1QFY2014 Result Update | FMCG

August 19, 2013

Britannia
Performance Highlights
Quarterly Highlights (Standalone)
Y/E March (` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
Investment Period
1QFY13 1,222 65 5.3 43 % yoy 14.9 79.6 300bp 98.8 4QFY13 1,487 116 7.8 88 % qoq (5.6) 0.6 51bp (1.8)

`743 -

1QFY14 1,403 117 8.3 86

Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code FMCG 8,905 80 0.5 775/400 28,991 2 18,598 5,508 BRIT.BO BRIT@IN

For 1QFY2014 Britannia Industries (Britannia) posted a strong 98.8% yoy growth in bottom-line to `86cr, which is ahead of our estimate. The robust performance on the bottom-line front was led by a 300bp yoy expansion in OPM due to higher gross margin and reduction in other expenses. The companys 1QFY2014 OPM is the highest in the last 15 quarters. Key highlights for the quarter: For 1QFY2014, Britannias stand-alone top-line rose by 14.9% yoy to `1,403cr yoy driven by superior product mix and higher price realizations. Volume growth is expected to be in low to mid single digits. The OPM rose by 299bp on a yoy basis to 8.3% on account of superior mix and better realization. Gross margin rose 234bp yoy aided by softening prices of inputs. However, advertising costs as a percentage of sales rose by 94bp yoy due to increasing competitive pressure. The bottom-line rose by 98.8% yoy to `86cr. Outlook and valuation: We expect Britannia to post a revenue and bottom-line CAGR of ~15.1% and 24.4% respectively over FY2013-15. At the current market price, the stock is trading at 25.1x FY2015E EPS; we have a Neutral rating on the stock. Key financials (Standalone)
Y/E March (` cr) Net sales % chg Net profit (Adj.) % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) FY2012 4,947 17.8 187 28.5 5.1 15.6 47.6 17.1 38.4 27.7 1.8 34.6 FY2013 5,564 12.5 229 22.6 5.8 19.1 38.8 13.9 39.4 36.5 1.6 27.3 FY2014E 6,422 15.4 289 26.2 6.8 24.2 30.8 10.9 39.6 38.5 1.4 19.9 FY2015E 7,367 14.7 355 22.7 7.3 29.7 25.1 8.4 37.7 37.7 1.2 16.3

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.9 9.9 19.5 19.8

Abs. (%) Sensex BRIT

3m (8.1) 30.0

1yr 5.3 58.7

3yr 3.0 80.9

V.Srinivasan
022 3935 7800 Ext: 6831

Source: Company, Angel Research; Note: CMP as of August 16, 2013

v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Britannia | 1QFY2014 Result Update

Exhibit 1: Quarterly performance (Standalone)

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Advertising (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) EPS (`) Adjusted PAT
Source: Company, Angel Research

1QFY14 1,403 837 59.7 49 3.5 127 9.0 274 19.5 1,287 117 8.3 3 15 27 125 0 125 8.9 39 30.9 86 6.1 12 7.2 86

1QFY13 1,222 757 62.0 38 3.1 99 8.1 263 21.5 1,157 65 5.3 9 13 18 60 0 60 4.9 17 28.2 43 3.6 12 3.6 43

% yoy 14.9 10.6 29.0 28.2 4.3 11.2 79.6 (64.6) 17.6 49.6 106.6 106.6 126.7 98.8

4QFY13 1,487 937 63.0 28 1.9 124 8.4 281 18.9 1,371 116 7.8 10 15 37 128 0 128 8.6 40 31.2 88 5.9 12

% qoq (5.6) (10.6) (5.3) 71.0 81.1 1.7 7.7 (2.4) 3.4 (6.1) 0.6 (67.6) 2.8 (27.5) (2.2) 0.0 (2.2) 3.6 (3.3) (1.0) (1.8) 4.0 (0.1) (1.7) (1.8)

FY2013 5,564 3,518 63.2 144 2.6 464 8.3 1,118 20.1 5,244 320 5.8 38 57 107 332 0 332 6.0 98 29.6 234 4.2 12 19.6 234

FY2012 4,947 3,180 64.3 146 2.9 381 7.7 988 20.0 4,695 252 5.1 38 47 86 252 0 252 5.1 66 26.0 187 3.8 12 15.6 187

% chg 12.5 10.7 (1.6) 21.7 13.2 11.7 27.1 (0.9) 20.6 24.4 31.6 31.6 49.8 25.2

98.8 98.8

7.3 88

25.2 25.2

Exhibit 2: 1QFY2014 Actual vs Angel estimates

(` cr) Revenue EBITDA OPM (%) PAT
Source: Company, Angel Research

Actual 1,403 117 8.3 86

Angel Est. 1,393 92 6.6 66

% Diff. 0.8 27.1 172bp 30.4

August 19, 2013

Britannia | 1QFY2014 Result Update

Top-line growth at 14.9% yoy

For 1QFY2014, Britannia Industries (Britannia) stand-alone top-line rose by 14.9% to `1,403cr yoy driven by superior product mix and higher price realizations. Volume growth is expected to be in low to mid single digits. The companys strategy of extending its brands in premium categories and continuous focus on increasing value-added products in its overall sales mix resulted in a better product mix and realization. The company has continuously introduced new variants in its premium brands such as GoodDay and Nutrichoice. Sales of these brands have grown at a faster rate as compared to brands such as Mariegold and 50-50. However, the top-line growth of subsidiaries remained muted at 7% yoy.

Exhibit 3: Top-line grows 14.9% yoy

1,600 1,400 1,200 1,000 (` cr) 800 600 1,103 1,294 1,247 1,310 1,222 1,403 1,453 1,487 1,403 400 200 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 20.8 18.2 15.5 10.8 8.4 16.3 16.5 13.5 14.9 ( %) 15 10 5 0 25 20

Top-line (LHS) Source: Company, Angel research

YoY growth (RHS)

OPM grows by 300bp yoy

The companys OPM rose by 300bp on a yoy basis to 8.3% on account of superior mix and better realization. Gross margin rose 234bp yoy aided by softening prices of inputs. However, advertising costs as a percentage of sales rose by 94bp yoy due to increasing competitive pressure. The bottom-line rose by 98.8% yoy to `86cr.

August 19, 2013

Britannia | 1QFY2014 Result Update

Exhibit 4: OPM performance

9 8 7 6 (%) 5 4 3 2 1 0 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 120 100 80 (%) 60 40 20 31 38 54 53 43 45 57 88 86 1Q14 0 -20 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 4.3 4.8 5.2 5.3 4.3 5.4 7.8 8.3

Source: Company, Angel research

Net profit grows by 98.8% yoy

While the companys depreciation cost rose by 17.6% yoy to `15cr, a superior operating profit and higher other income resulted in a 98.8% yoy growth in bottom-line. The companys other income stood at `27cr, up 49.6% on a yoy basis.

Exhibit 5: Bottom-line performance

100 90 80 70 60 (` cr) 50 40 30 20 10 -

PAT (LHS) Source: Company, Angel Research

YoY growth (RHS)

Investment arguments
Renewed product portfolio to aid growth: Britannia has recently forayed into breakfast cereals, milk and premium category biscuits. We believe this rejig in the product portfolio offers significant uptrading benefits to the company, thereby fuelling growth. Also, with increased per capita consumption and penetration, the company will continue to grow at a pace faster than its historical growth.

August 19, 2013

Britannia | 1QFY2014 Result Update

Outlook and valuation

We expect Britannia to post a revenue and bottom-line CAGR of ~15.1% and 24.4% respectively over FY2013-15. At the current market price, the stock is trading at 25.1x FY2015E EPS; we have a Neutral rating on the stock.

Exhibit 6: One-year forward PE

50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13

Source: Bloomberg, Angel Research; Note: Blue line represents 5-yr average

Exhibit 7: Peer valuation

Company Asian Paints Britannia Colgate Dabur GCPL GSKCHL* HUL ITC Marico Nestle* TGBL Reco Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Mcap (` cr)
40,061 8,905 18,017 29,596 29,681 17,444 129,426 252,897 13,720 48,306 8,685
#

CMP (`)
418 743 1,325 170 872 4,148 599 320 213 5,010 140

TP (`)
-

Upside (%)
-

P/E (x) FY14E

30.1 30.8 32.2 31.8 34.7 33.9 35.9 28.4 29.3 40.6 18.6

EV/Sales (x) FY14E

3.1 1.4 4.8 4.1 3.9 4.3 4.4 6.9 2.6 5.1 1.0

RoE (%) FY14E

35.6 39.6 100.0 39.2 24.8 34.1 113.4 36.1 21.4 56.4 9.3

CAGR # Sales
15.4 15.1 15.7 16.2 18.8 17.6 12.6 16.2 14.8 14.4 11.0

FY15E
26.0 25.1 27.4 27.0 29.4 27.9 32.9 24.0 24.6 33.5 16.5

FY15E
2.6 1.2 4.2 3.5 3.3 3.6 3.9 5.8 2.2 4.3 0.9

FY15E
32.7 37.7 91.0 36.7 24.2 33.7 87.0 34.9 21.0 50.3 9.7

EPS
17.5 24.4 15.0 19.5 18.9 19.6 11.1 19.2 24.0 14.5 14.4

Source: Company, Angel Research; Note: Denotes CAGR over FY2013-15E, *December Year Ending.

Company background
Britannia is one of the foremost food companies in India. The company is present across biscuits, dairy products and breads segments and has recently forayed into the breakfast cereals category with the launch of Healthy Start. Britannia derives ~85% of its revenue from the biscuits segment, where it has formidable brands such as Tiger (glucose biscuits), Treat (cream biscuits), 50-50 (crackers), Good Day (premium cookies and the company's highest selling brand) and NutriChoice (premium high-fiber biscuits).

August 19, 2013

Britannia | 1QFY2014 Result Update

Profit and loss statement (Standalone)

Y/E March (` cr) Total operating income % chg Total Expenditure Cost of Materials Advertising Exp (Incl. Promotion) Personnel Others EBITDA % chg (% of Net Sales) Depreciation& Amortization EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Prior Period & Extra Exp./(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg
previous year numbers

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E 3,403 9.4 3,241 2,164 269 106 703 162 (38.2) 4.8 38 125 (45.6) 3.7 8 51 30.4 167 (33.9) 46.64 121 4 2.5 163 117 (35.4) 3.4 9.7 9.7 (35.4) 4,198 23.4 3,992 2,764 304 120 804 206 27.1 4.9 45 162 29.6 3.9 38 74 37.4 198 18.3 198 53 26.6 145 145 24.7 3.5 12.2 12.2 24.7 4,947 17.8 4,695 3,180 381 146 988 252 22.2 5.1 47 205 26.6 4.1 38 86 34.0 252 27.4 252 66 26.0 187 187 28.5 3.8 15.6 15.6 28.5 5,564 12.5 5,244 3,518 445 144 1,137 320 27.1 5.8 57 263 28.6 4.7 38 102 31.1 327 29.7 327 98 30.0 229 229 22.6 4.1 19.1 19.1 22.6 6,422 15.4 5,982 3,994 514 193 1,281 440 37.2 6.8 64 375 42.6 5.8 48 98 23.0 425 29.8 425 136 32.0 289 289 26.2 4.5 24.2 24.2 26.2 7,367 14.7 6,833 4,545 589 221 1,477 535 21.6 7.3 71 464 23.5 6.3 58 116 22.2 521 22.7 521 167 32.0 355 355 22.7 4.8 29.7 29.7 22.7

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

August 19, 2013

Britannia | 1QFY2014 Result Update

Balance Sheet (standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Other long term liabilities Long term provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
previous year numbers

FY2010 24 372 396 430 (7)

FY2011 24 427 451 431 6 16 123

FY2012 24 496 520 28 8 20 117 693 677 298 379 80 429 125 660 31 194 434 979 (320) 693

FY2013 FY2014E FY2015E 24 617 641 192 14 19 126 992 857 355 502 78 292 125 686 64 226 396 691 (5) 992 24 794 818 242 6 19 159 1,244 957 419 538 50 562 125 776 20 226 531 807 (30) 1,244 24 1,037 1,061 292 6 19 163 1,541 1,057 490 567 50 812 125 892 56 226 611 905 (12) 1,541

819 548 266 282 10 491 529 23 198 308 492 37 819

1,027 594 290 304 12 545 142 480 29 83 368 456 25 1,027

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

August 19, 2013

Britannia | 1QFY2014 Result Update

Cash flow statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Interest / Dividend (Net) Direct taxes paid Payment of VRS/ other comp. Profit on sale of invest/FA (Net) Others Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest/Dividend paid (Net) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
previous year numbers

FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E 121 38 100 (25) 73 33 12 2 183 (40) (68) (108) (2) 112 (21) (93) (17) 41 23 198 45 (43) 13 53 20 48 189 (47) (54) (102) 1 70 13 (81) 5 23 29 252 47 84 5 66 23 (142) 158 (152) 116 (36) 4 118 6 (120) 2 29 31 327 57 (242) (20) 98 (3) 23.9 51 (178) 149 (29) 0 164 140 13 11 33 31 64 425 64 42 5 136 (3) (22) 380 (72) (270) (342) 50 112 21 (83) (44) 64 20 521 71 23 (5) 167 (3) 15 460 (100) (250) (350) 50 112 12 (74) 36 20 56

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

August 19, 2013

Britannia | 1QFY2014 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA Per Share Data (`) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) RoCE Angel ROIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC (ex-cash) (days)
previous year numbers

FY2010 FY2011 FY2012 76.3 44.2 22.4 2.6 2.6 53.8 9.7 16.8 5.0 33.2 14.9 42.3 26.7 6.2 29 4 33 8 61.2 46.8 19.7 2.1 2.1 42.3 12.2 15.9 6.5 37.8 18.8 36.6 34.3 7.1 27 5 31 4 47.6 37.9 17.1 1.8 1.8 34.6 15.6 19.6 8.5 43.5 27.7 133.4 38.4 7.3 32 5 63 (23)

FY2013 FY2014E FY2015E 38.8 31.1 13.9 1.6 1.6 27.3 19.1 23.9 10.0 53.6 36.5 47.2 39.4 7.1 28 5 36 (0) 30.8 25.2 10.9 1.4 1.4 19.9 24.2 29.5 8.0 68.4 38.5 61.3 39.6 7.3 26 5 39 (3) 25.1 20.9 8.4 1.2 1.2 16.3 29.7 35.6 8.0 88.7 37.7 74.3 37.7 7.3 26 5 39 (3)

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with

August 19, 2013

Britannia | 1QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Britannia No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 19, 2013

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