Submitted to: Submitted by:

Prof L. Ramani Nishtha Kapoor - 18DM135

Parnika Sharma -18DM142

Pooja Prakash - 18DM147

Prateek Sangwan - 18DM155

Priyanshi Soni - 18DM157

Sahil Aggarwal - 18DM175

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 About FMCG Industry

Outlook of FMCG sector looks optimistic as the demand from rural areas, which accounts for 45% of
the total revenue of FMCG companies, has outpaced urban demand as the prediction of a good
monsoon helped. The demand from rural area continue to persist on the back of an increase in
minimum support prices, farm loan waivers and increased government focus on farm income due to
upcoming elections. Meanwhile, India transforming into a manufacturing and research and
development hub for global players, availability of labor at low cost, India’s vision and commitment
for developing a world-class infrastructure etc. are all contributing to making India an attractive
destination for global players. The focus on agriculture, MSMEs, education, healthcare, infrastructure
and employment under the Union Budget 2018-19 is expected to directly impact the FMCG sector.
These initiatives are expected to increase the disposable income in the hands of the common people,
especially in the rural area, which will be beneficial for the sector.

About Britannia Industries Ltd.

Britannia, one of the India’s biggest brands of the country, has a market share of 33%. A more-than-
a-century old Britannia has launched big brands in FMCG Segment. The company is expanding its
customer base by launching new products and renovating existing ones. Britannia s brands now have
greater availability in rural markets and pervasive presence in modern trade.

Britannia strode into the 21st Century as one of India's biggest brands and the pre-eminent food
brand of the country. It was equally recognised for its innovative approach to products and
marketing: the Lagaan Match was voted India's most successful promotional activity of the year 2001
while the delicious Britannia 50-50 Maska-Chaska became India's most successful product launch. In
2002, Britannia's New Business Division formed a joint venture with Fonterra, the world's second
largest Dairy Company, and Britannia New Zealand Foods Pvt. Ltd. was born.

Today, more than a century after those tentative first steps, Britannia's fairy tale is not only going
strong but blazing new standards, and that miniscule initial investment has grown by leaps and
bounds to crores of rupees in wealth for Britannia's shareholders. The company's offerings are spread
across the spectrum with products ranging from the healthy and economical Tiger biscuits to the
more lifestyle-oriented Milkman Cheese. Having succeeded in garnering the trust of almost one-third
of India's one billion population and a strong management at the helm means Britannia will continue
to dream big on its path of innovation and quality. And millions of consumers will savour the results,
happily ever after.

It launched various brands in biscuits, bread, cake & rusk business. It has launched brands like Tiger,
Britannia 50:50, Good Day, Britannia Treat, Marie & many more.

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 Promoter group of Britannia Industry

Total shares held

Bannatyne Enterprises Pte. Ltd. 1,391,555

Valletort Enterprises Pte. Ltd. 1,392,510

Spargo Enterprises Pte. Ltd. 1,392,510

Nacupa Enterprises Pte. Ltd 1,392,510

Dowbiggin Enterprises Pte. Ltd. 1,392,510

Associated Biscuits Int. Ltd. 53,904,500

0 20,000,000 40,000,000 60,000,000

As we can observe large stock is owned by Associated Biscuits Pte. Ltd. which is 44.86% of the total
stock which is then followed by other promoters each holding 1.16% of the total stock.

Shareholding pattern of the company

Shareholding Pattern
140000000
121736690
120000000

100000000

80000000

60000000
39120317 37185854
40000000

17167415 13919307
20000000 11179609
9102
0
Promoters Foreign Foreign General public Financial NBFC and Others
promoter institution institutions mutual funds

Majority of the stock is owned by foreign promoters followed by foreign institution and general
public. Large promoter holding indicates conviction and sincerity of the promoters because their
interest is directly associated with the company. Large institutional holding indicates the confidence

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of seasoned investors. At the same time, it can also lead to high volatility in the stock price as
institutions buy and sell larger stakes than retail participants.

Corporate governance status of Britannia Industries Ltd.

COMPANY’S PHILOSOPHY ON CORPORATE GOVERNANCE: - Corporate Governance is the

combination of voluntary practices and compliance with laws and regulations leading to effective
control and management of the organisation. Good Corporate Governance leads to long-term
shareholder value and enhances interests of all stakeholders.

BOARD OF DIRECTORS: - The Company’s policy is to maintain an optimum combination of

Independent and Non Independent Directors. The Board of Directors of the Company comprises ten
directors out of which seven are independent, which is in conformity with the requirements of Clause
49 of the Listing Agreement with the Stock Exchanges.

NED - Non-Executive Director

ID- Independent Director

BOARD MEETINGS AND PROCEDURES: - There are a minimum of four Board Meetings held every
year. Apart from these, additional Board Meetings may be convened to address the specific needs
of the Company. Detailed presentations are made to the Board covering operations, business
performance, finance, sales, marketing, global & domestic business environment and related
details. All necessary information including but not limited to those mentioned in Annexure IA to
Clause 49, are placed before the Board of Directors. The Members of the Board are at liberty to
bring up any matter for discussions at the Board Meetings and its functioning is democratic.
Members of the senior management team are invited to attend the Board Meetings as and when
required, which provides additional inputs to the items being discussed by the Board.

BOARD COMMITTEES: - In addition to functional Committees Board has constituted the following
Committees under the mandatory and non-mandatory requirements of the Clause 49 of the Listing
Agreement.

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  Audit Committee- The Audit Committee comprises the following three Non-Executive
Independent Directors:

 Nomination and Remuneration Committee- The Nomination and Remuneration Committee

of the Company comprises four members as per details in the following table.

 Investors Grievance Committee- The Investors Grievance Committee presently comprises

two members as per details in the following table.

Return analysis of Britannia Industries Ltd.

A return, also known as a financial return, is the money made or lost on an investment. A return can
be expressed nominally as the change in monetary value of an investment over time and can be
expressed as a percentage derived from the ratio of profit to investment.
For analysing the risk and return of Britannia, we have considered the stock prices of 2 years i.e.
from 2017 to 2019. Because of the fact that a retail investor has to invest in the company so we
tried to keep the data as new as possible and we didn’t want to take up the historical data because
then our findings would have been a little redundant.

We took 2 years data only so that investor could know what the current scenario of the company is
and invest in the company based on our findings.

Share Price of Britannia on January 1, 2017: ₹ 1523.432495

Share Price of Britannia on January 1, 2019: ₹ 3197.699951

As it can be seen that the share price of the Britannia has doubled in past couple of years and it is
going to move up only in coming future.

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For the said purpose, holding period returns (HPR) are calculated.
HPR is an investment's return over the time it is owned by a particular investor. It simply signifies
the returns an investor would have earned

Adjusted Close Prices

4000

3500

3000

2500

2000

1500

1000

500

0
8/18/2016 11/26/2016 3/6/2017 6/14/2017 9/22/2017 12/31/2017 4/10/2018 7/19/2018 10/27/2018 2/4/2019 5/15/2019

From the share price movement in the graph above, it is well evident that the share prices of the
company have shown a tremendous growth since 2016. The returns computed as per the data
analysed amounts to 113% of the investment an investor would have made in the beginning of
2017 had he kept his investment intact till the end of 2018.

Has the company under or outperformed the market?

The NIFTY FMCG Index is designed to reflect the behaviour and performance of FMCGs (Fast
Moving Consumer Goods) which are non-durable, mass consumption products and available off the
shelf. The NIFTY FMCG Index comprises of 15 stocks from FMCG sector listed on the National Stock
Exchange (NSE). NIFTY FMCG Index is computed using free float market capitalization method,
wherein the level of the index reflects the total free float market value of all the stocks in the index
relative to particular base market capitalization value. NIFTY FMCG Index can be used for a variety
of purposes such as benchmarking of fund portfolios, launching of index funds, ETFs and structured
products.

Since Nifty is more diversified and has more stocks listed as compared to BSE, more trading is done
on it and hence, we have chosen it as benchmark for analysing if the stocks of Britannia are over or
undervalued.

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For this purpose, HPR of Nifty is computed for the same time period as chosen for Britannia i.e.
from 2017 to 2019.

Price of Nifty FMCG on January 1, 2017: ₹ 20754.1

Price of Nifty FMCG on January 1, 2019: ₹ 30516.65

HPR here comes out to be 27% whereas it is 113% in case of Britannia. Hence, Britannia has over
performed as per market standards.

Risk profile of Britannia Industries Ltd.

The Risk Score is a relevant measure for the assessment of a stock attractiveness. 0 corresponds to
a very high risk and 10 corresponds to a very low risk. To analyse and assess the risk of a company,
several indicators are important to look at, including

 liquidity
 volatility
 debt level
 capital structure

BETA
Beta is a statistical measure that compares the volatility of a stock against the volatility of the
broader market, which is typically measured by a reference market index. Since the market is the
benchmark, the market's beta is always 1. When a stock has a beta greater than 1, it means the
stock is expected to increase by more than the market in up markets and decrease more than the
market in down markets. Conversely, a stock with a beta lower than 1 is expected to rise less than
the market when the market is moving up , but fall less than the market when the market is moving
down.
Beta is actually the standard deviation of returns and henceforth, is computed as

Covariance (rp,rb)/Variance(rb)
Britannia Industries Ltd shows a Beta of 4.63.
This is higher than 1. The volatility of Britannia Industries Ltd. according to this measure is higher
than the market volatility. This means that Britannia stock price will fluctuate largely whenever
there are fluctuations in the market.

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MARKET CAPITALIZATION
Last closing Market Capitalization Value is Rs. 70605.51 Crore

From the risk analysis, we can conclude that Britannia Industries Ltd. is highly volatile when
compared with market standards and market movements making it highly risky for the investors at
the same time.

Capital structure

The financing or capital structure decision is a significant managerial decision. The capital structure decision
influences the shareholders’ return and risk. The capital structure decision of a firm may have its impact on
the market value of its shares. A demand for raising funds generates a new capital structure since a decision
has to be made at to the quantity and forms of financing. The debt- equity mix has implications for the
shareholders’ earning and risk, which in turn will affect the cost of capital and the market value of the firm.

Yield( as per rate (As per the 10-year Bond

given) 8.00% rate)
Interest cost 7.59 (From the Annual Report)
Borrowing 178.22 (From the Annual Report)
Tax rate 0.3
Beta 4.627609
Market Return 1%
Cost of Equity 0.167193
Cost of Debt 0.029811

An optimum capital structure has such a proportion of debt and equity which will maximise the wealth of
the firm. At this capital structure the market price per share is maximum and cost of capital is minimum.
The optimal capital structure indicates the best debt-to-equity ratio for a firm that maximizes its value.
Generally speaking, a sound optimum capital structure is one which:

I. Maximises the worth or value of the firm

II. Minimizes the cost of capital

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Debt-Equity Ratio:
Debt to equity ratio reflects the overall capital distribution between debt and shareholders’
funds.

Debt to Equity Ratio = Total debt/ Total Shareholder’s funds

Total shareholders’ funds = Equity paid up + Reserves and surplus

Total debt= long term debt+ short term debt +other liabilities

As the Debt equity ratio shows the proportion of debt to overall funds to finance an
organization, this ratio can be used to measure the extent to which the company is using the
concept of leveraging. A high debt equity ratio means the company is having an aggressive
capital structure and is risky. However, this risk is what helps the company to generate higher
returns. Debt is considered as a cheaper source of finance as the cost of debt is usually lower
than the cost of equity because of various reasons such as low risk, Interest being a deductible
expense for income tax purposes and no loss of ownership. But there is flipside as the interest
should be duly paid and debt holders stand first in case of insolvency. Due to this it is
important to maintain an optimum debt equity structure.

Debt Equity Ratio of Britannia

Year End Total Debt Total Equity Ratio

2018 1391 3235 0.43

2017 1113.7 2581 0.43
2016 1364.2 1700 0.8
2015 1222.8 1235 0.99
2014 986.7 853 1.15

Total Debt and Equity

4000
3000
2000
1000
0
2018 2017 2016 2015 2014

Total Debt Total Equity

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 Debt Equity Ratio
1.4
1.15
1.2 0.99
1 0.8
0.8
0.6 0.43 0.43
0.4
0.2
0
2018 2017 2016 2015 2014
Years

As we can observe from the graph, the company used to follow a balanced form of capital
structure previously (the debt equity ratio was almost 1 initially), but over the years the company
has changed this pattern and started following a more equity dominated capital structure and the
debt equity ratio has come down to 0.43% now.

How the company has rewarded its shareholders in the past?

Britannia is one of the largest FMCG companies present in the Indian market. And as far as the stock of
Britannia company is concerned, it has given 775% in last 5 years and 2,192% over the last 10 years, which
means market capitalisation of the company moved to nearly ₹76,000 crores, from ₹3,200 crores, during
August 2008-18.

Due to its low cost of operations, Britannia has been able to generate some good profits and been able to
give regular dividends and bonuses to its shareholders. In fact, Britannia’s low cost of operation is proved to
be a competitive edge for the company which helped it to gain a huge market share.

Biggest one-day gains for the stock: below given pie-chart states some biggest one day gains of Britannia
stock in Indian stock market.

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 GAIN %
13th dec.2012,
11.47%
3rd feb, 2012,
24.51%
8th sept.2010,
12.20%

4th dec,2008,
13.20% 9th sept.2011,
20.87%

 Dividend and bonus history of Britannia

Britannia has paid some good amount of dividend to its shareholders per share. The company has paid as
high as 1250% dividend on the face value of share in 2018. Initially the face value of 1 Britannia share was
₹10 but in 2011 due to stock split, it’s share value came down to ₹2. The company has a history of paying
annual dividend to its shareholder. The company also issues bonus shares to its shareholders, latest bonus
issue was in year 1999 which was 1:2. It has issued bonus shares to its shareholders for 9 times till now. And
the company is paying dividend to its shareholders at a increasing rate from 2013 as can be seen from the
graph.

Dividend Per Share (₹)

60

50

40
Rupees

30

20

10

0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Years

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  Dividend Payout Ratio:

Dividend payout ratio is the % of earnings after tax and interest that is distributed in the form of dividends to
the shareholders. The rest of the earnings is kept with the company which is called as the “retained
earnings”. Most of the companies do not distribute the entire income as dividends because of many reasons
such as “uncertainty in future, meet the future capital needs, managing investor expectations etc.”

Dividend Payout Ratio= Net Income/dividend distributed

Dividend payout ratio

60

50

40

30

20

10

0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

As shown in the graph, dividend payout ratio is decreasing over the years. This indicates that the company is
retaining more of its earning to fuel its growth. Company can use its fund for growth or expansion purpose
or maybe for some other reasons.

What is your opinion what the company is going to do in future?

The Indian FMCG giant Britannia industries is one of the leading food companies with 100 years of legacy
and annual revenues which totals more than ₹9000Cr. It is one of the most trusted food brands in India. The
company operates in two business segments, namely, bakery products which include biscuits, bread, cakes
and rusk, and dairy products which include milk, butter, cheese, ghee, dahi, milk-based ready to drink
beverages and dairy whitener.

Britannia has a good hold in biscuit market in India. In fact, largest selling brand of the company is “Good
Day”. And according to company’s MD Varun Berry, it will also overtake country’s largest selling biscuit
brand, Parle G in next 2-3 years. Britannia Industries is well positioned to maintain its leadership in the
branded biscuit category, where the company enjoys 1/3rd or around 33% market share in the biscuit
market size of USD 2.2 billion branded biscuits category in India.

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The company derives 90% of its revenue from the biscuits segment while, 10% of its total sales coming from
non-biscuits category and International market.

Britannia has been increasing its non-biscuits portfolio like dairy (butter, Milk and Dahi), bakery and healthy
breakfast (Poha, upma and Oats) in a move to boost its product line which would also support the top line
growth. The company's non-biscuits business continues to witness higher growth than the biscuit business
which is benefiting the company in enhancement of margins and diversifying into the high growth product
portfolio.

The company is also going to expand its operations in dairy business because this is the largest category in
foods which makes it very attractive and also there are health connotations related to it. So these 2 factors
make this category unavoidable to tap. With their foot set right in India they are also planning to expand
internationally. So in the coming years we can see Britannia as a total food company with a balanced product
portfolio of “Biscuit” and “Non Biscuit” category.

Ali Harris Shere, VP – Marketing, Britannia Industries Limited, commented, “As we step into the next big
phase, it’s time for our brand to be future ready and represent the company we aim to be – one that is
exciting, offers goodness and meets consumers where they are. With this new brand identity, we look to
elevate the brand through a design that is simple and elegant, yet uniquely Britannia.”

Strategy for Tier 2 & 3 markets

In order to tap into the rapidly growing Tier 2, Tier 3 as well as rural markets, Britannia is firming up its
distribution network. Currently, the company has 16,000 rural stock points, which its plans to grow further.

The company has been seeing strong growth in the South markets – Tamil Nadu, Kerala, Karnataka and Andhra
Pradesh. The company has performed well in Maharashtra as well.

Shere further said that the entire marketing strategy would now be to ensure that Britannia gets the right
price points, and the marketing and sales teams are working together to achieve this. He added that while the
company has done very well in the premium categories, in order to increase its value proposition, the company
will be introducing its brands at affordable price points of Rs 5, Rs 10 and Rs 20. “This,” said Shere, “was critical
to ensure that consumers adopt our brands. All these combined together will help us tackle the Tier 2 and 3
markets.

Well focused on innovations and newness in order to make reputed brand competitive globally

In order to give a boost to its performance, Britannia is working hard on lifting the quality of its products
and processes. The company is well focused on bringing innovations in current products, launch new,
differentiated products and packaging, upgrade existing offerings and explore new ingredients and
processes. The company a year ago has introduced different variants in product ranging from biscuit to
breakfast food and after witnessing its positive results; it is further set to go for an up-gradation in product
innovation to cater to the emerging and dynamic needs of the customers. To deeply understand the
consumer’s need, the firm has hired consultants to help it create new products. With these initiatives,
coupled with a slew of changes in its product pack configurations across the portfolio of biscuits, breads,
rusks and dairy products, the company’s product line will get a boost and thus support the top line growth.

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 Du Pont Analysis
DuPont analysis is a potentially helpful tool for analysis that investors can use to make more
informed choices regarding their equity holdings. It is breaking down Return on Equity (ROE)
into three components namely Profit margin, Asset turnover, Financial Leverage. i.e.

ROE= Profit

margin*Asset turnover*Financial leverage (equity multiplier)

This analysis is useful to find the effect of individual components upon the overall ROE. This
approach interprets the reasons for income into profitability (profit margin), Efficiency in
using Assets (asset turnover), leveraging (equity multiplier).

Given below is the DuPont analysis for Britannia Industries

DuPont Analysis
Years Net Sales / Assets to ROE
income/ Total Equity (%)
Sales Assets(x) (x)
(%)
Mar-18 0.10 2.01 1.42 0.28
Mar-17 0.10 2.28 1.39 0.316
Mar-16 0.098 2.51 1.52 0.37
Mar-15 0.086 2.94 1.96 0.49
Mar-14 0.058 3.42 2.15 0.426
Mar-13 0.041 3.36 2.61 0.35

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 4

3.5

2.5
Net income/ Sales (%)

2 Sales / Total Assets(x)

Assets to Equity (x)
1.5
ROE (%)
1

0.5

0
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

As we can see in the above table that the major contribution to the ROE % is of Asset Turnover
which is a good thing and this means that the company is efficiently using its assets to generate
its sales and it is not using more of financial leverage to grow its ROE%. Although company’s
net profit margin is very low, maybe because of the inflation and rising prices of Raw material
and declining in profit margins.

15
 Conclusion

ABOUT INDUSTRY:

Fast moving consumer goods (FMCG) plays very important role in growth of Indian economy and is
4th largest sector among others. The FMCG sector has grown from $31.6 billion in 2011 to $49 billion
in 2016. The sector is further expected to grow at a Compound Annual Growth Rate (CAGR) of 20.6
per cent to reach $103.7 billion by 2020. FMCG revenue grew 14.8 per cent during October-December
2017.

Globally, India is becoming one of the most attractive markets for foreign FMCG players due to easy
availability of imported raw materials and cheap labour costs. Growing awareness, easier access,
and changing lifestyles are the key growth drivers for the consumer market. The focus on
agriculture, MSMEs, education, healthcare, infrastructure and employment under the Union Budget
2018-19 is expected to directly impact the FMCG sector.

ABOUT COMPANY:

Britannia is well focused towards maintaining its growth trajectory in both the bakery and dairy
segments supported by its premium product portfolio. The company’s persistent efforts in
upgrading its existing portfolio as well as creating new products every now and then, proves its
commitment towards customers. Looking ahead, the widening of consumer food basket with
growth in disposable income will give a boost to the company’s growth and open up new success
paths. Hence, we believe that the firm will continue to drive profitable growth even in tough milieu
driven by strong brands in biscuits category, non-biscuits division gaining traction and focused
towards cost efficiency.

CORPORATE DEVELOPMENTS

 Britannia Industries is planning to invest Rs. 400-500 crore by next year for expansion of
capacity and new product development, including Rs. 300 crore to set up a dairy plant whose
site may be relocated from Maharashtra to Andhra Pradesh since the company is yet to hear
from the Maharashtra government on the incentives.

RECOMMENDATIONS TO THE INVESTOR

We recommend investors to buy stocks of Britannia Industries ltd. at a current CMP of 2,858. Britannia is
currently trading at an EV/EBITDA of 38.05x for FY18 and 30.05x for FY19. Considering the company’s strong

16
fundamentals, we recommend investors to buy and hold Britannia’s stock as the company is planning to
diversify its product portfolio and they are also looking to expand internationally as well which will certainly
give a boost to its balance sheet numbers.

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