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Analyst meet update
At the analyst meet, Britannia’s management highlighted high input cost inflation
as well as elevated level of competition (particularly from local players) as key
concerns. This has resulted in margin pressures as evident from current Ebitda
margins of ~5% which were 11%+ in 2006. Even while focus continues on mix
improvement as well as on margin accretive new categories, margin expansion
remains contingent on input price softening due to limited pricing power in
biscuits. The management also believes that GST implementation could bring about
a level playing field in the industry and provide boost to organised industry. The
stock trades at 24x one year forward consensus earnings.
Britannia faces high level of competition in its biggest biscuit segment
Biscuit, the largest portion of packaged foods with an estimated market size of
US$2.8bn is an intensely competitive category.
This is evident from the fact that there are currently around 433 manufactures of
biscuits in India and 68 players have market shares in excess of 0.05%.
Interestingly, while there has been rising MNC competition (particularly Kraft), the
irrational pricing have been from local/regional players.
The management is of the view that MNCs are more margin focussed cf. locals who
look at absolute profits and are aggressive on product pricing, therefore.
Innovation a key growth driver; non-biscuit portfolio growing faster
The management sounded positive on the growth and has been focussing on new
innovations in the existing segments as well as in newer areas, which would
continue to be a key growth driver.
Except for Glucose, Britannia has dominance in most biscuit segments where it has
higher market share and commands pricing premium (9-15% higher than peers).
The company has also been focussing on non-biscuits portfolio which is >20% of
the topline today and has been margin accretive.
Over the last 5-years, bread, cake & rusk have grown at 30% Cagr while dairy has
growth at 20%+; new products (< 2 years) currently constitute 7% of revenues.
High input cost a key reason to worry
Sharp rise in input costs (wheat, sugar, oil) was highlighted as a key challenge;
since 2007, there had been sustained and concurrent increase in overall basket.
This resulted in a sharp gross margin contraction and impacted Ebitda margins
which are down 6.5ppt since FY06 to 5.3% in FY11.
This is despite that the fact that the company has been focussing on mix
improvement; interestingly, the management indicated that the industry margins
would be around half of Britannia’s margins.
The management also believes that GST implementation could bring about a level
playing field in the industry and provide boost to organised industry.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Analyst meet update
At the analyst meet, Britannia’s management highlighted high input cost inflation
as well as elevated level of competition (particularly from local players) as key
concerns. This has resulted in margin pressures as evident from current Ebitda
margins of ~5% which were 11%+ in 2006. Even while focus continues on mix
improvement as well as on margin accretive new categories, margin expansion
remains contingent on input price softening due to limited pricing power in
biscuits. The management also believes that GST implementation could bring about
a level playing field in the industry and provide boost to organised industry. The
stock trades at 24x one year forward consensus earnings.
Britannia faces high level of competition in its biggest biscuit segment
Biscuit, the largest portion of packaged foods with an estimated market size of
US$2.8bn is an intensely competitive category.
This is evident from the fact that there are currently around 433 manufactures of
biscuits in India and 68 players have market shares in excess of 0.05%.
Interestingly, while there has been rising MNC competition (particularly Kraft), the
irrational pricing have been from local/regional players.
The management is of the view that MNCs are more margin focussed cf. locals who
look at absolute profits and are aggressive on product pricing, therefore.
Innovation a key growth driver; non-biscuit portfolio growing faster
The management sounded positive on the growth and has been focussing on new
innovations in the existing segments as well as in newer areas, which would
continue to be a key growth driver.
Except for Glucose, Britannia has dominance in most biscuit segments where it has
higher market share and commands pricing premium (9-15% higher than peers).
The company has also been focussing on non-biscuits portfolio which is >20% of
the topline today and has been margin accretive.
Over the last 5-years, bread, cake & rusk have grown at 30% Cagr while dairy has
growth at 20%+; new products (< 2 years) currently constitute 7% of revenues.
High input cost a key reason to worry
Sharp rise in input costs (wheat, sugar, oil) was highlighted as a key challenge;
since 2007, there had been sustained and concurrent increase in overall basket.
This resulted in a sharp gross margin contraction and impacted Ebitda margins
which are down 6.5ppt since FY06 to 5.3% in FY11.
This is despite that the fact that the company has been focussing on mix
improvement; interestingly, the management indicated that the industry margins
would be around half of Britannia’s margins.
The management also believes that GST implementation could bring about a level
playing field in the industry and provide boost to organised industry.
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