2QFY2013 Result Update | FMCG

November 15, 2012

Britannia
Performance Highlights
Quarterly Highlights (Standalone)
Y/E March (` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

BUY
CMP Target Price
Investment Period
2QFY12 1,294 62 4.8 38 % yoy 8.4 (3.4) (52)bp 18.9 1QFY13 1,222 65 5.3 43 % qoq 14.8 (7.7) (104)bp 3.7

`468 `584
12 Months

2QFY13 1,403 60 4.3 45

Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code FMCG 5,593 (265) 0.5 600/400 26,411 2 18,471 5,631 BRIT.BO BRIT@IN

For 2QFY2013, Britannia Industries (Britannia) posted a top-line growth of 8.4% yoy to `1,403cr (`1,294cr in 2QFY2012). Net profit grew by 18.9% yoy to `45cr, aided by a 141.2% yoy growth in other income to `27cr. Key highlights for the quarter: Britannias top-line grew by 8.4% yoy largely on account of higher prices as volume growth is expected to be ~1% for the quarter. Gross margin rose marginally by 47bp yoy to 35.5% aided by higher prices. The prices of key raw materials such as wheat and sugar have gone up considerably, thereby putting pressure on the gross margins. Advertising expenses as a percentage of sales rose by 61bp on a yoy basis as the company which is facing stiff competition from the likes of ITCs Sunfeast biscuits had to step up advertising in a low demand scenario. Other expenses as a percentage of sales rose by 145bp yoy, which we believe, is to an extent due to the royalty it has to pay to promoter group w.e.f 2QFY2013. The company registered a 52bp yoy decline in its OPM to 4.3%, resulting in the EBITDA declining by 3.4% on a yoy basis. Outlook and valuation: We expect Britannia to post a revenue and bottom-line CAGR of ~15.3% and 25.6% respectively over FY2012-14E. At the current market price, the stock is trading at 19.0x FY2014 EPS; we recommend Buy on the stock with a target price of `584. Key financials (Standalone)
Y/E March (` cr) Net sales % chg Net profit (Adj.) % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 51.0 14.9 15.1 19.1

Abs. (%) Sensex BRIT

3m 4.2 0.9

1yr 9.4 (2.0)

3yr 9.6 39.9

FY2011 4,198 23.4 145 24.7 4.9 12.2 38.5 12.4 34.3 18.8 1.2 24.8

FY2012E 4,947 17.8 187 28.5 5.1 15.6 29.9 10.7 38.4 27.7 1.0 20.3

FY2013E 5,627 13.7 219 17.1 4.9 18.3 25.6 9.3 39.1 36.6 0.9 18.6

FY2014E 6,581 17.0 295 34.8 5.7 24.7 19.0 7.2 42.7 42.7 0.8 13.7

V.Srinivasan
022 3935 7800 Ext: 6831

v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Britannia | 2QFY2013 Result Update

Exhibit 1: Quarterly performance (Standalone)

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) EPS (`) Adjusted PAT
Source: Company, Angel Research

2QFY13 1,403 905 64.5 37 2.7 118 8.4 283 20.2 1,343 60 4.3 9 14 27 64 64 4.5 19 29.3 45 3.2 12 3.8 45

2QFY12 1,294 841 65.0 48 3.7 101 7.8 242 18.7 1,232 62 4.8 10 12 11 52 52 4.0 14 27.1 38 2.9 12 3.2 38

% yoy 8.4 7.6 (22.7) 16.9 16.8 9.0 (3.4) (9.2) 23.5 141.2 22.4 22.4 32.0 18.9

1QFY13 1,222 757 62.0 38 3.1 99 8.1 263 21.5 1,157 65 5.3 9 13 18 60 60 4.9 17 28.2 43 3.6 12

% qoq 14.8 19.5 4.0 (1.3) (14.0) 19.4 4.0 7.7 (6.2) 16.1 (7.7) (7.1) 9.6 49.0 5.3 0.0 5.3 (8.3) 9.3 3.9 3.7 (9.7) 0.1 3.6 3.7

1HFY2013 2,624 1,662 63.3 75 2.9 216 8.2 546 20.8 2,499 126 4.8 18 27 44 125 125 4.8 36 28.6 89 3.4 12 7.4 89

1HFY2012 2,393 1,567 65.5 79 3.3 183 7.6 460 19.2 2,288 106 4.4 19 23 45 109 109 4.6 30 27.0 80 3.3 12 6.7 80

% chg 9.7 6.1 (4.6) 18.3 18.7 9.2 18.9 (3.9) 20.5 (1.3) 14.2 14.2 20.7 11.8

18.8 18.9

3.6 43

11.7 11.8

Exhibit 2: 2QFY2013 Actual vs Angel estimates

(` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

Actual 1,403 60 4.3 45

Angel Est. 1,459 73 5.0 49

% Diff. (3.8) (17.7) (72)bp (8.5)

November 15, 2012

Britannia | 2QFY2013 Result Update

Top-line growth driven by both volume and value growth

Britannias top-line grew by 8.4% yoy largely on account of higher prices as volume growth is expected to be ~1% for the quarter. The companys strategy of extending its brands in premium categories and continuous focus on increasing value-added products in its overall sales mix resulted in better realization. For instance, the Good-Day brand has been extended from Good-Day Regular (price index of 156) to Good-Day Chocochips (price index of 256) and Fresh Bake (price index of 389).

Exhibit 3: Top-line grows 8.4% yoy

1,600 1,400 1,200 1,000 (` cr) 800 600 1,095 1,080 1,126 1,103 1,294 1,247 1,310 1,222 1,403 400 200 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 27.6 22.5 21.1 20.8 15.5 18.2 10.8 16.3 8.4 30 25 20 15 10 5 0 ( %)

Top-line (LHS) Source: Company, Angel research

YoY growth (RHS)

OPM contracts by 52bp yoy

Gross margin rose marginally by 47bp yoy to 35.5% aided by higher prices. The prices of key raw materials such as wheat and sugar have gone up considerably, thereby putting pressure on the gross margins. Advertising expenses as a percentage of sales rose by 61bp on a yoy basis as the company which is facing stiff competition from the likes of ITCs Sunfeast biscuits had to step up advertising in a low demand scenario. Other expenses as a percentage of sales rose by 145bp yoy, which we believe, is to an extent due to the royalty it has to pay to promoter group w.e.f 2QFY2013.

November 15, 2012

Britannia | 2QFY2013 Result Update

Exhibit 4: OPM performance

7% 6% 5% (%) 4% 3% 2% 1% 0% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 300 18.9 250 200 150 100 -4.7 32 37 43 31 38 54 53 43 45 50 0 -50 -100 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 ( %) 4.5% 4.7% 4.8% 4.3% 6.4% 6.5% 5.2% 5.3% 4.3%

Source: Company, Angel research

Net profit grows by 18.9% yoy

Despite a 3.4% yoy de-growth in EBITDA, net profit grew by 18.9% yoy to `45cr (`38cr in 2QFY2012) aided by a 141.2% yoy growth in other income to `27cr. However, depreciation rose by 23.5% yoy to `14cr. Tax rate too was higher at 14.3%.

Exhibit 5: Recurring profit performance

60 50 40 (` cr) 30 20 10 -51.7 3.5 18.8 44.8 235.7 22.6 38.7

PAT (LHS) Source: Company, Angel Research

YoY growth (RHS)

Investment arguments
Renewed product portfolio to aid growth: Britannia has recently forayed into breakfast cereals, milk and premium category biscuits. We believe this rejig in product portfolio offers significant uptrading benefits to the company, thereby fuelling growth. Also, with increased per capita consumption and penetration, the company will continue to grow at a pace faster than its historical growth.

November 15, 2012

Britannia | 2QFY2013 Result Update

Outlook and valuation

We expect Britannia to post a revenue and bottom-line CAGR of ~15.3% and 25.6% respectively over FY2012-14E. At the current market price, the stock is trading at 19.0x FY2014 EPS; we recommend a Buy on the stock with a target price of `584.

Exhibit 6: One-year forward PE

40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 Feb-09 Apr-09 Feb-10 Apr-10 Feb-11 Apr-11 Feb-12 Oct-08 Oct-09 Oct-10 Oct-11 Aug-09 Aug-10 Aug-11 Aug-12 Dec-08 Dec-09 Dec-10 Dec-11 Oct-12 Apr-12 Jun-09 Jun-10 Jun-11 Jun-12 (x)

Source: Bloomberg, Angel Research; Note: Blue line represents 5-yr average

Exhibit 7: Peer valuation

Company Asian Paints Britannia Colgate Dabur GCPL GSKCHL* HUL ITC Marico Nestle* TGBL Reco Neutral Buy Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr)
38,504 5,590 18,014 22,399 23,573 12,641 115,305 216,218 13,897 45,610 11,051
#

CMP (`)
4,014 468 1,325 129 693 3,006 533 277 226 4,730 179

TP (`)
584 -

Upside (%)
25 -

P/E (x) FY13E

32.5 25.6 36.4 28.8 30.4 27.0 36.2 29.7 36.6 41.2 27.0

EV/Sales (x) FY13E

3.3 0.9 5.5 3.7 3.9 3.6 4.3 7.0 2.9 5.2 1.4

RoE (%) FY13E

37.4 39.1 101.9 43.2 26.4 36.3 70.9 35.8 25.4 71.2 8.2

CAGR # Sales
17.0 15.3 15.2 15.9 24.7 16.8 15.5 17.2 18.6 16.5 9.7

FY14E
27.4 19.0 31.2 24.6 25.1 22.8 31.3 25.3 29.0 33.8 22.9

FY14E
2.8 0.7 4.8 3.1 3.2 3.0 3.8 6.0 2.4 4.4 1.3

FY14E
35.3 42.7 98.5 41.4 26.1 34.0 59.8 35.3 22.6 60.3 9.5

EPS
19.2 25.6 13.8 18.9 31.1 24.9 19.7 17.7 25.4 15.0 16.6

Source: Company, Angel Research; Note: Denotes CAGR over FY2012-14E, *December Year Ending.

Company background
Britannia is one of the foremost food companies in India. The company is present across the biscuits, dairy products and breads segments and has recently forayed into the breakfast cereals category with the launch of Healthy Start. Britannia derives ~85% of its revenue from the biscuits segment, where it has formidable brands such as Tiger (glucose biscuits), Treat (cream biscuits), 50-50 (crackers), Good Day (premium cookies and the company's highest selling brand) and NutriChoice (premium high-fiber biscuits).

November 15, 2012

Britannia | 2QFY2013 Result Update

Profit and loss statement (Standalone)

Y/E March (` cr) Total operating income % chg Total Expenditure Cost of Materials Advertising Exp (Incl. Promotion) Personnel Others EBITDA % chg (% of Net Sales) Depreciation& Amortization EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Prior Period & Extra Exp./(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earn. of asso. Less: Minority interest (MI) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg
previous year numbers

FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 3,112 20.4 2,849 1,910 211 96 632 263 13.4 8.4 33 229 13.1 7.4 16 40 15.8 253 4.1 20.63 233 52 20.6 201 201 180 (5.6) 5.8 15.1 15.1 (5.6) 3,403 9.4 3,241 2,164 269 106 703 162 (38.2) 4.8 38 125 (45.6) 3.7 8 51 30.4 167 (33.9) 46.64 121 4 2.5 163 163 117 (35.4) 3.4 9.8 9.8 (35.4) 4,198 23.4 3,992 2,764 304 120 804 206 27.1 4.9 45 162 29.6 3.9 38 74 37.4 198 18.3 198 53 26.6 145 145 145 24.7 3.5 12.2 12.2 24.7 4,947 17.8 4,695 3,180 381 146 988 252 22.2 5.1 47 205 26.6 4.1 38 86 34.0 252 27.4 252 66 26.0 187 187 187 28.5 3.8 15.6 15.6 28.5 5,627 13.7 5,352 3,594 450 169 1,139 275 9.0 4.9 50 225 9.8 4.0 8 84 28.0 301 19.5 301 83 27.5 219 219 219 17.1 3.9 18.3 18.3 17.1 6,581 17.0 6,206 4,144 526 197 1,339 375 36.5 5.7 57 318 41.5 4.8 8 99 24.1 409 35.7 409 115 28.0 295 295 295 34.8 4.5 24.7 24.7 34.8

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

November 15, 2012

Britannia | 2QFY2013 Result Update

Balance Sheet (standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Other long term liabilities Long term provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and advances Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
previous year numbers

FY2009 24 801 825 25 10 860 512 234 278 6 423 539 41 195 303 413 126 27 860

FY2010 FY2011 FY2012 FY2013E FY2014E 24 372 396 430 (7) 819 548 266 282 10 491 529 23 198 308 492 37 819 24 427 451 431 6 16 123 1,027 594 290 304 12 545 142 480 29 83 368 456 25 1,027 24 496 520 28 8 20 117 693 677 298 379 80 429 125 660 31 194 434 979 (320) 693 24 575 599 28 6 20 122 775 793 348 444 79 441 125 855 65 294 496 1,170 (314) 775 24 758 782 28 6 20 133 969 902 405 497 90 641 125 920 81 294 545 1,304 (384) 969

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

November 15, 2012

Britannia | 2QFY2013 Result Update

Cash flow statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Interest / Dividend (Net) Direct taxes paid Payment of VRS/ other comp. Profit on sale of invest/FA (Net) Others Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest/Dividend paid (Net) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
previous year numbers

FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 233 33 0.5 (5) 52 (3) 7 26 224 (55) (42) (97) (81) 50 (1) (130) (3) 44 41 121 38 100 (25) 73 33 12 2 183 (40) (68) (108) (2) 112 (21) (93) (17) 41 23 198 45 (43) 13 53 20 48 189 (47) (54) (102) 1 70 13 (81) 5 23 29 252 47 490 5 66 23 (142) 564 (152) 116 (36) (402) 118 6 (526) 2 29 31 301 50 199 (79) 83 (3) (178.7) 213 (115) (115) 140 (76) (64) 34 31 65 409 57 125 (74) 115 (3) (28) 377 (120) (200) (320) 112 (71) (41) 16 65 81

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

November 15, 2012

Britannia | 2QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA Per Share Data (`) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE Angel ROIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC (ex-cash) (days)
previous year numbers

FY2009 FY2010 FY2011 31.0 23.8 6.8 1.6 1.6 19.5 15.1 19.6 8.0 69.0 26.7 58.8 25.4 6.1 30 6 31 19 48.0 27.9 14.1 1.5 1.5 31.6 9.8 16.8 5.0 33.2 14.9 42.3 26.7 6.2 29 4 33 8 38.5 29.4 12.4 1.2 1.2 24.8 12.2 15.9 6.5 37.8 18.8 36.6 34.3 7.1 27 5 31 4

FY2012 FY2013E FY2014E 29.9 23.9 10.7 1.0 1.0 20.3 15.6 19.6 8.5 43.5 27.7 133.4 38.4 7.3 32 5 63 (23) 25.6 20.8 9.3 0.9 0.9 18.6 18.3 22.5 10.0 50.1 36.6 118.3 39.1 7.1 28 5 66 (20) 19.0 15.9 7.2 0.8 0.8 13.7 24.7 29.4 8.0 65.4 42.7 203.6 42.7 7.3 26 5 66 (24)

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

November 15, 2012

Britannia | 2QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Britannia No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

November 15, 2012

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