7 November 2012
2QFY13 Results Update | Sector: Consumer
Britannia Industries
BSE SENSEX
S&P CNX
18,817
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,724
BRIT IN
119
600/400
-1/-25/-5
57.3
1.1
CMP: INR480
TP: INR467
Sell
2QFY13 numbers lower than expected:
Britannia Industries (BRIT) reported lower than expected numbers
for 2QFY13, with sales at INR14b (v/s our estimate of INR14.5b) and EBITDA at INR606m (v/s our estimate of
INR827m). Despite higher other income, adjusted PAT declined 4.8% to INR456m (v/s our estimate of INR548m).
Continued deceleration in volume growth:
We estimate volume growth during the quarter at ~2%, which in
dicates continued deceleration (12% in 1QFY12, 10% in 2QFY12, 7% in 3QFY12, 5.5% in 4QFY12, and 3-4% in
1QFY13).
Recurring EBITDA margin down 140bp:
Gross margin expanded 70bp (v/s our estimate of 40bp), led by price
hike and mix improvement. Adjusted for INR150.3m VRS cost in 2QFY12 (on account of closure of Mumbai
factory), recurring EBITDA margin declined 140bp to 4.3%. Prices of vegetable oil (15% of sales), sugar (18% of
sales) and wheat (27% of sales) were firm during the quarter; HDPE prices are also ruling strong. Despite
BRIT’s continued focus on innovation and premiumization, slowdown in volumes and lack of operating
leverage has resulted in sub-par operating margins.
Surge in other income restricts decline in recurring PAT:
Despite 18% EBITDA decline, recurring PAT declined
just 5% due to 82% surge in other income. Reported PAT grew 20% to INR456m.
Maintain Sell:
The stock trades at 26.1x FY13E and 20.3x FY14E EPS. Maintain
Sell.
Letdown in competitive
pressures (unlikely) and sharp decline in input prices are key risks to our rating.
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +9122 3982 5404
Sreekanth P V S
(Sreekanth.P@MotilalOswal.com); +9122 3029 5120
Investors are advised to refer through disclosures made at the end of the Research Report.

Britannia Industries
Sales lower than expected; continued deceleration in volumes
Sales grew 8.7% to INR14b (v/s our estimate of INR14b). We estimate volume
growth during the quarter at ~2%, which indicates continued deceleration (12% in
1QFY12, 10% in 2QFY12, 7% in 3QFY12, 5.5% in 4QFY12, and 3-4% in 1QFY13).
Despite BRIT’s focus on premiumization, gains are relatively muted. Single-digit
sales growth is a reflection of heightened competitive intensity, in our view. The
Biscuits category is facing the heat of increased competition from Parle, Kraft and
ITC. Even smaller niche players like Unibic are expanding through new launches
in the premium segment and capturing shelf space in modern stores through
accelerated spending. This could keep near-term volume growth weak.
Competitive headwinds coupled with slowdown in the Biscuits category has
resulted in six consecutive quarters of volume deceleration.
Sales below expectations
Continued deceleration in volumes
EBITDA margin down 140bp…
...dragged by higher ad expenses and overheads
Source: Company, MOSL
7 November 2012
2

Britannia Industries
Gross margin expands, but EBITDA margin shrinks due to higher conversion
cost, other expenses and ad spends
Gross margin expanded 70bp (v/s our estimate of 40bp), led by mix improvement
and price hikes (estimated at 2-3%), despite firm prices of vegetable oil, sugar,
wheat flour and packaging material.
Reported EBITDA margin contracted 20bp to 4.3% (v/s our estimate of 5.7%),
dragged by 70bp increase in other expenses, 70bp increase in conversion costs
and 60bp increase in ad spends. Lack of operating leverage is aggravating operating
profitability.
Adjusted for INR150.3m VRS cost in 2QFY12 (on account of closure of Mumbai
factory), recurring EBITDA margin declined 140bp to 4.3%.
Adjusted PAT declined 4.8% (lower than the 18% decline in EBITDA) to INR456m
due to 82% increase in other income to INR266m. Reported PAT grew 20%.
We expect ad spends to remain high as BRIT drives its premiumization strategy
and sustains investments behind its recent new launches.
We note that prices of vegetable oil (15% of sales), sugar (18% of sales) and wheat
(27% of sales) remain firm. Also, HDPE prices are ruling strong.
Performance of subsidiaries (imputed as difference between consolidated and
standalone numbers) has witnessed an about turn – profit of INR133m in 2QFY13
v/s loss of INR104m in 2QFY12.
Sugar prices inching up (INR/Qtl)
Palm oil prices providing a breather (INR/MT)
Wheat prices still firm; show no signs of cooling off
HDPE prices at peak (INR/kg)
Source: Company, MOSL
7 November 2012
3

Britannia Industries
Volume growth decelerating, competitive pressures escalating; maintain Sell
Our key concerns are: (1) continued deceleration in volume growth in the core
Biscuits category, and (2) rising competitive headwinds, as ITC, Kraft and Parle are
becoming aggressive and stepping up investments in the category, reflected in
higher brand spends.
Given the low margins at which BRIT operates, swing in input costs has
disproportionate impact on profits and capital efficiency ratios.
BRIT’s efforts to drive premiumization through new launches and heavy brand
investments augur well from the long-term growth and margin perspective. We
believe that the impact of these measures will be gradual.
The stock trades at 26.1x FY13E and 20.3x FY14E EPS. Maintain
Sell.
Letdown in
competitive pressures (unlikely) and sharp decline in input prices are key risks to
our rating.
Key quarterly numbers (INR m)
Standlone
2QFY12
2QFY13
Sales
PAT
Margins (%)
12,905
479
3.7
14,028
456
3.3
Consolidated
2QFY12
2QFY13
13,961
375
2.7
15,426
589
3.8
Subsidiaries
2QFY12
2QFY13
1,056
(104)
(10)
1,398
133
9.5
YoY (%)
32
-228
Source: MOSL
7 November 2012
4

Britannia Industries
Britannia Industries: an investment profile
Company description
Britannia Industries (BRIT) is the market leader in the
biscuits category, with a market share of 38% (in value
terms). Biscuits has been one of the fastest growing
categories in the FMCG segment, with annual volume
growth rate of 12-15% in the last five years.
Biscuit industry growth has declined from 24% in
1QFY12 to single digit.
Recent developments
Standard pack sizes regulation came into effect in
November 2012.
BRIT recently launched Shubh Kaamnayein range
with 5 themes - Meetha Namkeen, Choco Delight,
Healthy Gifts, Cookie Delight, and Premium Assorted
Cookies.
Key investment arguments
Biscuits have high sensitivity to income levels. The
increase in disposable income should result in
expansion in demand for biscuits, particularly in
rural areas.
Reduction in excise duty, increasing capacity
utilization at Baddi and reduction in pack sizes will
drive volumes and result in improved profitability.
Valuation and view
The stock trades at 26.1x FY13E and 20.3x FY14E EPS.
Maintain
Sell.
Letdown in competitive pressures
(unlikely) and sharp decline in input prices are key
risks to our rating.
Key investment risks
BRIT is facing increasing competition from ITC Kraft
and Parle on the one hand and regional players like
Priyagold on the other.
Biscuits is a highly elastic category, with high
sensitivity to any price increase. Intense competition
and price sensitivity makes it difficult to pass on any
price increase to consumers, particularly in the
Glucose segment.
Sector view
We have a cautious view on the sector on back of
inflationary tendency in the economy, which might
impact volumes as well as profit margins of
companies.
Companies with low competitive pressures and
broad product portfolios will be able to better
withstand any slowdown in a particular segment.
Longer-term prospects bright, given rising incomes
and low penetration.
Comparative valuations
Britannia
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
26.1
20.3
9.1
7.7
1.0
0.8
17.0
12.2
Dabur
27.9
23.3
9.8
8.1
3.5
3.0
20.8
17.4
Colgate
31.7
28.0
31.2
25.9
5.1
4.4
22.9
19.7
EPS: MOST forecast v/s consensus (INR)
MOSL
Forecast
18.4
23.7
Consensus
Forecast
21.1
23.9
Variation
(%)
-12.9
-0.6
FY13
FY14
Target price and recommendation
Current
Price (INR)
480
Target
Price (INR)
467
Upside
(%)
-2.7
Reco.
Sell
Stock performance (1 year)
Shareholding pattern (%)
Sep-12
Promoter
Domestic Inst
Foreign
Others
7 November 2012
50.9
14.0
15.9
19.2
Jun-12
51.0
14.9
15.1
19.1
Sep-11
51.0
16.8
11.3
21.0
5

Britannia Industries
Financials and Valuation
7 November 2012
6

Britannia Industries
N O T E S
7 November 2012
7

Britannia Industries
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Britannia Industries
No
No
No
No
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7 November 2012
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