Equity Research

May 2, 2019 INDIA

BSE Sensex: 39032
Britannia Industries SELL
Maintained
ICICI Securities Limited
is the author and Good performance in core (India/biscuits), not-so-good
distributor of this report
in everything else Rs2,896
Q4FY19 result review Britannia's core (India) business continued its good performance with 12% sales
and earnings revision growth led by 7% volume growth (I-Sec estimate). However, the international and
dairy business remained weak, reporting 12% sales decline (weakest performance
Consumer Staples & in 24 quarters). Gross margin expansion, although partly optical (change in
Discretionary business model for bread), is aided by lower priced raw material inventory (I-Sec
view). We continue to like the business momentum in the core biscuit business
Target price Rs2,400 and its demonstrated capability to extract value through cost engineering and
cost reduction but expect valuation multiple compression due to potential
Earnings revision
disappointments in its diversification plans. Maintain SELL. We prefer HUL, ITC,
(%) FY20E FY21E
Sales ↓ 1.9 ↓ 1.9 Nestle in Staples.
EBITDA ↓ 4.0 ↓ 2.2 Conference call on May 2, Thursday, 0930 hours IST. Dial-in number +91 22 6280 1313.
PAT ↓ 4.0 ↓ 0.9
 Healthy core business performance; subdued international + dairy:
Target price revision Consolidated sales / EBITDA / PAT grew 10% / 10% / 13%. Standalone revenue
Rs2,400 from Rs2,500 grew 12% led by 7% volume growth (+10% 2-year CAGR), as per our calculations.
Shareholding pattern However, subsidiary performance (international + dairy) reported 12% revenue
Sep Dec Mar decline (worst performance in 24 quarters). Slowdown in consumer demand in
‘18 ‘18 ‘19 recent months is a concern, however, as per management that should get offset by
Promoters 50.7 50.7 50.7
Institutional favourable monsoons and stable government (policies) post elections.
investors 29.3 29.2 28.1
MFs and UTI 6.4 6.2 5.1
 Moderate inflation in input prices to decelerate margin expansion: Consolidated
Banks, FI’s, EBITDA margin remained flat at 15.6%. Gross margin expansion (+270bps YoY) is
Insurance co 6.6 6.7 7.2
FIIs 16.3 16.3 15.8
driven by the change in business model for bread (moved some costs from raw
Others 20.0 20.1 21.2 material to other expenses) and usage of lower priced raw material inventory (I-Sec
Source: BSE view). We estimate gross margin to remain flat in FY20 (vs. +225bps in FY19) driven
by inflationary raw material prices – wheat / sugar average prices are up 10% / 17%
yoy in April 2019. Other expenses (as a percentage of sales) increased 320bps in
Price chart
4QFY19. We reckon that's due to increase in overheads (and not adspends).
4,000
3,500  Valuation and risks: We cut our estimates 1-4% building in weaker-than-expected
3,000 performance; modelling revenue / EBITDA / PAT CAGR of 15% / 20% / 21% over
2,500 FY19-21E. Maintain SELL with DCF-based revised target price of Rs2,400 (was
(Rs)

2,000
1,500
Rs2,500). Key upside risk to our thesis is faster-than-expected revenue growth in
1,000 core biscuits and steep correction in input costs. We have concerns on the increase
500 in ICD (inter corporate deposits) to group companies over FY2015-18. It has
increased to Rs3.5bn in FY2018 (10% of networth, 28% of OCF, 42% of FCF) from
May-16
Nov-16
May-17
Oct-17
Apr-18
Oct-18
Apr-19

Rs0.5bn in FY2014.
Market Cap Rs695bn/US$10bn Year to March FY18 FY19P FY20E FY21E
Reuters/Bloomberg BRIT.BO/BRIT IN Revenue (Rs mn) 99,140 110,547 127,808 146,158
Shares Outstanding (mn) 240.3 Adj. Net Profit (Rs mn) 10,042 11,591 14,452 17,497
52-week Range (Rs) 3450/2655 Dil. Rec. EPS (Rs) 41.8 48.2 60.1 72.8
Research Analysts: Free Float (%) 49.3 % Chg YoY 13.5 15.3 24.7 21.1
FII (%) 16.7 P/E (x) 69.2 60.0 48.2 39.8
Manoj Menon Daily Volume (US$'000)
manoj.menon@icicisecurities.com 15,253 CEPS (Rs) 47.7 55.0 67.8 81.4
+91 22 6637 7209 Absolute Return 3m (%) (9.5) EV/EBITDA (x) 46.2 40.1 32.5 27.4
Vismaya Agarwal, CFA Absolute Return 12m (%) 5.4 Dividend Yield (%) 0.4 0.5 0.7 0.9
vismaya.agarwal@icicisecurities.com
+91 22 2277 7632 Sensex Return 3m (%) 7.8 RoCE (%) 27.9 25.5 25.9 25.3
Sensex Return 12m (%) 12.4 RoE (%) 32.9 30.3 30.4 29.9

Please refer to important disclosures at the end of this report

Britannia Industries, May 2, 2019 ICICI Securities
Table 1: Q4FY19 results review (consolidated)
(Rs mn)
Q4FY19 Q4FY18 YoY (%) Q3FY19 QoQ (%) FY19 FY18 YoY (%)
Net operating income 27,990 25,375 10 28,424 (2) 110,548 99,140 12
Material cost (16,459) (15,613) 5 (16,688) (1) (65,615) (61,071) 7
Gross profit 11,531 9,762 18 11,737 (2) 44,934 38,069 18
Employee cost (1,082) (1,084) (0) (1,170) (8) (4,418) (4,016) 10
Other expense (6,083) (4,707) 29 (6,049) 1 (23,194) (19,036) 22
Total opex (7,165) (5,791) 24 (7,219) (1) (27,613) (23,052) 20
EBITDA 4,366 3,971 10 4,518 (3) 17,321 15,017 15
Other income 618 444 39 600 3 2,078 1,664 25
Interest (13) (24) (47) (30) (58) (91) (76) 20
Depreciation (469) (424) 11 (424) 11 (1,619) (1,421) 14
Pretax profits 4,502 3,968 13 4,664 (3) 17,689 15,184 17
Tax (1,557) (1,330) 17 (1,658) (6) (6,125) (5,142) 19
PAT 2,946 2,638 12 3,007 (2) 11,564 10,041 15
Minority Interest 27 (2) 0 27 1
PAT after MI 2,972 2,636 13 3,007 (1) 11,591 10,042 15
EPS 12.3 11.0 12 12.5 (2) 48.1 41.8 15

Costs as a % of sales
Gross margin (%) 41.2 38.5 272 bps 41.3 -10 bps 40.6 38.4 224 bps
EBITDA margin (%) 15.6 15.6 -6 bps 15.9 -30 bps 15.7 15.1 52 bps
Material cost 58.8 61.5 -273 bps 58.7 9 bps 59.4 61.6 -225 bps
Employee cost 3.9 4.3 -41 bps 4.1 -26 bps 4.0 4.1 -6 bps
Other expenditure 21.7 18.6 318 bps 21.3 45 bps 21.0 19.2 177 bps
Income tax rate (%) 34.6 33.5 105 bps 35.5 -97 bps 34.6 33.9 75 bps
Source: Company data, I-Sec research

Table 2: Q4FY19 results review (standalone)

(Rs mn)
Q4FY19 Q4FY18 YoY (%) Q3FY19 QoQ (%) FY19 FY18 YoY (%)
Net operating income 26,681 23,884 12 27,032 (1) 104,826 93,041 13
Material cost (15,770) (14,900) 6 (15,915) (1) (62,776) (57,735) 9
Gross profit 10,912 8,983 21 11,117 (2) 42,050 35,306 19
Employee cost (776) (813) (5) (856) (9) (3,216) (2,949) 9
Other expense (5,913) (4,472) 32 (5,798) 2 (22,225) (18,253) 22
Total opex (6,689) (5,285) 27 (6,654) 1 (25,441) (21,202) 20
EBITDA 4,222 3,699 14 4,463 (5) 16,609 14,104 18
Other income 583 400 46 554 5 1,918 1,560 23
Interest (3) (3) 10 (4) (8) (15) (15) 6
Depreciation (363) (363) (0) (369) (2) (1,350) (1,198) 13
Pretax profits 4,439 3,733 19 4,645 (4) 17,161 14,452 19
Tax (1,542) (1,286) 20 (1,618) (5) (5,939) (4,973) 19
Recurring PAT 2,897 2,447 18 3,027 (4) 11,222 9,479 18
EPS 12.1 10.2 18 12.6 (4) 46.7 39.5 18

Costs as a % of sales
Gross margin (%) 40.9 37.6 328 bps 41.1 -23 bps 40.1 37.9 216 bps
EBITDA margin (%) 15.8 15.5 33 bps 16.5 -69 bps 15.8 15.2 68 bps
Material cost 59.1 62.4 -329 bps 58.9 22 bps 59.9 62.1 -217 bps
Employee cost 2.9 3.4 -50 bps 3.2 -26 bps 3.1 3.2 -11 bps
Other expenditure 22.2 18.7 343 bps 21.4 71 bps 21.2 19.6 158 bps
Income tax rate (%) 34.7 34.4 29 bps 34.8 -9 bps 34.6 34.4 19 bps
Source: Company data, I-Sec research

2
 0
2
4
6
8
10
12
14

(%)

0
2
4
6
(%) 8
10
12
14
16
0
2
4
6
(%) 8
10
12
14
16
Q1FY16

10
Q1FY16 10 Q1FY16 10
Q2FY16 12
Q2FY16 9 Q2FY16 9
Q3FY16 11
Q3FY16 7 Q3FY16 6
Q4FY16
10
Q4FY16 5 Q4FY16 4
Q1FY17 8
Q1FY17 9 Q1FY17 9
8
Q2FY17
Q2FY17 12 Q2FY17 11

2
Q3FY17
Chart 1: Volume growth

Q3FY17 6 Q3FY17 6

2
Q4FY17 Q4FY17 Q4FY17
7 6

Source: Company data, I-Sec research

Source: Company data, I-Sec research
Source: Company data, I-Sec research
Q1FY18 2
Q1FY18 7 Q1FY18 6
Britannia Industries, May 2, 2019

Q2FY18 8 Q2FY18 7 Q2FY18

Q3FY18
13

Q3FY18 15 Q3FY18 13

Chart 5: Standalone revenue growth

Q4FY18 14 Q4FY18 13 Q4FY18

Chart 3: Consolidated revenue growth

Q1FY19
13 13

Q1FY19 15 Q1FY19 14
Q2FY19 13 Q2FY19 13 Q2FY19
10

Q3FY19 12 Q3FY19 11 Q3FY19

7

Q4FY19 12 Q4FY19 10 Q4FY19

(%)
0
2
4
6

(6)
(4)
(2)

10
12
(%)14
16
18
10
12
(%)14
16
18
0

Q1FY16
Q1FY16 14.4 Q1FY16 14.7
Q2FY16
(3)

Q2FY16 15.2 Q2FY16 15.1

Q3FY16
(4)

Q3FY16 14.6 Q3FY16 14.4

Q4FY16
(5)

Q4FY16 13.6 Q4FY16 13.6

1

Q1FY17 15.0 Q1FY17 14.8 Q1FY17

4

Q2FY17 14.5 Q2FY17 14.2 Q2FY17

4

Q3FY17 14.0 Q3FY17 13.8 Q3FY17

5
Chart 2: Price / mix growth

Q4FY17 13.7 Q4FY17 13.7 Q4FY17

Source: Company data, I-Sec research

Source: Company data, I-Sec research

Source: Company data, I-Sec research

5

Q1FY18 14.8 Q1FY18 14.5 Q1FY18

2

Q2FY18 14.8 Q2FY18 14.8 Q2FY18

2

Q3FY18 15.5 Q3FY18 15.5 Q3FY18

Chart 6: Standalone EBITDA margin

2

Q4FY18 15.5 Q4FY18 15.6 Q4FY18

Chart 4: Consolidated EBITDA margin
2

Q1FY19 15.3 Q1FY19 15.3 Q1FY19

3

Q2FY19 15.7 Q2FY19 15.8 Q2FY19

5

Q3FY19 16.5 Q3FY19 15.9 Q3FY19

5

Q4FY19 15.8 Q4FY19 15.6 Q4FY19

3
ICICI Securities
Britannia Industries, May 2, 2019 ICICI Securities

Chart 7: Mean P/E and standard deviations

70 BRIT P/E -1 Std Dev. Mean +1 Std Dev.

60

50

(x) 40

30

20

10
Jan-10

Jan-12

Jan-14

Jan-16

Jan-18
Sep-10

Sep-12

Sep-14

Sep-16

Sep-18
May-09

May-11

May-13

May-15

May-17

May-19
Source: Company data, I-Sec research

4
Britannia Industries, May 2, 2019 ICICI Securities

Financial summary
Table 3: Profit & Loss statement Table 6: Cashflow statement
(Rs mn, year ending March 31) (Rs mn, year ending March 31)
FY18 FY19P FY20E FY21E FY18 FY19P FY20E FY21E
Net Sales 99,140 110,547 127,808 146,158 Operating Cashflow 10,205 12,104 14,535 16,943
Operating Expenses 84,123 93,213 106,423 120,823 Working Capital
EBITDA 15,017 17,334 21,385 25,335 2,283 (2,705) (807) (692)
Changes
% margins 15.1 15.7 16.7 17.3 Capital Commitments (4,212) (4,033) (2,000) (1,151)
Depreciation & Amortisation 1,421 1,619 1,842 2,074 Free Cashflow 8,276 5,366 11,727 15,100
Gross Interest 76 91 75 66 Cashflow from
Other Income 1,664 2,065 2,545 3,464 (9,563) (1,667) (193) 1,516
Investing Activities
Recurring PBT 15,184 17,689 22,013 26,658 Issue of Share Capital 151 0 - -
Less: Taxes 5,142 6,125 7,587 9,188 Inc (Dec) in Borrowings 706 (493) (225) (216)
Less: Minority Interest 1 27 27 27 Dividend paid (3,174) (3,612) (4,338) (5,784)
Net Income (Reported) 10,042 11,591 14,452 17,497 Chg. in Cash & Bank
Extraordinaries (Net) - - - - 608 3,627 8,972 11,767
balance
Recurring Net Income 10,042 11,591 14,452 17,497 Closing cash & balance 1,299 603 9,575 21,341
Source: Company data, I-Sec research Source: Company data, I-Sec research

Table 4: Balance sheet Table 7: Key ratios

(Rs mn, year ending March 31) (Year ending March 31)
FY18 FY19P FY20E FY21E FY18 FY19P FY20E FY21E
Assets Per Share Data (Rs)
Total Current Assets 31,513 35,263 47,763 63,803 EPS 41.8 48.2 60.1 72.8
of which cash & cash eqv. 1,864 1,098 10,070 21,836 Cash EPS 47.7 55.0 67.8 81.4
Total Current Liabilities & Dividend per share (DPS) 12.5 15.0 20.0 25.0
15,543 17,753 20,645 24,410
Provisions Book Value per share (BV) 141.9 177.0 219.1 267.8
Net Current Assets 15,970 17,510 27,117 39,393
Investments 4,806 9,269 9,501 9,748 Growth (%)
Net Fixed Assets 13,306 16,736 16,894 15,971 Net Sales 9.7 11.6 15.6 14.4
Capital Work-in-Progress 2,028 1,012 1,012 1,012 EBITDA 17.5 15.4 23.4 18.5
Total Assets 36,110 44,528 54,525 66,125 PAT 13.5 15.4 24.7 21.1
DPS 13.6 20.0 33.3 25.0
Liabilities
Borrowings 2,142 1,767 1,678 1,592 Valuation Ratios (x)
Deferred Tax Liability (226) (99) (99) (99) P/E 69.2 60.0 48.2 39.8
Minority Interest 131 327 300 273 P/CEPS 60.7 52.7 42.7 35.6
Equity Share Capital 240 240 240 240 P/BV 20.4 16.4 13.2 10.8
Face Value per share (Rs) 1 1 1 1 EV / EBITDA 46.2 40.1 32.5 27.4
Reserves & Surplus 33,822 42,292 52,406 64,119 EV / Sales 7.1 6.3 5.5 4.8
Less: Misc. Exp. n.w.o.
Net Worth 34,062 42,533 52,647 64,359 Operating Ratios
Total Liabilities 36,110 44,528 54,525 66,125 Raw Material / Sales (%) 61.6 59.4 59.4 59.3
Source: Company data, I-Sec research Employee cost / Sales (%) 4.1 4.0 4.0 4.0
Other exps / Sales (%) 19.2 21.0 19.8 19.4
Table 5: Quarterly trends Other Income / PBT (%) 11.0 11.7 11.6 13.0
Effective Tax Rate (%) 33.9 34.6 34.5 34.5
(Rs mn, year ending March 31) Working Capital (days) 28.3 34.5 32.2 29.9
Jun 18 Sep 18 Dec 18 Mar 19 Inventory Turnover (days) 24.0 25.8 25.0 24.8
Net sales 25,438 28,696 28,424 27,990 Receivables (days) 11.2 13.0 12.0 12.1
% growth (YoY) 13.6 12.5 10.5 10.1 Payables (days) 36.6 37.7 38.0 40.0
EBITDA 3,894 4,544 4,518 4,366 Net D/E (x) (0.3) (0.2) (0.3) (0.4)
Margin (%) 15.3 15.8 15.9 15.6
Other income 420 440 600 618 Profitability Ratios (%)
Extraordinaries (Net) - - - - Net Income Margins 10.1 10.5 11.3 12.0
Net profit 2,582 3,030 3,007 2,972 RoACE 24.9 23.1 23.5 23.1
Source: Company data, I-Sec research RoAE 29.5 27.3 27.5 27.2
Dividend Payout 36.0 37.4 40.0 41.3
Dividend Yield 0.4 0.5 0.7 0.9
EBITDA Margins 15.1 15.7 16.7 17.3
Source: Company data, I-Sec research

5
 Britannia Industries, May 2, 2019 ICICI Securities

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New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise)
BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

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