INSUBCONTINENT EXCLUSIVE:
NEW DELHI: A consistent performer
Check.
A large cap stock fetching 10 times returns in 5 years is a rarity
But exceptions remain as this stock proves otherwise
This has been an outlier, rewarding investors quite generously
An established leader in packaged food space, Britannia Industries has come a long way
It has proved to be a consistent money spinner for those who have stayed put
On May 20, 2013, the stock had stood at Rs 568.3
It has now zoomed to Rs 5,587.9, as of Friday's close (May 18) -- a jaw-dropping 883.26 per cent jump
Other than Britannia, only two companies in the SP BSE 100 pack -- TVS Motor Company and Bajaj Finance -- have fetched over 10 times returns
The benchmark index Sensex has risen only 73 per cent during this window.
With a 100-year legacy, Britannia Industries enjoys annual
revenues in excess of Rs 9,000 crore
The company is the manufacturer of brands like Good Day, Tiger, NutriChoice, Milk Bikis and Marie Gold
The product portfolio includes biscuits, bread, cakes, rusk, and other dairy products, including cheese, beverages, milk and yoghurt
Its dairy business contributes close to 5 per cent of revenue with a reach of 1,00,000 outlets.
The company has been consistent in its all
Top line (sales) has clocked an 11 per cent CAGR (compounded annual growth rate) in five years
During 2012-13, the figure stood at Rs 5,936 crore, which has gone up to Rs 9,829 crore in 2017-18
Bottom line (net profit) saw a 31 per cent jump to Rs 1,004 crore, from Rs 260 crore during the same period
The FMCG major has seen a 2.5 times jump in its direct reach
Also, net sales value in rural areas has paced up consistently
The company posted a healthy 25 per cent increase in its consolidated net profit at Rs 264 crore for the fourth quarter to March, riding on
a double digit volume growth
It had racked up net profit of Rs 211 crore a year ago.
March quarter consolidated net sales, EBITDA and net profit grew 12.5 per cent, 28.9
per cent and 25 per cent to Rs 2,510 crore, Rs 400 crore and Rs 260 crore, respectively
Brokerage JM Financial in its report said, "Revenue was on expected lines while profits were 6 per cent ahead of expectations on the back
of significant savings in ‘Other Expenses’, which grew at one-third the rate of growth in volumes
Part of the savings was offset by higher-than-expected rise in staff costs."
The brokerage, however, finds the quality of growth a little
disappointing because of two factors
First, the pace of growth in domestic volumes fell a tad against third quarter (11 per cent against 13 per cent) on a broadly similar base
Second, despite a deflationary trend in sugar and wheat prices, and higher contribution of pricing to growth this quarter, domestic GPM
(gross profit margin) felt the squeeze, even though by just 38 bps.
The management, however, cites marginal inflation in key raw material to
be the key reason for the same.
According to HDFC Securities, "the quarter marks the beginning of aggressive product launches (50 products
in the next 4-6 quarters) with focus on innovation and premiumisation".
New launches will lead to category extensions (biscuits, cake, rusk
dairy) and entry into newer categories (croissant), the HDFC Securities report said
Britannia is lining up a capex of nearly Rs 1,000 crore over the next 3 years at Ranjangaon plant to support these launches
With this plant, the company is seen to be focusing on backward integration of dairy (earlier via contract packers) and flour (flour mill
The brokerage reels off reasons why it likes the stock.
- Premiumisation (nearly 80 per cent mix of premium biscuits vs industry figure of
55 per cent)
- Distribution expansion (rural and weak states)
- Entry into new segments (croissants and other macro snacking products)
-
Cost optimisation (saving of Rs 2,400 crore in FY19 against Rs 2,250 crore in FY18)
Even during tough days, leaders (HUL and Britannia) have
stood tall and outperformed their peers in terms of volume and EBITDA growth
The HDFC Securities model factors in 25 per cent EPS CAGR over FY18-20E
It has maintained 'buy' rating on the stock with a target price of Rs 6,020.
"Britannia is one of our favoured consumer themes, but
valuations could now pose some near-term headwinds, especially post the recent run-up in the stock," said JM Financial
The brokerage has maintained 'buy' on the stock with revised target price of Rs 5,530.
Nirmal Bang Securities is equally positive on the
"We expect the company to maintain healthy growth in FY19-FY20 supported by healthy innovation pipeline and expansion into new categories,
continued expansion in Hindi heartland and finally commercialisation of its new greenfield facilities at Guwahati and Mundra SEZ," it
stated.
It has maintained 'buy' rating on the stock with a target price of Rs 6,350, based on FY20E EPS, implying an upside of 16 per
cent.
The company's international business grew in double digits despite a slowdown in many geographies like the Middle East and Africa
Britannia has a presence in more than 60 countries across the globe
Its international footprint includes the Middle East, with the FMCG player being the No 2 biscuit player in the UAE
