27 May 2014
4QFY14 Results Update | Sector:
Consumer
Britannia Industries
BSE SENSEX
24,717
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
7,359
BRIT IN
119.9
973/617
-12/-23/26
CMP: INR868
TP: INR1,130
Buy
M.Cap. (INR b) / (USD b) 104.1/1.8
Financials & Valuations (INR m)
Y/E MAR
Net Sales
EBITDA
Adj PAT
Adj.EPS
(INR)
Gr. (%)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2014
5,961
3,898
31.0
58.1
47.2
58.7
28.0
11.5
2015E 2016E
7,047
4,596
38.5
24.3
91.5
46.1
56.8
22.6
9.5
8,369
5,452
45.6
18.6
110.6
45.2
58.1
19.0
7.8
62,321 71,470 82,683
BV/Sh(INR) 75.3
Mixed results:
Net sales for 4QFY14 grew 9% to INR16.2b against our estimate of
INR16.8b. EBITDA grew 13.2% to INR1.31b against our estimate of INR1.36b;
EBITDA margin expanded 30bp to 8.1%. PAT grew 19% to INR1.04b (est. INR898m)
Gross margin up 20bp:
Net sales growth was largely driven by improved product
mix and price increases. We estimate volume growth at 2-3%; soft volumes are
reflective of underlying pressure in staples consumption as evidenced in the 4Q
results and commentaries of other FMCG companies. Gross margin expanded
20bp to 37.2% driven by premiumization and price hikes.
Operating margin expands 30bp:
Savings in advertising spends (-140bp YoY) were
offset by increase in other expenses (+60bp YoY), staff costs (+50bp YoY) and
conversion costs (20bp YoY). EBITDA margin expanded 30bp to 8.1% and EBITDA
grew 13.2%. Lower interest cost (down 96%) and higher other operating income
(up 2.1x) drove 25% PBT growth.
Consolidated results:
Sales, EBITDA and adjusted PAT grew 8.6%, 1.9% and 17.2%,
respectively in 4QFY14. Gross and operating margins contracted 40bp and 50bp to
37.2% and 7.5%, respectively. Imputed subsidiary performance was lackluster,
with 4.5% sales growth and 34% PAT decline.
FY14 performance:
(a) Standalone: Sales, EBITDA and adjusted PAT grew 12%,
62.8% and 66.7%, respectively. (b) Consolidated: Sales, EBITDA and PAT grew
11.3%, 46.4% and 52.3%, respectively.
Valuation and view:
We upgrade our EPS estimates by 9% for FY15 and 6% for
FY16. We believe operating margin expansion is sustainable, as it is not completely
dependent on RM cycle. BRIT’s strategy of driving efficiencies in “Go to Market”
and logistics/supply chain, and higher share of in-house manufacturing is driving
the margin expansion, in our view. The stock trades at 22.6x FY15E and 19x FY16E
EPS. Maintain
Buy,
with a revised target price of INR1,130 (SOTP: 24x standalone
EPS + 12x subs EPS).
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Manish Poddar
(Manish.Poddar@MotilalOswal.com); +91 22 3027 8029
Investors are advised to refer through disclosures made at the end of the Research Report.

Britannia Industries
Sales growth moderates; Volume growth at 2-3% (in our view)
Stand-alone sales grew 9% to INR16.2b (est. INR16.8b); volume growth
estimated at 2-3% while realization and mix improvement contributed the rest.
Consol sales posted 8.6% YoY growth while imputed subsidiary sales posted a
muted 4.6% YoY growth.
Gross and EBITDA margins expand 20bp and 30bp resp.
Growth (% YoY)
6.3
35.5
29.2
29.1
Gross Margins (%)
EBIDTA Margins (%)
5.7
38.0
32.7
5.3 4.3
35.5
31.2
Overheads (%)
7.8
8.3
40.3
37.0
32.0
29.2
8.4
38.8
37.2
30.4
29.1
8.1
Sales were 3.8% below estimations
Net Sales (INR b)
Source: Company, MOSL
Source: Company, MOSL
Saving in ad spends were partially offset by increase in other expenses &staff costs-INR m
Ad Spend
Conversion Cost
Other expenses
10.9
7.7
7.4
11.2
8.4
7.4
10.5
8.3
7.8
11.7
8.7
7.0
12.5
8.5
8.4
12.3
9.2
8.1
10.5
8.3
7.8
11.1
9.1
8.5
10.7
8.2
8.4
11.2
8.3
9.0
10.9
9.0
8.2
10.5
9.0
8.2
11.3
8.4
7.0
Source: Company, MOSL
Standalone gross and EBITDA margins expand 20 bp and 30bp respectively
Standalone gross margin expanded 20bp to 37.2% driven by premiumisation as
well as price hikes.
Savings in advertising spends (-140bp YoY) were offset by increase in other
expenses (+60bp YoY), staff costs (+50bp YoY) and conversion costs (20bp YoY).
Thus, EBITDA margins expanded 30bps YoY to 8.1% (est. 8.1%) resulting in 13.2%
YoY growth in EBITDA.
Other income (including other operating income) expanded 21.2% while interest
costs declined 96.3% (debt reduction – balance sheet turned net cash as on 31st
Mar’14 from net debt of INR 2.38b as on FY13).
This drove 24.7% YoY growth in PBT to INR1.15b.
Britannia took a write off of INR200mn in its subsidiary Daily Bread Gourmet
Foods (engaged in the business of retailing, especially in Bangalore).
Thus, reported PAT grew 4.2% YoY. Adjusted for exceptional, recurring PAT has
grown 27% to INR 1.15b (est. of INR 898m)
27 May 2014
2

Britannia Industries
Consolidated performance: Sales, EBITDA and Adj. PAT posted 8.6%, 1.9% and
17.2% YoY growth, respectively. Gross and Operating margins contracted 40bp
and 50bp to 37.2% and 7.5%, respectively.
FY14 performance:
a)
Standalone:
Sales, EBITDA and Adj. PAT up 12%, 62.8% and 66.7%, resp.
Gross and operating margins up 210bp and 260bp to 38.9% and 8.4%, resp.
b)
Consol:
Sales, EBITDA and PAT up 11.3%, 46.4% and 52.3%, resp. Gross and
operating margins up 190bps each to 38.9% and 8% resp.
Imputed subsidiary performance in 4Q14 was lackluster with 4.5% sales growth
and 0.5% PAT decline.
Balance sheet highlights: Both consolidated and standalone balance sheets
turned net cash in FY14 from net debt in FY13. Consol Net cash of INR2.1b [net
d/e of (0.2x) vs. 0.1x in FY13].
Change in estimates: upgrade earnings 9/6% for FY15/16 (INR m)
New
Net Sales
EBITDA
Adjusted PAT
FY15E
71,470
6,224
4,596
FY16E
82,683
7,519
5,452
FY15E
72,392
6,072
4,207
Old
FY16E
82,653
7,154
5,133
% Change
FY15E
FY16E
-1.3
0.0
2.5
5.1
9.3
6.2
Source: MOSL, Company
Valuation and view
Deceleration in volume growth is in line with overall slowdown in consumption
and as reported by other FMCG companies.
Spike in commodity costs can impact margins given restricted ability to pass on
prices in view of underlying moderation in category growth. However, Britannia
is focusing on driving premium portfolio and cost containment in supply chain
costs. Thus we believe, margin is not completely a function of RM fluctuations.
We remain positive on Britannia as we expect the margin gains to sustain, aided
by portfolio premiumization and cost containment in supply chain costs.
The stock trades at 22.6x FY15E and 19x FY16E earnings. Retain
Buy
with a
revised target price of INR1,130 (SOTP: 24x standalone EPS + 12x Subs EPS).
27 May 2014
3

Britannia Industries
Story in charts
Revenues went up 12% in FY14
Revenues (INR in mn)
24.2
17.5
20.4
9.3
17.8
11.9
12.0
14.7
15.7
51
35
27
37
Revenue gr (%)
100
Biscuits Indexed market growth
112
Indexed market growth
96
FY08
FY09
FY10
FY11
FY12
FY13
FY14 FY15E FY16E
Source: Company, MOSL
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
Source: Company, MOSL
Gross Margin expanded 230bp YoY
Gross Margin (%)
39.8
38.6
36.4
34.6
36.1
36.8
38.9
39.7
40.2
EBITDA margin expanded 260bp YoY
EBITDA Margin (%)
8.9
8.4
5.6
6.0
5.8
8.4
4.9
8.7
9.1
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E
Source: Company, MOSL
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E
Source: Company, MOSL
PAT increased 63.8% in FY14
PAT (INR in mn)
47.5
9.8
-10.3
-28.1
FY08
FY09
FY10
FY11
FY12
FY13
FY14 FY15E FY16E
Source: Company, MOSL
57.2
14.7
PAT gr (%)
63.8
20.0
18.6
Return ratios (x)
42.6
36.5
24.2
24.4
28.7
36.7
31.1
42.1
41.3
FY08
FY09
FY10
FY11
FY12
FY13
FY14 FY15E FY16E
Source: Company, MOSL
27 May 2014
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 have 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
Varun Berry has been appointed as head of the
Indian Business and Vinita Bali as Head of
International business.
Valuation and view
The stock trades at 22.6x FY15E and 19.0x FY16E
earnings.
Retain
Buy
with a TP of INR1130 (SOTP: 24x
standalone EPS + 12x subs EPS).
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.
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 flexibility 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.
Comparative valuations
P/E (x)
FY15E
FY16E
P/BV (x)
FY15E
FY16E
EV/Sales (x)
FY15E
FY16E
EV/EBITDA (x) FY15E
FY16E
Britannia
22.6
19.0
9.5
7.8
1.4
1.2
14.0
11.5
Dabur
27.7
23.8
9.6
8.0
3.7
3.1
21.8
18.6
Colgate
31.5
26.9
28.6
25.2
4.3
3.7
21.6
17.2
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY15
FY16
38.5
45.6
Consensus
Forecast
38.3
45.9
Variation
(%)
0.5
-0.7
Target price and recommendation
Current
Price (INR)
868
Target
Price (INR)
1130
Upside
(%)
30.2
Reco.
Buy
Shareholding pattern (%)
Promoter
Domestic Inst
Foreign
Others
Mar-14
50.8
8.4
20.1
20.7
Dec-13
50.8
8.8
20.1
20.4
Mar-13
50.9
11.3
17.9
19.9
Stock performance (1-year)
27 May 2014
5

Britannia Industries
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT
2013
55,644
11.9
3,715
6.6
571
3,145
377
555
0
3,322
983
29.6
2,339
2,339
5.0
0
2,339
2014
62,321
12.0
5,961
9.5
634
5,328
54
353
0
5,626
1,728
30.7
3,898
3,698
58.1
0
3,898
(INR Million)
2015E
71,470
14.7
7,047
9.7
723
6,324
43
380
0
6,661
2,065
31.0
4,596
4,596
24.3
0
4,596
2016E
82,683
15.7
8,369
10.0
828
7,541
39
400
0
7,901
2,449
31.0
5,452
5,451
18.6
0
5,452
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2013
19.6
24.4
62.9
8.5
50.9
44.3
35.6
13.8
1.8
27.1
1.0
35.8
34.5
6.2
5.0
20.4
34.6
0.1
2014
31.0
37.9
75.3
14.8
52.8
28.0
22.9
11.5
1.6
16.9
1.7
47.2
58.7
6.9
5.3
29.1
35.3
0.1
2015E
38.5
44.5
91.5
19.2
58.1
22.6
19.5
9.5
1.4
14.0
2.2
46.1
56.8
6.5
5.2
28.9
35.8
0.1
2016E
45.6
52.6
110.6
22.8
58.1
19.0
16.5
7.8
1.2
11.5
2.6
45.2
58.1
6.4
5.2
27.1
35.8
0.0
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2013
239
7,277
7,516
803
4
8,319
7,643
-3,919
3,724
250
4,554
6,728
3,134
771
722
2,101
6,940
5,450
1,490
-212
8,319
2014
239
8,761
9,000
843
4
9,843
8,893
-4,556
4,337
250
3,799
9,952
5,037
908
1,744
2,264
8,499
6,043
2,456
1,453
9,843
(INR Million)
2015E
2016E
239
239
10,687 12,970
10,926 13,209
1,501
308
4
4
12,427 13,517
10,143 11,643
-5,279
-6,107
4,864
5,536
250
250
6,123
6,675
11,340 12,811
5,718
6,201
1,026
1,180
2,151
2,800
2,446
2,630
10,154 11,758
6,968
7,978
3,187
3,780
1,186
1,053
12,427 13,517
E: MOSL Estimates
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2013
2,731
473
555
377
983
-1,003
3,402
703
-1,122
0
-419
0
-3,542
0
1,180
-3,523
298
425
722
2014
4,637
571
353
54
1,728
644
3,135
1,250
-755
200
695
0
40
0
1,189
-1,418
1,021
722
1,743
(INR Million)
2015E
5,590
634
380
43
2,065
-674
5,171
1,250
2,324
0
3,574
0
658
0
2,058
-1,189
408
1,744
2,151
2016E
6,795
723
400
39
2,449
-782
6,212
1,500
551
1
2,052
0
-1,193
0
2,670
-3,510
649
2,151
2,800
27 May 2014
6

Britannia Industries
NOTES
27 May 2014
7

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Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
BRITANNIA INDUSTRIES LTD
No
No
No
No
Britannia Industries
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27 May 2014
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