RESULTS REVIEW 4QFY19 03 MAY 2019 Britannia Industries NEUTRAL HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Transformation underway BRIT reported a modest performance (in-line) led by a momentary softness in the sector. Although the stock is down 12% since our downgrade (Jul-18), we don’t see any immediate trigger to upgrade the stock. We remain constructive on BRIT’s transformation to a total foods company and see it as a multi-year growth story. We believe the success rate of BRIT’s new launches will be the key catalyst for the stock. Our TP at Rs 3,101 is based on 45x FY21E EPS. Maintain NEUTRAL. HIGHLIGHTS OF THE QUARTER Revenue/volume grew in-line with our exp. of 10/7% (12/10% in FY19) driven by new launches (4.5% of revenues in FY19) and distribution expansion in weak states. These initiatives have resulted in market share gains for BRIT vs. Parle (~150bps expansion in FY19, gap widened to ~5%). In pursuit of becoming a total foods company, momentum in new launches gathers pace with (a) More variants in biscuits, (b) Fixing product gaps in Cake portfolio and (c) Entry in newer categories (Dairy beverages, Cream Wafers, Salty snacks). Premiumisation journey for BRIT is here to stay driven by gross margin accretive new launches. Mgt. maintains aggressive guidance on NPD pipeline and expects NPD contribution to double in FY20E (9% of sales). EBITDAM was flat at 15.6% (vs. exp of +42bps) owing to (a) Aggressive A&P spend (new launches), (b) Write off on goodwill of ‘Daily bread’ and (c) Commissioned new manufacturing lines at Ranjangaon. We maintain our EBITDAM expansion of 60bps annually over FY19E- 21E (80bps annually over FY17-19) driven by cost savings program (Incremental saving of Rs 400mn in FY20E), premiumisation and favorable operating leverage. STANCE BRIT has consistently reported industry leading volume growth and margin expansion. The co. has made some inroads in the Hindi belt (growing 1.5x vs. BRIT) and rural market which has resulted in market share gains. At the same time, BRIT has focused on its cost savings program (4.5x in FY19 vs. FY14) which has further supported in re- investing in its brands. In the last 12 months, the co. has demonstrated its hunger for growth via new launches despite a challenging environment. We continue to like BRIT but rich valuations keep us at bay, as everything needs to go right for the co. Key risk on BRIT remains the return of food inflation. Financial Summary YE March (Rs mn) 4QFY19 4QFY18 YoY (%) 3QFY19 QoQ (%) FY17 FY18 FY19 FY20E FY21E Net Revenues 27,990 25,375 10.3 28,424 (1.5) 90,541 99,140 110,547 126,995 146,228 EBITDA 4,366 3,971 9.9 4,518 (3.4) 12,782 15,017 17,334 20,665 24,767 APAT 2,943 2,632 11.8 3,001 (1.9) 8,846 10,040 11,555 13,589 16,562 Diluted EPS (Rs) 12.2 11.0 11.7 12.5 (1.9) 36.9 41.8 48.1 56.6 68.9 P/E (x) 75.5 66.6 57.9 49.2 40.4 EV / EBITDA (x) 51.9 43.8 37.8 31.4 25.8 Core RoCE (%) 44.1 39.1 39.2 41.4 46.1 Source: Company, HDFC sec Inst Research INDUSTRY FMCG CMP (as on 02 May 2019) Rs 2,783 Target Price Rs 3,101 Nifty 11,725 Sensex 38,981 KEY STOCK DATA Bloomberg BRIT IN No. of Shares (mn) 240 MCap (Rs bn) / ($ mn) 669/9,633 6m avg traded value (Rs mn) 1,075 STOCK PERFORMANCE (%) 52 Week high / low Rs 3,472/2,610 3M 6M 12M Absolute (%) (14.4) (0.6) 2.6 Relative (%) (21.3) (13.8) (8.3) SHAREHOLDING PATTERN (%) Dec-18 Mar-18 Promoters 50.66 50.66 FIs & Local MFs 12.93 12.37 FPIs 16.28 15.75 Public & Others 20.13 21.22 Pledged Shares 0.00 0.00 Source : BSE Naveen Trivedi [email protected]+91-22-6171-7324 Siddhant Chhabria [email protected]+91-22-6171-7336
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RESULTS REVIEW 4QFY19 03 MAY 2019
Britannia Industries NEUTRAL
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Transformation underwayBRIT reported a modest performance (in-line) led by a momentary softness in the sector. Although the stock is down 12% since our downgrade (Jul-18), we don’t see any immediate trigger to upgrade the stock. We remain constructive on BRIT’s transformation to a total foods company and see it as a multi-year growth story. We believe the success rate of BRIT’s new launches will be the key catalyst for the stock. Our TP at Rs 3,101 is based on 45x FY21E EPS. Maintain NEUTRAL. HIGHLIGHTS OF THE QUARTER Revenue/volume grew in-line with our exp. of 10/7%
(12/10% in FY19) driven by new launches (4.5% of revenues in FY19) and distribution expansion in weak states. These initiatives have resulted in market share gains for BRIT vs. Parle (~150bps expansion in FY19, gap widened to ~5%).
In pursuit of becoming a total foods company, momentum in new launches gathers pace with (a) More variants in biscuits, (b) Fixing product gaps in Cake portfolio and (c) Entry in newer categories (Dairy beverages, Cream Wafers, Salty snacks). Premiumisation journey for BRIT is here to stay driven by gross margin accretive new launches. Mgt. maintains aggressive guidance on NPD pipeline and
expects NPD contribution to double in FY20E (9% of sales).
EBITDAM was flat at 15.6% (vs. exp of +42bps) owing to (a) Aggressive A&P spend (new launches), (b) Write off on goodwill of ‘Daily bread’ and (c) Commissioned new manufacturing lines at Ranjangaon. We maintain our EBITDAM expansion of 60bps annually over FY19E-21E (80bps annually over FY17-19) driven by cost savings program (Incremental saving of Rs 400mn in FY20E), premiumisation and favorable operating leverage.
STANCE BRIT has consistently reported industry leading volume growth and margin expansion. The co. has made some inroads in the Hindi belt (growing 1.5x vs. BRIT) and rural market which has resulted in market share gains. At the same time, BRIT has focused on its cost savings program (4.5x in FY19 vs. FY14) which has further supported in re-investing in its brands. In the last 12 months, the co. has demonstrated its hunger for growth via new launches despite a challenging environment. We continue to like BRIT but rich valuations keep us at bay, as everything needs to go right for the co. Key risk on BRIT remains the return of food inflation.
Domestic revenue growth was driven by 7% volume growth Commodity inflation at 3% has been stable The co. will now supply packaging material to 3rd party contract manufacturer of bread, hence expenses have moved from raw materials to other expenses Employee expense was flat owing to Rs 130mn bonus payout in 4QFY18 (centenary year) EBITDAM was flat (expectation of 42bps) owing to (a) Aggressive A&P spend (new launches), (b) Write off on goodwill of ‘Daily bread’ and (c) Commissioned new manufacturing lines at Ranjangaon
BRITANNIA INDUSTRIES: RESULTS REVIEW 4QFY19
Page | 3
Quarterly Net Revenue Quarterly Domestic Volume Growth
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Quarterly EBITDA Quarterly Gross and EBITDA Margin
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Momentary softness in rural resulted in modest volume growth BRIT continues to be aggressive with its new launches which should accelerate growth in FY20 EBITDAM expansion has moderated in the recent past owing to higher marketing spend
6%
9%
11%
14%
16%
37%
39%
40%
42%
43%
Q2F
Y16
Q3F
Y16
Q4F
Y16
Q1F
Y17
Q2F
Y17
Q3F
Y17
Q4F
Y17
Q1F
Y18
Q2F
Y18
Q3F
Y18
Q4F
Y18
Q1F
Y19
Q2F
Y19
Q3F
Y19
Q4F
Y19
Gross Margin (%) - LHS EBITDA Margin (%) - RHS
12%11%
10%
8% 8%
2% 2%3%
6%
12%11%
13%12%
7% 7%
0%
2%
4%
6%
8%
10%
12%
14%
Q2F
Y16
Q3F
Y16
Q4F
Y16
Q1F
Y17
Q2F
Y17
Q3F
Y17
Q4F
Y17
Q1F
Y18
Q2F
Y18
Q3F
Y18
Q4F
Y18
Q1F
Y19
Q2F
Y19
Q3F
Y19
Q4F
Y19
0.0%
4.0%
8.0%
12.0%
16.0%
-
5,000
10,000
15,000
20,000
25,000
30,000
Q2F
Y16
Q3F
Y16
Q4F
Y16
Q1F
Y17
Q2F
Y17
Q3F
Y17
Q4F
Y17
Q1F
Y18
Q2F
Y18
Q3F
Y18
Q4F
Y18
Q1F
Y19
Q2F
Y19
Q3F
Y19
Q4F
Y19
Net Revenue YoY Chg (%) - RHSRs mn
0%
10%
20%
30%
40%
50%
60%
-
800
1,600
2,400
3,200
4,000
4,800
Q2F
Y16
Q3F
Y16
Q4F
Y16
Q1F
Y17
Q2F
Y17
Q3F
Y17
Q4F
Y17
Q1F
Y18
Q2F
Y18
Q3F
Y18
Q4F
Y18
Q1F
Y19
Q2F
Y19
Q3F
Y19
Q4F
Y19
EBITDA YoY Chg (%) - RHSRs mn
BRITANNIA INDUSTRIES: RESULTS REVIEW 4QFY19
Page | 4
Revenue Performance Gross Margin
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
EBITDA Margin NPM
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
We expect revival in consumer demand, continued market share gains and new launches to support healthy growth in FY20E & FY21E We expect ~60bps EBITDAM expansion annually, driven by premiumisation, op-lev and cost savings
46 55 62
69 79 84 91
99 111
127
146
0%
5%
10%
15%
20%
25%
-
40
80
120
160
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
E
FY20
E
FY21
E
Net Sales YoY Gr. CAGR (%) - RHS
Rs bn
34.3
% 35.6
% 37.6
% 39.7
%
40.3
%
40.3
%
38.3
%
38.4
% 40.6
%
41.2
%
41.6
%
28.0%
31.5%
35.0%
38.5%
42.0%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
E
FY20
E
FY21
E
5.1% 5.7% 6.
8%
9.1% 11
.0%
14.5
%
14.1
%15
.1%
15.7
%
16.3
%
16.9
%
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
E
FY20
E
FY21
E
2.9% 3.
6% 4.2%
5.7%
8.3%
9.8%
9.8% 10
.1%
10.5
%
10.7
%
11.3
%
0.0%
3.5%
7.0%
10.5%
14.0%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
E
FY20
E
FY21
E
BRITANNIA INDUSTRIES: RESULTS REVIEW 4QFY19
Page | 5
Revenue Growth In Weak States
Source: Company, HDFC sec Inst Research Direct Reach Rural distribution (Rural Preferred Dealers)
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Weak states now contribute ~20% of revenue mix vs. 40% for the industry. A few years back this share was <10% for BRIT BRIT is successfully gaining share from Parle in North India BRIT’s market share is in the low teens in the weak states
17%
10% 10%
19%
26%
15%
9%
19%
23%
13%
9%
20%
16%15% 15%
27%
15%
19%17%
22%
0%
8%
16%
24%
32%
Gujarat MP UP Rajasthan
FY15 FY16 FY17 FY18 FY19
0.73
1.00
1.26
1.55
1.84
2.10
0.50
0.90
1.30
1.70
2.10
FY14
FY15
FY16
FY17
FY18
FY19
mnmn
5.506.60
8.0010.00
14.40
18.10
0.00
5.00
10.00
15.00
20.00
FY14
FY15
FY16
FY17
FY18
FY19
000'S
BRITANNIA INDUSTRIES: RESULTS REVIEW 4QFY19
Page | 6
BRIT Vs. Parle Market Share
Source: Company, HDFC sec Inst Research
Premiumisation, innovation and distribution expansion were the key drivers for BRIT to gain market share over the years BRIT’s market share in Gujarat, Rajasthan, UP and MP is just 1/5th that of Parle (market leader)
We cut our estimates by 3% to factor in (a) delay in new launches, (b) momentary softness in demand, (c) return of input inflation and (d) higher marketing spend
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
Date CMP Reco Target 18-May-18 2,739 BUY 3,010
9-Jul-18 3,150 NEU 3,154 10-Oct-18 2,757 NEU 3,083 13-Nov-18 2,908 NEU 3,044 9-Jan-19 3,090 NEU 3,149
11-Feb-19 3,108 NEU 3,115 10-Apr-19 2,963 NEU 3,207 3-May-19 2,783 NEU 3,101
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