Published on 18/05/2019 11:04:55 AM | Source: Religare Securities Ltd

Buy Britannia Industries Ltd For The Target Rs.3,402 - Religare Securities

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In-line performance; Growth story intact;

Britannia Industries Ltd’s (BRIT) has posted decent set of numbers for Q4FY19. Its revenue grew by 10.3% yoy driven by innovation and expansion in distribution reach. The company’s EBITDA and PAT grew in double digits by 10.0% and 11.8% yoy respectively, led by cost efficiency initiatives. Going forward, its strategy would remain unchanged to focus on strengthening its presence in rural and Hindi belt area, expanding distribution reach and premiumization and innovative of products. We believe FMCG sector is facing challenging times in the near term, due to slowdown in consumption, however, it would get revive in medium to long term. We remain positive on the sector and Britannia’s long-term growth prospects and recommend a Buy on the stock with price target of Rs 3,402.


Q4FY19 Result Update:

* BRIT continued its double-digit revenue growth of 10.3% yoy to Rs 2,799 cr driven by volume growth of 7%. During the quarter, innovation and premiumization of products continued across all its segments. With the company’s constant efforts of widening distribution network in both rural and urban market and expanding in states with weak presence, BRIT has been able to gain distribution market share over it peers. For FY19, the company has posted in -line revenue growth of 10.7% to Rs 11,055 cr.

* BRIT’s gross profit margins improved by 273bps yoy to Rs 1,153 cr due to cost saving initiatives and premiumization of products. On operational front, EBITDA and PAT grew by 10% yoy to Rs 437 cr and 11.8% to Rs294.6 cr, respectively. During the quarter, EBITDA margin declined marginally by 5bps yoy to 15.6%, while its PAT margin improved 14 bps yoy to 10.5% due to increase in other income (+40.1%).


* Concall Key Highlights:

1) During the quarter, slowdown in consumption was visible more in rural than urban areas and the management expects it to cool-off in medium to long-term with stable government and better monsoon. 2) The company is likely to take price hikes in the coming quarters. Further, the raw material price inflation would also moderate from current levels. This is likely to provide cushion to margins. 3) Innovation remains the key for the quarter. In Q4FY19 company launched products like Swiss Rolls, Layer Cake and Brownies to bridge gap, while premiumization continued in segment like Treat Burst, Treat Stars, and Milk Bikis Chocolate Cream. In addition, the company launched Treat Croissant and Timepass Salted Snacks. 


Outlook & Valuation:

BRIT continued its consistent growth momentum in FY19. Further, its FY19 revenue grew by 10.7% yoy, driven by 7% volume growth and premiumization of products. During the same period, the company’s Gross profit, EBITDA and PAT margins improved by 178bps, 65bps and 41bps, on the back of operating efficiencies and innovation of products across categories. BRIT would continue to focus on expanding business by renovating and innovating products, expanding distribution network, gaining market share, moderating gap in its business segments and by continuing cost saving initiatives. Further, we estimate BRIT’s Revenue, EBITDA and PAT to grow by 13.5%, 16.4% & 16.1% CAGR respectively over FY19-21E, led by healthy sector outlook of Indian biscuit segment, bakery and dairy business, pick-up in rural demand, steady capacity addition and improved product mix. We recommend a Buy on the stock with target price of Rs. 3,402.


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