Britannia Industries

(CMP/TP: `376/458) ( Buying Range: `376 to `391)

 Britannia Industries (BIL) is a dominant leader in the
Indian biscuits market with ~35% market share and BIL trades at attractive 0.8x FY2013E EV/sales ratio
a balanced portfolio with seven super brands
8,000
namely Tiger, Milk Bikis, Good-Day, Treat, Marie 7,000
Gold, 50-50 and Nutrichoice (recently added). The 6,000
5,000
stock currently trades 0.8x FY2013 EV/sales and 4,000
hence is attractive. We Initiate coverage on the stock 3,000
with a Buy recommendation and a Target Price of 2,000
1,000
`458, based on 22x P/E FY2013E EPS (1x EV/Sales). -

 Revenues of BIL on strong wicket driven by higher Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11

volumes: We expect BIL to register ~14% CAGR in EV 1.5x 1.25x 1x 0.75x 0.5x
its top-line aided by high volumes and improving
sales mix (BIL has recently introduced premium Source: Company, Angel Research
products in the health and wellness space). The
company has made significant efforts to provide Gross revenue breakup of Britannia Industries
premium biscuits under its brands Tiger and Treat at 6,000
lower price points (`5 for 3-piece pack of cream
biscuits). The move in our opinion will give 4,000

(`cr)
consumers a choice to up-trade from plain glucose
2,000
variants as well as maintain biscuit’s affordability for
mass consumption. Hence, we expect the volume -
growth for BIL to be in in-line with the industry at FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
~6% over FY2011-13E driven by low priced value
added products. Biscuits & High Protein Food Bread and Suji Toast
Cakes & Rusk Others
Source: Company, Angel Research
 Britannia Industries

 Margins to improve on the back of cooling raw  Valuations: We initiate coverage on BIL with a Buy
material prices: Over the past one year, raw material recommendation and target price of `458, based on
prices have been trending high, putting significant 22x FY2013E EPS of `20.8 (1x EV/sales). BIL trades at
margin pressure on BIL. However, the prices of the 5-year average 55% premium to Sensex and an
major commodities like sugar and wheat have shown average 5-yr P/E of ~25x. Moreover, the stock is
some signs of cooling in the recent one month. available at 0.8x FY2013E EV/sales, which is at ~27%
While, we have limited visibility on the raw material discount to its 5-yr average EV/Sales of ~1.1x and
prices over longer time, with the onset of normal hence is attractive. We value the stock at ~12%
monsoons, we do not expect a significant rise in these discount to its 5-yr average P/E to build a margin of
commodities prices going ahead. Moreover, we safety from raw material price pressures and arrive at
believe company’s various cost rationalisation a Target Price of `458 resulting in an upside of 22%
methods and improving sales mix will aid operating from the current level.
margins from the current levels of ~5% to 5.6% in
FY2012E and 7% in FY2013E.
Relative Valuation
Company Reco Mcap CMP TP Upside P/E (x) EV/Sales (x) RoE (%) CAGR #
(` cr) (`) (`) (%) FY12E FY13E FY12E FY13E FY12E FY13E Sales EPS
Asian Paints Accumulate 24,562 2,561 2,767 8 24.4 20.4 2.6 2.2 31.9 37.6 17.1 19.7
Britannia Buy 4,490 376 458 22 26.3 18.1 0.9 0.8 35.7 44.5 14.2 41.0
Colgate Neutral 11,575 851 837 (2) 25.1 22.4 4.3 3.8 100.1 87.2 13.5 11.8
Dabur Buy 17,639 101 123 21 22.6 19.8 3.2 2.7 53.1 46.4 23.2 24.8
GSKCHL Neutral 9,409 2,237 2,144 (4) 27.0 23.0 3.1 2.6 32.6 31.5 17.4 17.0
GCPL Buy 11,824 365 431 18 21.3 18.7 3.1 2.8 35.1 26.2 15.2 23.0
HUL Accumulate 60,291 276 304 10 24.4 20.9 2.6 2.2 75.9 77.9 13.2 16.1
ITC Accumulate 142,459 184 205 12 24.3 21.5 5.5 4.8 31.9 30.6 13.5 14.2
Marico Neutral 8,475 138 145 5 28.4 22.0 2.6 2.3 35.9 29.6 11.9 26.0
Nestle Reduce 35,756 3,708 3,490 (6) 36.5 30.8 4.9 4.2 107.1 107.4 16.0 20.4
Source: Company, Angel Research; Note: CMP as on 8/4/2011, # period FY2011-13E
 Britannia Industries

CMP of key raw materials of BIL below the avg. price of 4Q High investments in its brands ensures dominant market share
Average prices 1QFY11 2QFY11 3QFY11 4QFY11 #CMP 500 10.0
7.9
7.0 7.4 7.4 7.3
Palm oil (MYR/ton) 2,529.5 2,638.9 3,268.3 3,713.4 3,415.0 400 6.8 8.0
6.3 6.2
% qoq (1.5) 4.3 23.8 13.6 (8.0) 300 6.0

(`cr)

(%)
Wheat (`/quintal) 1,173.0 1,230.3 1,281.2 1,316.2 1,211.0 200 391 4.0
304 349
269
100 180 211 2.0
% qoq (11.5) 4.9 4.1 2.7 (8.0) 136
107
- -
Sugar (`/100kg) 2,856.2 2,748.8 3,005.6 2,998.8 2,890.0
FY06 FY07 FY08 FY09 FY10 FY11EFY12EFY13E
% qoq (21.4) (3.8) 9.3 (0.2) (3.6) Advertisement expense Advt. cost/sales
Source: Bloomberg, Angel Research; Note # price as on 7/4/2011, MYR=Malaysia Ringgit Source: Company, Angel Research

OPM to improve, however, they will be below their peak FY12E P/E of BIL is in-line with its 5-yr avg. P/E of ~25x
45.0
15.0 40.0
11.7
35.0
9.0 8.4 30.0
10.0 7.0
5.9 25.0
4.8 5.6
8.5 4.6 20.0
5.0 7.4 15.0
4.9 5.8 10.0
4.6
3.4 3.0 3.6 5.0
- -
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
Mar-05

Aug-05

Jun-06

Nov-06

Apr-07

Sep-07

Mar-08

Aug-08

Jun-09

Nov-09

Apr-10

Sep-10

Feb-11
Jan-06

Jan-09
(OPM %) (NPM %)
Source: Company, Angel Research Source: Company, Angel Research; Note: Blue line denotes 5-yr avg. P/E
 Britannia Industries

Profit & loss statement Balance Sheet

Y/E March (` cr) FY09 FY10 FY11E FY12E FY13E Y/E March (` cr) FY09 FY10 FY11E FY12E FY13E
SOURCES OF FUNDS
Net Sales 3,112 3,401 4,108 4,715 5,361
Equity Share Capital 24 24 24 24 24
% chg 20.4 9.3 20.8 14.8 13.7 Reserves & Surplus 801 372 425 483 584
Total Expenditure 2,849 3,238 3,921 4,453 4,986 Share Suspense Account - - - - -
Shareholders Funds 825 396 449 507 608
EBIDTA 263 163 187 262 376
Total Loans 25 430 429 429 23
(%of Net Sales) 8.4 4.8 4.6 5.6 7.0 Minority Interest - - - - -
Other Income 40 56 66 57 54 Deferred Tax Liability
10 (7) (7) (7) (7)
(net)
Depreciation 33 38 42 47 52 Total Liabilities 860 819 871 929 623

Interest (Net) 16 8 41 41 41 APPLICATION OF FUNDS

253 174 169 231 336 Gross Block 512 548 642 720 806
PBT
Less: Acc. Depreciation 234 266 309 355 408
(% of Net Sales) 8.1 5.1 4.1 4.9 6.3
Net Block 278 282 333 364 398
Extr. expense/(Inc.) 20.6 52.9 - - - Capital Work-in-Progress 6 12 13 15 17
Goodwill - - - - -
Tax 52 4 44 60 87
Investments 423 491 431 431 161
(% of PBT) 20.6 2.5 26.0 26.0 26.0 Current Assets 539 521 674 808 842
Less: Minority Interest - - - - - Current liabilities 413 486 580 688 795
Net Current Assets 126 36 93 119 48
PAT (after MI) 180 117 125 171 248
Misc Expenditure 27 - - - -
% chg (5.6) (35.4) 7.2 36.6 45.5 Total Assets 860 819 871 929 623
 Britannia Industries

Cash Flow Statement Key Ratios

Y/E March (` cr) FY09 FY10 FY11E FY12E FY13E Y/E March FY09 FY10 FY11E FY12E FY13E
Profit before tax 233 121 169 231 336 Per Share Data (` )
Depreciation 33 38 42 47 52 EPS 15.1 9.8 10.5 14.3 20.8

Chg. in Working Capital 0 108 9 25 18 Cash EPS 19.6 17.3 14.0 18.2 25.2
DPS 8.0 5.0 5.2 8.0 10.6
Direct taxes paid (52) (73) (44) (60) (87)
Book Value 69.0 33.2 37.5 42.5 50.9
Others 19 (15) (60) (31) (16)
Operating Ratio
Cash Flow from Operations 233 179 116 212 303 30 29 33 33 33
Inventory (days)
(Inc.)/Dec. in Fixed Assets (55) (42) (96) (80) (88) Debtors (days) 6 4 4 4 4
(Inc)/Dec in Investments (42) (68) 60 - 270 Creditors (days) 31 34 36 35 35

Cash Flow from Investing (97) (109) (36) (80) (182) WC cycle (ex-cash) (days) 19 7 9 9 8
Returns %
Inc./ (Dec.) in loans (81) (2) (1) - (406)
RoE 25.4 27.7 29.6 35.7 44.3
Issue of Equity - - - - -
RoCE 26.7 15.0 17.1 23.9 41.6
Interest/Div (Net) (1) (21) 6 8 20
Angel ROIC 22.3 15.2 13.1 18.7 32.6
Dividend Paid (Incl.Tax) 59 105 70 78 117
Valuation Ratio (x)
Others - - - - -
P/E 24.9 38.5 35.9 26.3 18.1
Cash Flow from Financing (139) (87) (77) (87) (543)
P/E(CashEPS) 19.1 21.7 26.8 20.6 14.9
Inc./(Dec.) in Cash (3) (17) 3 46 (58) P/BV 5.4 11.3 10.0 8.8 7.4
Opening Cash balances 44 41 23 27 72 EV/Sales 1.4 1.3 1.1 0.9 0.8
Closing Cash balances 41 23 27 72 14 EV/EBITDA 16.5 26.6 23.2 16.5 11.5
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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