. RESULT UPDATE 9th August, 2017
Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Please vote for us in Asiamoney Brokers Poll 2017: https://www.euromoney.com/article/b13j49qfcr6j pp/asiamoney-brokers-poll-2017-vote-now India Equity Institutional Research II Result Update - Q1FY18 II 9th August, 2017 2 Into an Expansion Phase CMP INR 4,061 Target INR 4,531 Potential Upside 11.6% Market Cap (INR Mn) 488,755 Recommendation ACCUMULATE Sector FMCG Result highlights posted its Q1FY18 results which were in-line with our estimates and Consolidated Net revenue reported at INR 23,398.1Mn which showed growth of 6.5% yoy and 1.0% qoq. EBIDTA margins during the quarter improved qoq by 74 bps qoq while saw a decline of 35bps yoy. EBIDTA margins stood at 14.0% with EBIDTA at INR 3,285.1 Mn. PAT after exceptional item for Q1FY18 stood at INR 2,159.7Mn with improvement in PAT margin qoq by 13bps and decline by 75 bps yoy with margins at 9.2% MARKET DATA Shares outs (Mn) 120 EquityCap (INR Mn) 240 Mkt Cap (INR Mn) 488755 52 Wk H/L (INR) 4215/2776 Volume Avg (3m K) 153.8 Face Value (INR) 2 Bloomberg Code BRIT IN SHARE PRICE PERFORMANCE 135 115 95 75 Sensex Britannia Inds MARKET INFO SENSEX 31798 NIFTY 9908 KEY FINANCIALS Particulars (INR Mn) FY15 FY16 FY17 FY18E FY19E Sales 78,583.9 86,261.5 93,241.1 103,337.5 114,286.8 EBITDA 8,635.2 12,143.9 12,781.8 14,598.9 16,600.0 PAT 6,864.7 8,135.0 8,843.3 10,001.4 11,323.4 EBITDA Margins % 11.0% 14.1% 13.7% 14.1% 14.5% PAT Margins % 8.7% 9.4% 9.5% 9.7% 9.9% EPS 45.2 68.7 73.7 83.4 94.4 ROE 36.4% 39.4% 32.8% 29.8% 27.4% Source: Company, Revenue growth in mid single digit: posted its Q1FY18 results, the revenue grew by 6.5% YoY and 1.0% QoQ. Its revenue stood at INR 23,398.1 Mn with volume growth of 3.0% in Q1FY18. In the quarter Britannia did not show much volume growth and remain lower as compared to Q1FY17 which was at 8.0% and 2.0% in Q4FY17. During the quarter revenue was impacted by de-stocking of goods due to implementation of GST, but going forward it aims to focus on bridging the gap, renovate and innovate premium products and enhance rural reach which will help in to increase penetration and distribution reach. Pressure remained in International business due to geopolitical situation and currency fluctuation in Middle East and Africa. Steady Margin: Britannia s Industries Ltd posted EBIDTA of INR 3,285.1 Mn which grew by 3.9% YoY and 6.6% QoQ, however during the quarter we have seen increase in cost of its raw material of sugar, milk and RPO, while price of flour remained under controlled. EBIDTA margins was seen at 14.0% in Q1FY18 as compared to 14.4% in Q1FY17 an decrease of 35 bps and 13.3% in Q4FY17 an increase of 74 bps. PAT during the quarter was at INR 2,159.7Mn with de-growth of 1.5% YoY and growth of 2.5% QoQ. Its PAT margin was at 9.2% as compared to 10.0% in Q1FY17 an decrease of 75 bps and 9.1% in Q4FY17 an improvement of 13 bps. During the quarter tax remained higher at 34.4% and going ahead it is expected to be in same range. Valuations & Views: Britannia industries remain one of the largest FMCG player with its major presence in biscuits segment. Britannia has posted better results in Q1FY18 but still it faced challenging environment ahead of GST implementation. We believe that with management focus on growing its portfolio with new innovative products in premium segment, capturing new markets and geography, increasing reach in distribution channel, focus to increase penetration in rural areas, untapped opportunities in the domestic and international market, etc will help it to grow faster in the market. We expect its revenue growth to be around 10-12% FY18E-FY19E. With Britannia's move to mitigate inflation of raw material price we anticipate improvement in margins, i.e. EBIDTA to 14.5% and PAT to 9.9% in FY19E. At CMP of INR 4,061, we recommend ACCUMULATE rating on the stock with a target of INR 4,531 with a potential upside of 11.6% SHARE HOLDING PATTERN (%) Particulars Jun 17 Mar 17 Dec 16 Promoters 50.7 50.73 50.73 FIIs 17.36 16.02 17.4 DIIs 11.33 11.65 11 Others 20.61 21.6 20.87 Total 100 100 100 9.8% 20.2% PAT CAGR between FY15 and Revenue CAGR between FY15 and FY19E FY19E
Q1FY18 Result Snapshot Exhibit 1 Q1FY18 Quarterly Income Statement (INR Mn) 3 Particulars Q1 FY18 Q4 FY17 Q1 FY17 Q-o-Q % Change Y-o-Y % Change Net Sales & Other Operating Income 23398.1 23161.2 21966.2 1.0% 6.5% Total Expenditure 20113 20080.3 18804.2 0.2% 7.0% Cost of Raw Materials 11580.9 12055.3 11296.0-3.9% 2.5% Purchase of Finished Goods 2036.4 2182.5 1705.7-6.7% 19.4% (Increase) / Decrease In Stocks 255.6-322.4-123.0-179.3% -307.8% Excise Duty 761.1 717.4 558.5 6.1% 36.3% Employee Cost 926.3 896.6 867.7 3.3% 6.8% Operating & Manufacturing Expenses 4552.7 4550.9 4499.3 0.0% 1.2% EBIDTA 3285.1 3080.9 3162.0 6.6% 3.9% EBITDA Margins (%) 14.0% 13.3% 14.4% 74bps -35bps Depreciation 331.9 322.1 278.6 3.0% 19.1% EBIT 2953.2 2758.8 2883.4 7.0% 2.4% Other Income 352.0 335.1 394.3 5.0% -10.7% Interest 12.7 13.2 15.0-3.8% -15.3% PBT 3292.5 3080.7 3262.7 6.9% 0.9% Tax 1132.8 973.1 1071.2 16.4% 5.8% PAT before Exceptional 2159.7 2107.6 2191.5 2.5% -1.5% PAT Margin (%) 9.2% 9.1% 10.0% 13bps -75bps EPS 18.0 17.6 18.3 2.5% -1.6% Source: Company,
4 Q1FY18 Concall Highlights: Management remains confident on the growth of revenue and expects it to cross INR 10000 Crs in FY18. It remains focus on its expansion strategy in domestic business with increasing direct distribution reach, Penetration in rural areas and grow in areas where there are gaps (Hindi belt areas), innovate products in new category and renovate products in existing category and brands. Britannia s International business has remained under pressure for quiet a long period of time in Middle east and Africa. They expect it to grow faster than domestic business and aims around 10-12% of revenue from it in next 3-5 years. one of the key focus area is to enter new geography every year and it has plans to set up its own manufacturing plant and enter Nepal. Direct distribution reach increased to 4.7 Mn outlets in Q1Fy18. Business Biscuits: It has annual capacity of 1.1 Mn tonnes. It focus is to produce more offerings from inhouse which is 55% and around 45% outsourced. Other business: It includes Breads, Dairy & International Business Breads Double digit growth during the quarter and same to continue going ahead. Dairy business Focus on products which will drives high profits and reduce dependence on commodity products business. Dairy plant at Ranjangaon (new plant) is on final stage of completion which will commence next year and help in double digit growth in dairy segment. Spurt in Raw material price: During the quarter inflation in raw material price was in double digit expect for flour which remain in lower single digit at 3%, 17% in sugar, 24% in milk and around 11% in RPO, and to mitigate this pricing pressure company taken some cost efficiency measure which lead to protect margins. Company expects savings of around INR 150-250 Crs in FY18 as compared to INR 145 Crs in FY17. New Plant: JV with Chipita (Greek Company) The JV is in between Britannia and Chipita in ratio 60:40. it has entered the new segment of croissants where company would be manufacturing and selling croissants, the factory which was to be setup up in Tamil Nadu will be setting up in Maharashtra with investment of INR 1000 Crs in next 2 years. This facility will include multiple biscuit-making lines, one cake making line and one croissant line. Going ahead, it would also include Rusk and Dairy facility. Others: is setting up plant in Mundra (Gujarat) (which will cater more to exports) and Guwahati (Assam - North East), which is expected to establish in FY18. Capex of around INR 400Crs is planned for FY18.
Exhibit 2 - Income Statement (INR Mn) 5 INR Mn FY15 FY16 FY17 FY18E FY19E Net Sales 78583.9 86261.5 93241.1 103337.5 114286.8 EXPENDITURE : Cost of Materials Consumed 41200.0 43314.9 48395.7 53414.4 58617.4 Purchase of Stock In Trade 6022.6 6855.0 8033.1 8074.3 8860.8 (Increase) / Decrease In Stocks -303.9-42.7-542.0 62.1 68.2 Total RM Costs 46918.7 50127.2 55886.8 62109.8 68159.8 Employee Cost 2803.3 3413.6 3526.1 3894.5 4383.9 Other Expenses 20226.7 20576.8 21046.4 22734.3 25143.1 Total Expenditure 69948.7 74117.6 80459.3 88738.6 97686.8 Operating Profit (EBIDTA) 8635.2 12143.9 12781.8 14598.9 16600.0 EBIDTA Margin % 11.0% 14.1% 13.7% 14.1% 14.5% Depreciation 1444.8 1134.1 1192.7 1388.6 1604.6 Operating Profit (EBIT) 7190.4 11009.8 11589.1 13210.3 14995.4 Other Income 879.6 1243.5 1505.4 1550.1 1714.3 Interest 39.0 48.7 54.5 52.5 57.6 PBT (Excld Exceptional) 8031.0 12204.6 13040.0 14707.9 16652.1 Provision for Tax 2611.1 3966.6 4196.7 4706.5 5328.7 Profit After Tax 5419.9 8238.0 8843.3 10001.4 11323.4 Exceptional Income / Expenses 1444.8-103.0 0.0 0.0 0.0 Profit After Tax 6864.7 8135.0 8843.3 10001.4 11323.4 PAT Margin % 8.7% 9.4% 9.5% 9.7% 9.9% Source: Company,
Exhibit 3 - Balance Sheet (INR Mn) 6 INR Mn FY15 FY16 FY17 FY18E FY19E EQUITY AND LIABILITIES Share Capital 239.9 239.9 240.0 240.0 240.0 Total Reserves 14647.8 20676.8 26724.2 33368.8 41095.5 Shareholder's Funds 14887.7 20916.7 26964.2 33608.8 41335.5 Minority Interest 24.3 24.6 26.0 25.0 25.0 Capital Subsidy 52.9 40.8 22.7 22.7 22.7 Long-Term Borrowings 341.5 376.8 314.0 329.7 346.2 Deferred Tax Assets / Liabilities -453.6-444.0-231.1-231.1-231.1 Long Term Provisions 56.5 68.3 76.2 76.2 76.2 Other Long Term Liabilities 199.6 213.4 230.9 250.0 250.0 Total Non-Current Liabilities 196.9 255.3 412.7 424.8 441.3 Current Liabilities Short Term Borrowings 968.8 861.3 843.1 885.3 929.5 Trade Payables 6831.8 7690.8 7573.1 8195.1 8832.8 Short Term Provisions 1883.6 2157.4 2268.4 3100.1 3428.6 Other Current Liabilities 2850.2 2588.9 2769.4 3306.8 3657.2 Total Current Liabilities 12534.4 13298.4 13454.0 15487.3 16848.1 Total Liabilities 27643.3 34495.0 40856.9 49568.5 58672.5 ASSETS Non-Current Assets Net Block 7343.9 8343.3 10169.0 12596.3 16418.1 Capital Work in Progress 483.7 900.7 300.7 301.0 301.0 Goodwill 1106.8 1159.1 1278.4 1446.7 1597.5 Non Current Investments 803.6 3726.4 3272.5 3616.8 4000.0 Long Term Loans & Advances 734.2 2746.4 2322.7 2583.4 2857.2 Other Non Current Assets 371.7 378.0 121.2 206.7 228.6 Total Non-Current Assets 10843.9 17253.9 17464.5 20751.0 25402.4 Current Assets Inventories 4048.8 4406.5 6607.6 7463.4 8351.0 Sundry Debtors 1358.1 1705.7 1798.5 1981.8 2191.8 Cash and Bank 2263.3 876.4 1207.6 1805.0 3298.6 Currents Investments 4470.0 4157.4 1748.5 4133.5 4571.5 Short Term Loans and Advances 4659.2 6094.7 12030.2 13433.9 14857.3 Total Current Assets 16799.4 17240.7 23392.4 28817.6 33270.2 Total Assets 27643.3 34495.0 40856.9 49568.5 58672.5 Source: Company,
Exhibit 4 - Cash flow statement (INR Mn) 7 INR Mn FY15 FY16 FY17 FY18E FY19E PBT 9495.9 12204.6 13040.0 14707.9 16652.1 Add: Depreciation 1444.8 1134.1 1192.7 1388.6 1604.6 Add: Interest 39.0 48.7 54.5 52.5 57.6 Cash flow from Operations 5845.0 9592.3 4413.9 10730.1 11507.5 Cash flow from Investing Activity -4503.0-7051.9-1498.5-7616.3-7005.8 Cash flow from Financing Activity -1813.7-2461.9-2951.9-2636.1-3002.1 Net change in Cash (Inflow/Outflow) (a) -471.7 78.5-36.5 477.6 1499.6 Opening Cash balance (b) 903.1 431.4 509.9 473.4 951.0 Closing Cash Balance (a+b=d) 431.4 509.9 473.4 951.0 2450.6 Overdraft and others (c) -139.3-137.1-88.2-121.5-115.6 Closing Cash Balance (d-c=e) 570.7 647.0 561.6 1072.6 2566.2 Bank Balance 1692.6 229.4 646.0 732.4 732.4 Closing Cash and Bank balance 2263.3 876.4 1207.6 1805.0 3298.6 Source: Company, Exhibit 5 - Ratio Analysis INR Mn FY15 FY16 FY17 FY18E FY19E EPS 45.2 68.7 73.7 83.4 94.4 BV 124.1 174.4 224.8 280.2 344.6 DPS 12.0 16.0 20.0 22.0 24.0 EBITDA Margin (%) 11.0% 14.1% 13.7% 14.1% 14.5% PAT Margin (%) 6.9% 9.6% 9.5% 9.7% 9.9% Net Sales Growth % 13.7% 9.8% 15.3% 15.3% 15.3% EBIDTA Growth % - 40.6% 5.3% 14.2% 13.7% PAT Growth % - 52.0% 7.3% 13.1% 13.2% PE (x) 89.9 59.1 55.1 48.7 43.0 Price/BV 32.7 23.3 18.1 14.5 11.8 EV/EBITDA 56.3 40.1 38.1 33.3 29.2 ROE (%) 36.4% 39.4% 32.8% 29.8% 27.4% Debt/Equity 0.09 0.06 0.04 0.04 0.03 Debtors Days 6.3 7.2 7.0 7.0 7.0 Inventory Days 35.9 37.1 49.8 51.0 52.0 Creditors Days 60.5 64.8 57.1 56.0 55.0 Source: Company,
. Rating Legend Date CMP (INR) TP (INR) Recommendation Our Rating Upside 09-Aug-17 4061 4531 ACCUMULATE 12-Jul-17 3690 3965 ACCUMULATE Buy More than 15% 30-May-17 3419 3543 HOLD 12-Apr-17 3395 3543 HOLD Accumulate 5% 15% 14-Feb-17 3220 3291 HOLD 10-Jan-17 2891 3160 ACCUMULATE Hold 0 5% 09-Nov-16 3126 3253 HOLD 10-Aug-16 3105 3253 HOLD Reduce -5% 0 14-July-16 2858 3071 ACCUMULATE 23-May-16 2681 3071 ACCUMULATE Sell Less than 5% 8 CERTIFICATION: I, Nirvi Ashar (B.com, MBA), research analyst, & Kunal Jagda (B.com, MBA), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vide SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014. We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities. KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers. The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KRCSSPL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. KRCSSPL accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein,.in reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Associates (Group Companies) of KRCSSPL might have received any commission/compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of brokerage services or specific transaction or for products and services other than brokerage services. KRCSSPL or its Associates (Group Companies) have not managed or co-managed public offering of securities for the subject company in the past twelve months KRCSSPL encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. KRCSSPL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither KRCSSPL nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that, Nirvi Ashar (B.com, MBA), research analyst, & Kunal Jagda (B.com, MBA), research associate, of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions. KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst. Since associates (Group Companies) of KRCSSPL are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that, Nirvi Ashar (B.com, MBA), research analyst, & Kunal Jagda (B.com, MBA), research associate, do not serve as an officer, director or employee of the companies mentioned in the report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject KRCSSPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Please send your feedback to research.insti@krchoksey.com Visit us at Kisan Ratilal Choksey Shares and Securities Pvt. Ltd Registered Office: 1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai 400 001. Phone: 91-22-6633 5000; Fax: 91-22-6633 8060. Corporate Office: ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai 400 053. Phone: 91-22-6696 5555; Fax: 91-22-6691 9576.