division Shrivardhan Kedia FPD Products Manager Research skedia@microsec.in Research Support Subhabrata Boral Research Support Asst. Manager Technology sboral@microsec.in Recommendation Strong Buy Expected absolute returns (%) over 12 months >20% Buy between 10% and 20% Hold between 0% and 10% Underperform between 0% and 10% Sell < 10% MICROSEC RESEARCH IS ALSO ACCESSIBLE ON BLOOMBERG AT <MCLI>

21 Microsec Benchmark its Research Benchmarking Fundamental Research 50.00% st As on 31 May % 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Nifty CNX Midcap An amount of ` 1,00,000 invested individually in all 199 stocks ie, ` 1,99,00,000 investment as and when recommended has appreciated to ` 2,60,22,656 giving a return of 30.8 percent. On the same basis Nifty has given a return of 10.7 percent and CNXMID CAP has given a return of 11.1 percent Microsec benchmark its Research and the same is updated on our website at Come, strike the right balance through Benchmarking Research. Plan and monitor your resources through

22 - 21 -