Decent 4Q
Key highlights of the result
Revenue growth healthy, but below expectation: Britannia Industries (BIL)
reported ~9% yoy growth in its revenues for both standalone and consolidated
entity. For 4Q, the company’s standalone revenue stood at Rs1,620cr, while
consolidated revenue came in at Rs1,777cr. Going forward, we pencil-in
conservative revenue growth numbers keeping in mind our channel check
observations, which include: (1) ITC’s aggressive premium biscuit launches
(Sunfeast Delishus, Sunfeast Farmlite) in the health and wellness segment (which
was Britannia’s forte traditionally), (2) drastic reduction in shelf space for Britannia’s
dairy products (visibility of Tiger Zor and Britannia Dahi is low in major retail outlets)
and (3) lack of product innovation.
OPM for standalone and consolidated entities report divergent trends: BIL’s
standalone OPM expanded by 30bp yoy to 8.1% (against our expectation of 8.2%),
aided by gross margin expansion of 22bp yoy (supported by benign agri-commodity
prices, we believe) and lower advertisement expense (down by 139bp yoy). For the
consolidated entity, OPM contracted by 49bp yoy to 7.5%, impacted by gross
margin contraction (down by 66bp yoy; primarily impacted by high milk prices),
higher staff cost (up by 26bp yoy) and higher other expenses (up by 97bp yoy).
Going forward, with milk inflation sustained and base correction in agri-commodity
prices (prices were benign for FY2014 on high base of FY2013), we keep raw
material prices firm in our estimates. Moreover, we refrain from projecting 4Q’s low
advertisement expense for the company, going forward, considering the increase in
competitive intensity in the biscuits space.
PAT surges on lower interest expense and high other income: For FY2014, BIL has
paid off its outstanding debt of ~Rs190cr from its standalone books (also reflective
in its consolidated accounts; ~Rs170cr was paid off in 3QFY2014), as a result the
interest expense for the company has come in lower by ~96% yoy to Rs0.4cr (lower
by ~84% yoy to Rs2cr in the consolidated books). Lower interest expense, coupled
with higher other income (standalone up by ~21% yoy and consolidated up by
~50%) has aided PAT growth of ~27% yoy standalone (~17% yoy consolidated).
Outlook and Valuation
We value Britannia on a consolidated basis. We like BIL for its strong portfolio; however,
an increase in competitive intensity is now witnessed in the biscuits portfolio and our
channel check reveals an inventory de-stocking for the company’s dairy portfolio.
Keeping on ground observations in mind, we prune our FY2015E estimates for the
company by ~3% for revenue and ~9% for earnings. We introduce our FY2016
estimates with this update and retain conservative estimates. Over FY2014-16E, we peg
11% CAGR in revenue and 13% CAGR in earnings for the company, aided by an
improvement in OPM to 8.4% in FY2015E and 8.7% in FY2016E. We believe that stock
correction offers a good entry point; and hence, recommend Accumulate with a revised
Target Price of Rs971 (Rs950 earlier).
Risks to the view
Higher than anticipated rise in competitive intensity will impact our estimates
Persistent inflation will impact our estimates
��
Key highlights of the result
Revenue growth healthy, but below expectation: Britannia Industries (BIL)
reported ~9% yoy growth in its revenues for both standalone and consolidated
entity. For 4Q, the company’s standalone revenue stood at Rs1,620cr, while
consolidated revenue came in at Rs1,777cr. Going forward, we pencil-in
conservative revenue growth numbers keeping in mind our channel check
observations, which include: (1) ITC’s aggressive premium biscuit launches
(Sunfeast Delishus, Sunfeast Farmlite) in the health and wellness segment (which
was Britannia’s forte traditionally), (2) drastic reduction in shelf space for Britannia’s
dairy products (visibility of Tiger Zor and Britannia Dahi is low in major retail outlets)
and (3) lack of product innovation.
OPM for standalone and consolidated entities report divergent trends: BIL’s
standalone OPM expanded by 30bp yoy to 8.1% (against our expectation of 8.2%),
aided by gross margin expansion of 22bp yoy (supported by benign agri-commodity
prices, we believe) and lower advertisement expense (down by 139bp yoy). For the
consolidated entity, OPM contracted by 49bp yoy to 7.5%, impacted by gross
margin contraction (down by 66bp yoy; primarily impacted by high milk prices),
higher staff cost (up by 26bp yoy) and higher other expenses (up by 97bp yoy).
Going forward, with milk inflation sustained and base correction in agri-commodity
prices (prices were benign for FY2014 on high base of FY2013), we keep raw
material prices firm in our estimates. Moreover, we refrain from projecting 4Q’s low
advertisement expense for the company, going forward, considering the increase in
competitive intensity in the biscuits space.
PAT surges on lower interest expense and high other income: For FY2014, BIL has
paid off its outstanding debt of ~Rs190cr from its standalone books (also reflective
in its consolidated accounts; ~Rs170cr was paid off in 3QFY2014), as a result the
interest expense for the company has come in lower by ~96% yoy to Rs0.4cr (lower
by ~84% yoy to Rs2cr in the consolidated books). Lower interest expense, coupled
with higher other income (standalone up by ~21% yoy and consolidated up by
~50%) has aided PAT growth of ~27% yoy standalone (~17% yoy consolidated).
Outlook and Valuation
We value Britannia on a consolidated basis. We like BIL for its strong portfolio; however,
an increase in competitive intensity is now witnessed in the biscuits portfolio and our
channel check reveals an inventory de-stocking for the company’s dairy portfolio.
Keeping on ground observations in mind, we prune our FY2015E estimates for the
company by ~3% for revenue and ~9% for earnings. We introduce our FY2016
estimates with this update and retain conservative estimates. Over FY2014-16E, we peg
11% CAGR in revenue and 13% CAGR in earnings for the company, aided by an
improvement in OPM to 8.4% in FY2015E and 8.7% in FY2016E. We believe that stock
correction offers a good entry point; and hence, recommend Accumulate with a revised
Target Price of Rs971 (Rs950 earlier).
Risks to the view
Higher than anticipated rise in competitive intensity will impact our estimates
Persistent inflation will impact our estimates
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