Britannia Industries Ltd (BIL) is one of the largest food companies in India with presence in bakery and dairy products. It also forayed into the breakfast cereals category in FY11.
BIL – One of the Key Players in the Branded Biscuits Category
BIL is one of the key players with ~1/3rd market share in India’s $2.2 bn branded biscuits category having 7 power brands in its kitty (Good Day, Marie, Tiger, Treat, 50-50, Milk Bikis & Nutri Choice). According to the management, BIL’s household penetration at the moment is ~50% which is more than half of the biscuit category’s overall household penetration in India (90%). Biscuits category contributed ~84% to BIL’s standalone revenue in FY12. BIL’s standalone biscuits sales volume and revenue has grown at a CAGR of 6.6% & 14.9% resp. during FY07-FY12. Considering branded food market is growing faster than overall food & non-food market and biscuits being the largest category in the ~$21 bn branded foods market, we expect BIL’s standalone biscuits sales volume and revenue to grow at a CAGR of 3.5% & 11.5% resp. during FY12-FY14E.
Non-biscuit Bakery and Dairy Business – Future Growth Vector for BIL
Non-biscuit bakery products (Bread, Rusk & cake) provide huge opportunity for the company as non-biscuit bakery products market is currently large and unorganized in India. In FY12, India’s bakery market grew at ~15-18% which management expects to grow at ~12-15% in FY13. BIL claims to have 50% market share in India’s ~Rs. 13 bn bread market. Branded dairy products also provide good growth opportunity as this category is growing fast and provides scope for differentiation. In India, dairy market size is ~Rs. 2346 bn, growing at 5% and majorly dominated by increasing consumption and sale of milk. The market that converts milk to value-added products like dahi, yoghurt, cheese & dairy based beverages is also growing rapidly, albeit from a small base of ~Rs. 110 bn. BIL’s dairy business has grown at a CAGR of ~25% during FY10-FY12 and contributed ~5.3% to its total sales in FY12. BIL’s standalone non-biscuit revenue has grown at a CAGR of 30.1% during FY07-FY12 which we expect it to grow at a CAGR of 20.3% during FY12-FY14E. Revenue contribution from non-biscuit category to BIL’s standalone revenue has more than doubled from 7.4% in FY06 to 15.3% in FY12 which we expect to improve further to 17.4% in FY14E as the company has integrated its domestic bakery and dairy distribution & sales teams in FY12 which will drive BIL’s ‘go to market’ efficiencies and provide a higher width & depth of coverage and availability of BIL’s dairy & bakery products.
Focus on Brands and Continuous Product Innovation to drive Future Growth for BIL
BIL has been successfully introducing several new and renewed offerings across its entire portfolio. In FY12, new products generated 10% of revenue in Bakery and 14% in Dairy for BIL. In addition to its focus on national brands, BIL is concentrating on healthy/nutritious offerings and equally important regional portfolio of brands (Britannia Top & Nutrichoice Thin Arrowroot biscuits in West Bengal and Tiger Brita biscuits in Kerala). BIL has also collaborated with reputed academic institutions and other companies to complement its efforts and build strong platforms for sustained & significant product categories & businesses. We believe all this investments by BIL in the brands and new products development will make BIL’s brands more relevant & distinctive and thereby lead to BIL’s profitable growth with steady premiumisation of portfolio going ahead.
BIL’s Distributed Manufacturing Strategy – Will Reduce Distance to Market
BIL plans to move even closer to its consumption markets through in-house manufacturing especially for its premium and significant IPR products. Under this, it plans to set up Greenfield manufacturing plants as well as buy equity stakes in companies promoted by its contract manufacturers. In FY12, BIL has commissioned 2 new Greenfield units in Hajipur, Bihar and Khurda, Orissa. It has also aligned its manufacturing and depot footprints to reduce distance to market which is in line with its new distributed manufacturing strategy. The management aims to push up the proportion of in-housed manufacturing from the current 45% to 65% in the next few years and also expects to commission one more new facility in Gujarat for its bakery products this year. We believe this new strategy will further improve BIL’s sales, margins and profitability going ahead.
BIL’s Key Subsidiaries – Started Cash Generation from FY12
BIL’s key subsidiaries have started generating cash profits from FY12 and will not require any funding from its parent going ahead. BIL’s subsidiaries revenue has grown at a CAGR of 50.2% during FY07-FY12. In FY12 and H1FY13, BIL’s subsidiaries reported EPS of Rs. 1.1 & Rs. 1.4 resp. In the UAE market, BIL through its subsidiary SFIC is at No. 2 position and have increased its market share in the GCC region led by the UAE and Oman. We expect its subsidiaries revenue and profit to grow at a CAGR of 15.0% & 59.3% resp. during FY12-FY14E. OUTLOOK AND VALUATION Considering strong brand portfolio, ~1/3rd market share in the branded biscuits category, new distributed manufacturing strategy, sales mix improvement, cost cutting initiatives, negative working capital and cash generation from its subsidiaries, we expect BIL’s Revenues to grow by 12.1% & 14.0% and APAT to grow by 10.2% & 19.3% in FY13E and FY14E respectively. We also believe demand for branded packaged food to increase with a likely increase in discretionary spending going ahead. At the CMP of Rs.497, the stock trades at a valuation of 22.6x its FY14E EPS of Rs. 22. We initiate coverage with “Hold” rating and target price of Rs. 540 (24.5x its FY14E EPS and its 5 Years Avg 1-Year Forward PE is 26.2).
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