Britannia Industries

Company Update
INDIA
CONSUMER STAPLES
7 January 2015
BUY
Britannia Industries
TP: INR 2,200.00
 10.2%
BRIT IN
Outlook strong; raising earnings/TP – maintain BUY
We raise our FY16/FY17 earnings for BRIT by ~13%/14% on expectations of
continued benefits flowing in from mix improvements, cost synergies and a
muted RM inflation outlook. We built in a 350bps margin expansion over
FY14-FY17, leading to a strong EBITDA/PAT CAGR of 29% over this period.
An increase in A&P spends in H2FY15/FY16 should lead to market share
gains, while margins could surprise on lower RM costs. We roll over to a
Mar’16 TP of Rs 2,200 (from Rs 1,800 earlier) and maintain BUY on the stock.
REPORT AUTHORS
Gaurang Kakkad
+91 22 6766 3470
gaurang.kakkad@religare.com
 Topline growth at 14.6% CAGR: We expect BRIT to report a 14.6% revenue CAGR
over FY14-FY17 with volume growth likely to average at ~7-8%. We expect the
company to continue benefiting from the premiumisation of its portfolio, with
premium-end offerings likely to see a higher growth rate (20% YoY) than the lower
end segment. Despite a benign input cost scenario (flattish RM cost Index YoY), the
company is likely to take 2-3% price hikes each year as competitive intensity in the
sector has remained muted.
Premal Kamdar
 Margins to expand 350bps over FY14-FY17: We expect BRIT to report a 29%
EBITDA CAGR over FY14-FY17 as margins likely improve from ~8% in FY14 to ~11.5%
in FY17. A richer product mix coupled with a benign input cost scenario would shore
up gross margins by 300bps over FY14-FY17, while the company also benefits from
operating leverage due to cost rationalisation measures. BRIT is also likely to
increase A&P spends from 8.3% in FY15 to 8.9% in FY17 as it tries to gain back
market share from competitors. We expect a 29% PAT CAGR over FY14-FY17 on the
back of strong margins.
INR 1,995.75
 Upgrading earnings; TP revised to Rs 2,200: We raise our FY16/FY17 earnings for
BRIT by ~13%/14% on expectations of strong margins due to premiumisation
benefits, benign input costs and operating leverage. We roll over to a Mar’16 TP of
Rs 2,200 (from a Dec’15 TP of Rs 1,800). Maintain BUY.
3M AVG DAILY VOLUME/VALUE
+91 22 6766 3469
premal.kamdar@religare.com
PRICE CLOSE (07 Jan 15)
MARKET CAP
INR 239.3 bln
USD 3.8 bln
SHARES O/S
119.5 mln
FREE FLOAT
49.0%
0.1 mln / USD 3.8 mln
52 WK HIGH
52 WK LOW
INR 1,926.95
INR 809.10
Financial Highlights
Y/E 31 Mar
FY13A
FY14A
FY15E
FY16E
FY17E
Revenue (INR mln)
61,359
68,293
78,358
89,706
1,02,738
EBITDA (INR mln)
3,710
5,438
7,817
9,885
11,776
Adjusted net profit (INR mln)
2,595
3,956
5,581
7,058
8,413
Adjusted EPS (INR)
21.7
33.0
46.5
58.8
70.1
Adjusted EPS growth (%)
29.9
51.8
41.1
26.5
19.2
DPS (INR)
7.1
10.7
15.4
19.5
23.3
ROIC (%)
43.6
45.2
68.2
97.5
132.8
Adjusted ROAE (%)
53.7
58.4
59.0
55.0
49.7
Adjusted P/E (x)
91.9
60.5
42.9
33.9
28.5
EV/EBITDA (x)
64.6
44.3
30.6
23.9
19.7
P/BV (x)
42.7
30.0
21.9
16.3
12.5
(INR)
Stock Price
Index Price
29,400
1,790
1,290
24,400
790
19,400
290
14,400
Source: Company, Bloomberg, RCML Research
This report has been prepared by Religare Capital Markets Limited or one of its affiliates. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the end of
this report. Analysts employed by non-US affiliates are not registered with FINRA regulation and may not be subject to FINRA/NYSE restrictions on communications with covered companies, public appearances, and
trading securities held by a research analyst account.
BUY
Britannia Industries
TP: INR 2,200.00
 10.2%
BRIT IN
Company Update
INDIA
CONSUMER STAPLES
Per Share Data
Y/E 31 Mar (INR)
FY13A
FY14A
FY15E
FY16E
FY17E
Reported EPS
21.7
33.0
46.5
58.8
70.1
Adjusted EPS
21.7
33.0
46.5
58.8
70.1
7.1
10.7
15.4
19.5
23.3
46.7
66.5
91.3
122.6
159.9
FY13A
FY14A
FY15E
FY16E
FY17E
3.9
3.5
3.0
2.6
2.3
EV/EBITDA
64.6
44.3
30.6
23.9
19.7
Adjusted P/E
91.9
60.5
42.9
33.9
28.5
P/BV
42.7
30.0
21.9
16.3
12.5
FY13A
FY14A
FY15E
FY16E
FY17E
EBITDA margin
6.0
8.0
10.0
11.0
11.5
EBIT margin
4.9
6.7
8.7
9.8
10.3
Adjusted profit margin
4.2
5.8
7.1
7.9
8.2
Adjusted ROAE
53.7
58.4
59.0
55.0
49.7
ROCE
28.6
33.9
42.1
41.8
39.1
Revenue
12.4
11.3
14.7
14.5
14.5
EBITDA
29.6
46.6
43.8
26.4
19.1
Adjusted EPS
29.9
51.8
41.1
26.5
19.2
153.3
(0.3)
(5.1)
(14.9)
(8.0)
DPS
BVPS
Valuation Ratios
Y/E 31 Mar (x)
EV/Sales
Financial Ratios
Y/E 31 Mar
Profitability & Return Ratios (%)
YoY Growth (%)
Invested capital
Working Capital & Liquidity Ratios
Receivables (days)
Inventory (days)
7
6
6
6
6
38
35
35
35
35
Payables (days)
53
43
44
44
43
Current ratio (x)
0.9
0.8
1.0
1.2
1.4
Quick ratio (x)
0.1
0.1
0.3
0.5
0.7
Gross asset turnover
4.7
4.6
4.6
4.9
5.1
Total asset turnover
3.3
3.4
3.3
3.0
2.9
Net interest coverage ratio
7.2
55.6
136.3
195.4
318.2
Adjusted debt/equity
0.5
0.1
(0.2)
(0.5)
(0.6)
FY13A
FY14A
FY15E
FY16E
FY17E
72.4
69.5
69.0
69.0
69.0
120.3
123.6
118.7
116.3
115.4
Turnover & Leverage Ratios (x)
DuPont Analysis
Y/E 31 Mar (%)
Tax burden (Net income/PBT)
Interest burden (PBT/EBIT)
EBIT margin (EBIT/Revenue)
4.9
6.7
8.7
9.8
10.3
Asset turnover (Revenue/Avg TA)
330.9
339.8
327.2
304.1
285.1
Leverage (Avg TA/Avg equities)
383.6
296.5
253.0
229.9
212.7
53.7
58.4
59.0
55.0
49.7
Adjusted ROAE
7 January 2015
Page 2 of 4
BUY
Britannia Industries
TP: INR 2,200.00
 10.2%
BRIT IN
Company Update
INDIA
CONSUMER STAPLES
Income Statement
Y/E 31 Mar (INR mln)
FY13A
FY14A
FY15E
FY16E
FY17E
Total revenue
61,359
68,293
78,358
89,706
1,02,738
EBITDA
3,710
5,438
7,817
9,885
11,776
EBIT
2,979
4,606
6,816
8,793
10,568
Net interest income/(expenses)
(413)
(83)
(50)
(45)
(33)
Other income/(expenses)
1,017
1,170
1,322
1,481
1,658
Exceptional items
0
0
0
0
0
EBT
3,583
5,693
8,088
10,229
12,193
Income taxes
(986)
(1,736)
(2,507)
(3,171)
(3,780)
0
0
0
0
0
(2)
(2)
0
0
0
2,595
3,956
5,581
7,058
8,413
Extraordinary items
Min. int./Inc. from associates
Reported net profit
Adjustments
0
0
0
0
0
2,595
3,956
5,581
7,058
8,413
FY13A
FY14A
FY15E
FY16E
FY17E
6,749
7,982
9,061
10,132
11,448
0
0
0
0
0
Provisions
2,786
3,321
4,853
6,137
7,316
Debt funds
3,610
1,672
1,672
1,672
1,672
0
0
0
0
0
239
240
240
240
240
Reserves & surplus
5,339
7,741
10,710
14,465
18,941
Shareholders' fund
5,578
7,981
10,950
14,705
19,181
18,745
20,980
26,560
32,670
39,640
Cash and cash eq.
1,029
1,091
3,825
8,582
13,513
Accounts receivables
1,228
1,087
1,288
1,451
1,675
Inventories
3,747
4,203
4,789
5,356
6,051
Other current assets
2,905
3,163
3,643
4,135
4,729
Investments
1,082
1,979
1,979
1,979
1,979
Net fixed assets
7,368
8,543
9,527
9,660
10,185
CWIP
1,473
1,473
1,473
1,473
1,473
0
0
0
0
0
(86)
(86)
(86)
(86)
(86)
Adjusted net profit
Balance Sheet
Y/E 31 Mar (INR mln)
Accounts payables
Other current liabilities
Other liabilities
Equity capital
Total liabilities and equities
Intangible assets
Deferred tax assets, net
Other assets
0
0
0
0
0
Total assets
18,746
21,452
26,439
32,549
39,519
FY13A
FY14A
FY15E
FY16E
FY17E
3,327
4,788
6,582
8,149
9,622
413
83
50
45
33
0
0
0
0
0
(158)
1,194
1,343
1,135
981
Cash Flow Statement
Y/E 31 Mar (INR mln)
Net income + Depreciation
Interest expenses
Non-cash adjustments
Changes in working capital
Other operating cash flows
30
84
192
45
33
3,612
6,149
8,167
9,374
10,669
(2,154)
(2,007)
(1,985)
(1,225)
(1,733)
2,150
(897)
0
0
0
Other investing cash flows
286
0
0
0
0
Cash flow from investing
282
(2,904)
(1,985)
(1,225)
(1,733)
0
Cash flow from operations
Capital expenditures
Change in investments
Equities issued
0
(4)
0
0
Debt raised/repaid
(2,268)
(1,938)
0
0
0
Interest expenses
(413)
(83)
(50)
(45)
(33)
(3,937)
Dividends paid
(1,189)
(1,811)
(2,612)
(3,303)
Other financing cash flows
(423)
(83)
(50)
(45)
(33)
Cash flow from financing
(4,293)
(3,919)
(2,712)
(3,393)
(4,004)
Changes in cash and cash eq
(399)
(674)
3,470
4,756
4,932
Closing cash and cash eq
1,029
355
3,825
8,582
13,513
7 January 2015
Page 3 of 4
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Page 4 of 4