IGI Logo

Reduce Britannia Industries Ltd For Target Rs. 3,200

4Q revenue grew by 9% (2-year CAGR of 6%). Management expects some pantry upstocking in the near term. Market share gains for Brit (strong brand positioning, direct distribution expansion, execution edge) are likely to continue in the near term. Further, national re-launch of Milk Bikis with the strategy to gain market share (currently just 4% share in ~Rs73bn Milk+Glucose biscuits category) by upgrading glucose consumers appears a good strategy.

However, success of (at least few) new segments – Salty Snacks, Wafers, Croissants and ramp-up of adjacent categories – Dairy, Rusks, Cakes and now Milk Bikis in biscuits are imperative for re-rating. While lower ad-spends in FY21 have driven profit growth > revenue growth, FY22 is likely to be a low-profit-growth year. Group ICDs and overall ICDs were largely flat YoY. REDUCE stays.

* Revenue growth driven by normalisation of distribution: Consolidated sales / EBITDA grew 9% / 11% while PAT declined by 3%. Standalone revenues grew 10% (volume growth of 8%; 2-year CAGR of 4%), however declined 1% QoQ – driven by diversification of consumer purchase basket and consumer having more alternatives for snacking. Second wave of covid is likely to lead to higher consumption of biscuits due to some pantry stocking and higher in-home consumption. However, the category tailwind will be lighter as compared to last year due to 1) better prepared competition (regarding supply chains) and 2) better equipped consumers to lockdowns and restrictions.

* Margin expansion driven by lower input cost and efficiencies: Gross margin expanded 80bps YoY to 40.5% driven by deflationary input cost (except RPO), factory efficiencies and wastage reduction. EBITDA margin expansion was lower at 30bps YoY to 16.1% driven by higher other expenses (+70bps YoY; increase in A&SP spends). Company is witnessing steep inflation of ~3% (overall) in some of the key input costs (RPO and Milk) which the management plans to mitigate through pricing actions and cost efficiencies.

* Other Highlights: 1) Rural distribution (23,500 RPDs) and direct distribution (2.4mn outlets) surpassed pre-covid levels, 2) focus states grew 1.25x faster, 3) E-com grew 4.1x in FY21, 4) OCF / FCF grew 25% / 30% to Rs18.5bn / Rs16.1bn respectively, 5) working capital days increased by 3 days largely due to higher inventory, and 6) Group ICDs and overall ICDs were largely flat YoY.

* Valuation and risks: Our earnings estimates are largely unchanged; modelling revenue / EBITDA / PAT CAGR of 10% / 9% / 8% over FY21-23E. Maintain REDUCE with a DCF-based unchanged target price of Rs3,200. At our target price, the stock will trade at 35x March’23E. Key upside risk to our thesis is faster-thanexpected revenue growth in core biscuits

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer