21 May 2015
4QFY15 Results Update | Sector:
Consumer
Britannia Industries
BSE SENSEX
27,809
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val. (INRm)/Vol ‘000
Free float (%)
Financials & Valuation (INR b)
Y/E MAR
Sales
EBITDA
Adj. PAT
Adj. EPS(INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2015 2016E 2017E
77.8
7.8
5.7
47.8
47.0
61.9
58.8
47.8
25.9
89.2 103.9
11.2
7.9
66.0
38.1
62.4
66.8
34.7
18.5
13.1
9.4
77.9
18.2
54.0
60.1
29.3
13.8
S&P CNX
8,421
BRIT IN
119.5
273/4.3
2,405/829
6/38/158
285/176
49.2
CMP: INR2285
TP: INR2,600 (+14%)
Buy
Significant EBITDA beat; consistent delivery of key strategic priorities
Handsome beat:
Britannia’s 4QFY15 performance was ahead of estimates and
once again underscored the superior execution of its premiumization and cost
containment strategy. Sales, EBITDA and PAT posted 14%, 49% and 37.2% growth
YoY to INR 18.5b, INR 1.96b and INR 1.43b vs. our expectations of INR 18.5b, INR
1.75b and INR 1.37b resp. We estimate Biscuits volume growth of ~7%, healthy in
the context of challenging demand environment. This solid performance was
despite of 50% increase in adspends (albeit on lower base) and near 2.6x increase
in depreciation expenses (additional impact of INR 270m for the quarter).
Quality of growth impeccable:
Performance was led by gross margin expansion of
360bp YoY to 40.9% (est. 38.7%). Adspends went up 50% on low base (up 220bp
to 9.2%) while operating leverage and tight control on fixed costs drove 40bp and
70bp decline in conversion cost and other expenses to 8% and 10.6%, resp.
Consolidated and subsidiary highlights:
Sales, EBITDA and Adj. PAT posted 14.3%,
66% and 55.4% YoY growth, respectively in 4QFY15. Gross margins (41.5%)
expanded 4300bp YoY while operating margins (10.9%) expanded 340bps YoY.
Britannia closed FY15 with sales, EBITDA and PAT growth of 13.8%, 43.3% and
43%, resp – best FY15 performance in our consumer universe.
Remains amongst our top two ideas:
We upgrade our estimates by 6-8% in
FY16/17E to factor in better than estimated margins. We expect FY16 to benefit
from premiumization (3 premium products launched in last 6 months, more
planned) and RM tailwinds (Wheat, Sugar). We also move our model to
consolidated numbers as subs. EBITDA is now 11% of consol EBITDA. We estimate
30% and 28% EBITDA and PAT CAGR over FY15-17E. Retain
Buy
with a revised TP
of INR2,600 (33x FY17 Cons. EPS, 10% premium to one year average P/E). Unlike
other companies in our universe we do not use 3 year average P/E for Britannia as
complexion of Britannia’s P&L has changed meaningfully since FY13. Valuations,
while rich, are backed by superior execution and consistent earnings delivery.
Upward spike in RM and slowdown in rural consumption are near term risks.
88.1 123.4 165.1
Estimate change
TP change
Rating change
6-8%
18%
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.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Britannia Industries
Key quarterly charts
Exhibit 1: Sales came in-line with 14% growth
Net Sales (INR b)
16.1
10.8
8.7
16.5
13.5 14.9 13.7
Sales growth (%)
15.3
11.1
9.0
13.0 13.6 14.0
5.2
37.2
32.0
31.2
Exhibit 2: 360bp expansion in gross margins; EBITDA margins
up 250bp
Gross Margins (%)
EBIDTA Margins (%)
4.3
8.3 8.6
39.4
40.3
32.0
30.7
Overheads (%)
8.1
8.8
37.2
29.1
38.0
29.2
9.6 10.6
39.0 40.9
29.4
30.3
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3: Ad-spends up 220bp YoY on low base; fixed costs down
Ad Spend (%)
Conversion Cost (%)
Other expenses (%)
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
11.0
8.3
7.3
10.7
8.8
6.9
10.5
8.8
7.6
10.6
8.0
9.2
Source: Company, MOSL
Healthy sales growth; estimate volume growth at 7%
Stand-alone sales grew 14% YoY to INR18.5b (est. INR 18.5b); volume growth
estimated at 7% while realization and mix improvement contributed the rest.
Consol sales posted almost similar 14.3% YoY growth while imputed subsidiary
sales posted growth of 17.6% YoY.
Standalone EBITDA and PAT growth of 49% and 37% respectively
21 May 2015
Standalone gross margin expanded 360bp to 40.9% (est. 38.7%) led by mix
improvement and benign RM costs.
Higher advertisement spends (up 220bp YoY to 9.2%) and staff costs (up 10bp to
2.5%) were slightly offset by decrease in conversion cost and other expenses
(down 40bp and 70bp YoY respectively). Thus EBITDA margin expanded 250bp
YoY to 10.6% (est. 9.5%). Consequently EBITDA grew 49% YoY to INR2b (est.
INR1.8b).
Higher depreciation expense (up 157% YoY) impacted the EBIT which grew
33.6% YoY.
Other income grew 22% YoY which aided the 37% YoY recurring PAT growth to
INR1.4b (est. INR1.4b). Reported PAT was up 54% which included exceptional
item of INR40m pertaining to provision for diminution on investment.
Tax rate contracted 340bp YoY to 30.8%.
2

Britannia Industries
Consolidated 4Q15 performance:
Sales, EBITDA and Adj. PAT posted 14.3%,
65.9% and 54.8% YoY growth, respectively in 4QFY15. Gross margins expanded
430bp YoY to 41.5% while operating margins expanded 340bp to 10.9%.
FY15 highlights:
Standalone Sales, EBITDA and recurring PAT is up 13.9%, 33.3%
and 33% respectively. FY15, Sales, EBITDA and recurring PAT grew 13.8%, 43.3%
and 44.8% respectively. Britannia delivered by far the best performance in FY15
in our coverage universe.
Imputed subsidiary margins expanded a sharp 1250bp YoY to 13.7% for the
quarter, likely driven by benign RM costs and capturing of incremental benefits
from savings in conversion costs in subsidiaries. Subsidiary EBITDA for FY15
went up 3.75x to INR 847m while PAT was up 2.6x to INR 662m.
Subsidiary performance has shown sharp improvement in FY15
Subsidiary (INRm)
Net Revenues
EBITDA
PAT
2007
670
35
(10)
2008
1,921
42
(142)
2009
3,090
(247)
(759)
2010
3,715
(57)
(129)
2011
3,662
(208)
26
2012
5,137
342
130
2013 2014 2015
5,715 5,972 6,746
507
225
847
260
59
633
Source: Company, MOSL
Change in Estimates (INR m)
New
FY16E
FY17E
81,373
94,953
10,036
12,218
7,293
8,907
Old
FY16E
81,373
9,017
6,670
FY17E
94,953
11,323
8,337
Change (%)
FY16E
FY17E
0.0%
0.0%
11.3%
7.9%
9.3%
6.8%
Net Sales
EBITDA
Adjusted PAT
Valuation and view
Britannia delivered a spotless 4Q15 performance – volume led topline growth,
gross margin expansion and higher brand investments.
We like Britannia’s consistent delivery of EBITDA improvement – its strategy of
mix improvement coupled with cost containment is delivering intended results.
We upgrade our estimates by 6-8% in FY16/17E to factor in better than
estimated margins. We expect FY16 to benefit from premiumization (3 premium
products launched in last 6 months, more planned) and RM tailwinds (Wheat,
Sugar).
We also move our model to consolidated numbers as subs. EBITDA is now 11%
of consol EBITDA.
We estimate 30% and 28% Consol EBITDA and PAT CAGR over FY15-17E.
Retain
Buy
with a revised TP of INR 2,600 (33x FY17 Consol EPS). Unlike other
companies in our universe we do not use 3 year average P/E for Britannia as
complexion of Britannia’s P&L has changed meaningfully since FY13. Valuations,
while rich, are backed by superior execution and consistent earnings delivery.
Upward spike in RM and slowdown in rural consumption are near term risks.
21 May 2015
3

Britannia Industries
Exhibit 4:
Britannia
P/E (x)
50.0
38.0
26.0
14.0
2.0
23.7
22.9
14.7
PE (x)
Median(x)
Peak(x)
Min(x)
Avg(x)
Exhibit 5:
Britannia
P/E premium vs. Sensex
200
39.5
39.5
150
100
50
0
-50
50.1
Britannia PE Relative to Sensex PE (%)
LPA (%)
147.9
Source: Company, MOSL
Source: Company, MOSL
Exhibit 6: Valuation Metrics of coverage universe
Company
Consumer
Asian Paints
Britannia
Colgate
Dabur*
Emami*
Godrej Consumer
GSK Consumer
Hind. Unilever
ITC
Jyothy Labs
Marico*
Nestle
Pidilite Inds.
Radico Khaitan
United Spirits
Retail
Jubilant Foodworks
Shopper's Stop
Titan Company
Reco
Price Mkt Cap EPS Growth YoY (%)
P/E (x)
EV/EBITDA (x)
ROE (%) Div. (%)
(INR) (USD M) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY15E
776
2,285
2,017
260
1,017
1,159
6,368
865
327
253
409
6,950
550
90
3,696
1,764
403
376
11,689
4,288
4,308
7,160
3,626
6,193
4,207
29,377
40,896
719
4,138
10,526
4,426
188
8,436
1,812
520
5,241
15.8 31.3
47.0 38.1
13.9 18.3
16.5 25.9
21.7 25.1
19.6 38.9
-13.5 23.2
5.5 18.0
11.0 10.9
15.2 88.0
18.1 21.2
6.8 23.0
9.9 44.3
-10.4 19.2
LP 151.7
4.5
8.1
11.1
64.3
60.5
15.4
23.4 52.3
18.2 47.8
21.5 49.1
15.8 42.5
22.0 47.1
21.6 44.7
20.5 45.9
18.1 48.7
14.9 26.7
3.9 46.4
24.4 45.9
18.6 53.4
17.8 54.0
20.3 15.9
43.5 213.3
42.5
44.6
22.9
93.4
82.3
40.5
39.8
34.7
41.5
33.7
37.7
32.2
37.2
41.3
24.1
24.7
37.9
43.4
37.4
13.3
84.7
56.8
51.3
35.1
32.3
29.3
34.1
29.1
30.9
26.5
30.9
34.9
20.9
23.8
30.5
36.6
31.7
11.1
59.0
39.9
35.5
28.6
35.2
34.7
32.8
34.3
41.4
31.7
34.0
72.4
18.0
32.3
30.2
31.9
35.7
10.8
72.8
43.8
18.2
30.8
26.7
23.6
26.9
26.8
32.2
23.8
26.6
59.8
16.3
20.5
24.5
25.8
24.4
8.9
50.0
27.9
14.6
26.4
21.4
19.6
21.5
22.9
26.0
20.0
21.8
49.0
14.3
16.7
19.5
21.9
20.5
7.3
38.9
20.2
11.8
21.2
32.4
58.8
88.0
35.9
45.3
20.4
29.6
109.6
35.2
13.1
33.5
48.2
23.1
8.9
8.0
18.8
5.4
27.2
0.9
0.8
1.6
0.8
0.7
0.6
0.9
1.5
2.2
1.2
0.6
0.9
0.6
0.9
0.0
0.1
0.2
0.7
Neutral
Buy
Neutral
Neutral
Buy
Neutral
Neutral
Neutral
Neutral
Buy
Neutral
Neutral
Neutral
Buy
Buy
Buy
Neutral
Neutral
Note: For Nestle FY15E means CY14
Source: Company, MOSL
21 May 2015
4

Britannia Industries
Financials and valuations
Income Statement
Y/E March
Net Revenues
Change (%)
Gross Profit
Margin (%)
Other Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Financial Other Income
Operating Other Income
PBT
Tax
Deferred Tax
Tax Rate (%)
PAT
Change (%)
Margin (%)
Non-rec. (Exp.)/Income
Reported PAT
Balance Sheet
Y/E March
Share Capital
Reserves
Net worth
Loans
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Goodwill on consolidation
Capital WIP
Investments
Current
Non-current
Deferred Liability
Currents Assets
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. & Prov.
Account Payables
Other Liabilities
Provisions
Net Current Assets
Net Assets
E: MOSL Estimates
2010
37,729
10.3
13,614
36.1
8,976
1,629
-31.6
4.3
582
235
547
36
1,394
216
-160
4.0
1,338
6.9
3.5
-307
1,032
2011
45,897
21.6
15,621
34.0
10,123
2,170
33.3
4.7
649
436
472
314
1,871
409
120
28.3
1,342
0.3
2.9
0
1,343
2012
54,608
19.0
19,280
35.3
12,221
2,863
31.9
5.2
618
416
584
253
2,666
650
19
25.1
1,997
48.8
3.7
0
1,996
2013
61,359
12.4
22,746
37.1
13,691
3,711
29.7
6.0
732
413
514
504
3,584
934
52
27.5
2,599
30.1
4.2
0
2,595
2014
68,293
11.3
26,583
38.9
15,108
5,438
46.5
8.0
832
83
336
834
5,693
1,775
-39
30.5
3,957
52.3
5.8
0
3,953
2015
77,751
13.8
30,833
39.7
16,527
7,788
43.2
10.0
1,445
39
880
833
8,018
2,288
0
28.5
5,730
44.8
7.4
1,157
6,886
2016E
89,159
14.7
37,718
42.3
18,709
11,164
43.3
12.5
1,683
32
1,092
924
11,465
3,554
0
31.0
7,911
38.1
8.9
0
7,911
(INR Million)
2017E
103,907
16.5
44,359
42.7
22,068
13,147
17.8
12.7
1,849
32
1,310
974
13,551
4,201
0
31.0
9,350
18.2
9.0
0
9,350
(INR Million)
2017E
240
19,567
19,807
1,501
21,308
20,466
-12,013
8,453
1,070
1,071
14,888
14,693
195
89
14,559
6,234
1,188
3,478
3,659
18,645
8,193
4,636
5,816
-4,086
21,308
2010
239
2,589
2,828
6,570
9,419
9,247
-5,112
4,135
858
102
3,664
2,776
889
-61
6,313
3,042
733
427
2,111
5,714
1,614
3,163
936
599
9,419
2011
239
3,021
3,260
6,188
9,469
9,691
-5,498
4,193
856
128
3,885
2,461
1,424
58
7,126
3,470
810
769
2,078
6,661
2,680
2,700
1,280
465
9,470
2012
239
3,853
4,092
6,042
10,155
11,211
-5,912
5,300
944
1,113
2,485
1,064
1,421
76
8,579
4,318
1,130
613
2,518
8,189
3,870
2,748
1,570
390
10,156
2013
239
5,268
5,507
3,800
9,401
12,893
-6,517
6,376
992
1,473
1,082
729
353
128
8,912
3,747
1,228
1,029
2,908
9,306
3,935
3,722
1,649
-394
9,401
2014
240
7,698
7,938
1,498
9,502
14,930
-7,524
7,406
1,070
1,071
1,979
1,629
350
89
9,543
4,203
1,087
1,091
3,163
11,477
5,567
3,799
2,111
-1,934
9,503
2015
240
10,329
10,569
1,501
12,070
16,966
-8,481
8,485
1,070
1,071
4,916
4,721
195
89
10,136
5,055
1,014
829
3,238
13,520
6,115
4,058
3,347
-3,384
12,070
2016E
240
14,563
14,803
1,501
16,304
18,466
-10,164
8,302
1,070
1,071
9,811
9,616
195
89
12,086
5,350
1,021
2,242
3,474
15,948
6,691
4,336
4,921
-3,862
16,304
21 May 2015
5

Britannia Industries
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E March
OP Profit
Dep
Financial Other Income
Interest Paid
Direct Taxes Paid
Inc in WC
CF from Operations
Extraordinary Items
(Inc)/Dec in FA
(Pur.)/Sale of Investments
Other Non Rec Exp
CF from Investments
Issue of Shares
Inc in Debt
Dividend Paid
Other Item
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2010
11.2
23.7
5.0
44.6
204.0
7.3
169.1
96.5
0.2
26.7
10.8
7
4.0
2.3
2011
11.2
27.3
6.5
57.9
203.4
6.0
126.5
83.7
0.3
44.1
16.1
6
4.8
1.9
2012
16.7
34.3
8.5
50.8
136.7
5.1
96.4
66.7
0.4
54.3
22.9
8
5.4
1.5
2013
21.7
46.1
8.5
39.1
105.1
4.5
74.1
49.6
0.4
54.1
30.5
7
6.5
0.7
2014
33.0
66.2
12.0
36.4
69.3
4.0
50.1
34.5
0.5
58.9
48.7
6
7.2
0.2
1.4479
2015
47.8
88.1
17.3
36.3
47.8
3.5
34.7
25.9
0.8
61.9
58.8
5
6.4
0.1
1.3807
2016E
66.0
123.4
26.4
40.0
34.7
3.0
23.6
18.5
1.2
62.4
66.8
4
5.5
0.1
1.1819
2017E
77.9
165.1
31.2
40.0
29.3
2.5
19.6
13.8
1.4
54.0
60.1
4
4.9
0.1
(INR Million)
2017E
13,551
1,849
-1,310
-32
4,201
-1,461
11,381
2010
1,394
582
-547
-235
216
-427
1,875
2011
1,871
649
-472
-436
409
-475
2,550
2012
2,666
618
-584
-416
650
81
2,385
2013
3,584
732
-514
-413
934
-1,200
4,481
2014
5,693
832
-336
-83
1,775
-1,602
6,099
2015
8,018
1,445
-880
-39
2,288
-1,188
7,522
2016E
11,465
1,683
-1,092
-32
3,554
-1,890
10,424
-504
109
307
-87
0
3,821
1,118
4,752
-2,049
-261
688
428
-470
-221
0
-690
0
-381
696
441
-1,519
341
427
769
-2,505
1,400
0
-1,105
0
-146
902
387
-1,436
-155
769
613
-2,042
1,403
0
-639
0
-2,242
1,180
4
-3,426
416
613
1,029
-1,634
-897
0
-2,531
1
-2,302
1,189
15
-3,506
62
1,029
1,091
-2,036
-2,938
-1,157
-6,131
0
3
1,684
-28
-1,652
-261
1,091
829
-1,500
-4,895
0
-6,395
0
0
2,414
203
-2,617
1,413
829
2,242
-2,000
-5,077
0
-7,077
0
0
3,677
-610
-3,067
1,237
2,242
3,479
21 May 2015
6

Britannia Industries
Corporate profile: Britannia Industries
Company description
Britannia is the market leader in the biscuits
category (value market share of ~33%). Biscuits
contribute over 85% of Company’s consolidated
revenue. Over the years, the company has forayed
into other bakery items and dairy products
(constituting ~15% of consolidated revenues). The
company enjoys strong brand equity and has been
consistently ranked amongst the top food brand in
India. Britannia is promoted by Wadia group that
has diversified interests ranging from real estate,
textiles, chemicals and airlines business.
Exhibit 7: Sensex rebased
Exhibit 8: Shareholding pattern (%)
Mar-15
Promoter
DII
FII
Others
50.8
9.2
19.1
20.9
Dec-14
50.8
9.3
19.5
20.5
Mar-14
50.8
8.4
20.1
20.7
Exhibit 9: Top holders
Holder Name
Arisaig Partners Asia Pte Ltd A/C Arisaig India Fund
LIC of India
Morgan Stanley Asia Singapore PTE
GIC of India
% Holding
5.4
1.9
1.4
1.1
Note: FII Includes depository receipts
Exhibit 10: Top management
Name
Nusli N Wadia
Varun Berry
A K Hirjee
Jeh N Wadia
Ness N Wadia
Designation
Chairman
Managing Director
Director
Director
Director
Exhibit 11: Directors
Name
Nusli N Wadia
Varun Berry
A K Hirjee
Jeh N Wadia
Ness N Wadia
Ajai Puri*
Name
S S Kelkar*
Avijit Deb*
Keki Dadiseth*
Nasser Munjee*
Vijay L Kelkar*
Nimesh N Kampani*
*Independent
Exhibit 12: Auditors
Name
BSR & Co LLP
Aneja & Associates
N I Mehta & Co
Type
Statutory
Internal
Cost Auditor
Exhibit 13: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
MOSL
forecast
66.0
77.9
Consensus
forecast
57.5
70.2
Variation
(%)
14.7
11.0
21 May 2015
7

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Disclosure of Interest Statement
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Served as an officer, director or employee
BRITANNIA INDUSTRIES LTD
No
No
Britannia Industries
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8