13 July 2015
Update | Sector: Consumer
Britannia Industries
BSE Sensex
27,961
S&P CNX
8,460
CMP: INR2,847
TP: INR3,100 (+9%)
Buy
Motilal Oswal values your
support in the Asiamoney
Brokers Poll 2015 for India
Research, Sales and Trading
team. We
request your ballot.
Another solid year; story on track
Subsidiary profitability up; return ratios steady
Following are the key takeaways from Britannia’s FY15 Annual report:
Britannia posted another solid performance in FY15 with 45% PAT growth led by
gross margin improvement and cost saving programmes.
Subsidiary profits expanded ~5x and contributed 11% of consol PAT.
RoE steady; cash conversion cycle improves a notch.
Retain Buy despite rich valuations; model 28% EPS CAGR over FY15-17E.
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap.(INR b)/(USDb)
Avg Val (INR M)/Vol ‘000
Free float (%)
BRIT IN
119.5
2865/966
4/44/17
340.1/5.
367/187
49.2
Financial Snapshot (INR b)
Y/E Mar
2015 2016E 2017E
Sales
EBITDA
Adj. PAT
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
Div. Yield (%)
59.5
27.5
0.6
43.2
20.2
29.6
0.8
36.5
15.2
24.7
1.0
77.8
7.8
5.7
47.3
56.4
54.3
33.4
89.2 103.9
11.2
7.9
66.0
37.8
53.9
58.6
35.0
13.2
9.3
77.9
18.1
47.4
53.2
35.0
Adj. EPS (INR) 47.9
103.5 141.3 187.5
EV/EBITDA (x) 43.0
Another solid year:
Britannia ended FY15 with another solid set of
numbers: 14%, 43.5% and 45% Sales EBITDA and PAT growth, respectively.
This has come on the back of high base (47% and 52% EBITDA and PAT
growth in FY14). Britannia has now delivered 12.5%, 39.7% and 42.2% sales,
EBITDA and PAT CAGR over FY12-15, respectively. EBITDA margins
expanded 200bps to 10% in FY15 (480bps expansion over FY12-15), while
gross margins expanded 80bps to 39.7% in FY15 (440bps expansion over
FY12-15). Mix improvement, focus on power brands (better returns on
marketing investments), benign RM cost environment coupled with cost
efficiency measures in distribution and logistics supply chain have largely
driven the performance, in our view.
Sharp improvement in subsidiary profitability aids consolidated
performance:
Subsidiary profitability has shown significant improvement
with nearly ~5x jump YoY to INR 633m in FY15 from a low base of FY14.
Even in comparison with FY13, the subsidiary profits have more than
doubled in FY15. Amongst the subsidiaries, Dairy segment (Britannia
Dairy
products)
profits almost tripled to INR 294.7m vs. INR 106.7m in FY14 due
to benign input costs.
Strategic Food International Co. LLC, Dubai
(International 100% subsidiary) reported massive 8x increase in its profits to
INR 323m, highest it has ever posted. As per management this was led by
mix improvement and benefits from productivity enhancement as well as
cost savings. For FY15, subsidiary profits contributed 11% of the
consolidated PAT vs. 3% in FY14.
RoE steady; cash conversion cycle improves a notch; cash position
strengthens further:
Britannia’s RoE has remained steady at 56.5% (asset
turnover moderated to 6.6x vs. 7.2x in FY14) while RoCE has improved from
~49% in FY14 to 54% in FY15. We note that Britannia’s RoCE was 23% in
FY12. Cash conversion cycle improved and turned negative (-4 days vs. 2
days in FY14) due to better inventory and creditor days. Net cash position
strengthened further; FY15 net cash stood at INR5.7b vs. INR 1.2b in FY14.
Britannia’s leverage position has improved considerably from 0.4x net
leverage in FY12 to 0.4x net cash in FY15.
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
Shareholding pattern (%)
Mar-15 Dec-14 Mar-14
Promoter
DII
FII
50.8
9.2
19.1
50.8
9.3
19.5
50.8
8.4
20.1
Others
20.9
20.5
20.7
FII includes depository receipts
Stock Performance (1-year)
Please see our Corner Office
report on Britannia Industries
dated 3
rd
June 2015
Key highlights from management discussion & analysis:
a) Britannia to
continue and intensify the thrust on cost effectiveness in FY16 as well. b)
Strategic shift to augment its media presence by building strong
associations with Cricket and Cinema. c) Innovations: Brit introduced
Nutrichoice Heavens and Good Day Chunkies while restaged Bourbon and
Tiger Glucose in FY15. d) Per capita Biscuits consumption in India is 1/10
th
of
Brazil and 2/3
rd
of Indonesia. e) In Dairy industry, demand is outpacing
supply with higher growth in value added segments like Cheese and Set
Dahi. f) Going forward, Britannia will focus on creating an efficient and
robust supply chain and build cold chain capabilities. g) In the near term
Britannia expects the industry to grow in 8-10% band.
Other takeaways:
a) Inter corporate deposits were up 6x to INR 3b. Out of
this, INR 1.75b is given to
Scal Services Ltd.
at an interest rate of 12%
(repayable on demand). b) Gross capex at INR 1.17b with completion of
Jhagadia factory expansion and acquisition of contract manufacturing unit
in Chennai. BRIT did capex of INR 1.1b during FY14. c) Britannia booked
exceptional gains of INR 1.6b (INR 1.24b after tax) by selling property in
Padi, Chennai. d] 50,000 stock options granted to Mr. Varun Berry on 26
th
May’14 at an exercise price of INR 870.4 (with a vesting period of minimum
1 year). As per the BSE announcement dated 11
th
June’15, those options
have been exercised by Mr. Berry and shares have been allotted. Also, in
FY16, as per announcement to exchange dated 2
nd
June’15, 75,000 stock
options have been granted at an exercise price of INR 2332.05, with vesting
period of 3 years (1/3
rd
every year).
Valuation and view:
Britannia’s new management led by Mr. Berry has
delivered on the key priorities of premiumisation and cost savings which in-
turn drove sharp operating profit margin improvement over last three
years. Since our upgrade in May’13, the stock is up ~5x and has
outperformed the sector by a wide margin. We continue to maintain our
long term bullish view on Britannia. Our recent meeting with Mr. Varun
Berry suggests there is more scope for cost cutting led margin improvement
(only 50% of the gains have been achieved yet). In the long term (over next
5-10 years), Britannia is aspiring to evolve as a total foods company and is
planning to build bigger scale (~3x-5x) in its Dairy and non-Biscuit bakery
portfolio; commendable yet difficult goal, in our view. In the next two years,
we believe continued portfolio premiumization and benign RM cost
environment should aid Britannia’s robust earnings growth story (we are
modeling for 28% EPS CAGR over FY15-17E). However, recent sharp
outperformance (up 25% in ~2 months) and rich valuations may cap the
near term returns. We maintain
Buy
with a revised June’16 target price of
INR 3,100 (35x June’17 EPS) and recommend adding on dips/any quarterly
earnings disappointment.
13 July 2015
2

Britannia Industries
Story in Charts
Exhibit 1:
BRIT posted healthy 14% revenue growth in FY15
23.2
Revenues (INR b)
21.6
19.0
12.4
11.3
13.8
14.7
Revenue growth (%)
Exhibit 2:
Gross margins expanded 80bps; RM tailwind persists
Gross Margin (%)
16.5
39.7
42.3
42.7
38.1
36.1
34.0
35.3
38.9
37.1
10.3
FY09
FY10
FY11
FY12
FY13
FY14
FY15 FY16E FY17E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 3:
Focused brand investments behind top 5 power brands
Ad spends (%)
8.7
8.0
6.9
7.3
7.7
8.8
8.4
8.8
8.8
Exhibit 4:
EBITDA margins expanded 200bps in FY15
EBITDA Margin (%)
12.5
10.0
7.0
4.3
4.7
5.2
8.0
6.0
12.7
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5:
PAT is up 45% in FY15; up 2.8x since FY12
PAT (INR b)
48.8
30.1
6.9
-25.9
1.3
1.3
0.3
1.3
2.0
2.6
4.0
5.7
7.9
9.3
PAT growth (%)
52.3 45.1
37.8
18.1
Exhibit 6:
Return ratios steady
RoE (%)
54.3
44.1
26.7
17.7
17.4
16.1 22.9
30.5
48.7
54.3
54.1
RoCE (%)
58.9
56.4
53.9
58.6
47.4
53.2
10.8
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Source: Company, MOSL
Source: Company, MOSL
13 July 2015
3

Britannia Industries
Exhibit 7:
Net D/E down due to improved cash position
Net D/E
1.2
0.9
1.1
0.4
Exhibit 8:
BRIT did several new premium product offering in FY15
-0.2
FY08
-0.2
FY09
FY10
FY11
FY12
FY13
-0.2
-0.5
FY14
FY15
Source: Company, MOSL
Source: Company, MOSL
Exhibit 9:
Subsidiary profitability up 7x in FY15
INR m
Stake
FY09
FY10
FY11
Sales Profit Sales Profit Sales Profit
1,619 -35 1,888 101 2,188
42
163
-248
145
-46
195
-12
1,578 -269 1,280 -185 1,361 -131
730
-69
924
-83
873
18
4,090 -621 4,237 -213 4,617 -82
FY12
Sales Profit
2,935 155
241
-15
1,884 -43
1,073 -16
6,132
81
FY13
Sales Profit
3,095 350
233
-27
2,323 -49
1,254
1
6,904 276
FY14
FY15
Sales Profit Sales Profit
2,993 107 3,295 295
199
-33
158
-35
2,657
47
3,307 323
1,353 -33 1,622
3
7,202
88
8,382 586
Source: Company, MOSL
Britannia Dairy Products 100%
Daily Bread
100%
Strategic Food Int
100%
Al-Sallan
66%
Total
Exhibit 10: Dividend payout dips a bit
Payout (%)
76.3
57.9
44.6
50.8
39.1
36.4
33.4
Exhibit 11:
Outstanding ICD’s of INR 3b
Increemental Inter-corporate deposits, net (INR m)
2,500
750
0
(100)
(500)
FY11
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY10
FY12
(600)
FY13
FY14
FY15
Source: Company, MOSL
Source: Company, MOSL
Exhibit 12:
Cash conversion cycle continues to improve
Cash conversion cycle
Inventory
Account Receivables
Account Payables
Days
Inventory days
Debtor days
Creditor days
Cash conversion cycle
FY07
2,367
567
1,154
19
5
9
14
FY08
3,293
690
1,304
37
8
16
29
FY09
2,887
740
1,276
33
8
14
27
FY10
3,042
733
1,614
29
7
14
22
FY11
3,470
810
2,680
26
6
17
15
FY12
4,318
1,130
3,870
26
6
22
11
FY13
3,747
1,228
3,935
FY14
4,203
1,087
5,567
FY15
4,040
1,358
7,034
24
21
19
7
6
6
23
25
30
8
2
-4
Source: Company, MOSL
13 July 2015
4

Britannia Industries
Exhibit 13:
Du-Pont: RoE’s steady; marginal dip in Asset turnover after six consecutive years of improvement
DU Pont
PAT Margin (PAT/Net sales)
Average Assets
Average Equity
Asset T/O (Net sales/ avg assets)
Leverage factor (avg assets/ avg equity)
ROE
FY07
5.0
6,599
5,605
3.4
1.2
20.1
FY08
6.1
8,680
6,321
3.2
1.4
26.7
FY09
3.7
9,873
7,068
3.5
1.4
17.7
FY10
3.5
9,709
5,021
3.9
1.9
26.7
FY11
2.9
9,444
3,044
4.9
3.1
44.1
FY12
3.7
9,812
3,676
5.6
2.7
54.3
FY13
4.2
9,778
4,800
6.3
2.0
54.1
FY14
5.8
9,452
6,723
7.2
1.4
58.9
FY15
7.4
11,714
10,177
6.6
1.2
56.4
Source: Company, MOSL
Exhibit 14:
Britannia
P/E (x)
50.0
38.0
26.0
14.0
2.0
15.0
24.0
PE (x)
Peak(x)
Avg(x)
40.1
Min(x)
40.1
Exhibit 15:
Britannia
P/E premium vs. Sensex
150
100
50
0
-50
50.0
Britannia PE Relative to Sensex PE (%)
LPA (%)
141.5
Source: Company, MOSL
Source: Company, MOSL
Exhibit 16:
Valuation Matrix 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
(INR)
817
2,847
2,012
286
1,129
1,176
6,210
910
315
305
438
5,950
552
83
3,479
1,874
397
357
P/E (x)
EV/EBITDA (x)
ROE (%) Div. (%)
Mkt Cap EPS Growth YoY (%)
(USD M) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15
FY15
12,341 15.8 27.5
5,355 44.8 38.1
4,310 13.9 18.3
7,917 15.7 23.2
4,034 21.7 25.1
6,302 19.6 38.9
4,114 -13.5 23.2
31,008
6.4 17.6
39,403
9.8 11.3
871 -7.5 108.0
4,452 18.1 21.2
9,036
6.8 -11.0
4,457
9.9 44.3
173 -10.4
8.6
7,963 Loss -187.7
1,931
514
4,986
4.5
8.1
11.1
64.3
60.5
10.8
27.2 55.1
18.2 59.3
21.5 48.9
16.0 47.2
22.0 52.3
21.6 45.4
20.5 44.8
18.5 52.0
13.4 25.9
-9.6 69.9
24.4 49.3
25.3 45.7
17.8 54.2
21.8 14.5
50.8 -73.8
42.5
44.6
22.8
99.3
81.1
38.5
43.2
43.0
41.4
38.3
41.8
32.7
36.3
44.2
23.3
33.6
40.7
51.3
37.6
13.4
84.1
60.4
50.5
34.7
34.0
36.4
34.0
33.0
34.3
26.9
30.1
37.3
20.5
37.2
32.7
40.9
31.9
11.0
55.8
42.4
34.9
28.3
37.4
42.9
32.7
37.9
46.1
32.2
33.1
37.4
17.5
39.6
32.4
27.2
35.9
10.9
70.8
46.5
17.9
29.2
29.2
29.5
26.9
30.5
35.8
24.1
25.9
31.5
15.7
26.7
26.3
29.4
24.5
9.2
45.9
29.6
14.4
26.2
22.7
24.6
21.5
26.0
29.0
20.3
21.2
25.8
13.8
22.2
21.0
24.0
20.6
7.7
34.6
21.5
11.7
21.0
32.4
61.9
88.0
35.5
45.3
20.4
29.6
108.1
34.8
16.6
33.5
48.2
23.1
8.6
-21.7
18.8
5.4
27.2
0.9
0.6
1.6
0.8
0.6
0.6
0.9
1.6
2.3
1.3
0.6
1.1
0.6
1.0
0.0
0.1
0.2
0.8
Buy
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
13 July 2015
5

Britannia Industries
Financials and valuations
Income Statement
Y/E March
Net Revenues
Change (%)
Raw Material Cost
Gross Profit
Margin (%)
Advertising
% of Sales
Other Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Financial Other Income
Operating Other Income
PBT
Change (%)
Margin (%)
Tax
Deferred Tax
Tax Rate (%)
PAT
Change (%)
Margin (%)
Non-rec. (Exp.)/Income
Reported PAT
Balance Sheet
Y/E March
Share Capital
Reserves
Networth
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
24,115
13,614
36.1
3,010
8.0
8,976
1,629
-31.6
4.3
582
235
547
36
1,394
-21.8
3.7
216
-160
4.0
1,338
6.9
3.5
-307
1,032
2011
45,897
21.6
30,276
15,621
34.0
3,328
7.3
10,123
2,170
33.3
4.7
649
436
472
314
1,871
34.2
4.1
409
120
28.3
1,342
0.3
2.9
0
1,343
2012
54,608
19.0
35,328
19,280
35.3
4,196
7.7
12,221
2,863
31.9
5.2
618
416
584
253
2,666
42.4
4.9
650
19
25.1
1,997
48.8
3.7
0
1,996
2013
61,359
12.4
38,614
22,746
37.1
5,343
8.7
13,691
3,711
29.7
6.0
732
413
514
504
3,584
34.5
5.8
934
52
27.5
2,599
30.1
4.2
0
2,595
2014
68,293
11.3
41,710
26,583
38.9
6,037
8.8
15,108
5,438
46.5
8.0
832
83
336
834
5,693
58.8
8.3
1,775
-39
30.5
3,957
52.3
5.8
0
3,953
2015
77,751
13.8
46,918
30,833
39.7
6,517
8.4
16,510
7,806
43.5
10.0
1,445
39
880
833
8,035
41.1
10.3
2,553
-260
28.5
5,743
45.1
7.4
1,142
6,886
2016E
89,157
14.7
51,435
37,722
42.3
7,846
8.8
18,709
11,167
43.1
12.5
1,681
31
1,090
923
11,467
42.7
12.9
3,555
0
31.0
7,912
37.8
8.9
0
7,912
(INR Million)
2017E
103,905
16.5
59,542
44,363
42.7
9,144
8.8
22,068
13,150
17.8
12.7
1,856
32
1,308
973
13,543
18.1
13.0
4,198
0
31.0
9,345
18.1
9.0
0
9,345
(INR Million)
2017E
240
22,250
22,490
1,499
23,989
19,565
-12,269
7,296
1,107
484
12,554
12,359
195
-234
20,268
6,234
1,835
5,868
6,330
17,953
8,420
4,893
4,640
2,315
23,989
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
5,269
5,508
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
9,503
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
12,176
12,415
1,451
13,926
16,065
-8,731
7,334
1,107
484
5,179
4,859
321
-234
13,596
4,040
1,358
2,263
5,934
14,007
7,034
4,273
2,700
-411
13,926
2016E
240
16,706
16,946
1,499
18,445
17,565
-10,412
7,152
1,107
484
8,554
8,359
195
-234
16,829
5,349
1,577
3,877
6,024
15,915
7,415
4,571
3,929
914
18,444
13 July 2015
6

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
2011
11.2
27.3
6.5
57.9
2012
16.7
34.3
8.5
50.8
2013
21.7
46.1
8.5
39.1
2014
33.0
66.2
12.0
36.4
1.45111
2015
47.9
103.5
16.0
33.4
1.37783
2016E
66.0
141.3
23.1
35.0
1.18103
2017E
77.9
187.5
27.3
35.0
254.1
9.1
210.3
120.3
0.2
253.4
7.4
157.4
104.3
0.2
170.3
6.3
119.8
83.1
0.3
131.0
5.6
92.2
61.8
0.3
86.3
5.0
62.5
43.0
0.4
59.5
4.3
43.0
27.5
0.6
43.2
3.7
29.6
20.2
0.8
36.5
3.1
24.7
15.2
1.0
26.7
10.8
44.1
16.1
54.3
22.9
54.1
30.5
58.9
48.7
56.4
54.3
53.9
58.6
47.4
53.2
7
4.0
6
4.8
8
5.4
7
6.5
6
7.2
6
5.6
6
4.8
6
4.3
2.3
1.9
1.5
0.7
0.2
0.1
0.1
0.1
(INR Million)
2017E
13,543
1,856
-1,308
-32
4,198
-590
10,515
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
8,035
1,445
-880
-39
2,553
350
5,736
2016E
11,467
1,681
-1,090
-31
3,555
-289
8,824
-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
-548
-3,201
-1,142
-4,891
0
-47
1,684
-2,058
327
1,172
1,091
2,263
-1,500
-3,375
0
-4,875
0
48
2,309
74
-2,335
1,614
2,263
3,878
-2,000
-4,000
0
-6,000
0
0
3,218
-694
-2,524
1,991
3,877
5,868
13 July 2015
7

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8