27 May 2013
4QFY13 Results Update |
Sector: Consumer
Britannia Industries
BSE Sensex
19,704
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
S&P CNX
5,984
BRIT IN
119
68.6/1.2
595/400
1/12/-12
CMP: INR574
TP: INR700
Buy
Financials & Valuation (INR b)
Y/E March
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
29.3
11.0
20.6
1.8
24.2
9.2
16.2
2.1
20.5
7.8
13.2
2.4
2013 2014E 2015E
55.6
3.2
2.3
19.6
39.3
52.2
37.5
60.4
52.9
64.7
4.1
2.8
23.7
21.1
62.2
38.2
56.8
50.0
75.5
4.9
3.3
28.0
18.1
73.9
37.9
53.0
50.0
4QFY13 results better than expected
Britannia Industries' (BRIT) 4QFY13 results were ahead of our expectations.
Adjusted PAT grew 66% to INR878m (v/s our estimate of INR591m). Sales
grew 13.5% to INR14.9b (v/s our estimate of INR14.6b). EBITDA grew 71% to
INR1,161m (v/s our estimate of INR752m). EBITDA margin expanded 260bp to
7.8%, the highest in 14 quarters.
We estimate volume growth at 5-6%, with improved product mix and price
hikes accounting for the rest of the sales growth.
Gross margin declined 20bp to 37% (v/s our estimate of 37%). However, savings
in others expenses (down 190bp), staff costs (down 70bp) and conversion
costs (down 30bp), and flat ad expenses enabled 260bp EBITDA margin
expansion.
Other income grew 64%, driving PBT growth of 86%. However, tax rate
increased 860bp to 31.2%. Adjusted PAT grew 66% to INR878m.
FY13 P&L highlights
Standalone sales, EBITDA and PAT grew 12%, 27% and 25%, respectively
Consolidated sales, EBITDA and PAT grew 12%, 30% and 30%, respectively
Subsidiaries' PAT doubled in FY13 to INR260m.
Balance sheet highlights
Net debt declined from INR1.92b to INR797m.
Working capital improved, with working capital cycle down from 15.5 days to
2.4 days, led by better inventory management.
Upgrading estimates, stock rating
We are revising our FY14/FY15 earnings estimates upwards by ~11%, factoring
in the better than expected 4QFY13 results and the potential benefits from
operating leverage. We estimate 20% EPS CAGR over FY13-15.
We revise our stock rating from Neutral to
Buy.
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.
1

Britannia Industries
Sales growth largely driven by improved product mix, price hikes
Standalone sales grew 13.5% to INR14.9b (v/s our estimate of INR14.6b). We
estimate volume growth at 5-6%, aided by lower base and sustained strong brand
investments. Improved product mix and price hikes would have accounted for
the rest of the sales growth.
Consolidated sales grew 11.7% to INR16.4b. We estimate subsidiary sales to have
declined 4%.
Subsidiary sales down 4% YoY (INR m)
Standlone
4QFY12
4QFY13
13,096
14,866
530
878
4.0
5.9
Standlone
FY12
FY13
49,470
55,644
1,867
2,339
3.8
4.2
Consolidated
4QFY12
4QFY13
14,655
16,370
619
920
4.2
5.6
Consolidated
FY12
FY13
54,608
61,359
1,998
2,599
3.7
4.2
Subsidiaries
4QFY12
4QFY13
YoY (%)
1,560
1,504
-4
89
42
-53
6
2.8
-52
Subsidiaries
FY12
FY13
YoY (%)
5,137
5,715
11
130
260
100
2.5
4.6
80
Source: Company, MOSL
Sales
PAT
Margins
Sales
PAT
Margins
Sales ~2% ahead of expectations
Gross margin down 20bp
Operating leverage comes to the fore
Source: Company, MOSL
EBITDA margin highest in 14 quarters
Gross margin declined 20bp to 37% (v/s our estimate of 37%). However, savings in
others expenses (down 190bp), staff costs (down 70bp) and conversion costs (down
30bp), and flat ad expenses enabled 260bp EBITDA margin expansion.
EBITDA margin was 7.8%, the highest in 14 quarters. EBITDA grew 71% to INR1,161m
(v/s our estimate of INR752m). We note that changes in cost items lead to an
exaggerated impact on EBITDA, given the low margin nature of the business.
Other income grew 64%, driving PBT growth of 86%. However, tax rate increased
860bp to 31.2%. Adjusted PAT grew 66% to INR878m.
27 May 2013
2

Britannia Industries
Palm Oil prices corrected sharply…
Sugar prices stable at lower levels but up YoY
Source: Company, MOSL
Wheat prices stable
HDPE prices in a tight band
Source: Company, MOSL
FY13 performance highlights
FY13 P&L highlights:
1) Standalone Sales, EBITDA and PAT is up 12%,27% and 25%,
respectively.
Consolidated Sales, EBITDA and PAT is up 12%, 30% and 30%, respectively.
Subsidiaries PAT doubled in FY13 to INR 260mn.
Balance sheet highlights:
Net debt down from INR1.92bn to INR797mn.
Working capital management also improved with working capital cycle down from
15.5 days to 2.4 days led by efficient inventory management.
Inventory days reduced from 28 to 22 days in FY13.
Dividend of INR8.5 per share.
27 May 2013
3

Britannia Industries
Balance sheet highlights
Gross Debt
Cash & Equiv
Net Debt
Networth
Net D/E
Current Assets
Curr Liabilities
Working capital
Working capital as % of sales
Working capital excl cash & equiv
Inventory
Inventory days
FY13
1,897
1,100
797
6,364
0
7,154
6,785
369
0.7
-731
3,315
21.7
FY12
4,343
2,415
1,928
5,200
0
8,580
6,476
2,104
4.3
-311
3,823
28.2
Earnings revision: revise earnings up ~11%
We are revising our estimates upwards by ~11% for FY14E and FY15E to incorporate
the 4Q beat and to factor in benefits from operating leverage. We are estimating
a 20% EPS CAGR over FY13-FY15E.
Change in Estimates
New
Net Sales
EBITDA
Adjusted PAT
FY14E
64,691
4,066
2,833
FY15E
75,450
4,885
3,346
FY14E
64,691
3,642
2,538
Old
FY15E
75,451
4,399
3,008
Change (%)
FY14E
FY15E
0.0
0.0
11.7
11.1
11.6
11.2
Valuation and view: Upgrade to BUY with a revised TP of INR700; potential 22% upside
We had recently upgraded the stock to Neutral citing favorable relative valuations
and improvement in business fundamentals ahead (refer our note dated 22nd
April).
Britannia's focused efforts to drive efficiencies in back-end through cost
management programme is yielding benefits. This coupled with underlying
premiumisation trend (gross margins up 100bps for FY13) augurs well from medium
term margin perspective.
Going forward, we expect a volume growth trend to improve further aided by
aggressive brand investments as well as portfolio expansion. We expect gross
margins to expand 80bps over FY13-15E led by favorable base and benefits from
premiumisation. We are building in 70bps operating margin expansion over FY13-
15E to 6.5%.
The stock trades at 24.2x FY14E and 20.5x FY15E revised EPS estimates. We upgrade
the stock further to
BUY
with a revised target price of INR700 (25x FY15 EPS),
potential upside of 22%.
Improving volume and margin prospects justify the premium multiple we are
ascribing to Britannia, in our view.
27 May 2013
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.
Recent developments
BRIT recently launched Shubh Kaamnayein range
with 5 themes - Meetha Namkeen, Choco Delight,
Healthy Gifts, Cookie Delight, and Premium Assorted
Cookies.
Valuation and view
We are revising our estimates upwards by ~11% for
FY14E and FY15E to incorporate the 4Q beat and to
factor in benefits from operating leverage. We are
estimating a 20% EPS CAGR over FY13-FY15E.
The stock trades at 24.2x FY14E and 20.5x FY15E
revised EPS estimates. We upgrade the stock further
to
BUY
with a revised target price of INR700 (25x
FY15 EPS), potential upside of 22%.
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.
Key investment risks
Limited flexiblity to take pricing actions keeps
margins vulnerable.
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.
Rising competitive intensity from deep pocket and
well entrenched competitors.
Sector view
We have a cautiously optimistic 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)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
29.3
22.2
11.0
9.1
1.2
1.0
20.6
15.1
Dabur
27.4
22.7
9.7
8.0
1.0
0.9
15.1
12.3
Colgate
34.9
29.8
33.4
27.7
5.7
4.9
25.0
21.4
EPS: MOST forecast v/s consensus (INR)
MOSL
Forecast
23.7
28.0
Consensus
Forecast
21.7
26.8
Variation
(%)
9.4
4.6
FY14
FY15
Target price and recommendation
Current
Price (INR)
574
Target
Price (INR)
700
Upside
(%)
22
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Mar-13
Promoter
Domestic Inst
Foreign
Others
27 May 2013
50.9
11.3
17.9
19.9
Dec-12
50.9
13.0
15.7
20.3
Mar-12
51.0
16.2
13.6
19.2
5

Britannia Industries
Financials and Valuation
27 May 2013
6

Britannia Industries
N O T E S
27 May 2013
7

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Britannia Industries
No
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No
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